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Oral Answers to Questions
(14 years ago)
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Charlie Elphicke (Dover) (Con)
1. What plans he has for the future of local media.
John Glen (Salisbury) (Con)
10. What plans he has for the future of local media.
The Secretary of State for Culture, Olympics, Media and Sport (Mr Jeremy Hunt)
We have announced radical plans to secure the future of the local newspaper industry, and have ambitious hopes to turn this country from one of the least well served by local television to one of the best served.
Charlie Elphicke
Many local newspapers have struggled with the recession, but the East Kent Mercury and the Dover Express in my constituency have done really well. Do Ministers think it right to praise successful local newspaper groups?
Mr Hunt
Yes, especially when they are in one’s own constituency. My hon. Friend is absolutely right. The best way in which we can help local newspaper groups is by making it commercially viable for them to turn into multi-media operations which offer their news product over radio, television, iPods, iPads and mobiles. I do not know what the broadcast footprint of Dover television might be, but I have no doubt that it would extend my hon. Friend’s reputation as a campaigning Member of Parliament across the channel to the north coast of France.
John Glen
In the light of the uncertainty facing local radio operators such as Spire FM in my constituency over the path for migration to DAB, can the Minister tell us when the owners and operators of such stations will know whether they can secure a future beyond Ofcom’s seven-year licensing strategy?
Mr Hunt
I thank my hon. Friend for his important question. We greatly value the role of local radio, and we are also very committed to the transition to a digital future. We want to ensure that the timing is such that it does not force people to jettison their analogue radios in huge quantities. Our discussions are progressing rapidly. Last week I had a discussion with the managing director of one of the largest commercial radio groups, and we hope that our discussions will progress further in the next month.
Chris Bryant (Rhondda) (Lab)
There is a great deal of anger in Wales about the way in which the Minister and his Department have treated our local media. ITV Wales will probably not be able to sustain its public service requirements, and S4C has been treated appallingly. There has been no consultation with the people of Wales. There will be a single monopolistic presence in broadcasting in Wales, and the Minister is doing a great disservice to the people of Wales by the way in which he is advancing his cause.
Mr Hunt
The mess in local broadcasting in Wales was not created by this Government. It was the hon. Gentleman’s party under which audiences for S4C halved over the last decade, and which did absolutely nothing about it. We have sought to find a secure future for S4C that will maintain its independent identity but will also give it the support of our largest broadcaster. We have actually done something about the problem; the hon. Gentleman’s party did nothing about it whatsoever.
Ian Lucas (Wrexham) (Lab)
When the Minister does consult on the future of local media, will he speak to elected representatives? I note that he has completely ignored the views of all party leaders in Wales on S4C, including the leader of the Conservatives in Wales. Is not the way in which he is ignoring elected representatives from Wales an absolute disgrace? Will he start talking to people about something which is very keenly felt in Wales, and which he does not understand?
Mr Hunt
With respect to the hon. Gentleman, I have talked to many elected representatives, but in particular elected representatives from this House, about the best way forward for S4C. We have put a solution on the table which secures S4C’s finances for the whole comprehensive spending review. If the hon. Gentleman has a better solution, perhaps he should put something forward, because we have heard nothing from the Labour party.
Mark Pawsey (Rugby) (Con)
2. If he will discuss with the Secretary of State for Business, Innovation and Skills steps to ensure that the roll-out of fibre-optic broadband is available on an equal basis to all customers in a single community.
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)
I am lucky enough to be a Minister in both the Department for Culture, Media and Sport and the Department for Business, Innovation and Skills, but I intend to discuss the issue with my right hon. Friend the Secretary of State for Culture, Olympics, Media and Sport, who leads on it.
Mark Pawsey
Constituents of mine tell me that on a new housing estate consisting of 900 homes, about 800 are about to receive the new BT Infinity fibre-optic service, but 100 will be left with a poor 0.5 to 1.5 megabit supply. Working professionals rely on an efficient service. Will the Minister make representations to ensure that all users in a community receive the same excellent service?
Mr Vaizey
My hon. Friend speaks up very well for his constituents in regard to this problem, which is connected with the placing of exchanges. One community is often served by two different exchanges. However, I intend to speak to the relevant operator about the issue and report back to him.
Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con)
3. What steps his Department is taking to secure a sporting legacy from the London 2012 Olympics.
The Minister for Sport and the Olympics (Hugh Robertson)
I have asked Sport England to develop its £135 million places people play strategy, which along with the investment in the Olympic park will mean a new generation of iconic facilities, protection for our local playing fields and the gold challenge, which will both raise money for charity and get more people playing Olympic sports. The school Olympic-style competition will get competitive sport back in our schools, and all of this is, of course, supported by protecting both the whole sport plans and elite athlete funding in the spending review.
Dr Poulter
I am sure the Minister is aware that Ipswich has some fantastic sporting facilities, and we are greatly looking forward to hosting the Azerbaijan team during the 2012 Olympics, but may I invite him to visit Ipswich to help us in our aspirations to develop a sports village and a lasting sporting legacy for young people, and to improve healthy lifestyles in Ipswich?
Hugh Robertson
I thank my hon. Friend for that invitation, and I have indeed visited Ipswich on a number of occasions—and watched his football team win a couple of years ago. [Interruption.] I do not sound surprised at all. The scheme my hon. Friend mentions is precisely the sort of project that will benefit from the type of funding Sport England is now looking at, and I wish him every success with it.
Mr Ben Bradshaw (Exeter) (Lab)
But will not the decision to scrap school sport partnerships do great damage to the most important part of the Olympics legacy, which is the health and fitness of our young people? What has the Minister said to the Education Secretary to try to persuade him to reverse this disastrous decision?
Hugh Robertson
I think it is fair to say that nobody who is involved in sports issues—as the right hon. Gentleman was in his previous job, of course—would want sports funding to be cut in any way, but we have to realise that this is a decision—[Interruption.] It is all very well moaning about it, but it is a decision taken against the backdrop of the fact that this country pays out £120 million in debt interest every day. Schools funding has been ring-fenced and handed over to head teachers, and I would challenge them to continue this funding where it is proving important and showing benefits, and I hope the right hon. Gentleman would support them in that.
Mr Don Foster (Bath) (LD)
Further to that answer, I greatly welcome the proposal for the new school Olympics to improve competition between schools, but does the Minister recognise that for that to be successful it is important that schools receive a wide range of support, which was previously provided by the school sports partnership? Will he confirm that although the ring-fencing for the funding has gone, the money is still available in schools, and therefore will he confirm that he will continue to work with the Secretary of State for Education to ensure there continues to be a partnership into which schools—
Mr Speaker
Order. We have got the drift of the hon. Gentleman’s question, and I am grateful to him for it.
Hugh Robertson
The short answer to that is yes of course I will. The key thing to remember is that the funding has, of course, been handed over to the schools—[Hon. Members: “No, it hasn’t.”] The schools budgets have been handed over to head teachers and it is entirely up to them to make decisions on it as they please. The head teachers of every single secondary school that I have visited during my time as a Member of Parliament have always asked me for greater control of their budgets; they have now got it.
Tessa Jowell (Dulwich and West Norwood) (Lab)
The Olympics are a national project beyond party politics, and I join the hon. Gentleman in his support for that principle, which I have always maintained, so will he now stand with the coaches, the teachers, the young people and the volunteers who are bewildered and outraged by the decision to dismantle the partnerships that have seen nine out of 10 children play sport regularly? I ask him to do so in the spirit not of party politics, but of respecting that this second Olympic promise is a once-in-a-lifetime opportunity for those young people?
Hugh Robertson
I will absolutely stand behind those people. That is precisely why we changed the amount of money that sport gets from the national lottery, which enabled us to preserve both the whole sport plans and elite athlete funding. No money whatsoever has been cut from the coaching system that comes through the Department for Culture, Media and Sport—indeed, it has been increased. Those are precisely the measures that were opposed by the Labour party. I just say to the right hon. Lady, cross-party co-operation being what it is, that she has to recognise the scale of the financial problem we face: the amount of debt interest that we pay out every day is larger than the entire Exchequer contribution to Sport England in a year. That is the scale of the challenge we face.
Nicky Morgan (Loughborough) (Con)
The Minister will be aware of the enormous value that sport plays in the economy of Loughborough. Not only will it host Team GB and Team Japan before the Olympics, but a number of elite athletes are based at its university and college. What plans does he have to continue elite athletics funding after 2012 as part of the Olympics legacy?
Hugh Robertson
I thank my hon. Friend for that question. Of course Loughborough is right at the forefront of our plans for London 2012 and the development of sport beyond then. All the elite athlete funding has been not only confirmed for London 2012, but set at precisely the same level for the start of the Rio cycle, framed by our decision on the lottery and the money that UK Sport is getting this year. That is very good news for elite athletes in this country and it means that we will avoid the trap that the Australians fell into after the Sydney games—they front-loaded the funding for their home games and it fell off dramatically afterwards.
Diana Johnson (Kingston upon Hull North) (Lab)
4. What assessment he has made of the effects on financial support for theatres in regions outside the south-east of the outcomes of the comprehensive spending review; and if he will make a statement.
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)
Funding decisions from central Government are the responsibility of the Arts Council. I am delighted to say, however, that as part of the spending review the Arts Council has limited cuts to the budget for arts organisations to just 15%. We have also reformed the lottery money and that will boost the arts by £50 million each year from 2012.
Diana Johnson
For nearly 40 years, the Hull Truck theatre has been a huge success for the city of Hull. The theatre now employs 93 staff and is located in its new £15 million building at Ferensway. Following the £100,000 cut made by Hull city council last week and the £40,000 reduction made by the Arts Council, will the Minister look at this again, taking into account the fact that it is much easier to find private sector investment and jobs on the south bank of the Thames than on the north bank of the Humber? Will he particularly examine the regional funding for theatre in the most disadvantaged communities, such as my own?
Mr Vaizey
I absolutely hear what the hon. Lady has to say, and I pay tribute to that theatre and its reliance on a mix of different elements of arts funding. I would remind her that theatres in Yorkshire received almost £7 million in grant in aid via the Arts Council this year and will continue to be funded by the Arts Council in future.
Stephen Lloyd (Eastbourne) (LD)
5. What support his Department provides for the tourism industry in Eastbourne.
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (John Penrose)
The Government aim to attract new tourist visitors from around the world through the activities of VisitBritain and to promote local destinations within the UK through the activities of VisitEngland. I noted that Eastbourne featured as destination of the month according to VisitEngland’s June newsletter; the heading was “Visit England’s sunniest resort”.
Stephen Lloyd
The Minister mentioned that Eastbourne is famed for its record amount of sunshine. Is he aware that it was also ranked No. 1 in a survey of the friendliest holiday towns in the UK? Will he join me in praising those who work in Eastbourne’s hospitality industry, and will he and his ministerial colleagues accept my invitation to take their next summer holiday in the sunniest town in Britain?
John Penrose
I would be delighted to spend my holiday in Eastbourne were it not for the fact that I represent Weston-super-Mare, which I hope the hon. Gentleman will accept is an equally wonderful seaside resort. I do, however, join him in congratulating the welcomers in Eastbourne and other parts of the visitor economy, because the welcome accorded to visitors is a tremendously important part of the value that any tourist perceives when they visit any part of the UK.
Mr John Whittingdale (Maldon) (Con)
Does the Minister accept that there is now a lot of evidence to suggest that tourism in Eastbourne and in other parts of the country would receive a substantial boost if we moved to daylight saving? Will he therefore consider giving whatever fair wind he can to the Daylight Saving Bill promoted by my hon. Friend the Member for Castle Point (Rebecca Harris), which is to be debated in this House on Friday?
John Penrose
I am on the record from previous oral questions as saying that the potential benefits to the tourism industry are extremely well documented and are widely held to be substantial. I am sure that my hon. Friend will also accept that there are other factors to consider, notably the concerns of many people in northern Scotland and Northern Ireland about the effect on other parts of the economy. Therefore, we want to try to ensure that we are not leaving any part of the UK behind or imposing a decision without consent. I suspect that, with any luck, that will be part of the debate on Friday.
Mel Stride (Central Devon) (Con)
6. What progress he has made on arrangements to support philanthropy in the arts.
The Secretary of State for Culture, Olympics, Media and Sport (Mr Jeremy Hunt)
Boosting philanthropy is central to our strategy to help the arts weather an extremely difficult economic storm. We will announce a package of measures to do that before Christmas.
Mel Stride
Smaller organisations often lack the skills and experience to raise money from private sources. What can my right hon. Friend do to help smaller arts organisations, such as the Devon Guild of Craftsmen in my constituency, to raise even more money through philanthropy?
Mr Hunt
I commend my hon. Friend on his work for small arts organisations in his constituency. They are the lifeblood of the arts world. Organisations such as The Factory, an amateur arts group that puts on productions of “Hamlet” all over the country in church halls, are the kinds of organisations that nurture the acting talent of the future. They do not always have the fundraising capacity, however, to raise money from private donors. That is why, with the Arts Council, we will announce a series of measures to help rectify that. I hope that that will please my hon. Friend.
Steve Rotheram (Liverpool, Walton) (Lab)
In his Department’s structural reform plan, the Secretary of State made clear his support for philanthropic giving to supplement funding to arts and cultural organisations. Will he therefore join me in raising money for institutions in Liverpool? If I promise to get my mates to have a whip-round and to donate a few bob each, will he ask his 22 millionaire friends in the Cabinet to match our donations in proportion with their wealth?
Mr Hunt
I will happily give the hon. Gentleman any support I can in his attempts to boost philanthropy in Liverpool, as I will to attempts in the rest of the country. He is absolutely right—one of the best ways to boost philanthropy is to find a rich person and ask them to chair the fundraising committee.
Sarah Newton (Truro and Falmouth) (Con)
What progress has the Minister made in ensuring that national museums financially support their offspring in the regions, such as the National Maritime museum in Falmouth in my constituency?
Mr Hunt
My hon. Friend makes an important point. In the settlement letter that we gave to all the national museums, which protected their funding to a much greater extent than was possible for many other parts of the public sector, we asked them to come forward with proposals through which they would mentor and help smaller arts organisations in the regions with their fundraising. We hope to announce progress on that front in the next few weeks.
Mr Ivan Lewis (Bury South) (Lab)
The Department’s business plan states, intriguingly, that the Secretary of State’s philanthropy strategy will incorporate “insights from behavioural science”. Does he accept that if such a strategy is built solely on a nudge and a wink, or advice from a psychologist, it will be a damp squib in exactly the same way as a nudge and a wink, rather than the coalition’s promised tax break, is doing nothing to support the growth of the UK video games industry?
Mr Hunt
It is all very well for the hon. Gentleman to carp from the sidelines, but where are his proposals to boost philanthropy? Where are his proposals to help increase the money going to the front line? We are doing things to try to boost the amount of private giving to deal with the economic crisis that we inherited from his Government. He should help us, support us and contribute constructively. I am happy to nudge him to do so.
Chris Evans (Islwyn) (Lab/Co-op)
7. What assessment he has made of the likely effects on library provision of the outcomes of the comprehensive spending review.
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)
Local authorities have a statutory duty to provide a comprehensive and efficient library service. I shall be writing to all local authorities this week to remind them of that. We have put in place a plan through the future libraries programme to help local authorities take forward their library service.
Chris Evans
Libraries play an important role in adult literacy programmes. Will the Minister guarantee that those programmes will be kept in any future Government plans?
Mr Vaizey
As I said, the library service is a local authority service so it is up to local authority services to deliver it. I can also tell the hon. Gentleman with my BIS hat on that the excellent Minister for Further Education, Skills and Lifelong Learning has preserved a substantial amount of funding for adult literacy programmes.
Andrew Bridgen (North West Leicestershire) (Con)
In my county of Leicestershire we are seeing increased use of our libraries. Will the Minister reaffirm his commitment to support the important services they provide?
Mr Eric Illsley (Barnsley Central) (Lab)
How does the Minister square what he has just said about preserving libraries with the effects of the comprehensive spending review and the cuts in financing to local government, given that one of the first areas to face closure will be local library provision?
Mr Vaizey
As I have said, libraries are a statutory service, so local authorities must provide them, and providing that they have a far-seeing and imaginative plan, they can do so. There are many excellent local library services up and down the country, and the future libraries programme is making sure that that knowledge is widely disseminated.
Bob Russell (Colchester) (LD)
8. What discussions he has had with the Secretary of State for Transport on the use of the surface rail route between Liverpool Street and Stratford as part of the transport network for the London 2012 Olympics.
The Minister for Sport and the Olympics (Hugh Robertson)
Although I have regular discussions with the Transport Secretary on a variety of Olympic transport issues, I have had no detailed discussions with him about the particular use of this route.
Bob Russell
I encourage the Minister to do just that. The eyes of the world will be on east London in 2012 and I pray that very few people cast their eyes on the trackside wasteland and derelict buildings between London Liverpool Street and Bethnal Green. Will he, in the spirit of joined-up government and of involving the Mayor of London, bring people together to ensure that that stretch of the line matches what is attractive in Stratford?
Hugh Robertson
The simple answer to that question is yes, of course I can. About 200,000 people use Liverpool Street station every morning and we anticipate that there will be about 45,000 to 50,000 extra during the games, many of whom will not be going in and out at peak time and will be going in the opposite direction to the normal commuter flow, but I take the hon. Gentleman’s point and will see what I can do about it.
Stephen Timms (East Ham) (Lab)
9. What discussions he has had with the Secretary of State for Business, Innovation and Skills on the likely effects on competitiveness of the change in the time scale for the delivery of a universal broadband service.
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)
I have not discussed this with the Secretary of State for Business, Innovation and Skills, but I have discussed it with the Secretary of State for Culture, Olympics, Media and Sport and we both agree that the new target of having the best superfast broadband in Europe by 2015 is the best way to proceed on broadband. I have also praised my right hon. Friend for having secured substantial funding for broadband roll-out.
Stephen Timms
This matter is very important for competitiveness, especially at a time when we need many new jobs to be created by companies in rural areas as well as in urban areas. Before the election, the Minister’s right hon. Friend the Secretary of State for Culture, Olympics, Media and Sport described the plan to secure 2 megabits per second broadband access universally by 2012 as woefully unambitious, but since the election he has simply deferred the deadline by three years to 2015. What became of his ambition?
Mr Vaizey
Our ambition doubled, tripled and became superfast. We learned from broadband providers that they were already in a position to implement superfast broadband, so why should we push them down the slow channel when we could push them down the fast channel? That is why the pilots announced by the Secretary of State will implement superfast broadband for rural areas. I know that the right hon. Gentleman will welcome that given his experience in the previous Government.
Duncan Hames (Chippenham) (LD)
Even with impressive progress, some communities such as Atworth in my constituency still face being left out, but nearly all the schools in my constituency have access to broadband speeds of at least 9 megabits per second. Will the Minister consider opening the various grids for learning so that people can pay to piggyback on broadband access from their schools out of hours?
Mr Vaizey
The hon. Gentleman makes an excellent point. We will be publishing a broadband strategy document at the beginning of the month which will address this specific issue. There are technical difficulties with achieving that, but if they can be overcome, it should certainly be done.
Tessa Munt (Wells) (LD)
11. What support his Department provides for the tourism industry in Wells.
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (John Penrose)
As I said earlier to my hon. Friend the Member for Eastbourne (Stephen Lloyd), the Government are investing through VisitBritain both by trying to attract more foreign visitors to the UK and by attempting to refocus VisitEngland to make sure that it is promoting English destinations of all kinds, such as those in the constituency of the hon. Member for Wells (Tessa Munt), to we Brits.
Tessa Munt
In common with many of the tourism and leisure businesses along the Somerset coastline, including the thousands of small bed-and-breakfast businesses, many of which have diversified from farming, I support the suggested trial of double summertime, about which the House will hear more in Friday’s debate on the Daylight Saving Bill. Given the importance of this matter to hon. Members on both sides of the House and to leisure and tourism businesses in Somerset, including north Somerset, will the Minister give assurances that he will work with his colleagues in BIS, that the Bill will not be talked out and that the matter will proceed to a vote?
John Penrose
I am afraid that the hon. Lady will have to wait for Friday to see who wants to speak for how long during the debate, but I can assure her that I have already engaged in substantial discussions with my colleagues in BIS on this. My earlier answer to my hon. Friend the Member for Maldon (Mr Whittingdale), from the Culture, Media and Sport Committee, stands: this proposal could be tremendously valuable to the tourism industry as a whole, but that is not the only factor to be considered. There are issues for people who live north of border that need to be taken into account as well.
Gloria De Piero (Ashfield) (Lab)
Has the Minister made any impact assessment on increasing VAT to 20% on the tourism industry in Wells and elsewhere in Britain?
John Penrose
As I am sure everybody here knows, taxation matters are for the Treasury not for the Department for Culture, Media and Sport. However, I am sure that the hon. Lady realises that any attempt to try to reduce VAT in any one sector will need to come with a fully costed proposal about the impact on this country’s large deficit, which we are trying to bring down. Given the impact of deficits in other countries in Europe, it will be very difficult for anybody, in the short to medium term at least, to advance plans of that kind—without a fully costed proposal—without seeming to be extremely fiscally dangerous to this country’s economy.
Amber Rudd (Hastings and Rye) (Con)
13. What progress he has made on arrangements to support philanthropy in the arts.
The Secretary of State for Culture, Olympics, Media and Sport (Mr Jeremy Hunt)
Our plans to boost philanthropy include boosting corporate philanthropy, incentivising individual giving and boosting giving in the regions as well as in London.
Amber Rudd
Has the Secretary of State considered more specifically how organisations outside London might attract support for their businesses or their charitable organisations, such as Gizmo in my constituency, which provides creative workshops for young people? How can they attract financial support outside London?
Mr Hunt
My hon. Friend raises a very important point. We want to do everything possible to help organisations such as Gizmo, and indeed to help people raise money to support the reconstruction of Hastings pier. The truth is that there is a lot of regional philanthropy; we can look at what Roger de Haan has done in Folkestone, what Sir John Zochonis has done at the Lowry and what Sir Harry Djanogly has done to support the Nottingham Playhouse. But it is not enough. It is much tougher than raising money in London, which is why the package of measures we shall be announcing will aim to make it much easier.
Alison McGovern (Wirral South) (Lab)
The Secretary of State knows, as I do, that fundraising and finding philanthropists for the arts and culture is a difficult, although rewarding, job. It is being made much harder by the turbulence caused by Government arts cuts; for example, English Heritage looks set to close its outreach department. Does the Secretary of State think it is realistic to ask even more from a demoralised and decreasing body of staff who are working to save the arts?
Mr Hunt
The hon. Lady is right: this is a very tough period for arts and heritage organisations, and we are doing everything we can to help them weather the storm. In this country, philanthropic giving to culture is £6 per head of population; in America, it is £37 per head of population. We are not America, but we would be neglecting our duty if we did not ask if there were things we could do to boost private giving, and that is what we are doing.
Jessica Lee (Erewash) (Con)
14. What role the Government has played in supporting the Football Association’s bid for the 2018 FIFA World cup.
The Secretary of State for Culture, Olympics, Media and Sport (Mr Jeremy Hunt)
I briefed the Cabinet this morning on our chances for the 2018 World cup bid, and I know the whole House will want to wish the bid team the very best of luck in Zurich this week. I shall be going with my hon. Friend the Minister for Sport and the Olympics. The Prime Minister, the Deputy Prime Minister and the whole Government are wholeheartedly behind the bid.
Jessica Lee
A successful World cup bid would boost support for football right through to local divisions and local clubs. The coalition agreement sets out a commitment to co-operative-run football clubs. Supporters of Ilkeston Town football club in my constituency recently submitted a bid to run the club. Although the bid itself was unsuccessful, the club is now secured under new ownership, but what plans do the Government have to promote community-run football clubs?
Mr Hunt
My hon. Friend raises an important point. We want to see whether it is possible to create an easier pathway for supporters to build up the capital to enable them to take ownership of clubs in a way that does not threaten the investment by other people which has also been so important for the world of football. Obviously, the week before the World cup bid is not the time to bring forward football governance proposals, but we will be looking at the situation very carefully and bringing other measures to the House shortly afterwards.
Ian Austin (Dudley North) (Lab)
We are right behind the Government’s campaign to bring the World cup to this country, because it would do a huge amount to boost children’s interest in sport. It is important that youngsters have good facilities and the right coaching, too. The Government claim that the money for specialist sports colleges is going into un-ring-fenced schools budgets, but is it not the case that the £162 million for the Youth Sport Trust, which funds school sport partnerships, is not being passed over to schools? That money is just being cut.
Mr Hunt
It is not the case. We are committed to a sporting legacy for 2012 for every single child, no matter what their background or what school they go to. The legacy that we had from the hon. Gentleman’s Government was four out of five older children not doing any sport at all, and an Olympic-sized hole in the Budget.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
15. What recent representations he has received on his Department’s programmes to assist the creative industries.
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)
I receive regular representations from across the creative industries—[Interruption] I think debate on the previous question is still going on, but I shall try and talk across it—on all aspects of my Department’s support. I also work closely with other Government Departments, because I am lucky enough to be a Minister in the Department for Business, Innovation and Skills as well.
Jonathan Reynolds
May I ask the Minister again to look at the issue of tax relief for the computer games industry?
Mr James Gray (North Wiltshire) (Con)
T1. If he will make a statement on his departmental responsibilities.
The Secretary of State for Culture, Olympics, Media and Sport (Mr Jeremy Hunt)
As well as wishing every success to the England 2018 bid team this week, we wish every success to Andrew Strauss and the English cricket team in Australia and congratulate him, Jonathan Trott and particularly Alastair Cook on their outstanding performances over the weekend.
Mr Gray
The Government’s commitment to rural broadband is laudable, but does the Secretary of State agree that providers make a large profit out of urban provision of broadband, but that in rural areas such as my own they make a large loss? What will he do, therefore, to make sure that the £500-odd million that he is committing to broadband will be spread not equally between urban and rural areas, but especially towards rural areas to help businesses and homes which so badly need it?
Mr Hunt
The money that we have secured from the licence fee settlement is for the part of the country that we believe the market will not satisfy—that is to say, approximately a third of homes including, I believe, homes in his constituency, where we think that left to its own, the market would not provide broadband. We have every confidence that we will have a solution that is not just 2 meg per home, as was the limit of the ambitions of the previous Government, but the best superfast broadband network in Europe.
Mr Ivan Lewis (Bury South) (Lab)
I start by wishing the Secretary of State and Team England all the best with their mission this week to secure the 2018 World cup. On that, he and the Government will have our full support.
In relation to youth sport, the Secretary of State must come clean. He has overall responsibility for the future of sport in this country. He briefs the press that he is against the decision to dismantle support for school sport, yet on the record he is silent. Does he support the ending of all funding for the Youth Sport Trust and the dismantling of school sport partnerships—yes or no? Was he personally involved in the decision to transfer two questions on youth sport to the Department for Education so as to limit debate on the issue today? Does he accept that 95% of young people are participating in sport for two hours a week in schools, rather than the figure that he inaccurately quoted just a few moments ago and misled the House?
Mr Speaker
Order. The hon. Member for Bury South (Mr Lewis) must not accuse a Minister of misleading the House. I assume that he meant to include the word “inadvertently” and I will insert it for him. I think we are clear about that.
Mr Hunt
I thank the shadow Culture Secretary for his fourth question. Let me answer plainly. School sport partnerships are not being dismantled. We are committed to competitive sport, and the legacy of the previous Government was only one in five children regularly playing inter-school sport. To answer the hon. Gentleman’s question about older children, yes, in year 7, four in five children are not playing sport at all. We want to do something about it. That is what we want our legacy to be, and that means that we have to do things differently.
Robert Halfon (Harlow) (Con)
T3. Following the disappointing decision by the BBC to screen “The Accused”, denigrating our British Army, and the subsequent criticism by the head of the armed forces, does the Secretary of State agree that it is time to democratise the licence fee and give licence fee payers a real say over our programming?
Mr Hunt
I understand my hon. Friend’s concerns about the issue in question. He will agree with me that in a free country, it is important that the Government should not dictate to our national broadcaster what it says or broadcasts. However, he is right to say that we need to look at governance of the BBC. There is cross-party agreement that the BBC Trust set up by the previous Government has not worked in the way that was intended, and as we come up to the renewal of the BBC charter, we will be looking closely at ways to improve the democratic accountability of the BBC.
Bill Esterson (Sefton Central) (Lab)
T4. Can I draw the Secretary of State’s attention to Chesterfield high school in my constituency, a specialist sports college which has been told that it has lost its £180,000 grant, and that the money will not go into its main grant? It was something that the Secretary of State for Education did not deny last week when I put a similar point to him about the situation throughout the country. Does the Culture Secretary agree that a cut in specialist sports grants will lead to a reduction in the number of young people taking part in sport?
Mr Hunt
First, although I do not know exactly what happens in Chesterfield, I have no reason to believe that the work done by school sport partnerships is not excellent there as well. School sport partnerships can continue; however, the philosophy of this Government is to devolve responsibility for budgets to heads, because we think that they are best placed to know how their money should be spent. In Chesterfield, as, I am sure, in large parts of the country, I have every confidence that heads will decide to continue to support their school sports partnerships.
Mr David Amess (Southend West) (Con)
T5. With a number of countries already considering basing their camps in Southend for the Olympic games, and with our new diving facility opening tomorrow, does my right hon. Friend agree that Southend pier, the longest in the world, should, via a fireworks display, be included in the opening and closing ceremonies for the Olympics?
The Minister for Sport and the Olympics (Hugh Robertson)
I congratulate my hon. Friend on everything being achieved in his constituency to promote sport and, indeed, the London Olympics, and I am absolutely delighted that the local authority is going to lay on a fireworks display. I have no doubt that it will be the equal of anything we saw in Beijing a couple of years ago, and I wish him every good fortune with that.
Michael Dugher (Barnsley East) (Lab)
T6. Is the Minister aware that cuts in central Government support disproportionately hurt areas such as Barnsley, where council tax receipts are low and needs are higher? That is why the local authority is being forced by this Government to look at library closures. Meanwhile, in Surrey, council tax receipts are very high, so local authorities are less reliant on central Government and are not looking at library closures. Is that fair, and why are the Government creating a postcode lottery in library provision?
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)
The Government are not creating a postcode lottery. Many excellent local authorities throughout the country—regardless of their relative wealth—provide absolutely fantastic libraries, and with a little imagination and, perhaps, by participating in our future libraries programme Barnsley, too, can provide a 21st-century library service for the hon. Gentleman’s constituents.
Alun Cairns (Vale of Glamorgan) (Con)
Can the Secretary of State confirm that there will be no change to the chairmanship of S4C? Does he recognise the insecurity that some S4C authority members are causing staff, and can he confirm the Government’s commitment to an S4C that is operationally and editorially independent?
Mr Hunt
I can absolutely confirm this Government’s wholehearted commitment to an S4C with its own distinct identity, operational independence and the support and expertise of our most important and largest national broadcaster. I urge the authority to clear up the confusion over the leadership at S4C as soon as possible, because it owes nothing less to the people of Wales.
Karl Turner (Kingston upon Hull East) (Lab)
T7. Given the Secretary of State for Education’s disgraceful announcement that £160 million will be cut from school sports funding, what plan does the Sports Minister have to compensate children in my constituency whose health and well-being will suffer as a result of his Government’s policy?
Jo Swinson (East Dunbartonshire) (LD)
Top Commonwealth games officials are meeting in Glasgow today to discuss the preparations for the 2014 games, including how to avoid the dreadful problems that we saw in the run-up to Delhi. Can the Secretary of State confirm that the 2012 Olympics team is similarly learning the lessons from Delhi, and that his Department will give the teams for 2012, 2014 and, if things go well, 2018 every possible support?
Hugh Robertson
The simple answer is yes. It is fair to say, and I will always say, that the Commonwealth games in Delhi were always going to be pretty tricky, because they were up against a very tight construction timetable, the security situation was extremely oppressive and the monsoon was unusually heavy and ran late. I am glad to say that none of those problems affects the delivery of the London 2012 Olympics, nor I am sure—even though it rains quite a lot in Glasgow—will they affect the Glasgow 2014 Commonwealth games.
Mr Jim Cunningham (Coventry South) (Lab)
T8. Is the Secretary of State aware that people, certainly those in Coventry and the rest of the west midlands, will be dismayed that the Youth Sport Trust and school youth services are going to be wound up? Have the Government not got form on that? I do not want to get the answer that it is all the fault of the previous Government; in the ’80s and ’90s, the right hon. Gentleman’s Government sold off school fields and the youth service as well.
Mr Hunt
With respect to the selling of school playing fields, both the last Conservative Government and the last Labour Government were at fault. We are doing something to put the situation right, which is why my hon. Friend the Minister for Sport and the Olympics announced a £10 million fund to put playing fields into trust. We have done something; the other side talked about it.
With respect to competitive sport in schools, it is our ambition and determination to increase the number of children who do competitive support from the woefully low levels that we inherited.
Justin Tomlinson (North Swindon) (Con)
Will the Minister encourage local authorities to explore shared services and facilities to help protect and enhance community libraries?
Barbara Keeley (Worsley and Eccles South) (Lab)
It is known that a proportion of girls and young women dislike competitive sport, and that reduces their participation levels compared with boys and young men. If we are to ensure that the Olympic legacy meets the needs of all young people, what is the Government’s policy to increase participation among young people who just do not like competitive sport?
Hugh Robertson
I am glad to tell the hon. Lady that precisely those plans are contained in the Sport England plan “People, Places, Play”. It is also worth mentioning that at schools benefiting from the pupil premium, precisely those groups will be able to benefit. Indeed, the early evidence is that schools that have had extra money from the academies programme have spent it on sports equipment.
Mr Speaker
Points of order come after Question Time and statements, so there will be an opportunity for them later.
Mr Philip Hollobone (Kettering) (Con)
1. If he will assess the effectiveness of (a) oral questions to the Leader of the House and (b) the weekly Business Question as an opportunity for scrutiny.
The Leader of the House of Commons (Sir George Young)
I believe that both procedures provide an effective opportunity for hon. Members to hold the Government to account for their management of the business of the House.
Mr Hollobone
My right hon. Friend is open to more parliamentary scrutiny on the Floor of the House than any other Minister of the Crown. Will he support my proposals for this present Question Time slot to be merged with his business questions? Together with other consequential changes in the oral questions timetable, that would lead to more time being available for questions to the Department for Transport.
Sir George Young
I am grateful to my hon. Friend for that suggestion. If this slot was moved from where it is at the moment, it would not advantage the Department for Transport but the Department for Culture, Media and Sport, from which we have just heard. The answer to my hon. Friend is this. Within three years, we will be moving towards a House business Committee. At that point, it will make sense to look at how we deal with the whole issue of business questions in the light of new arrangements for that responsibility.
Duncan Hames (Chippenham) (LD)
3. What assessment he has made of proposals for proceedings on private Members’ Bills to take place on days other than Fridays.
The Parliamentary Secretary, Office of the Leader of the House of Commons (Mr David Heath)
The Procedure Committee has recently announced that it will conduct an inquiry into the parliamentary calendar that could consider the issue of private Members’ Bills taking place on a day other than Friday. As my right hon. Friend the Member for East Yorkshire (Mr Knight) has indicated, right hon. and hon. Members will have an opportunity to make representations on the issue.
Duncan Hames
I have written to the Chair of that Committee accordingly. Without a sufficient number of Members on Fridays, private Members’ Bills are at the mercy of obfuscation, filibusters and even poetry—tactics that only damage the reputation of the House. Will the Leader of the House explore ways to protect private Members’ Bills from such antisocial behaviour?
Mr Heath
I am quite sure, Mr Speaker, that in your capable hands and those of your deputies there is no question of filibustering on Fridays. Poetry, however, there may be. Whether that is antisocial or otherwise is for Members to judge. Clearly, procedural devices are sometimes used on Fridays. Any move to remove some of those devices would be a matter for the House rather than for the Government.
Helen Jones (Warrington North) (Lab)
Does the Deputy Leader of the House agree that whatever day is chosen for private Members’ Bills, it is important that opinion on those Bills is tested in the Lobby, not talked out by dubious practices such as speaking for an hour and 39 minutes on a two-clause Bill or quoting what was very bad poetry? What can he do to protect the rights of Back-Bench Members with regard to their private Members’ Bills? Will he give the House an assurance that the Government will not use these tactics to block debate on the Gangmasters Licensing (Extension to Construction Industry) Bill, which is of vital importance for safety in the construction industry?
Mr Heath
I remember a very frustrating period of my life in the last Session of Parliament when I had a private Member’s Bill—a very important one about fuel poverty—and it seemed to me that some Members on the Government side, including the Minister, spoke at rather greater length than I had expected to avoid its making further progress. I therefore understand the point that the hon. Lady is making. I repeat, however, that this is a matter for the Procedure Committee to look at, and I am sure that she will make her observations known to that Committee.
John Cryer (Leyton and Wanstead) (Lab)
Does the Deputy Leader of the House accept that a precedent for this arose during the passage of the City of London (Ward Elections) Bill, when the then Government used regularly to split business during a Monday or Tuesday evening to leave three hours for discussion of that Bill? It was a private Bill rather than a private Member’s Bill. Personally, I think it was a rotten Bill, and I would rather have hacked my head off than vote for it. Nevertheless, it established a precedent, and surely private Members’ Bills could be treated in the same way.
Mr Heath
I really cannot support the process of head hacking as a way of expressing dissent with what was, I think, a Bill supported by the Government of the party of which the hon. Gentleman is a member. There is a slightly different procedure for private Bills as opposed to private Members’ Bills. Again, the points that he makes should be made to the Procedure Committee, which can then take them into account when coming back to the House with recommendations.
Greg Hands (Chelsea and Fulham) (Con)
4. What discussions he has had with the House of Commons Commission on the effectiveness of orientation programmes for hon. Members after the May 2010 general election.
The Parliamentary Secretary, Office of the Leader of the House of Commons (Mr David Heath)
My right hon. Friend the Leader of the House has had no specific discussion with the Commission on this subject, but I am sure that the whole House, particularly hon. Members elected for the first time in May this year, will wish to join me in thanking the staff of the House for the considerable effort that went into delivering the induction programme.
Greg Hands
My hon. Friend has spoken about the great successes of the programme earlier this year for new Members, but surely he must agree that existing Members should not be overlooked. I note that there is one Member who has spoken here only once since the election, has tabled no questions, and has made only five of the 131 votes that he might have made. Will my hon. Friend agree to have a word with the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), assuming that he can be found, and perhaps suggest that some orientation might be needed?
Mr Heath
I am sure, Mr Speaker, that it would be invidious to discuss the attendance record of any individual Member. It does worry me, I have to say, if some Members have problems reconciling the competing pressures of writing books and making well-paid speeches with their duties in this House. However, I hope that in the context of the present economic situation, those with particular experience of, say, ending boom and bust will feel able to contribute to our debates.
Paul Blomfield (Sheffield Central) (Lab)
5. What recent discussions he has had on the adequacy of the provisions in Standing Orders for debates on the Floor of the House on instruments subject to affirmative resolution.
Mr Heath
Standing Order No. 118 provides that an instrument subject to affirmative resolution shall not be referred to a Delegated Legislation Committee if a Minister has given notice of a motion to that effect. I believe that this is adequate to ensure that an instrument can be debated on the Floor of the House when there is agreement to do so.
Paul Blomfield
I thank the Deputy Leader of the House for his answer. Does he agree, however, that we will putting the cart before the horse if we debate the statutory instrument on university funding before the publication of the Government’s White Paper on higher education, simply to alleviate the discomfort of Liberal Democrat MPs?
Jo Swinson (East Dunbartonshire) (LD)
6. What progress the House of Commons Commission has made in implementing the recommendations made to it by the Speaker’s Conference on Parliamentary Representation.
Mr Frank Doran (Aberdeen North) (Lab)
I will answer for the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso). The House authorities have continued to work on those recommendations that fall within the remit of the House administration. For instance, new educational resources for schools have been produced to reflect changes in the new Parliament and are available free to Members and schools in hard copy and online.
Jo Swinson
I welcome the hon. Gentleman to his new role on the House of Commons Commission. It is excellent news that since the Speaker’s Conference, the parliamentary nursery has opened. The Speaker’s Conference recommended action on another barrier to MPs who are parents of young children, which was to consider allowing young babies to accompany their MP parent into the voting Lobby. Surely that small, sensible change is preferable to the current situation, whereby babies are left in Whips’ offices during votes.
Alun Michael (Cardiff South and Penarth) (Lab/Co-op)
7. What recent representations he has received on the Welsh Grand Committee’s effectiveness as a forum for discussing Government policy as it relates to Wales.
The Leader of the House of Commons (Sir George Young)
Hon. and right hon. Members, including the right hon. Gentleman, have made recent representations to me on this issue. I believe that the Welsh Grand Committee provides an effective forum for Members representing constituencies in Wales to debate matters that relate exclusively to Wales.
Alun Michael
I agree with the Leader of the House, but the Committee cannot be effective if it does not meet. He has always shown enormous respect for the conventions of the House. As a former Secretary of State for Wales, I think that previous Conservative and Labour Secretaries of State for Wales have shown respect to the convention of working consensually with all parties to arrange meetings and topics for debate. Will the Leader of the House have a gentle word with the current Secretary of State for Wales to persuade her of the benefits of such a consensual approach?
Sir George Young
No one is more in favour of consensus than myself. The Welsh Grand Committee will have its second meeting of the Session this week. That makes two meetings in six months. In 2005, it met once in the Session, in 2006, it met twice and in 2007, it met once. Our record is better than that of our predecessors.
Diana Johnson (Kingston upon Hull North) (Lab)
8. What progress has been made on upgrading network services to enable access by hon. Members to regional televisions news programmes on the Parliamentary Estate.
Mr Frank Doran (Aberdeen North) (Lab)
It is already possible to view the regional television news content and services that broadcasters make available on their websites, via the internet. In addition, the annunciator screens carry national and international television news.
Diana Johnson
I thank my hon. Friend for that answer. It seems strange that Members can watch subscription sports channels on the network, but cannot access our regional news programmes. Can this matter be considered again, because most of my constituents expect me to be up to date with regional as well as national news.
Mr Doran
As a Scot, I understand the hon. Lady’s problem. We have two systems. One is the television system, the main function of which is to provide annunciator services and the feed from the two Chambers. The second is the internet. The television system has only 23 channels. I am not sure how many regional news programmes there are, but it would not be possible to have them all on the system. However, they are all on the internet, which is part of the House service.
Mr Speaker
Luciana Berger? No. I therefore deem that it is time for the statement.
Autumn Forecast
(14 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chancellor of the Exchequer (Mr George Osborne)
I would like to make a statement regarding the Office for Budget Responsibility’s first autumn forecast. I will also, with your permission, Mr Speaker, inform the House about further measures that the Government are taking to support economic growth, including the new growth review launched today and a far-reaching programme of reforms to our corporate tax system. Following yesterday’s announcement by European Finance Ministers, I would like to take the first opportunity to update the House about the Irish situation and the UK’s involvement.
Copies of the OBR’s autumn forecast were made available in the Vote Office earlier today. We should take a moment to recognise the significance of this occasion and the practical demonstration of this Government’s commitment to transparency and independent forecasting. Today is the first time that Members of this House will engage in debate about an autumn forecast produced by the independent Office for Budget Responsibility, rather than conjured up by the Chancellor of the Exchequer, and available to read two hours before the statement. This is also the first forecast by the new independent chair of the OBR, Robert Chote, with the other members of the budget responsibility committee, Stephen Nickell and Graham Parker, whose appointments were approved by all Treasury Committee members from both sides of the House. As a result, I am sure the country can have full confidence in the independence of these forecasts.
The OBR report published today includes some 150 pages of information—an unprecedented level of detail and transparency, much of it of the kind available to previous Governments but never before published. I should like to thank the budget responsibility committee and the staff of the OBR for their hard work in putting together this autumn forecast. I hope that we now entrench this major improvement in the making of fiscal policy by passing the legislation currently before Parliament.
Although today’s figures are of course independent, they are still just forecasts, and we must treat them with a degree of caution, as one should treat any economic forecast. Indeed, the OBR is explicit about that, illustrating the uncertainty surrounding any economic forecasts with the use of fan charts rather than claiming the infallible certainty that my predecessors asserted when they provided their forecasts. The only thing that was infallible and certain was that those political forecasts were usually wrong.
With that caution in mind, let me turn to the forecast. After the deepest recession since the war, the greatest budget deficit in our peacetime history and the biggest banking crisis of our lifetime, recovery was always going to be more challenging than after previous recessions, but the message from the Office for Budget Responsibility is that Britain’s economic recovery is on track. The economy is growing, more jobs are being created and the deficit is falling. Its central forecast is for sustainable growth of over 2% in each of the next five years, and employment rising in each and every year. Indeed, employment and gross domestic product are higher in every quarter and every year than in the June forecast.
At a time when markets are gripped by fears about Government finances across Europe, today we see that the Government were absolutely right to take decisive action to take Britain out of the financial danger zone. Britain is on course both to grow the economy and balance the books, something that some people repeatedly said could not happen.
Let me take the House through the detail of the forecast. The forecasts for the economy are broadly in line with those produced for the June Budget, despite the more challenging international conditions. I should also like to point out that they are very similar to the European Commission forecasts for the UK, which also happened to be published today. Indeed, the European Commission today forecast that Britain would grow faster over the next two years than Germany, France, Japan, the United States of America and the average for the eurozone and the European Union.
The OBR forecasts real GDP growth of 1.8% this year, 2.1% next year, 2.6% in 2012, 2.9% in 2013, 2.8% in 2014 and 2.7% in 2015. Growth this year is now expected to be considerably higher than was forecast in June. In the OBR’s judgment, some of that improvement is likely to be permanent and some of it a temporary impact of stock-building. As a result, it forecasts that the rate of growth next year will be 0.2 percentage points below its forecast in June. It also predicts above-trend growth for the four years after that, but the level of GDP, or indeed the overall size of our economy, is forecast to be about half a percent higher next year than was forecast in June, and indeed higher throughout the whole forecast period.
Some have made predictions of a so-called double-dip recession, and although the OBR points out that
“growth has been volatile, as this is a common characteristic of post recession recoveries”,
its central view is that there will be no double-dip recession. Its forecast is growth next year of more than 2%, and it expects that in the slowest quarter of growth, the first quarter of next year, it will be 0.3%, rising back to 0.7% by the last quarter of next year. It also forecasts that consumer prices index inflation will fall from 3.2% in 2010 to 1.9% in 2012, once the short-term effects of the VAT rise and other temporary factors fall away.
Crucially, the OBR forecasts a gradual rebalancing of the economy as we move away from an economy built on debt to one in which we invest and export—again, something that some people said would not happen. It expects more demand to come from business investment, which is set to grow by over 8% for each of the next four years, as well as exports, which are expected to grow on average by over 6% per year. That new model of sustainable economic growth will rebalance the economy towards investment and exports and away from an unhealthy dependence on private debt and public deficit. It will bring to an end the unsustainable situation that saw families save less and less each year, so that they ended up, in the words of today’s report,
“effectively borrowing money to purchase increasingly expensive houses.”
The OBR also published today a full forecast for the labour market—something that, I should like to point out, previous Chancellors chose not to do. Employment is forecast to grow in every year of this Parliament. Total employment is expected to rise from 29 million to 30.1 million—that is over 1 million additional new jobs. Thanks to faster-than-expected growth in the economy, the OBR now expects the unemployment rate to be slightly lower this year at 7.9%, instead of 8.1%. Its forecast for the unemployment rate for next year is unchanged from the June Budget at 8%. For future years, the OBR predicts a gradual decrease in unemployment, with the rate falling every year. By the end of the Parliament, the OBR forecasts that it will fall to just above 6%, which is about 500,000 fewer unemployed people than at the beginning of this Parliament.
The trend in the claimant count is similar to that for the internationally recognised labour force survey measure of unemployment. However, the level is expected to be higher. The OBR explained that the revision is mainly due to a change in the way that flows from employment and support allowance on to jobseeker’s allowance will take place as a result of the new work capability assessment. In other words, more people are assumed to be flowing off ESA and on to JSA. That is a key part of our reforms to create a welfare system that encourages people to seek work and reduce costs to the taxpayer. In short, we will stop hiding people who can work in the incapacity statistics. Crucially, in each year, fewer people are expected to be on both of those out-of-work benefits combined than in the June forecasts.
I can also tell the House that following the spending review the OBR has recalculated its estimate of the reduction in the headcount in the public sector. In June, the OBR forecast a reduction in headcount of 490,000 over the next four years; in its latest forecast, that estimate has come down to 330,000—a reduction of 160,000. The bulk of that revision results from the action that we have taken to cut welfare bills rather than public services. Our difficult choices on child benefit, housing benefit and other benefits, each of which the Labour party opposed, mean that fewer posts will be lost across the public sector. Those headcount reductions that still need to take place will happen over four years, not overnight, and the OBR forecast is that private sector job creation will far outweigh the reduction in public sector employment. Its forecast states:
“A period of rising total employment alongside falling general government employment is in line with employment trends during the 1990s”
when total employment increased by 1.3 million over six years while general government employment fell by about 500,000.
The most important point is this: the lesson of what is happening all around us in Europe is that unless we deal decisively with this record budget deficit, many thousands more jobs will be put at risk in both the private and the public sectors.
Let me summarise the forecast for the public finances, which shows that Britain is decisively dealing with its debts. Borrowing this year is expected to be £1 billion less than was forecast in June. The OBR forecasts that public sector net borrowing will fall from £148.5 billion this year to just £18 billion in 2015-16. Government debt as a share of GDP is projected to peak just below 70% in 2013-14 and then to fall to 67% by 2015-16, so the debt ratio is now expected to peak at a lower point compared with the June forecast—just below 70% instead of just above it.
On the OBR’s central forecast, we will meet our fiscal mandate to eliminate the structural current budget deficit one year early, in 2014-15. The same is true for our target to get debt falling as a percentage of GDP. Indeed, to use the OBR’s own words,
“the Government has a slightly wider margin for error in meeting the mandate than appeared likely in June.”
For the first time, the OBR has also tested the resilience of the fiscal mandate against two alternative scenarios for the economy that critics have put forward, and in both cases the mandate is met.
It is clear that our decisive actions have proved to the world that Britain can live within her means. The Government have taken Britain out of the financial danger zone and set our economy on the path to recovery. That is the judgment not only of the OBR, but of the International Monetary Fund, the OECD, the European Commission, the Bank of England and all the major business organisations in this country. Already, our efforts are paying off. Today’s forecasts show that the cost of servicing the Government’s debt has come down. Compared to the June forecast, the OBR predicts that we will save £19 billion in interest payments between now and the end of the forecast period. That is £19 billion that will no longer be paid by British taxpayers to private bondholders and foreign Governments. It is £19 billion that would have been wasted, but will instead be saved.
This is an uncertain world, but the British recovery is on track. Employment is growing, 1 million more jobs are being created and the deficit is set to fall: the plan is working, so we will stick to the course. That is the only way to help confidence to flourish and growth to return, and I urge those who seriously suggest, when they see what is happening to our neighbours across Europe, that we should abandon the decisive plan we are following, and instead borrow and spend more, to think again. What they propose would be disastrous for the British economy, would put us back in the international firing line we have worked so hard to escape from and would mean higher deficits and jobs lost, and we should reject that path.
Stability is a necessary precondition for growth, but it is not enough. Our economy’s competitiveness has been in decline for more than a decade, undermining its ability to create jobs and grow, which is why we have already announced four annual reductions in corporation tax, axed the jobs tax, cut the small companies rate, expanded loan guarantees, simplified health and safety laws, invested in science and apprenticeships and promoted exports through major trade missions.
Let me set out some of the other things that my right hon. Friend the Secretary of State for Business, Innovation and Skills and I are announcing today to support growth and a rebalancing of our economy. In the Budget, I set out a plan to reduce the main rate of corporation tax to 24%—its lowest ever rate—demonstrating our commitment to tax competitiveness. I can now tell the House that today we are publishing the most significant programme of corporate tax reforms for a generation, for consultation with the business community. We propose to make the UK an even more attractive location for international business and investment by reforming the outdated and complex rules for controlled foreign companies. We have seen a steady stream of companies leaving the UK in recent years, and this Government, unlike the last one, are not content to sit by and watch our competitiveness leach away and our corporate tax base be undermined.
Another tax issue of crucial importance to our corporate sector is the tax treatment of income from intellectual property. For a long time, we have argued that we should increase the incentives to innovate and develop new products in this country, so to encourage high-tech businesses to invest in the UK and to create high-value jobs here, we can confirm that we will introduce from April 2013 a lower 10% corporate tax rate on profits from newly commercialised patents. We have been consulting the business community, and I can tell the House that as a result of this measure, GlaxoSmithKline will today announce a new £500 million investment programme in the UK, including new manufacturing in Hertfordshire; a £50 million venture capital fund to invest in health care research; a new facility at the university of Nottingham to develop green chemistry technology; and the building of GlaxoSmithKline’s next biopharmaceutical plant in this country, with sites in the north of England and Scotland under consideration. In total, it estimates that 1,000 new jobs will be created in the UK over the lifetime of these projects.
Today, we are also launching a cross-government growth review. This will be a determined, forensic examination of how every part of Government can do more to remove barriers to growth and support growth opportunities. Too often, the natural inclination of Government is in the opposite direction, creating new regulations, putting up new barriers, and making life more difficult for entrepreneurs and innovators. We are starting to turn the super-tanker around. Together with the Department for Business, Innovation and Skills, the Treasury will lead an intensive programme of work, involving all parts of Government, using evidence provided by the business community and reporting by next year’s Budget. We will identify reform priorities that can benefit the whole economy. Specific priority will be given to improvements to the planning system and employment law, more support for exporters and inward investment, and reforms to the competition regime. At the same time, we will begin a new sector-by-sector focus on removing barriers to growth and opening up new opportunities. Some of the resulting changes will be substantive on their own; others will help particular industries in specific ways. Some changes may be controversial if they confront vested interest, but brick by brick we will remove the barriers that are holding Britain back.
Finally, I would like to update the House on the international assistance package for Ireland. I attended the various European meetings in Brussels yesterday. We agreed a three-year package for Ireland worth €85 billion, which is
“warranted to safeguard financial stability in the euro area and the EU as a whole.”
Of that, €35 billion will be used to support Ireland’s banking sector, with €10 billion going towards immediate bank recapitalisation and €50 billion being used for sovereign debt support. Ireland will contribute €17.5 billion towards the total package, and the remaining €67.5 billion will be split, with one third coming from the IMF, one third from the European financial stability mechanism, and one third from bilateral loans and the eurozone facility. The terms of the IMF loans will be determined over the coming weeks. In principle, our bilateral loan is for £3.25 billion, and we will expect the loan to be denominated in sterling. The rate of interest on the loan will be similar to the rates levied by the IMF and the eurozone. The loan to Ireland is in Britain’s national interest. It will help one of our closest economic partners manage its way through difficult conditions.
I should also tell the House that the eurozone Finance Ministers met without me to discuss a permanent financial stability facility. I made it clear in the subsequent ECOFIN meeting that the UK will not be part of that. The president of the euro group made it clear that the UK will not be part of the permanent bail-out mechanism, and that the European financial stability mechanism, which was agreed under the previous Government in May and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.
When we came into office, Britain was in the financial danger zone. Our economy was unstable, our public finances out of control, our country—[Interruption.]
Mr Osborne
Our economy was unstable, our public finances were out of control and our country was on the international watch list to avoid. We took decisive action. Now, the independent Office for Budget Responsibility has confirmed that the British recovery is on track, our public finances are under control, 1 million jobs are set to be created and our economy is rebalancing. Today we are taking further measures to secure growth and create prosperity. We are doing so based on the foundation of stability that we have now secured. Britain is on the mend, and I commend this statement to the House.
Alan Johnson (Kingston upon Hull West and Hessle) (Lab)
Let us move from bombast to reality. Here is what the OBR says:
“As we discussed in Chapters 3 and 4, past experience and common sense suggest that our central forecasts for both the economy and the public finances are almost certain to be wrong and that there are upside and downside risks to both.”
The only question is on which side of wrong they actually fall.
This Government have committed our country to a rate of fiscal consolidation that has been attempted only twice in living memory, and on both occasions by countries that benefited from strong growth in a benign global environment. In the current economic crisis, no country other than Ireland has attempted to cut so deeply, so quickly. The Chancellor is always telling us that we have the highest fiscal deficit in the G20. That is not true: the US has a proportionally higher fiscal deficit than ours, and the Americans plan to reduce it by less than half over the next five years. Japan, which has roughly the same level of deficit, has learnt from its experience over the past 10 years and plans to cut by less than a quarter. The Chancellor has chosen to take an unprecedented gamble with people’s livelihoods and the country’s future, and he has done so on the basis of a fundamental deceit: that when he assumed office, the public finances were worse than expected. The OBR exposed that deceit last year, and it has confirmed it today, so will the Chancellor now tell all those Back Benchers behind him—all those Tories who claim to their constituents that things are worse than they expected, and of course those who tell them that they have never had it so good—that they will have to find a new excuse? Nothing in his statement today can hide the fact that it was the balanced approach of my right hon. Friend the Member for Edinburgh South West (Mr Darling)—[Hon. Members: “ Where is he?”] Snowed in, in Scotland, probably. It was the balanced approach of my right hon. Friend that saw growth return at the beginning of the year, saw the recovery gain momentum and led to nearly 1 million fewer people claiming out-of-work benefits than predicted. That was the previous Chancellor, not this one.
As expected, the OBR has produced a higher growth forecast for this year than at the time of the emergency Budget, but this is the result of an approach that this Government have rejected. The reckless gamble that coalition Members support is still to come; the Chancellor is in the casino, but he has not yet spun the wheel. The OBR’s judgment of the future matters more than its revised forecast for a year that is almost over.
Does the Chancellor accept that the OBR does not expect the fast momentum built up this year to be maintained? Indeed, it is explicit in saying that it expects a slow recovery. Next year, as spending cuts begin to take effect and the VAT hike dampens demand, the OBR is revising its growth forecast down from 2.6% before the emergency budget to 2.3% immediately afterwards and to 2.1% now—it is going south. Looking beyond next year, the forecast for growth over the first four years of the recovery is reduced to an average of 2.4%. This compares with a 3.1% average growth in the far from pain-free recoveries from the two Tory recessions in the 1980s and 1990s. That growth was largely driven by growth in the financial sector and in public services, neither of which will be in a position to help this time.
Lower growth means fewer jobs, and in this weak recovery the OBR, having changed its mind, is now forecasting something that the Chancellor could not bring himself to say—namely, that unemployment will rise next year. It no wonder that the Conservative-led Local Government Association pointed out last week that front-loading cuts in local authorities will lead to 140,000 job losses next year, which is much higher than originally expected. The Chartered Institute of Personnel and Development estimates that the increase in VAT on 4 January will cost 250,000 jobs, more than three times as many as our proposed increase in national insurance, which the Conservatives called a tax on jobs.
The Chancellor tells us that public sector jobs will be protected by his decision to cut welfare benefits, but this works both ways: can he tell the House what the additional hit to private sector jobs will be from those welfare changes? For families up and down this country, a jobless recovery will be no recovery at all. This Government have no interest in protecting jobs, no alternative measures if the gamble fails and, worst of all, no plan for jobs. Indeed, since just last week their growth plan has actually shrunk, from a White Paper that was supposed to contain proposals, to today’s promise to talk: there will now be a debate, a discussion.
The Government’s plans rely on a huge increase in exports and business investment. Let us hope they materialise. But it is a gamble to assume that cuts on the scale envisaged, with cyclically adjusted public borrowing reduced by 8% of gross domestic product in just five years, will automatically be compensated for by exports. Exports need markets, and there is nothing to suggest that the global economic climate will assist us in achieving the kind of boost to growth that we have not seen for 60 years.
The Chancellor talked about his plans for corporation tax. Everyone wants a tax system that supports business, but he has abolished investment allowances for manufacturing to pay for a cut in corporation tax that will give a further £1 billion to the banks. Can he tell us what sense there is in helping companies that make large profits for little investment, at the expense of businesses that will invest heavily in the UK? We were very pleased to hear his announcement on GlaxoSmithKline and the patent box. We were pleased because that was our proposal. It was me, as Secretary of State for Health, with the former Business Minister, Lord Dyson, who argued for that in Cabinet. That is why it was in last year’s pre-Budget report. It is an excellent proposal. It was a Labour proposal.
Here is an idea for the Star Chamber that the Government are going to form. Why not help UK advanced manufacturing in the civil nuclear supply chain by giving an £80 million loan to Sheffield Forgemasters? That is an idea that they can chew over for the next four months.
The Chancellor talked about developments relating to Ireland. As I said last week, we support the financial assistance offered to Ireland, but the lessons of Ireland cannot be ignored. As a Financial Times leader said last week,
“a slower pace of consolidation might have been its best bet at encouraging growth.”
That is a lesson for us as well.
The Chancellor’s analytical ability in respect of Ireland was demonstrated in his 2006 article, which has been widely quoted, but in 2008, just two years ago, confident that Ireland would not be affected by the financial crisis that was just emerging, he said that Ireland now had
“a ‘future fund’ of assets built to provide security against future shocks and liabilities. Their public finances are well placed. Their competitiveness has risen. Their institutions are stronger.”
Ireland had
“used the fat years to prepare for the lean years.”
The Chancellor was wrong about Ireland, and he is wrong about the United Kingdom. The autumn statement does nothing to alleviate the summer madness that led him to gamble so recklessly with our future.
Mr Osborne
I think the shadow Chancellor made the mistake of writing his response before he had seen the OBR’s forecast. He predicated all of it on there somehow being lower growth, when in fact growth is higher in every quarter and every year than was predicted in the June forecast. I assume that he also wrote his response before the European Commission produced its forecast today. I am sure that he has now seen it. He read out a list of countries, but the European Commission predicts that over the next two years we will grow more quickly than Germany, France, the United States of America, Japan, the eurozone and the EU average. If one is going to read out a list of countries, one might as well start with the most accurate and recent forecast for their economies.
As I have said, the shadow Chancellor’s response was not much of an analysis of what the OBR has said today. He skated over the fact that because of the welfare changes that we have introduced, we have been able to reduce the public sector headcount reduction that is required by any deficit reduction plan—including, presumably, the plan that he will one day propose. He should at least acknowledge that the welfare changes achieve that. He and the leader of his party have some important choices to make in the next few months as we vote on some of these measures. They must decide whether they will support welfare reform or would rather see a higher number of public sector job losses, but that will be a decision for them.
The shadow Chancellor said that he did not believe in the rebalancing of the economy, and that the assumptions for exports and investment that I had made were fanciful. They are, of course, the estimates made by this independent body, the appointment of whose members, as I have said, was ratified by the Treasury Committee. The shadow Chancellor accused me of having no alternative measures to present. I thought that that was a bit of a cheek, because as far as I can tell the Labour party has a blank sheet of paper as its new economic policy. He talked of the importance of protecting intellectual property and supporting the growth of patents, and then praised, I believe, James Dyson. The last time I checked, it was we, rather than the shadow Chancellor, who had consulted him, but so be it.
Mr Osborne
Ah. Well, I am sure that Lord Drayson also had some interesting things to say. [Interruption.] I welcome, by the way—[Interruption.]
Mr Speaker
Order. Members really must calm down. Only this morning I was talking to sixth-formers, one of whom observed that the noise in the Chamber was totally off-putting. The public loathe it, and so do I. Let us put an end to it.
Mr Osborne
I welcome the support that the Opposition have given to our decision to offer a bilateral loan to Ireland. We will have to put legislation before the House, and I will of course keep the shadow Chancellor informed of the details when they are negotiated along with the IMF, eurozone and other bilateral contributions. I should have mentioned that Sweden and Denmark have also provided bilateral loans.
I come back, however, to the point that this forecast shows 1 million new jobs being created over the next four or five years. It also shows growth of over 2% in each year; it shows the economy rebalancing; it shows Britain getting to grips with its debts. Yet all the shadow Chancellor could come up with was this: he said he had read a Financial Times editorial in the last week—and I note from his interview this morning that that is how he does his homework; he says he photocopies articles from the FT. Well, I went one better and actually got a copy of the FT, and he said this in his FT interview this morning:
“I am a great believer in the philosophy that if you’ve not got anything to say, keep your mouth shut”.
Very good.
Mr Speaker
A lot of Back Benchers want to say something and I would like to accommodate them, but there is important business to follow in the form of Backbench-led debates, so brevity is of the essence from the Back Benches and the Front Benches alike.
Mr Andrew Tyrie (Chichester) (Con)
In June, the Red Book was forecasting that the savings ratio would remain broadly steady at about 6% for the next five years, which is quite near its long-run average for the previous 40 years. On page 67 of the most recent document however, the new forecast assumes a fall in the savings ratio to just over half that, and for the remainder of the Parliament, at only 3%. Is the Chancellor worried about that fall in the savings ratio, and will he consider measures to address it?
Mr Osborne
Yes, I have, of course, seen the forecast for the savings ratio and we will want to address it. It has the savings ratio returning to its average of before the recession, and I think all parties in this House, and certainly the Government, will want to find ways of encouraging saving more effectively than was the case in the past, and to address that particular problem.
Margaret Hodge (Barking) (Lab)
What is the forecast for the gap between the richest and the poorest in Britain by 2015? Do the Chancellor and the OBR expect it to grow?
Mr Osborne
I am not aware that the OBR makes that forecast, but obviously everything we are doing—whether increasing free nursery care provision for some of the poorest two-year-olds or introducing the pupil premium—is designed to encourage social mobility and to give those on lower incomes a chance to increase their incomes over this Parliament.
Mr John Redwood (Wokingham) (Con)
I thank the Chancellor for the guarantee of no bail-outs for other European countries. Does he think the European Central Bank will make available all liquidity needed by major banks in euroland, as it should do because it tells us they are all solvent?
Mr Osborne
Obviously, the ECB is independent so I will not speak for it. What I have said about the European financial stability mechanism is that we now have a verbal agreement—I will, of course, want to secure it over the coming weeks—that that mechanism will not form a permanent part of the bail-out mechanism that the eurozone wants to put in place from 2013, and we will not be part of that bail-out mechanism. Indeed, if it requires a treaty change, our consent to that change would, of course, be required.
Ian Paisley (North Antrim) (DUP)
I thank the Chancellor for his statement. What assurances has he received from Ireland to ensure the multibillion pound loan now given to it will not be allowed to be used to have a fire sale of assets that the Irish state now owns in Ulster and, indeed, across the whole of the United Kingdom? Can the Chancellor also tell us what progress he has made with the Northern Ireland Executive on a reduction in corporation tax so we can compete fairly with a nation that has a corporation tax rate of 12.5%?
Mr Osborne
The Irish bank restructuring package will now take several weeks—at least—to put in place, and we are, of course, very aware of the interconnectedness of the banking systems of Ireland and Northern Ireland, and, indeed, the whole UK. That is one of the reasons why we are making this bilateral contribution; it is one of the reasons why we are in the room discussing the conditions and the banking package. I am certainly conscious of the fact that some of the Irish banks have significant assets in the UK, and we have a very real interest in the future of that. That is why my hon. Friend the Financial Secretary came to Northern Ireland earlier this week, and I want to make sure that the Treasury, as well as the Secretary of State for Northern Ireland of course, remain in very close contact with the Northern Ireland Executive and Members from Northern Ireland.
Corporation tax has genuinely been a matter of debate in the European Union. I do not think that has been any secret; it has been in the newspapers. Some member states wanted to attach conditions to Ireland’s corporation tax rate, and I do not deny that that 12.5% rate is a real challenge for companies in Northern Ireland. That is why the Secretary of State for Northern Ireland is looking at that and at packages to help the competitiveness of companies in Northern Ireland. But I took a position, which was that it is not really for other member states to dictate the tax rates of sovereign nations, even when they are seeking international assistance. The rates of tax levied by the Irish Government should be a matter for the Irish Government and the Irish Parliament. If the shoe was on the other foot, we would not want to be accepting, in this country, decisions imposed on this Parliament about tax rates. This should be a matter for the elected Parliament of the country. I do not deny that that 12.5% rate is a challenge for Northern Ireland, but I did not feel it was right to use the position we found ourselves in to get Ireland to increase that corporate tax rate.
Dr John Pugh (Southport) (LD)
The Chancellor says he is intent on reforming our “outdated and complex rules for controlled foreign companies.” Can he assure me that this will not create new opportunities for tax avoidance?
Mr Osborne
Yes, I can assure the hon. Gentleman that that is certainly not the purpose of the measure and that tax avoidance is what we are going to seek to avoid. The measure is there to keep pace with the changes in corporate tax regimes that have been introduced in many other countries, not only Ireland, which we have just been talking about, but countries such as Belgium and the Netherlands, which have also made corporate tax changes that attract international companies to headquarter there, rather than in the UK. We have to keep pace with those changes, which is why we are taking the measures that we are.
Mr George Mudie (Leeds East) (Lab)
The Chancellor and the Business Secretary have apparently postponed the long-awaited growth White Paper. Officials say that this is because of the lack of serious content. Can the Chancellor tell us when we can expect this long-awaited document? In which financial year?
Mr Osborne
What we have published today is a series of documents, which the hon. Gentleman has perhaps not had a chance to see yet. Some of them are on corporate tax reform, on intellectual property and on how in time for the Budget—after all, a White Paper proposes measures that will then be legislated for—we will have measures that will address the competitiveness of British industry. Our measures will specifically look at things such as the competition regime, the approach we take to attracting inward investment, how we improve our employment law and specific sectors. If he wants to involve himself in that process, I will make sure he can be part of it.
Michael Fallon (Sevenoaks) (Con)
Given the forecasting record of the Chancellor’s predecessor but one, who was frequently in error but seldom in doubt, is not the strength of these forecasts that they were prepared by independent officials, who cannot be and were not overruled by politicians?
Mr Osborne
That is, of course, a very significant feature of what is happening today. It is completely unprecedented for a Chancellor to present an autumn forecast that has been produced independently by people who have been verified by the all-party Treasury Committee and who had their own separate press conference. In addition, Members have had a couple of hours to look at this document. If one thinks back, for example, to a year ago and the pre-Budget report, when the previous Chancellor produced the autumn forecast, one recalls that he rattled off the numbers. There was absolutely no opportunity for the shadow Chancellor to have examined those numbers or to have looked at the document, or for any other Member in the House to have done so. It was the Chancellor’s judgment, rather than an independent judgment. Our approach is a major improvement to fiscal policy making in this country. The legislation is before the House of Lords, and I hope that when it comes to the House of Commons it will have all-party support.
Mr Dennis Skinner (Bolsover) (Lab)
Why are the Irish banks worth saving yet Northern Rock was not?
Mr Osborne
What the Irish banks are getting, in many cases, is a capital injection. As in the UK, the banks have been very poorly regulated. We are improving our regulation system. If the hon. Gentleman does not think we should be supporting the Irish banking system, the impact of his proposals on his constituents in Derbyshire would be very severe.
Dan Byles (North Warwickshire) (Con)
The shadow Chancellor says that he is concerned about what he calls slow growth in coming years. Does the Chancellor agree that steady, sustainable and private sector-led growth is exactly what the UK needs after the bubble that was inflated and then burst by the previous Government?
Mr Osborne
My hon. Friend makes an extremely good point. What is happening here is a rebalancing of the economy. I hear the shadow Chancellor muttering away about what he calls slow growth, but according to the European Commission forecasts today our growth is more rapid than that of Germany, France, the United States of America or Japan, as well as than the EU average and the eurozone average. I am not sure what his proposals are to increase that growth rate but if he has some, now is the time to produce them.
Mr Dave Watts (St Helens North) (Lab)
Is it not the case that most of the public sector cuts will take place in the north and that any jobs that are created—there are not likely to be many—will be in the south? Is not the policy unbalanced?
Mr Osborne
In the last decade, under the Government of which the hon. Gentleman was a member, for every 10 jobs created in the south-east only one was created in the midlands and the north. That is the situation that we have inherited and the economic model that we have to change. It is precisely because we want to see exports and investment increase that we are aiming for a more geographically balanced model of economic growth. Announcements such as the one we have made today on the investments by Glaxo will help that, as will the first-time-ever tax cut for new employees that is specifically directed at regions outside the south-east.
Mr John Baron (Basildon and Billericay) (Con)
I suggest that my right hon. Friend never tire of reminding the Opposition that this recession, unlike all previous post-war recessions, is a recession built on debt and that one cannot borrow one’s way out of debt.
Mr Osborne
I assure my hon. Friend that I will not tire of reminding the Opposition of that. Of course, if they come forward with a new economic policy we can examine it, but at the moment there is not a new economic policy to examine, so there we have it.
Mr Chuka Umunna (Streatham) (Lab)
The Chancellor has said that he sees private sector growth being driven by business investment and by exports. In its report today, the OBR has revised down its forecast for business investment in four of the years between 2010 and 2015. Of course, we have seen the dramatic uncertainties in the eurozone, which is our main export market. If exports and business investment do not turn out to be what he expects, where does he see private sector growth coming from?
Mr Osborne
One of the primary tasks of the OBR is to assess whether we will hit the fiscal mandate. The very fact that the fiscal forecasts are not a matter of controversy in the House today shows what we have done to get the British public finances under control. The OBR assessed specifically the scenario that the hon. Gentleman volunteers and said that the fiscal mandate will be met under those conditions. In fact, rather perversely, that helps the fiscal forecasts because of the tax base being more focused towards consumption.
Mr Charles Walker (Broxbourne) (Con)
When the books are balanced, will the Chancellor seriously consider reducing the overall burden of taxation? Thanks to the efforts of the previous Government, it is far too high.
Mr Osborne
Of course, I am a believer in trying to reduce the tax burden and trying to reduce taxes. However, I have always believed that the best way to achieve that is from stable public finances, otherwise one cuts taxes one year and has to put them up the next. So I am a fiscal conservative with a small c as well as a tax-cutting Conservative with a big C.
Mr Andrew Love (Edmonton) (Lab/Co-op)
In reference to the answer to my hon. Friend the Member for Streatham (Mr Umunna), the Chancellor, through the OBR, is suggesting that there will be 8% growth in business investment yet there is scant sign of it at present Net trade, it has been suggested, will increase by 6% in each of the next four years yet, according to the Governor of the Bank of England, there are doubts about whether the euro area or the United States will deliver the sort of export growth that is being suggested. Is not the Chancellor just a little worried about the optimism in the estimates and is he concerned about whether they will be delivered over the next four years?
Mr Osborne
The hon. Gentleman says that I made the forecasts, but they are independent forecasts by Mr Robert Chote, whom I do not think anyone would claim is in anyone’s pocket. He is totally independent. The hon. Gentleman is on the Treasury Committee, which interviewed Mr Chote for the job and passed him. These are Mr Chote’s, Mr Nickell’s and Mr Parker’s estimates and they have made a central forecast. He says that there is scant evidence, but that is not what the Office for Budget Responsibility believes. It is independent and it has forecast that business investment is set to grow by more than 8% for each of the next four years and that exports are set to grow by an average of more than 6% a year.
Andrea Leadsom (South Northamptonshire) (Con)
Is my right hon. Friend concerned that in the Greece bail-out and now in the Ireland bail-out taxpayers will end up supporting professional bond and equity holders in banks?
Mr Osborne
This has been one of the most difficult issues that the international community and, of course, the Irish people have had to wrestle with. For reasons of financial and economic stability, it was decided that it was not possible and would not be sensible to ask the senior debt holders in the Irish banks to take a haircut. That is exactly what did happen in late 2008, in some of the US bank rescues, with pretty disastrous effects, so that is why that decision was taken. Subordinate debt holders in the Irish banks will suffer losses and I think that is appropriate.
Sheila Gilmore (Edinburgh East) (Lab)
Given that the nearest year for prediction in the OBR report suggests that growth will fall in relation to previous predictions—it was 2.6%, then 2.3% and is now 2.1%—what confidence can we have that predictions further out than now will be any more reliable? Is it not likely that growth will not rise as much as predicted?
Mr Osborne
I said right at the beginning of my remarks that these are economic forecasts and that we should treat them with the caution with which one should treat all economic forecasts. At least we explicitly acknowledge that and the forecasts are independently produced. What we have here is a central forecast; previously, Chancellors just gave a number and asserted that that was the forecast come hell or high water. That is not what the OBR is doing today. However, one can take confidence that its growth forecast for next year is in line with those of most independent commentators and forecasters. It happens to be very close to the numbers that the European Commission produced today, which were not available to the OBR or the British Government until today. We can have confidence that it is part of a group of people who look to the UK and see it growing sustainably over coming years and jobs being created.
Mr Edward Leigh (Gainsborough) (Con)
All the talk is of cuts, but with spending still rising despite these so-called cuts and with debt as a proportion of GDP rising to a staggering 70%, will my right hon. Friend remind the House that, to coin a phrase, there is no alternative to further massive efficiency savings, particularly in ring-fenced Departments such as Health where there has been a catastrophic decline in productivity in the last 10 years?
Mr Osborne
I certainly agree with my hon. Friend that an essential part of this programme for public expenditure is getting greater productivity in the public services. As the former Chair of the Public Accounts Committee, he has much to offer. The Treasury is engaging with him on this, I hope, and will engage further with him in the coming months. He is absolutely right that, in a period when there is less money available, if we do not have reform, we will have deterioration in the service. That is why we have got to have reforms and why Parliament is being asked to support those reforms in the next few months.
Barry Gardiner (Brent North) (Lab)
The OBR’s central forecast is for a “relatively sluggish medium-term outlook”, which it says
“reflects…the impact of the Government’s fiscal consolidation.”
Can the Chancellor confirm that it follows from this that if the Government’s fiscal consolidation had been less severe, the medium-term outlook would be less sluggish? In other words, he has cut too far and too fast, just as Ireland has.
Mr Osborne
The short answer is no. We inherited a situation of very deep recession, a major banking crisis and a record fiscal deficit. I thought—although one is never sure—it was common ground across the parties that at least we had to do something to address the fiscal deficit, not that we have heard specific measures from the Opposition for doing that. In the summer, the OBR produced a comparison of the growth forecasts under the previous Government’s plans and under the plans of the current Government, which showed that over a period of time we were putting forward a much more sustainable path for growth that would lead to higher growth in the future. It also avoids the downside risk—the tail risk—of a major fiscal event, which would be a major loss of confidence in the UK. It is pretty remarkable that here we are today debating the numbers, and that is fine, but we are not having to worry about the UK’s creditworthiness, unlike some other countries in the European Union, even though we inherited the largest budget deficit in the EU. We have taken measures to take ourselves out of that firing line, and now we have sustainable growth and jobs are being created.
Matthew Hancock (West Suffolk) (Con)
Will the Chancellor give us his assessment of what would happen if we ignored the advice of the IMF, the OECD and the EU, and moved from the path of putting our own house in order?
Mr Osborne
It is not a bad test of the policy offered to the Government from the Opposition to consider what would happen if we actually did it tomorrow. If the shadow Chancellor stood up tomorrow, or if I adopted his plan, and announced that the UK was backing off its fiscal consolidation plan and that it would take much longer, where do we actually think the UK would be within about 30 minutes of that statement?
Kate Green (Stretford and Urmston) (Lab)
I am naturally pleased that the number of job losses in the public sector has been revised downwards, but I am very concerned that it seems that the £18 billion of welfare cuts, which will affect the poorest, will be picking up the price tag. Was that the Chancellor’s explicit decision and policy, and if so does he think it was fair?
Mr Osborne
I do of course think the spending review was fair, but as I said at the time—[Interruption.] If the Opposition would actually produce a spending review, perhaps we could compare the two—but they do not want to do that.
The point I was making to the hon. Lady is that I said at the time of the Budget and the spending review that I was making a conscious decision to seek further welfare reform to try to reduce the rapidly escalating costs of the welfare state. That was a challenge that anyone doing my job would face, and I said that if we were able to find further welfare reforms, we would be able to reduce the cuts in Departments, and that is exactly what we were able to do.
Jesse Norman (Hereford and South Herefordshire) (Con)
May I congratulate the Office for Budgetary Responsibility on a thoroughly transparent, comprehensive and technically excellent report? It marks a first in this country. Can the Chancellor give us an assessment of any remaining threats he sees to financial stability from the eurozone countries?
Mr Osborne
There is of course concern about the high deficits, particularly in the eurozone. Let us hope that the action taken yesterday to stabilise Ireland, and also the clarification that eurozone Ministers offered about the future permanent bail-out mechanism and the involvement of private sector creditors in that, will help to achieve stability. That is certainly what the intention was yesterday.
Ann Coffey (Stockport) (Lab)
Stockport council will tonight announce proposals for cuts, with the likely loss of 400 jobs. That will have a devastating impact on my constituents who are affected, but it will also lead to loss of confidence by those with jobs that they will have jobs in the future, which might lead to reluctance on their part to spend money in the economy. Is the Chancellor concerned that such lack of confidence will affect new jobs and future growth?
Mr Osborne
Of course, I have enormous sympathy with anyone who faces a job loss, but we are creating the economic conditions where they will be able to find a new job, I hope. There is support from the welfare system. We expect more than 1 million new jobs to be created over the coming years. I make this observation to the hon. Lady, who was Parliamentary Private Secretary to the previous Chancellor: if the Labour Government had been re-elected in May, they would be cutting billions and billions of pounds from public spending, this year, next year and in the years ahead. That was in the March Budget plans, even if they are not the plans that the shadow Chancellor is sticking to. If the hon. Lady is able to find a way of cutting many, many billions of pounds—£40-odd billion—from public spending without in any way affecting the local government settlement, she should please let me know.
Mr Marcus Jones (Nuneaton) (Con)
I welcome my right hon. Friend’s statement and his will to reform business regulation. In the course of that reform, will the onerous and costly reporting to Government culture to which businesses must adhere be fully scrutinised?
Mr Osborne
The short answer to my hon. Friend is yes. One of the specific aspects that we want to look at is how Government should be helping businesses grow, rather than standing in the way of that. That includes procurement for Government. The Government spend too much of their money on the largest companies in the country and not enough on some of the smaller companies. That is one of the things that we seek to improve.
Barbara Keeley (Worsley and Eccles South) (Lab)
On public sector jobs, the Chancellor says that headcount reduction will happen over four years, but as he knows, some local authorities are facing budget reductions of 20 or 30% next year alone, due to front loading and loss of specific grant. Will he consider rephasing the cuts to local government so that we do not see 140,000 local government job losses next year?
Mr Osborne
I said at the time that it was a challenging settlement. I have removed some of the ring-fencing—indeed, almost all the ring-fencing—to allow local authorities the maximum flexibility to deal with that, but unfortunately I inherited a situation where the country was borrowing £1 in every £4 that it was spending. At a time when people are looking at European countries, we can see what happens to European countries that have high budget deficits and no credible plan to deal with them, so I have had to take those decisions. As I say, if the Labour party wants to put forward a plan to remove the structural deficit without affecting the local government settlement, let us hear it.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
I warmly welcome the announcement that you made of the investment by GSK into our British economy today on the back of the 10% tax rate for patents and innovation. Can you tell us more about the competitiveness measures that you are taking to help this country on its way out of the mess left behind by the Opposition?
Mr Speaker
Order. May I make the point that I have made no announcement and I can certainly say no more, but I think the Chancellor can oblige? We know what the hon. Lady meant.
Mr Osborne
We are looking at two specific things. One is the controlled foreign companies regime. This is what we believe will help encourage large multinationals to choose the UK as a place to put their headquarters, rather than in Holland or Belgium, for example, where some companies have chosen to go. In a world in which companies can increasingly choose where to locate and countries are being aggressive in trying to attract their location, these tax measures will make us one of the most competitive places in the world for a company to locate its headquarters. On the patent box and the lower corporation tax rate for intellectual property, of course the GSK announcement is just one of many, I hope, from companies that depend on intellectual property and patents to power their business. Again, that will make us very competitive versus other countries.
Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)
The OBR confirmed today that we will borrow £1 billion less. Last week, we decided to make a £7 billion loan to the Republic of Ireland, yet apparently we could not afford to make an £80 million loan to Sheffield Forgemasters. Is that not proof, if any were required, that the Chancellor has deliberately talked down the British economy and, more importantly, that these policies are damaging the British economy?
Mr Osborne
I think that is one that was prepared earlier. UK growth is forecast to be higher than that of Germany, France, many other European countries or the United States of America. It is also the case that the OBR is forecasting the creation of a million jobs. When it comes to the sovereign loan to Ireland, that is of a totally different nature from industrial support. It will be set out in the terms that I bring before the House of Commons. It is £3.25 billion, rather than the number that the hon. Gentleman gave.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
My right hon. Friend has today reinforced the need for exports to help our recovery. What can he personally do to help reverse the situation whereby we export more to southern Ireland than we do to all the BRIC countries—Brazil, Russia, India and China—put together?
Mr Osborne
Since the Government were created there has been an absolute focus in foreign policy and trade policy on trying to increase our exports to those BRIC countries. The Prime Minister led major trade missions to India and China, the Business Secretary was very recently in Russia and I think that a trip is being proposed for Brazil, so we are seeking to expand our exports to the BRIC countries and, indeed, to some other important emerging economies such as Indonesia, Turkey and so on. We do not want to export less to southern Ireland or to anyone else in the advanced world; we just want to increase our exports to emerging economies.
Geraint Davies (Swansea West) (Lab/Co-op)
We know that the deficit is the price that has been paid to avoid a depression—a price that the Chancellor would not have paid. To reduce the deficit, will he consider using three methods: first and foremost, a proper jobs and growth strategy; secondly, fair and progressive taxation; and, thirdly, savings over a greater period, instead of simply casting half a million public sector workers on to the dole, triggering the unemployment of another 1 million private sector workers and ending up with the unfair, unnecessary and failed policies of the Conservative past?
Mr Osborne
That was a complete load of nonsense. The independent forecast shows that we are projected to create 1 million jobs, and that the economy will grow more quickly over the next couple of years than the economies of most of our European competitors. Frankly, we inherited from the previous Government an absolutely catastrophic situation in which people called into question Britain’s ability to pay its way in the world. That was the situation we inherited, but I think we have done many things in the past six months to ensure that the British economy is now on the mend.
Claire Perry (Devizes) (Con)
I am sure the whole House will welcome chart 1.1 on page 8, which shows that there is almost no probability of a double-dip recession. Does the Chancellor agree with that forecast?
Mr Osborne
It is of course an independent forecast, and although the Chancellor does—and will under legislation—have the right to disagree with it, I have not exercised that right today.
Chris Williamson (Derby North) (Lab)
What words of comfort can the Chancellor offer the construction industry and the thousands of unemployed building workers who are still reeling from his Government’s decision to scrap the Building Schools for the Future programme and end housing targets? Does he not accept that a private sector-led recovery will be impossible without a vibrant construction industry? What will he do to support the industry?
Mr Osborne
We certainly want to support the construction industry. It is one of the specific sectors that we are looking at, as the growth review that we publish today sets out. If I can just correct the hon. Gentleman, however, I must say that the capital investment programmes of this Government are actually higher than the capital investment programmes set out in the March Budget. If he is not aware of what the Labour party fought the election on, so be it.
Mel Stride (Central Devon) (Con)
I welcome my right hon. Friend’s statement and, in particular, today’s OBR forecast, which sees projected public sector job losses drop from 490,000 to 330,000. Based on the previous 490,000 figure, PricewaterhouseCoopers projected that half a million jobs would be lost in the private sector. Will my right hon. Friend comment on the likely reduced impact on private sector unemployment as a result of today’s lower projected job losses in the public sector?
Mr Osborne
The OBR also makes a projection for private sector employment and takes into account all the potential impacts on that, and it finds that a net 1.1 million jobs will be created over the period: there will be 30 million people in employment at the end of this Parliament, compared with 29 million today.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
In bringing forward their national insurance proposals the Government accept that their fiscal consolidation programme will have a disproportionate affect on those areas of the state that are more reliant on public expenditure. What other countervailing measures is the right hon. Gentleman considering?
Mr Osborne
We have created the regional growth fund to look specifically at areas that need support and investment. We have been able to announce some significant transport investment in other parts of our country. The national insurance tax reduction, which the hon. Gentleman mentions, refers explicitly and only to job creation outside the south-east and east, and I have deliberately taken that decision to try to create a more geographically balanced economy than the one I found when I took this job.
Mr Tobias Ellwood (Bournemouth East) (Con)
It is clear from the response that we have heard today that the Labour party is still in denial about the huge deficit that it created. I congratulate my right hon. Friend on coming up with a workable, viable and transparent plan that can take us out of this mess.
I take my right hon. Friend back to the permanent fiscal stability facility, which will not come online until 2013. What will happen if another eurozone country requires a bail-out? Will Britain’s involvement be kept to a minimum?
Mr Osborne
I thank my hon. Friend for his initial comments. I say this about any future action that we may or may not have to take. On the bilateral loan, I said last week that there were some very specific— I stress the words “very specific”—circumstances that would lead us to support Ireland because of the interconnectedness of our economies. I also said that the European financial stability mechanism, the EU fund, was something that the previous Government had signed up to, and that the UK could not block its use because it operated under qualified majority voting. I had to deal with that situation, but by finding now what I think is a way forward that means that the mechanism disappears in 2013, we have taken a bad situation and made it a lot better.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
Has Ireland’s fiscal consolidation been successful?
Mr Osborne
The point that I would make—[Interruption.] Ireland has had to take some incredibly difficult decisions to deal with its fiscal deficit. Its Government have announced, with the support of all the major parties in Ireland, with the exception of Sinn Fein, that they are going to have to take further austerity measures next year and over the next three or four years. If they did not take those measures, the country’s situation would be even more difficult.
Frankly, we should have some respect for the incredibly difficult situation in which Ireland finds itself. We should take some comfort that, because of the measures that we have taken on our public finances, we in this House are able to help the country and that we are not in the firing line in the way that we would have been if the Labour party had won the election.
David Rutley (Macclesfield) (Con)
Despite the excessive nay-saying from the Labour party, is the Chancellor aware of a recent report from Barclays bank that outlined that the majority of businesses in the north-west—our region—are looking to expand in the year ahead? Will he tell the House what steps he is taking to support small and medium-sized enterprises, which, in the years ahead, will be the growth engine for job creation?
Mr Osborne
We avoided the increase in the small companies rate that the previous Government wanted to introduce even in a recovery. We have been able to avoid the damaging part of the jobs tax. Of course, my hon. Friend is absolutely right. The forecast in this report and the forecast from many other people is for jobs to be created in the private sector across the country, including in the north-west—a part of the country that both of us represent in the House. Frankly, one can see again today that the Labour party wants to talk down the economy, does not believe independent forecasts and talks down the regions. It is no wonder that people rejected it at the election.
Bill Esterson (Sefton Central) (Lab)
Was the Chancellor talking a “complete load of nonsense”, as he put it earlier, when he said:
“Look and learn from across the Irish Sea…What has caused this Irish miracle, and how can we in Britain emulate it?”
Does he recognise that a private sector recovery has not happened in Ireland? Why should following the same policies be any different here?
Mr Osborne
If the hon. Gentleman cannot tell the difference between the economic situations in which Britain and Ireland find themselves today perhaps he should not turn up to these events.
I just make this observation. This is an independent report, produced by Robert Chote. [Interruption.] I have had a lot of chuntering from Opposition Front Benchers about the independence of the Office for Budget Responsibility. We set it up on an independent basis and we have given all members of the Treasury Committee the right to approve or reject the members of the budget responsibility committee. We will see whether Opposition Members, including Front Benchers, support this legislation when it comes before Parliament. At the moment, it does not sound as if they will support it, but perhaps they will change their minds.
Mr David Nuttall (Bury North) (Con)
Is my right hon. Friend as concerned as I am that over-prescriptive regulation such as that proposed by the Financial Services Authority’s retail distribution review may result in a loss of jobs?
Mr Osborne
I know that a number of concerns have been raised about the FSA’s review of that area. Obviously, it is an independent regulator, but I have made sure that those concerns have been drawn to its attention.
Karl Turner (Kingston upon Hull East) (Lab)
Does this apparent good news mean that the Government can now spare the blushes of the disgraced Deputy Prime Minister and of Government Members by scrapping plans to hike university tuition fees, or is this really about pure ideology—rich kids can afford to go to university and poor kids cannot?
Mr Osborne
I will tell the hon. Gentleman what this issue is about: the hypocrisy of the Labour party. Labour Members set up Lord Browne’s report, and the shadow Chancellor was in the Cabinet that agreed to that. Lord Browne has reported, and now they are all walking away from it—it is absolutely pathetic.
Mr Rob Wilson (Reading East) (Con)
Compared with June, the OBR predicts, in table 4.21 on page 118, that we will save £19 billion in interest payments. Contrary to what the shadow Chancellor said, are not the choices made by my right hon. Friend the right ones to ensure that we have this £19 billion to spend on schools and hospitals rather than putting it in the pockets of foreign Governments and private bondholders?
Mr Osborne
My hon. Friend is absolutely right. This is one of those issues that is perhaps less commented on, but very relevant. We are reducing the debt interest payments that we inherited from Labour, and the debt interest bill—the money that we have to pay out to private bondholders and foreign Governments to borrow—is coming down from the number that we inherited. That is £19 billion that would otherwise, if we followed the Labour party’s plans, be being paid to foreign Governments and private bondholders. That is how Labour Members want taxpayers’ money spent; we have other plans for it.
Mark Reckless (Rochester and Strood) (Con)
Instead of lending to Ireland to repay the European Central Bank and bolster bank capital relative to large impaired assets, might it not make more sense to help Ireland to de-leverage by buying some of those written-down assets directly, particularly where they are in the UK and are not well managed by the National Asset Management Agency?
Mr Osborne
The support for Ireland had to be a co-ordinated international effort with the IMF and other European member states, and we have taken our part in that. I do not think that coming up with our own unilateral package would have been particularly easy when, as I said, the IMF was organising this international effort. I have already said in reply to an earlier question that of course we will want to look at the impact of the banking reorganisation in Ireland on some of the assets that are managed in the UK, and I will keep the House informed about that.
Jessica Lee (Erewash) (Con)
I welcome my right hon. Friend’s statement, particularly on the investment of GlaxoSmithKline in a new facility at the university of Nottingham near Erewash. Does he agree that ring-fencing the science budget, bolstered by his coming to this House today and presenting figures of growth and stability for the UK economy, sends out a clear message to the rest of the world that the UK, particularly the east midlands, is an excellent place in which to invest and build?
Mr Osborne
I completely agree with my hon. Friend, who has been a powerful champion of the east midlands and of her constituency in the few months since her election. I know that she will welcome the announcement by Glaxo, which is because of the decisions that we have taken. Of course, the support for job creation in the east midlands and across the country would not be there if we had a fundamentally unstable economy of the kind that this Government inherited in May.
Justin Tomlinson (North Swindon) (Con)
What measures are being taken to maintain the low interest rates that are essential to mortgage holders in my constituency?
Mr Osborne
The Bank of England Monetary Policy Committee sets interests rates, and does so independently. The purpose, in part, of the measures that we have taken to reduce the deficit is to give the Monetary Policy Committee the maximum possible flexibility and freedom in setting the appropriate monetary policy to stimulate demand in the economy. I believe that that has enabled it to keep interest rates low, which helps to stimulate the economy.
Charlie Elphicke (Dover) (Con)
Will the Chancellor confirm that the corporation tax reforms that were announced today will make the UK more attractive as a holding company jurisdiction and help to make the UK a pre-eminent corporate headquarters centre, as much as a financial centre?
Mr Osborne
My hon. Friend is absolutely right that the reforms will help to do that. They will help the UK to be an attractive place for international companies to locate, invest and create jobs. The changes to the patent regime will help a number of sectors, such as pharmaceuticals. I mentioned GlaxoSmithKline, but of course Pfizer is a big employer near Dover, and I hope that it, too, will benefit from the announcements that we have made.
Mr Speaker
Order. Was the hon. Gentleman present at the start of the statement?
Chris Ruane
I was right here at the back, Mr Speaker.
In my constituency, 46% of the workers are in the public sector. In one Edinburgh seat, the figure is 66%. Those are huge numbers of public sector workers and many of them will be laid off. What additional help can the Chancellor give to constituencies that contain large numbers of public sector workers?
Mr Osborne
First, we are seeking to reduce the impact of the fiscal consolidation that would have taken place under either the Conservative or the Labour party in office. We are doing so in a way that, as the OBR has today shown, has a reduced impact on public sector headcount loss. Secondly, we are putting in place a comprehensive Work programme to help people who are without work to find work. Thirdly, today’s forecast is that more than 1 million new jobs will be created over this Parliament. That will help all constituencies, including the hon. Gentleman’s.
Points of Order
Keith Vaz (Leicester East) (Lab)
On a point of order, Mr Speaker. I seek your guidance on a potential issue of contempt. Last Friday, the Clerk of the Home Affairs Committee was contacted by the Press Association to inform him that it was in possession of a recording of a private session of the Committee in which one of our reports was discussed. On Tuesday, we held a public session before going into private session and the live feed remained on, due to a technical problem in Committee Room 5. To its credit, the Press Association agreed not to publish or broadcast the Committee’s deliberations, but instead reported the fact that the feed had remained open. When such a matter occurs, is a news organisation able to broadcast a private session of a Committee, or is that regarded as a contempt? We assumed that it was a contempt, but, as I said, the PA did not broadcast what we said. It would be good to receive clarification on that matter and to hear whether there might be an investigation into the technical matters in Committee Room 5 to ensure that it does not happen again.
Mr Speaker
I am grateful to the right hon. Gentleman for his point of order and for giving me advance notice of it. I understand from the advance notification and from what he has just said that there was a technical problem with the recording of his Committee’s meeting last week. There is not really a procedural solution that I can offer him or the House, but I am advised that all necessary steps are being taken to avoid a recurrence. If no harm was done, I am sure that the Committee and its illustrious Chairman will be relieved. In essence, he asked me a hypothetical question—whether it would have been a contempt, and so on and so forth. I think that he is capable of working out such matters for himself. On this occasion, I hope that he will understand it if I adopt the approach of the late Lord Whitelaw, which was that on the whole, judging from experience, he preferred to cross a bridge only when he came to it.
Stella Creasy (Walthamstow) (Lab/Co-op)
On a point of order, Mr Speaker. I wish to ask for your help as a new MP baffled by the actions of Government Departments that may wish to avoid scrutiny in this place.
My hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) and I tabled questions for today’s Culture, Media and Sport Question Time on the impact on participation in sport of the proposed abolition of school sport partnerships, which were accepted by the Table Office and drawn in the ballot for answer. Subsequently, the DCMS summarily moved them to other Departments for answer, and having seen today’s Question Time, we may understand why it chose to avoid them. Could you help me understand how that occurred, and would it be possible to look at the current procedures to help prevent Ministers from using them to park matters that they are too embarrassed to deal with, and indeed from further diluting scrutiny of their actions by making such questions eligible only for a written answer?
Mr Speaker
I thank the hon. Lady for her point of order. That is a very unfortunate sequence of events, and I am afraid that there are really only two points that I can make to her today. First, the decision as to whether to transfer an oral question from one Department to another is exclusively a matter for the Government. It is not a matter for, for example, the Chair.
Secondly, as I have had reason to state on several previous occasions, I strongly deprecate the practice of late transfer of oral questions by Government Departments. It could have been done earlier. It is very unseemly and very discourteous to Members, and whatever the motivation behind it, it will inevitably fuel the type of suspicion that the hon. Lady has eloquently articulated this afternoon. I am pleased that the Deputy Leader of the House is on the Treasury Bench and will have heard that point. I hope that it will not be necessary continually to repeat it.
Backbench Business
Banking Reform
(14 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
19:32 - The House divided: - Ayes: 10 / Noes: 284 - Question accordingly negatived.
Mr Speaker
It might be for the convenience of the House to know that I have imposed, on account of the level of interest in this subject, a six-minute limit on each individual Back-Bench contribution, such limit to take effect when the mover of the motion has completed his speech. I would add also for the benefit of the House that I have selected neither of the amendments on the Order Paper.
Mr Michael Meacher (Oldham West and Royton) (Lab)
I beg to move,
That this House, concerned that no action has so far been taken which would prevent a recurrence of the financial crash, calls upon the Government to establish a clearing house for approval of all financial derivatives and to set in place alternative mechanisms to remove the implicit taxpayer guarantee, other than to purely deposit-taking banks, in the event of any future banking collapse.
The motion is on the Order Paper through the good offices of the Backbench Business Committee, and I take this opportunity to congratulate the Committee and its Chair on the way in which, in my view, they have already opened up Parliament to valuable new procedures and paved the way for important debates that might otherwise not have happened. I hope and believe that this might be one of them.
I begin with the words of the managing director of the International Monetary Fund, Dominic Strauss-Kahn, who a few weeks ago told Stern magazine that he thinks a second financial crisis is almost inevitable given the paucity of reform and the vulnerability of the financial system, and that next time round it may well be impossible to persuade taxpayers to fund bail-outs. I do not believe that is an exaggeration, and the latest travails of the eurozone serve only to underline those fears.
It is worth noting that we in the UK have more bank lending as a proportion of our gross domestic product than even the Irish—some £7 trillion, which is five times our GDP. If we are to prevent a repetition of the financial crash, it is clear that its causes must be identified and dealt with by appropriate means. I argue that those causes, in the main, include: an over-lax monetary policy that encouraged an excessive leveraging culture; extreme light-touch regulation that left too much to the markets; the development of a vast global market in credit derivatives, which were not well understood, and which Warren Buffet, the world’s second richest man, notably described as
“financial weapons of mass destruction”;
the role of enormous bonuses, which drove recklessness; a banking structure so over-concentrated in the lead banks that when disaster struck, they were judged to be too big to fail, with catastrophic consequences, as all hon. Members well know, for national debt and the budget deficit; and a banking model that linked speculative investment with retail deposit taking, both of which were protected by an implicit taxpayer guarantee. I hope that that description is accepted on both sides of the House.
All those causes need to be dealt with, and yet none has been. Given the limited time, of which I am very conscious, I want to concentrate on the most important. First, financial derivatives are a perennial candidate for causing the next crisis, because they add opacity and leveraging to the financial system. Credit default swaps, a £65 trillion market, and collateralised debt obligations, which are one of the most common derivatives, urgently need regulation.
Mr Meacher
I will give way to the right hon. Gentleman, but having heard what Mr Speaker said, I am reluctant to take more interventions, precisely because this is a very short debate—only three hours—and many wish to speak. We already have a six-minute limit, and I have too often been at the back of the queue, unsuccessfully waiting to be called at the end.
Mr Redwood
I am grateful to the right hon. Gentleman, and I shall refrain from intervening at great length for the very reason he gave. Will he explain to the House why over the past decade the UK banking regulator allowed the huge expansion of balance-sheet risks of all kinds, and why it did not demand more cash and capital?
Mr Meacher
I mentioned light-touch regulation in the City of London, which we have had since the Thatcher era and through the Blair era. I believe that that needs to end. We want not excessive but adequate and proper regulation, and for the past three decades, in the so-called neo-liberal era, we have not had it.
Derivatives should be approved by the regulatory authority before they can be issued. At that stage, they can be either prohibited or accepted, perhaps with certain conditions attached. The key point is that transparency is essential. It is worth noting that the recent Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to achieve that by requiring that all derivatives are traded on public exchanges.
Linked to that is the role—or perhaps the scandal—of the credit rating agencies in allocating a spurious status to some highly dubious securities. Light-touch regulation in this country has evaporated into virtual deregulation. Credit rating agencies were paid by the very institutions whose credit worthiness they were supposed to be assessing. By granting the highest rating, as they so often did, they made it easier for the banks that were securitising and further repackaging debt to create the greatest possible number of securities with the lowest possible regulatory cost. That practice should never have happened, and I believe that it should always be prohibited where there is a serious conflict of interest, as there was in that case.
Mr Meacher
I know of the hon. Gentleman’s expertise in this matter, and I will give way to him, but I will not give way subsequently because I want to speak for only about a quarter of an hour.
Sajid Javid
Does the right hon. Gentleman realise that the price of credit derivatives over the past three or four years has been far more accurate as a predictor of default risk than the credit ratings given by rating agencies?
Mr Meacher
The hon. Gentleman makes a good point of which we need to take account, but I still think that the credit rating agencies potentially have an important role. They are listened to in the market, are the basis on which financial transactions take place, and should be trusted, but in the present circumstances they are certainly not. However, I am grateful for his question.
On bonuses, there is outrage among not just Opposition Members but, for example, right-wing Governments in Germany, France and Sweden, that a banking system that owes its continued existence to massive Government intervention should pay itself mega salaries and bonuses entirely out of line with the top of business, let alone ordinary taxpayers. There is outrage especially because those gigantic bonuses often drove the recklessness in the first place. The overweening power of the banks attracts almost universal hostility, especially given that 90% of investment bank profits, in an era of austerity, are directed not at strengthening balance sheets, at shareholders through dividends, at customers through lower fees or at taxpayers, but at bonuses.
France, among several others, has demanded a mandatory cap and that there should be no guaranteeing of bonuses, but Whitehall, as usual of course, argues that it would not be practical. However, if the G20 Governments insisted on limits and made continued liquidity provisions dependent on compliance, no bank could refuse. I believe that Her Majesty’s Government should now be taking the lead in the G20 not in succumbing to lobbying from the City of London and the British Bankers Association, but in reining back bonuses on a much greater scale than we have so far seen, and to much lower levels, and in ensuring that they be paid only in exceptional circumstances.
On the broader question of averting future financial crises, attention has so far largely focused on enhancing capital control, but that does not actually have a good record in this regard. At the outset of this latest crisis, virtually all financial institutions across the globe had capital adequacy of between one and two times the minimum Basel regulatory requirements—at least at that level, and in some cases twice as much. Basel III, which has just reached its provisional conclusions, is scarcely any improvement. The core top-tier capital requirement is only 4.5%, and the contingency capital requirement is only 2.5%. Of the EU’s top-50 banks, 45 already meet that standard, and Basel III is actually proposing that the requirement not be introduced until 2019. This is simply nowhere near good enough. A much better possibility might be counter-cyclical capital controls, enforcing different levels of bank capital at different stages in the economic cycle. I can see the point of that, but I suspect that it would leave open the problem of the degree of ratchet and the timing of it. I suspect that that would be far too problematic.
An alternative approach—many have talked about this—is the introduction in Britain of something like the Volcker rule, restricting banks from undertaking certain kinds of speculative trading, notably proprietary trading. Of course that would certainly stop banks doing what they are doing at the moment, which is trading on their own books with the money of depositors. The key point, however, is that it would not overcome the too big to fail problem when applied to investment banks. For example, I do not think it would prevent a repetition of the collapse of Lehman Brothers; neither would it address the interconnectedness—the Chancellor was speaking about this a few moments ago—of today’s banks, with counter-party relationships and exposure between commercial and investment banks, and insurance companies. That is the problem. I say this with regret, but any rule-based reform is almost certain to face the risk of regulatory arbitrage, because financial institutions invent ever more sophisticated products that are simply aimed at getting around regulatory controls. I therefore do not think that what I have described is an adequate answer. For all those reasons, the force of argument and the balance of advantage point strongly towards separating retail from investment banks, in establishing distinct, narrow banks that are conservative, transparent institutions with no financial instruments or incomprehensible balance sheets.
Mr Meacher
I am being intervened on by someone whom I cannot resist. I am only too glad to give way to the Chairman of the Treasury Select Committee.
Mr Tyrie
I am grateful to the right hon. Gentleman. On that point, does he agree that the Government have done the right thing by creating the Vickers review? The review will examine, in depth and carefully, without rushing a reform, whether structural reform of the banks is required, and will give us guidance on how to protect ourselves from the too big to fail problem.
Mr Meacher
I entirely agree with that, and I was just about to make the same point myself. I hope I can also take the hon. Gentleman with me when I say that Parliament should have the opportunity to express its views to the Vickers commission before it reports, rather than simply making comments when its work is virtually a fait accompli. Indeed, that is one of the purposes of this debate.
The key advantage claimed for the model that I am describing is that it would remove the implicit taxpayer guarantee—that is, the capacity of the financial conglomerates to use retail deposits, which are implicitly guaranteed by Government, as collateral for proprietary trading; or, as the Treasury Committee put it, I think rather nicely, banks playing
“at a high-stakes casino table with…taxpayers’ chips.”
I have a lot of respect for this model, but the crux of it is that the withdrawal of the taxpayer guarantee would be a sufficient deterrent to prevent investment banks from engaging in highly risky investments that might collapse, with serious and far-reaching consequences for the national economy. The real question—which I do not think enough people have asked—is whether that is likely to be true. The fact is that if a financial institution outside the protected narrow banking boundary threatened systemic contagion, it is difficult to believe that the Government would not attempt some form of bail-out. I therefore have to say, regrettably, that I doubt whether the narrow banking model could, by itself alone, be relied on to overcome the problem of moral hazard and too big to fail.
Does that mean that there is no solution to the too big to fail problem? Not necessarily. There is an alternative to narrow banking as a means of preventing a bank from gambling away other people’s money, which is the recent Kotlikoff proposal in the US. It is a proposal that deserves serious consideration—consideration that I hope the Vickers commission will give it. In the US context, it is proposed that all financial companies become pass-through mutual funds. They would have a 100% equity ratio, to ensure bank solvency, and the payments function of banks would be performed by cash funds that would be 100% reserve—for example, through Treasury bonds. Such banks could, of course, still initiate new mortgages and new loans, but these would not be funded through deposit accounts until they had been sold to a mutual fund. The key point is that the bank would never hold them; in other words, the bank would never have an open position. Banks would not own assets—apart, of course, from their offices and so on—and they would not then be in a position to fail or trigger a bank run. That is a significant proposal.
For those—and there are plenty of them—who want to take greater risks beyond a cash-based mutual fund, there are already hundreds of investment avenues that would continue to be available, such as foreign exchange, derivatives, real estate, hedge funds and all the rest. The key difference with this limited-purpose banking would be that any failure in such investments would be incurred by the investor, not by the bank. That is the crucial point. There would be no problem with the banks being too big to fail or trying to insure the uninsurable risk of financial contagion. Critically, there would be no future claims on the taxpayer.
This reform would overcome a critical market failure without the need for any vast new complex regulation. I say that for the benefit of those on the Government Benches. It is, in effect, a market solution. It is true that it would not necessarily prevent asset bubbles—I do not think that anything can do that, certainly not in this area—but under limited-purpose banking, such bubbles would not threaten the entire financial system. Anyway, there would be nothing to preclude some form of macro-prudential authority from having oversight in this area. I think that that would be a very good idea.
I am not suggesting that this reform would be a panacea, because I do not believe that a panacea exists in this area. It should, however, be thoroughly investigated by the Vickers commission and, I hope, by the Government. I do not think it is an exaggeration to say that at present Britain has the most profoundly dysfunctional banking system of any G7 country. It came nearer to collapse than any other in the autumn of 2008. I believe that we need to break up the mega-banks, with their addiction to mortgage lending. We need smaller banks and, in particular, specialist business banks such as infrastructure banks, housing banks, green banks, creative industries banks and knowledge economy banks. Only that kind of fundamental reform of the banking system, involving all the elements that I have described, can provide the foundation for the economic and social transformation of this country that we all want. I commend the motion to the house.
Mr Deputy Speaker (Mr Nigel Evans)
Order. A six-minute limit will apply to all Back-Bench speeches.
Mr Douglas Carswell (Clacton) (Con)
I congratulate the right hon. Member for Oldham West and Royton (Mr Meacher) on securing this debate. He made some important, and actually rather sensible, points and gave a powerful critique of the status quo from a position on the left. However, as a free marketeer, I have to disagree with him. I believe that we need a free-market critique of the status quo, but the centre-right has failed to think critically about the status quo for too long. The right hon. Gentleman has therefore done us a great service by forcing Conservative Members to ask the questions that for years we have failed even to ponder. We are in this mess not because of an absence of the free market but because we do not have a proper system of free-market banking. It was not the markets that caused the banking mess that we are in; the markets called time on other people’s unsustainable folly. They called time on an unsustainable credit boom and on the folly and stupidity of central bankers.
Banking is undoubtedly corporatist. To put it another way, if one were to read Ayn Rand’s “Atlas Shrugged” and to replace the words “railroad” and “rail company” with the words “credit” and “bank”, one would get a pretty good description of what has been going on in recent years. We have had a failure of the free market in the allocation of credit in this country. It is extraordinary that we compound that failure by talking ourselves into seriously suggesting that politicians and technocrats should ration credit. The absence of a pricing mechanism at the heart of the banking system is ultimately what caused the credit boom and the banking failure. In a normal market, when demand for a product increases, the price for that product goes up. That, in turn, stimulates supply.
In banking, unfortunately, things are a little different. When demand for credit increases, the price—the interest rate—is kept low or constant. Pricing does not therefore stimulate increased supply. On the contrary, a supply of additional credit is not met through higher savings. It is met by the creation of candyfloss credit—by banks being able to conjure up credit out of thin air. Banks do not meet the additional supply of credit by encouraging more people to save; on the contrary, they continue to lend IOUs on the basis of IOUs on the basis of IOUs. At the height of the credit crunch, for every pound deposited in a bank, IOUs had been written out some 44 times through the miracle of fractional reserve banking.
Banks have a legal privilege to conjure up credit out of nothing that ultimately stems from their ability—this is an extraordinary fact—to call a depositor’s deposit their own, to treat it legally as if it were their own, and to lend against it many times. It is that practice that has resulted in a credit pyramid and runaway credit booms, unrestrained by the pricing mechanism that would normally apply and would normally restrain demand and supply. The demand is unrestrained, the supply is unrestrained, and the price is low. The result is Ponzi credit bubbles. An incredibly distortive and disruptive effect is created every 20 or 30 years in supposedly free-market economies that have corporatist banking at their heart, and it leads to sugar-rush booms.
If a whisky distiller sold empty bottles or a food manufacturer sold empty food packets, they would be done for selling thin air, yet banks are essentially allowed to sell empty IOU promises—and people dare to call that the basis of the credit system that fuels capitalism. No wonder capitalism appears to be at risk. We have a crony system of corporate capitalism rather than free- market banking.
Since the credit crunch, experts in orthodoxy have talked about three different solutions, the first of which is low interest rates. We have had pretty low interest rates, and do you know what? It has not really stimulated an increase in the supply of credit. That should not surprise us. Keeping prices low does not stimulate production. Secondly, people have printed more money: big government has shored up a big corporatist banking pyramid on the back of the real wealth creators. It is a system of indirect taxation, inflation and debauching the currency. Thirdly, people have talked about breaking up the banks.
I disagree with all those proposed solutions, but I take issue particularly with the idea of breaking up the banks. I think that instead of crude institutional separation of the banking system, we need an alternative that allows legal separation within existing banking structures. We need a new legal status for deposits, so that a depositor who opens an account can choose to ensure that his deposits are legally his property, and the bank cannot endlessly lend against them. That would not abolish fractional reserve banking, but it would allow us to decide over a long period, organically, whether we needed to move away from the banking system that we have at present, which allows endless candyfloss credit to be manufactured.
Banks do need reform, but I do not believe that they need more controls. We need to address fundamental flaws in the banking system, but in a way that ensures that the pricing mechanism allocates the supply of credit properly. We need less from central banks and fewer controls from central bankers, not more.
Mr William Bain (Glasgow North East) (Lab)
It is a pleasure to be able to contribute to this important debate. I thank my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) for having the good sense to persuade the Backbench Business Committee to secure it. It is also a pleasure to follow the hon. Member for Clacton (Mr Carswell). I agreed with some of his remarks, particularly the one about breaking up the banks.
When I was preparing for the debate, I had occasion—and a little more time than I expected, owing to my difficult journey from Scotland to London today—to examine an excellent study of the banking crisis by three major economists in a book entitled “Balancing the Banks”, by Mathias Dewatripont, Jean-Charles Rochet and Jean Tirole. Jean Tirole’s chapter in particular details, in very precise order, the reasons for the crisis and makes several points. First, it deals with the crisis in United States home loans, which spread to other sectors and other countries. The staggering expansion in the level of securitisation partly explains the difficulties that the US banks got into. Between 1995 and 2006 the proportion of loans that were securitised rose from 30% to 80%, and the proportion of sub-prime loans that were securitised increased from 46% in 2001 to 81% in 2006. Jean Tirole also points out the lack of high-quality collateral backing many of these loans, which particularly came to our attention when the inter-bank bond and derivatives markets simply froze up. Added to that, excessive liquidity fed the demand for securitisation. As my right hon. Friend the Member for Oldham West and Royton pointed out, monetary policy was also very loose, particularly in the United States, and the performance of credit rating agencies hardly covered them in glory.
Another important point in understanding what went wrong is the failure of international regulation of the banks. For example, the level of off-balance-sheet liquidity support increased hugely, especially in America. There has also been a need to rediscover what prudential regulation of the banking system should be about. It should be about, first and foremost, protecting small depositors and investors, but also containing the domino effects of systemic risk.
We should therefore welcome some of the recommendations of the Basel Committee on Banking Supervision. The key failure of Basel II was its reliance on pro-cyclical capital controls, and one of the Basel III reforms we should welcome is the introduction of counter-cyclical buffers. I think it is also true to say that Basel II was too complex. It was based on a pillar structure that was both difficult to understand and unable to anticipate systemic risks to the banking system or, indeed, manage financial innovation. As my right hon. Friend pointed out, it was unable to predict the chaos that credit default swaps and collateralised debt obligations would create throughout the world. There needs, therefore, to be an increase in the capital and liquidity banks should hold.
I disagree, although only slightly, with my right hon. Friend in one respect, however. Basel III does introduce a powerful counter-cyclical element of up to 2.5%, which may be significant in preventing future problems. There is also a balance to be struck.
Charlie Elphicke (Dover) (Con)
Is the hon. Gentleman aware that Basel III also seems to introduce an incentive for increased invoice discounting and trade factoring, and is that not slightly undesirable?
Mr Bain
The hon. Gentleman raises an interesting point. I was about to make the point that Basel III strikes a balance between protecting the taxpayer and the state and promoting economic growth. I understand the banks have been lobbying to try to diminish some of the effects of holding extra capital. Indeed, when I met a representative from Lloyds Banking Group in Glasgow on Friday, he lobbied me to take that position.
What we have witnessed is a crisis that began in the housing and asset price markets in America. It spread to other countries and to the banks of other countries, and it has now also spread to the state. It is important that the taxpayer can see that there are buffers to prevent the state from having to bail out banks across the globe. Having a counter-cyclical element should help achieve that.
The Government should continue the work the previous Government did in pursuing the issue of getting a global deal on bankers’ bonuses. If they do not, or if they are unable to achieve a global deal, the UK and the EU should be prepared to take a lead in giving greater transparency and reducing some of the terrible incentives to sharp practices in the last decade.
Across the world, we are seeing the terrible effects of a credit crunch causing a banking crisis, in turn causing a deficit crisis and then a growth crisis. In the coming months and years, we need to put in place a policy that sorts out the system for good. We need a policy that learns the lessons from the crisis and ensures the taxpayer never has to foot a huge bill for the terrible behaviour of a greedy few.
Sajid Javid (Bromsgrove) (Con)
I thank the right hon. Member for Oldham West and Royton (Mr Meacher) for securing this debate, which is a valuable one to be having in the House. I draw the attention of hon. Members to my entry in the Register of Members’ Financial Interest, which is a legacy of my spending 18 years in the banking industry. Before Labour Members get a bit too excited by that revelation, as many have unfortunately done in the past, I should say that for the past three or four years I felt that the profession of banker was possibly the worst to have in the eyes of the public, but that was before I became a Member of this illustrious House.
The motion states that we want to
“prevent a recurrence of the financial crash”.
Obviously we are all united on that, but it is important that we examine the causes of the crash, which we could debate for a long time and go round in circles. I am sure that many rational people will disagree on the responsibilities of banks and bankers. I may have misunderstood the motion, but it seems to suggest that banks are entirely responsible for the financial crash. That is wrong and it does not do justice to Members of this House or to our constituents in preventing something like this from happening again.
The financial crash happened because too much money was chasing too few assets—financial assets or real assets such as real estate. There are three principal reasons for that, the first of which was that world financial reserves, particularly in the east, were growing at a substantial rate. Indeed, they continue to do so, as more people in the west consume goods from the east. To give just one illustration, China’s financial reserves in 1990 were $165 billion but today they are $2.65 trillion. Those reserves needed to find a home.
The second reason is that commodity prices have grown substantially, partly as a result of the growth of the east and other emerging markets, and that has led to a substantial increase in sovereign wealth funds, both in the middle east and in other markets. Those funds also needed to find a home, and they created a colossal wall of money when combined with the financial reserves.
The third reason is something that bankers have called the “Greenspan put”. Alan Greenspan became chairman of the Federal Reserve in 1987, just before the Wall street crash, and one of the first things he did when he found a problem in the financial markets and a potential crisis brewing was to lower interest rates as quickly and as substantially as he could. That happened again when the US Federal Reserve led the way after the dotcom bubble burst in 1991, again when Russia had problems and there were problems in Asia, and it has just happened again. Bankers have got used to that approach and it results in what the markets call a “put”, whereby they feel they can sell assets if things go wrong. That has encouraged bad behaviour and a moral hazard: the idea among many bankers of “heads we win, tails the taxpayers lose.”
In addressing these issues, we must not forget those key facts about what caused the crisis. However, bankers did play a significant role and there are things about banks that we need to examine. Although there are issues to address in respect of financial derivatives, I would not make that the key priority. The first thing to examine is the idea of retail banks and commercial investment banks acting as one entity, because that seriously needs to be looked at.
I started working in the banking industry in New York in 1992. Under the Glass-Steagall Act, which was in place at the time, the bank I worked for had to have a completely arm’s length relationship with its retail banking division. That made a big difference to the risks the bank took or even contemplated taking. That situation changed in the late 1980s in Britain, when the big bang took place and the implied Glass-Steagall arrangement disappeared, and it formally changed in the United States in 1999 when that Act was removed. It is vital to examine that. The second thing to look at is, as has been mentioned, banking capital itself.
Mr Chuka Umunna (Streatham) (Lab)
Would the hon. Gentleman be prepared to share his thoughts on whether we should return to a Glass-Steagall model, which I understand the Clinton Administration did away with when in office?
Sajid Javid
There are some considerable merits in that model and given what has happened we should consider it seriously. I hope that the Vickers commission does that.
Secondly, we should consider the banks’ capital requirements. It is right that under Basel III capital requirements should be lifted. The core tier 1 capital requirement will be lifted from about 2% for banks to about 7%. Some points are still missed, however. The focus is far too narrowly on the default risk of assets and we have strange incidences even with default risk—for example, under the new proposals industrialised sovereigns are still considered to be risk free. As we speak, Ireland’s 10-year Government bonds are trading at more than 11%, Spain’s 10-year bonds are trading at more than 6% and Germany’s are trading at more than 2.5%, but they are all treated as zero-risk weighted and no risk capital will be set aside. No account is taken of liquidity, either. One of the largest problems for banks over the past three or four years was lack of liquidity, but the capital requirements do not take full account of that.
One of the biggest mistakes that made Britain’s situation far worse than that of other countries was the change in regulation when Tony Blair’s Government first took office. The jobs of people at the Bank of England, who knew what they were doing, were taken over by people at the Financial Services Authority, who did not know what they were doing. I remember an FSA audit where the chief auditor of my credit derivatives book, which had a market value of more than €100 billion, was a 27-year-old with a degree in biology. It is no wonder that problems started to happen. We do not necessarily need more regulation, just smarter regulation.
There are many issues to consider that we could debate for a long time. Banking regulation is one such issue, but we do no service to our constituents if we merely focus narrowly on it when we consider the lessons of the financial crisis.
Mr George Mudie (Leeds East) (Lab)
I compliment the hon. Member for Bromsgrove (Sajid Javid) on a thoughtful speech. At one point, I disagreed with him and at other points I found myself very pleased with the sentiments that he expressed. The Backbench Business Committee deserves congratulation for tabling the motion and I hope we will have more opportunities to discuss the subject in Government time. We must reach consensus if we are to get this right.
I worry, particularly against the background of what is happening in Ireland, that we are going too slowly. There was an argument in the beginning that we should not do things in haste and that was sensible, but three years on from the time Northern Rock went down we should be starting to implement some of the measures, not merely discussing them. I know that there is an international context, but on the domestic front we should be further forward than we are.
The Government’s amendment mentions matters such as “regulatory architecture” and “prudential regulation”, both of which are part of the package that is going through the Select Committee on the Treasury and that will eventually come to the Floor of the House. I am not sure that they alone will matter. Basel III, according to the Governor of the Bank of England, “won’t prevent another crisis”. I think that is fair.
So, Basel III, regulatory architecture and prudential regulation are what the Government initially—certainly in this low-key debate—are putting forward as important. They are secondary to an acceptance by those who are in the banks and who own the banks of the fact that they need regulating and that they should share the objectives of the regulators. Sadly, in the past three years I have not seen any signs that that has been accepted at a senior level in the banks. If we were to look for one person, organisation or thing that started or caused the crisis, we would be wrong, but central to it were the banks’ securitisation exercises and adventures, which paralysed the whole financial structure and the wholesale markets. They must be accepted as a major part of where we are now and of what we have gone through.
Jim Shannon (Strangford) (DUP)
The last bank bail-out—for the Royal Bank of Scotland, Lloyds TSB and HBOS—cost £37 billion and we were told that there would be conditions on staff bonuses, but nothing has happened in the past three years. Does the hon. Gentleman agree that one of the things that annoys people the most is the bonuses that go to staff members when the banks are not doing their job?
Mr Mudie
The hon. Gentleman makes a very powerful point which links with a point I was about to make. I have described the regulatory structure. There are differences between regulators throughout the western world, but the fact that they were all caught out shows that structure is secondary and that changes to structure alone will not prevent another crisis. We have all been affected despite those different structures, so one cannot attack regulatory structures or see them as a salvation. I regard such restructuring as simply rebuilding the Maginot line: it shows the public that we are doing something, that we are hard at work and that there is something concrete, but when it comes to effectiveness, it would suffer from the same deficiencies as the original Maginot line, so I do not think that structure matters.
If the banks, the bankers and their shareholders do not accept that they have to change their practices then what do we have? We have no regret from the banks and no acceptance that they played a part in events. Let us consider their behaviour over bonuses.
Andrew Bridgen (North West Leicestershire) (Con)
Will the hon. Gentleman give way?
Mr Mudie
Let me finish my point and I certainly will. The behaviour of the banks over bonuses at the senior level is obscene and offensive to every one of our constituents. At a meeting on Saturday morning, I spoke to someone whose wife works for Halifax. She is going to lose her job. If one speaks to people in every part of the community one finds that they are looking forward to 2011 with great worry and concern because more than 100,000 of them are going to lose their job in the public services alone.
Mr Mudie
Excuse me for a second. Given the amount of money that the state has pumped into the banks to rescue them, it is unacceptable that bankers and senior bankers still, at this stage in the game, demand obscene bonuses at levels that many people could never think of earning even when they have worked all their life. That shows a state of mind that is not exactly right. We hear that if all that does not work, Bob Diamond will take business away from the UK. What on earth is the point of spending time building up a regulatory structure if that is the attitude? For safety, I join the hon. Member for Bromsgrove (Sajid Javid) in thinking that Glass-Steagall is a good alternative, but unfortunately for us both, as we move in that direction the Governor of the Bank of England seems to be moving in the opposite direction. We can never pin that man down, can we? I think that is the direction we should go in.
In the minute that remains, I shall explain the reasons other than safety why I support a move in that direction. I know that this might mark me out as old-fashioned, but I want the retail banks to go back to the fine role that they have historically played in financing individuals and small and medium-sized enterprises. That was their function and they did it very well, but that has been lost because the emphasis has shifted to the investment side of banking. If we are talking about rebalancing the economy, the engine for growth must be the banks. If we can get them to move across to their old role and let the investors go off and play their casino games, our real interests will be satisfied because we will get people in the financial world to focus on the productive side of the economy.
Andrea Leadsom (South Northamptonshire) (Con)
It is always a great pleasure to speak after the hon. Member for Leeds East (Mr Mudie), who is a colleague on the Treasury Committee. He always talks a lot of sense and has explained clearly how frustrated people in Britain feel about bankers’ bonuses.
I am amazed at the wording of the motion. To suggest that no action has been taken so far to prevent a recurrence of the financial crash is quite bizarre.
Andrew Bridgen
The hon. Member for Leeds East (Mr Mudie) talked about no regrets, no contrition and no admission of guilt for taking bonuses. Does my hon. Friend think he was talking about the bankers or former Labour Front-Bench Members?
Andrea Leadsom
To give a cautious answer, I think there was an element of both.
Last week, I had a meeting with senior bankers and the chief counsel of one bank. They certainly have the sense that the world has changed dramatically for them since the financial crash. As we would expect, both internal and external forces have combined to change things significantly. Tier 1 capital ratios are already significantly higher—from the 2% core at the time of the crisis to about 7% now, which is after all what Basel III will require. Leverage is significantly lower, at an average of 20 times, from about 38 times pre-crash—a considerable change. Many banks welcome the existing proposals to establish a clearing house for over-the-counter derivatives.
According to Hector Sants, the Financial Services Authority has quadrupled the extent of its regulatory investigations. He has even made comments about how afraid banks should be of him. The Bank of England special liquidity scheme still provides about £130 billion of liquidity to banks, enabling them to switch illiquid but good assets for Government bills. All those things are important changes, and they are only a few of the steps taken so far.
Still to come, in 2011 and 2012, are the new regulatory structures in the UK and Europe that will radically improve regulatory accountability. Instead of the FSA looking to the Bank of England and the Treasury for solutions—as in the case of Northern Rock—we will in future have a far stronger Bank of England. It will not just have responsibility for monetary policy and as lender of last resort; the Governor will also be ultimately responsible for individual bank supervisions and, critically, through the Financial Policy Committee, for the overall health of the financial system.
To speak of no action is completely wrong, but that is not to say that a lot more could not be done. It certainly could, and especially about two things: accountability and competition. Specifically, the competition issue worries me at all levels of banking. If we go back to Adam Smith and “The Wealth of Nations”, we see that to have successful free enterprise, we must have free entry and free exit for market players, but looking over the past 20 years, we see that consolidation in banking and the increasing costs of regulation have helped to create an industry where there are huge barriers to entry.
Justin Tomlinson (North Swindon) (Con)
Does my hon. Friend agree that it is also essential to maintain diversity in the financial services sector to improve competition and drive down consumer costs and charges?
Andrea Leadsom
Absolutely. I was about to make exactly that point. Not only have there been far too few new entrants, we have seen only recently that banks are unable to fail; we cannot risk allowing a bank to fail, as the situation in Ireland has highlighted yet again. Regulation has trumped competition for too long.
It is not simply a matter of being too big to fail. Some of the biggest continuing concerns are about the medium-sized banking sector in the States and in Germany. The same mistakes must never happen again. We need to look to where the next crisis will come. It is absolutely key to introduce more competition and more accountability, and I would consider three areas.
I should not look to split retail and investment banking, which are artificial barriers. They may have worked in the 1920s and 1930s, but now they are too big a grey area. We simply could not do it. Bankers would just find clever ways to get round such measures.
I declare an interest. I have been in banking even longer than my hon. Friend the Member for Bromsgrove (Sajid Javid), as I have been in investment banking and funds management for 23 years. I assure the House that I have seen from all ends how clever bankers are when they want to get round something.
To address competition in the retail and mortgage markets, I would consider ways to let account numbers follow the consumer—one of the biggest barriers to moving an account, as we probably all know. I should love to know how many Members in the Chamber have changed their bank account or mortgage account recently. It is a huge headache. If we let the account number follow the consumer, that would immediately create far greater competition and far greater choice and availability of moving. It could also remove barriers to entry.
Secondly, to address competition in wholesale markets, I would consider giving the new Consumer Protection and Markets Authority a specific competition objective, which would mean that one of its roles would be as a specialist competition commission—not just the Office of Fair Trading, but a specialist commission—that would consider whether, in a particular sector or in a particular geographic region, a bank had a monopolistic or oligopolistic market share. It ought to have a statutory ability then to enforce its recommendations.
Joseph Johnson (Orpington) (Con)
Does my hon. Friend agree that the role of regulators in promoting and sustaining competition in the UK financial services market has been greatly complicated by the decision of the previous Administration to allow the merger of Lloyds and HBOS, and to waive all competition criteria which would normally have been applied to such a merger?
Andrea Leadsom
That is absolutely right. We are certainly in a worse position than we were pre-crisis in terms of a lack of competition and massive market share. The five top players in the UK dominate the mortgage market, the retail market and much of the wholesale market.
The third thing I would do is ensure proper pricing of bank risk. That is where one of the fundamental problems has been. Credit ratings agencies are culpable in their own activities, and banks are culpable in following the lead of credit ratings agencies and not bothering to do their own proper credit analysis. Part of that I put down to the fact that it has been far too easy for professionals and retail investors simply to buy bank debt and equities, without bothering to do their own analysis because there has been an implicit Government guarantee. The credit ratings agencies have automatically made them all double A or triple A, so it seemed like a no-brainer.
Unfortunately, there has been no downside, and something must be done to change that radically to ensure that there is a downside to investing in bank risk. Measures such as living wills, and subordinating bond-holders to depositors and equity owners, are ways to ensure that in future it is not the taxpayer who pays for banks’ mistakes.
Finally, if competition and accountability are to be the revolution in financial services for the future, it is essential—going back to what the hon. Member for Leeds East, my colleague on the Treasury Committee, was saying—that bank directors take some responsibility. Directors who break a bank should be fired, without bonuses, pay or early pension, and if criminal negligence can be shown, the ultimate penalty of prison should not be ruled out. Accountability is key.
Mr Chuka Umunna (Streatham) (Lab)
I, too, congratulate my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on initiating this important debate. I welcome the fact that we are conducting it in a reasonably non-partisan way. I have listened with interest to the comments of my fellow Treasury Committee members, and the last three contributors in particular. Although I do not agree with everything that has been said, there is much common ground.
My general approach is that we should not set out to destroy the City. It makes a valuable contribution to our economy, not least to the tax take of the Exchequer. I spent much of my legal career working there and I know that a number of other Members present also worked there for some time. The important thing is that we reform the City so that it is run in the interests of all the British people, not in the interests of a few people in the square mile, as often seems to happen. Above all, let us reform it so that never again do any of our constituents have to pick up the tab for the mess in the sector.
We should be clear. All major political parties and Governments across the world bear responsibility for allowing what happened to develop. Let us face it: the consensus pre-crash was for a light-touch model of regulation. However, we should not forget—this is where I differ from some other Members—that it was ultimately the bankers who were to blame. Now we have to resolve what happened.
I disagree with the motion in that it suggests that nothing much has happened. I am glad to hear that other Members disagree with that. Let us look back to the G20 in April 2009 and recall what was achieved there, following the leadership demonstrated by the former Prime Minister. I remember him being ridiculed as he went around the world trying to galvanise consensus on a set of outcomes, but the summit produced outcomes that have been built upon. Three come to mind. First, the leaders resolved to establish the Financial Stability Board, the successor to the Financial Stability Forum, and as a consequence the world has a standing body of Finance Ministers, regulators and central bankers, which seeks to provide early warnings of financial risks and has a greater mandate to promote financial stability globally.
Secondly, the leaders who attended the summit took concerted action to improve the quality and quantity of capital in the banking system, and I endorse the comments of the hon. Member for South Northamptonshire (Andrea Leadsom), one of my Treasury Committee colleagues, because what came out of it—with the FSB and the Basel Committee on Banking Supervision working together —helped to produce more stringent capital adequacy requirements and the minimum equity requirement will go up to 7%. Perhaps it is regrettable that that will not happen until 2019, and perhaps it could be sped up, but it has definitely made a difference.
Thirdly, the leaders resolved to endorse and implement new principles on remuneration, and, as a result, in the March Budget the former Government put in place the apparatus within which a remuneration disclosure scheme could be enacted.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Does the hon. Gentleman agree that, if there is greater transparency on bonuses, the threatened diaspora of bankers will be nothing more than hot air?
Mr Umunna
The apparatus would help to introduce greater transparency on bonuses, because if we want to do something about reckless remuneration we need to know about it. I speak to many people in the City, and, although some of course disagree with the measure, many accept that it needs to be introduced. Action was taken, but some measures are still outstanding.
Mr Umunna
I am going to make progress, because I do not have much time.
I welcome the introduction of the independent banking commission, which the new Government were right to set up. Without pre-empting the commission, I firmly believe that we should separate retail from investment banking. There is some consensus on that, but it is a question of degree.
Mr Umunna
I am afraid I am going to continue.
Do we go for the Dodd-Frank model, which has just been implemented in the United States, or the Glass-Steagall model, which was in place from the 1930s until recently? Mervyn King has moved a little on the issue. At the Treasury Committee last week, he was very clear that he would not give his view on it until the Vickers commission reports, but Lord Turner doubts that it is possible to separate proprietary trading from commercial banking. That is why I am sympathetic to the Glass-Steagall model, but I am happy to see what the banking commission comes forward with.
I shall conclude by considering some wider issues. I should like two key outcomes from the reforms currently being implemented. First, to pick up on the comments of my hon. Friend the Member for Leeds East (Mr Mudie), we need to return to the notion of our banks as a utility. They are a utility and should be treated as such, because they are absolutely essential to our everyday lives. We have lost sight of their purpose, because we have a allowed a big, shadow banking structure to evolve while 1.75 million adults on lower incomes do not have access to basic banking services. I should like us to introduce a universal banking obligation, so that everybody has access to such services. It is a great shame that the Government have decided to do away with their commitment in the coalition agreement to introduce a people’s bank through the Post Office, because that would have been very good.
Secondly, I agree with the hon. Member for South Northamptonshire that we need greater diversity in the sector. It is dominated by a few major players, and there has been only one start-up entrant in the market, Metro bank, since 2008. In particular, I should like serious consideration to be given to breathing life into the mutuals sector. Why do we not seriously consider remutualising Northern Rock and Bradford and Bingley, as opposed to privatising them, so that we increase the diversity of providers in the sector for our constituents?
There is no magic bullet when it comes to reforming financial regulation. The previous Government made a good start; it is absolutely crucial that the coalition Government build on that.
Stephen Barclay (North East Cambridgeshire) (Con)
It is a pleasure to follow the well-crafted speech of the hon. Member for Streatham (Mr Umunna). I, like him, welcome the chance to debate this important issue. I must preface my remarks by declaring, in the interests of transparency, that I too used to work in the industry. I worked on both sides of the regulatory fence—as a regulator in policy and supervision roles, and in the insurance and banking sector—prior to entering the House.
The depth of anger felt by our constituents is very much underestimated in the City and in Canary Wharf. Constituents might hear the technical jargon that is often used in such debates, but they are not confused by what went on: they know that senior bankers made big mistakes yet kept their massive payments; they are incredulous that the banks have returned so quickly to paying bonuses, as the hon. Member for Leeds East (Mr Mudie) said; and they are frustrated that the rhetoric of reassurance from the banks is so often at odds with their own experience as customers, particularly when it comes to the fair treatment of customers.
As my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) pointed out, the motion is—dare I say it—poorly drafted when it states that “no action” has taken place. Indeed, the hon. Member for Streatham endorsed that view from the other side of the House. There has been a flurry of regulatory initiatives, such as more intensive supervision by the Financial Services Authority following its admission of regulatory failure over Northern Rock; and on derivatives, which the motion mentions, the capital requirements directive will subject contracts that are not cleared through a funding house to higher capital requirements. So, action is taking place. Likewise, the Government’s amendment rightly focuses on structure and, indeed, prudential policy, but it is silent on the key issue on which I shall concentrate: enforcement against individuals in banks.
Before doing so, I must say that so far the debate has been silent on the short-termism fostered by the pension fund management, and in particular on the pressure that that puts on chief executives, who risk being fired if they do not add shareholder value. In banks, people fear missing the targets set by their chief executive more than they fear the regulator.
Charlie Elphicke
Is not one of the serious issues with bonuses, and the point that my hon. Friend makes, that there emerged a kind of cool option, whereby bankers could receive a bonus but never lose out? Should the system not be reformed, so that bankers are able not only to receive a bonus, but to incur a loss? That would align them more with the return on whatever their bank is up to.
Stephen Barclay
My hon. Friend is absolutely correct, and I shall come on to consider the quantum of fines that have been imposed, because it makes very strongly the point that he makes.
On the regulatory structure, I am sure that my hon. Friend the Financial Secretary to the Treasury will talk about the changes that the Government are rightly making, because we need to be clear who is in charge in the event of failure. The tripartite system did not make that clear. However, I am sure that he, like the previous Chancellor in his White Paper, accepts that there is no single institutional model to insulate us from a future crisis.
The Government are also right to focus on prudential policy, but I caution against a reliance on policy itself, because we need only look at how often it has changed. We are already on Basel III, Solvency II and MiFID II —the markets in financial instruments directive—and the next debate is on commission in the retail sector, which has been debated for many years.
To give a specific example of the flaws in new policy, let me direct the House to “best execution”—one of the features of MiFID that required banks to shop around to obtain the best price. It will not surprise Members to discover that when banks shopped around they happened to find, in accordance with their written policy, that the best possible price just happened to be the one offered by their investment banking arm. Notwithstanding, therefore, the limits of new structures and policy, I believe a clearing house for derivatives would be a welcome step and a key component in addressing opaque financial instruments, such as securitisations, which stopped people obtaining the required visibility in respect of bank balance sheets and which was central to stopping banks lending to each other. Alan Greenspan’s claim that derivatives efficiently dispersed risk throughout the financial system ignored the concentration of risk in individual firms. We need only look at AIG to see the effect of that sort of concentration of credit risk.
A perhaps more technical point is that clearing houses should be more consistently valuing collatoralisation requirements across all banks. The reason for that is the different requirements that apply to UK and German banks, for example, in terms of their capital standards and liquidity requirements.
The most glaring issue that needs to be addressed is that of enforcement—in particular, the lack of transparency that goes to the heart of the sense among constituents that people have had a one-way bet. That was the point to which my hon. Friend the Member for Dover (Charlie Elphicke) alluded. To give an example, the failure of enforcement and the lack of a taxpayer’s guarantee has been material, particularly now that investment banks are not partnerships; I do not think that many partnerships would have leveraged their capital up to 40 times, as many of the banks did. Put simply, the alignment of interest between shareholders who provide the capital and employees who allocate it is not as strong as was historically the case. That is one of the features of a shadow banking system in which the banks had no long-term interest in the securitisations that they structured and underwrote. We would not allow such a thing with an aviation or pharmaceuticals company; they could not design and profit from products that they expected to fail, as Goldman Sachs did with the Abacus deal.
In the final minute allocated to me, I turn to the quantum of fines. To put the matter in context, no fine has been imposed on any senior executive at HBOS, HSBC, Barclays, Lloyds or Royal Bank of Scotland. The biggest three fines, applied to Northern Rock, amount to less than £1 million—that is, less than the chief exec earned as a bonus the year before. The fines were subject to 20% and 30% discounts as a result of early settlement and on the grounds of hardship. For that reason, our constituents feel that no one has been held accountable. They have seen people walk away with the profits without being held accountable for the things that went wrong. As the Minister looks at the structure and policy, we also need to learn the lessons of why enforcement against individuals has failed.
Alison McGovern (Wirral South) (Lab)
I begin by congratulating the Backbench Business Committee and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on securing this debate, which has been illuminating and measured. I join the hon. Member for North East Cambridgeshire (Stephen Barclay) on the important point that he made at the beginning of his speech: in the City, there has been a lack of recognition of the depth of anger among many of our constituents. The hon. Gentleman is right about that, and I hope that this debate can start to set that issue right in some way.
I want to make three swift remarks. My first is about the tripartite arrangements. I want to take the House back in time. I well remember when interest rates were set by politicians. In many ways, our tripartite arrangements have been a success. As economists predicted before the change, Bank of England independence aligned to inflation targets has allowed an independence, a clarity, a robustness and a rule-based approach. It is important to recognise that. We have been discussing a lot, and people have rightly raised, some issues to do with the failures of regulation, but we need to recognise why we changed to the tripartite arrangements and consider the importance of that change in 1997.
However, today I want to suggest that we cannot just question and consider regulation, important though that is; we need to look for a change of culture in the financial services sector as well. Many people have already recognised the imbalance in respect of the major role that financial services play in our economy, but I do not think that that imbalance is mainly regional—it is not a case of London and the south-east versus the rest of the UK at all. We know of the importance of banking in Scotland, and in my own area of Merseyside, many people work in the financial services sector or in organisations that contract to it. In 2007, such activity amounted to 14% of PAYE and 27% of corporation tax.
I want to make the point that the impact of the sector is not just that regulation might help or hinder small business; as we have all seen, it also has a massive impact on public services. Getting right the structure, regulation and culture of the sector is one of the most important jobs that we have to do.
I turn to the importance of the changes that we all want. First, on regulation, the issue is about not just capital requirements but the work that Basel III might—and must—do on liquidity requirements. In many ways, the credit crunch is misdescribed; it should be described as a “liquidity crunch”. The question that we need to ask of all banks relates to their access to liquidity as much as to capital.
Whoever has the supervisory powers, whether the Bank of England or the Financial Services Authority, it is important to determine what those macro-prudential powers actually are. Furthermore, we must have a credible means, transparent and understood by all, of dealing with failed banks. A process needs to be in place. People have mentioned living wills. We need to make sure that what happens with failed banks is understood by all, so that the risks lie with shareholders and people within the system rather than with an implicit taxpayer guarantee. We will see that as the place that we are trying to get to.
Finally, I leave the House with this thought. If we are to understand the crisis that we went through in 2008-09, we must realise that it was not merely a crisis of regulation. The commission on banking reform that the Government rightly set up should listen to the Chartered Institute of Bankers in Scotland. It has warned Sir John Vickers that new regulation will fail if it is not combined with
“a firm commitment to embedding a culture of high ethical, professional and technical standards amongst bankers throughout the industry”.
That point is really important. Those of us who see the importance of the financial services sector want a change in its culture as much as a change of regulation. That has to be about high ethical standards.
In conclusion, I hope that the measured nature and thoughtfulness of this debate will send a message to all about the seriousness in which we hold these reforms.
Andrew Bridgen (North West Leicestershire) (Con)
Thank you, Mr Deputy Speaker, for letting me catch your eye in this debate; this is a little different from the last time that I spoke. I remind you, Mr Deputy Speaker, that it is not the size of the dog, but the size of the fight in the dog that decides who wins.
This is an important debate because we need a vibrant, strong and confident banking sector if we are to see the essential growth that all hon. Members desire for our economy. Before we look to the future, it is important that we should address the problems of the past, including the very recent past.
Many Labour Members seem to be keen simply to bash the bankers and blame them for the financial crisis and recession rather than look at the causal and contributory parts played by their own former Treasury Front Benchers, including the former Chancellor and Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). He has much to answer for, and I wish that he were in the Chamber more often so that he could do so.
Mr Umunna
In fairness to many hon. Members who have spoken from both sides of the House, I should say that there has been a recognition that although the crisis was not 100% the fault of the bankers, they bear a huge part of the responsibility. As I said when I spoke, I think that before the crash there was a consensus around the world that tended towards a light-touch regulatory regime. That is something for which everybody, on both sides of the House and in legislatures throughout the western world, has to take responsibility. That has been acknowledged in the Chamber. Will the hon. Gentleman acknowledge that that sentiment has been expressed during this debate?
Andrew Bridgen
The hon. Gentleman makes that point, but the previous Government encouraged and took part in an orgy of credit: in fact, they led it, and invited individuals and corporations to join in, safe in the knowledge that the former Prime Minister said that he had ended boom and bust, which now sounds as ridiculous as King Canute claiming he could turn back the tide. The taxpayer now has the hangover from that 10-year orgy of credit.
Under the former Prime Minister’s watch, the Bank of England deliberately stoked a consumer boom that led to spiralling house price inflation and massive levels of personal debt. This is not just my opinion, but that of the previous Governor of the Bank of England, the late Lord George, who said of that period:
“We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term.”
That approach led to 20% house price inflation when the consumer prices index was running at 2%, led to financial institutions such as Northern Rock offering 120% mortgages, and ultimately led to a run on a British bank and the financial crisis of 2007. Opposition Members might blame America, global markets, or even the fact that we are not in the euro, as ridiculous as that sounds, but this misguided belief, and the hubris of the previous Prime Minister in believing that he had ended boom and bust, helped to contribute to the banking collapse. It is fascinating that the shadow Home Secretary—or perhaps I should say the shadow shadow Chancellor—stated that the cause of the deficit was not the previous Government’s borrowing, but rather the collapse of tax revenues. He failed to recognise that tax revenues based on rapid house inflation and excessive consumer credit are totally unsustainable.
The failure of the previous Prime Minister’s regulatory regime also contributed to the problem. It was clear in the early part of the decade that the UK had an unsustainable consumer credit funding gap: the IMF said so, as did the previous Governor of the Bank of England. The power to regulate had been transferred from the Bank of England to the Financial Services Authority and the Treasury, with an inadequate definition of roles and responsibilities. It was an absolute disaster, as was shown at the height of the Northern Rock crash, when Mervyn King was asked, “Who is in control?” and his answer was, “That depends on how you define ‘in control’.” The answer was that nobody was in control, and no one could see who was in control. One cannot have a third of a problem—one wants all of the problem or none of it. That was part of the difficulty.
So where do we go from here? I am a firm believer in sound money. A sustainable banking system is one where lending policies are closely in sync with the projected economic activity of the people it serves, not driving them.
Alison McGovern
Does the hon. Gentleman recall, as I do, that the previous Conservative Government left the country with a deficit of 3.4% which was going towards ongoing spending, unlike the debt in 2008, which accorded with the “borrow to invest” rule? In relation to sound money, what does he think about that?
Andrew Bridgen
I thank the hon. Lady for her point. She, like me, was not in this place at that time. I was in business running a corporation. I fixed the roof while the sun was shining, and I put my company into net credit three months before the banking crash happened.
We need a Government—and a regulator—who do not deliberately go to sleep at the wheel for political advantage, as the previous Government did. We must never let a bubble like the one that built up under the previous Government build up again. Our plan for growth depends on a sensible and sustainable banking system alongside more powerful incentives from Government. We must never return to the bubble that ended in the financial crisis and allowed banks to lend unsustainably under a tick-box regulatory system and a short-termist, feckless Government concerned more with political advantage than with the long-term interests of the country. In short, we need to look at creating a body that is solely in charge of financial stability and has responsibility for macro-economic supervision.
John Mann (Bassetlaw) (Lab)
It would be tempting to go into some detail on derivatives. Indeed, I have written a public paper about what should happen with over-the-counter derivatives, but suffice it to say that, for the purposes of this debate, I wholeheartedly support the proposal put forward by my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), which is part of the solution. The concept that all derivatives could be exchanged in the way that he proposes creates complexity and is unsustainable, but the idea that there should not be large-scale clearing house involvement is of great importance.
The opaqueness of the current situation spreads beyond the financial institutions into the largest corporations, which represent about 7% of a market that is specifically concentrated on this country. That is part of the meat of the issue, and it surrounds the financial crisis that we and the rest of the world faced. Very little attention has been given to this in recent times, or at any time since the financial crisis, but the principle must be one of transparency. Otherwise, we get insider trading—the sharing of information. Whether it is done legally because laws are not strong enough or illegally, there is an imperative towards insider trading because it is so lucrative. This opaqueness is fundamental to the problems that we have had, and we have seen it in other sectors such as insurance.
That opaqueness, together with huge bonuses—however they are described by the industry—will lead to people making unsubstantiated claims and reckless gambles. If they have no personal liability—in other words, if they are gambling with other people’s money—which is precisely the problem we had in the run-up to the financial crisis, then there is no comeback, and banks can go out of business. We have seen that with the biggest banks, including Lehman Brothers. One day, the executives are seen scuttling out with their files, and the next day—or perhaps a year or two later—they are coming back into the financial world with more huge salaries and huge bonuses: ever onwards, ever upwards. That is the mentality that underpinned the crisis.
It is not only I or my right hon. Friend the Member for Oldham West and Royton who have this problem but the head of the stock exchange, who said to the Treasury Committee, in relation to the lack of clearing houses and the risks involved, that we are potentially sowing the seeds of the next financial crisis. The conflict between the stock exchange, and others who backed it, and the Government needs to get greater public exposure because it is fundamental to the Government’s weakness in failing to understand that instead of short-term remedies, the creation of transparency is fundamental to the solutions we need.
There were three major problems in the financial crisis. First, we have heard about people living beyond their means—well, the people who were living way beyond their means in this case were those in the financial institutions. That was not properly recognised at the time, or properly regulated. They were borrowing money against something they did not have—a hope, an expectation, a guess for the future, presuming that it would come right in the end—and of course they were personally incentivised so to do.
Secondly, there is off shoring. We have not done enough in this House—I am critical of the previous Government in this respect, as well as the current one—to deal with the British dependencies that are fundamental to the opaqueness of off-shoring. We can do a significant amount about that.
Thirdly, the big investment banks are ferociously competitive in some areas and form an oligarchy in others. They allow no real competition and dominate with their excessive fees and powers. If we get on top of that, the House and the Government—whichever party is in power —will be able to avert future financial crises. If we fail to do so, the next crisis, whether it is in the short or medium term, could hit us just as ferociously as the last.
Mel Stride (Central Devon) (Con)
I rise to speak against the motion, not least because of the argument made by my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) that implicit in the motion is the suggestion that the Government have done nothing to avert a future banking crisis. I also believe that the motion is too prescriptive at a time when these matters are being considered in detail, not least through the Sir John Vickers commission. This Government set up the commission and released its issues paper as recently as last September.
Huge complexity, tensions, conflicts and dangers are inherent in the development and implementation of policies that are designed to stabilise the banks. Many hon. Members have spoken about banks being too big to fail. It is true that if we have banks that are too big to fail, there is moral hazard in the actions of those who run them, because they always know that the taxpayer is there to back them up if necessary. In such situations, there is an element of unfair competition in that larger banks, backed by the taxpayer, can afford to take larger risks. However, we are also told by many in the industry that size is a function of competitive advantage and that being big is important in global markets.
Many hon. Members have rightly mentioned capital asset ratios. It is important that banks strengthen their balance sheets and that Basel III is implemented, yet there are inherent dangers even in that. PricewaterhouseCoopers has estimated that the implementation of Basel III in the UK will result in £600 billion put into increased capitalisation, which could in turn reduce growth by between 1 and 2%. I therefore welcome the fact that Basel III will not come into full effect until about nine years’ time.
Matthew Hancock (West Suffolk) (Con)
Does my hon. Friend think that it is inconsistent to argue both that the banks should lend more to small businesses and that the improvement in capital ratios should be speeded up, as we have heard from some hon. Members?
Mel Stride
That is precisely my point. If we speed up the rate at which the banks have to recapitalise, there is a real danger that we will choke off the supply of lending. There is an argument that lending is not just about supply, but about demand. Companies are not taking up many existing bank overdraft facilities, so it is conceivable that there is an issue with demand, as well as with supply.
We have heard a great deal about the importance of united global action. In an internationally competitive world, there is such a thing as regulatory arbitrage. If one jurisdiction adopts a particularly light approach to regulation, vast sums of money can flow in that direction. However, as the Chancellor of the Exchequer has pointed out, our country needs to retain flexibility to reflect the particular conditions in our banking markets.
I agree with many of the comments on the importance of transparency in corporate pay, and in particular bonuses. I accept that because banks can ultimately turn to the state and the taxpayer for support, we have a right to take an interest in that matter and to see that fair dealing prevails. However, I concur with Sir David Walker’s recommendation that we should act in a united way globally so that we do not disadvantage countries that might move on their own.
We have heard very little about taxation on banks. I congratulate the Government on being the first to introduce a permanent tax on banks. However, the arguments about taking out capital that banks might otherwise lend also pertain to that measure. We want the banks to lend more, but the picture is not clear as to why they are not lending, as I alluded to in response to my hon. Friend the Member for West Suffolk (Matthew Hancock). It may not be just a lack of supply owing to recapitalisation and a greater aversion to risk among the banks, but to do with a lack of demand among companies, many of which are focusing on paying down debt, rather than taking on more.
My hon. Friend the Member for Orpington (Joseph Johnson) and the hon. Member for Bassetlaw (John Mann) mentioned competition. This country has a highly concentrated banking sector and it became more concentrated after the financial crisis, when some foreign lenders withdrew and some banks amalgamated. Lloyds and RBS make up 50% of lending to the retail, mortgage and small and medium-sized enterprises sectors. That is a huge degree of concentration. There are high barriers to entry to banking, not least the very regulation that we are discussing. Over the past century, the only new high street bank, disregarding demutualisations, has been Metro Bank, which was created last year. On the other hand, Australia and Canada have highly concentrated banking sectors and seem to have been spared the worst of the financial crisis.
I welcome the Government’s approach to Basel III and their setting up of the Financial Policy Committee, along with its oversight role in relation to the Bank of England and the Financial Services Authority. I particularly welcome the setting up of the Independent Commission on Banking under Sir John Vickers, which has been welcomed broadly by business, including in a recent speech by Richard Lambert, the director general of the CBI. I welcome some of the approaches that the Government are taking to encourage equity finance to increase above the current level of 1 or 2%.
I fear that stalking the perimeters of the debate on the Government side and perhaps at the heart of the debate on the Opposition side is the idea of bashing bankers and of revenge. The hon. Member for Streatham (Mr Umunna), who I think is no longer in the Chamber, denied that that was what he said. However, when he was speaking, I jotted down his reference to bankers being “to blame”. That is the kind of populism that we must get away from; emotionalism must not triumph over the rational when we consider such issues.
This is a highly important sector in which we have a world-leading position and we must retain that. Protectionism, trade imbalances and exchange rates are threats, but I argue that we must not lose momentum on banking reform, particularly in countries that have not been as swept up in the crisis as we have, for what has bitten us may yet come round to bite them.
Sheila Gilmore (Edinburgh East) (Lab)
I speak not as somebody who has a banking background, but as somebody who represents part of a city that built much of its prosperity over the past 20 years on the financial services sector. I was encouraged and pleased to see many large banking organisations making their headquarters in the city and am hopeful that we will retain as many as possible, although there is a risk in such a situation as this that we may not. That industry has been extremely important for the city and has stimulated many other industries, not least property and construction. However, as we have seen, there are clear dangers in becoming over-dependent on the financial sector, as opposed to other parts of the economy, and we must reflect on that.
Like all Members, I represent people who were baffled by a lot of what happened, and who remain baffled by what is happening. They feel that whoever is responsible, we have gone wrong somewhere in how we deal with what should be fairly simple matters such as how we can borrow and lend, and grow our economy. Although it might be naive to think that we could return to the simplicity of savings and loans organisations such as that featured in the film “It’s a Wonderful Life”—it is a good time of year to think of that—we do need to return to some of the variants of financial services that we appear to have lost.
In the rush to demutualisation, with nearly all the building societies being turned into banks, we lost something very important in the sector. That has left a lot of distrust among many people. We talk about encouraging individuals to put their trust in saving, which is important for aspects of our economy, but many people do not have the faith and trust to do that. That cannot be healthy. It would be helpful if there were small and medium-sized organisations in which they had that trust.
I echo the view of my hon. Friend the Member for Streatham (Mr Umunna) that we have an opportunity to reconsider the mutual path when banks cease to be owned by the taxpayer. Those banks can go down a different road from the one that they have trodden. I hope that we will be able to consider that, because it would be healthier and better to have variety in our banking sector.
We hear many different views about whether there was too much or too little regulation. From the perspective of the consumer of banking services, it sometimes feels as though there were a lot of regulation of little things and not enough of the big things. When I get another letter from the bank to tell me about some small change in interest rates, or not even that, I feel that things have gone too far, especially when it is accompanied by a big booklet that, frankly, I do not read. I am sure most people do not. That is regulation taken to its extreme. Equally, however, it cannot be right that an organisation such as the Royal Bank of Scotland, which is of great importance to my city and country, was able to become so full of its own importance that it could decide to buy into ABN AMRO, which was the cause of a lot of its problems, without someone saying, “Stop. Halt. You can’t do this.”
Similarly, on the whole question of remuneration and bonuses, the ordinary person does not feel that what is happening is right or fair. They want us as parliamentarians to take a strong view on the matter. This debate is important, because there has been what some people would find a surprising degree of agreement and consensus that action needs to be taken. We need to translate that into not just a Back-Bench debate but Government action. If we do that well, we will restore people’s trust not just in banking but in politicians.
Steve Baker (Wycombe) (Con)
Like other Members, I welcome this debate and congratulate the right hon. Member for Oldham West and Royton (Mr Meacher) on securing it. I will oppose the motion for two reasons. First, I believe that the Government have acted briskly within the terrain of the current debate. I will speak about that terrain, because I believe it should be moved. Secondly, I should like to challenge the notion that we should have a clearing house for over-the-counter derivatives.
I believe that the question of whether a clearing house should be provided, and under what circumstances, is a matter not for legislators but for the market. The problem with derivatives is accounting rules that allow profits to be recognised many years in advance, and that substantially reduce the capital requirements for derivatives in comparison with loans. That, of course, is inflationary in itself, stoking the activity that has caused the problem.
Not only has regulation of derivatives been of poor quality, but derivatives are susceptible to regulatory arbitrage. Indeed, as was mentioned earlier, financial institutions employ large teams of very intelligent people specifically to construct derivatives to arbitrage away the regulations that are put in place. A clearing house would obfuscate counterparty risk, with unintended consequences, and, as clearing houses always do, it would reduce the demand for cash balances in banks, thereby promoting inflation. For all those reasons, I believe it falls to us as legislators to create the right environment for banking, based on property and contract, not to mandate any particular solution such as a clearing house.
To challenge the terrain of this debate, I should like to take the House back to a landmark in the development of British monetary and banking orthodoxy—the Bank Charter Act 1844, also known as Peel’s Act. It represented the victory of the currency school over the banking school. The former had realised that systemic crises and banking collapses were largely attributable to the excess creation of fiduciary media—that is, claims on money not backed by a fund of actual money. The Act, introduced by Peel, therefore eliminated the practice of banks issuing their own notes. Unfortunately, the currency school had not realised the economic equivalence of notes and demand deposits, so the Act left the banks virtually unmolested in their ability to issue fiduciary media.
My hon. Friend the Member for Bromsgrove (Sajid Javid) mentioned the wall of money that hit the markets, and we might reasonably ask where that wall of money came from. It has become common practice to say that interest rates were too low for so long, and therein lies the insight. When that happens, people are encouraged to borrow and the banks are encouraged to extend fiduciary media well in excess of real savings. Low interest rates ought to indicate prior production and real savings, but when central banks deliberately suppress interest rates and issuing banks pour fuel on the fire by issuing fiduciary media, what we find is that wall of money hitting the market. In our case, that money principally headed off into the housing market.
At the heart of our difficulties is the fact that there was an omission in the 1844 Act. The deposit-taking banking system is built upon that Act and a body of case law, which have left the banks with the legal privilege of treating demand deposits as their own property. That allows the system as a whole to create a wall of fiduciary media. That is the heart of our crisis, but it is not part of the mainstream contemporary debate, and I believe that it should be.
In the last minute of my speech, I should like to touch on some other issues that have not formed part of the debate, the first of which is risk management. The entire brilliant edifice of modern financial theory is built on the assumption that risk in markets follows a Gaussian distribution, but that is not true. Market events follow a long-tailed distribution, as Mandelbrot and others showed. I very much wish that risk managers would take that into account in their strategies.
If we were to look more broadly at the money and banking system, and ask ourselves how we could characterise it, we would find central planning, legal privilege, the socialisation of risk, Government monopoly, complex regulations that are often arbitraged away and, of course, ad hoc intervention. We would not find clear property rights, freedom of contract and the consequences of bearing one’s own risks.
We have a lot to do in money and banking, but we must transcend the problem of blaming individual bankers. Yes, individuals have done much wrong, but the system is deeply flawed and we can trace its flaws back to the development of the British monetary orthodoxy. It is that orthodoxy that we must challenge.
Chris Evans (Islwyn) (Lab/Co-op)
I congratulate my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on introducing this debate. I do not know whether he remembers it, but five years ago he spoke in Gloucester about the economy—I was the Labour party candidate in Cheltenham—and warned that the banks were out of control. A lot of people looked on that uncharitably, but, sadly, he was proved right, which is why we are having this debate.
The debate is important because there is great anger out there about bankers. No matter what Government Members say, people blame bankers. When I first came to the House, BBC Wales ran a profile of me, the last sentence of which was:
“Since leaving university he’s worked in bookmaking and in banking, which contrary to widespread belief are different professions.”
Yes, there is a difference. I come from a family of bookmakers —my father and my mother were both bookmakers—and the one thing that was drummed into me as I was growing up was risk. As bookmakers, we understood risks, which is why we had odds. We always knew what would happen if we could not cover our losses.
When I joined the bank, naively I thought that I was joining an institution that I could be proud of and that set standards to which other industries could aspire. Unfortunately, I discovered that it was completely and utterly different from that. I was told to lend to whomever I could. I still do not understand the logic of saying to somebody who cannot afford to pay their bills every month, “Mr Customer, you need a £10,000 loan to get you through.”
I got a warning for refusing to lend someone £25,000 in an unsecured loan, because—I was told—I was not thinking about the shareholders. That is the major problem. When I said to my manager, “This can’t go on. This is madness—we’re just writing people off,” he replied, “Son, it’s a sign of the times. You wouldn’t go into a shoe shop and expect not to buy shoes.” However, there is a difference. A person who goes into a shoe shop and buys the wrong shoes will get blisters; a person who goes into the bank and buys the wrong loan loses their house. The people at the bank did not understand that we were dealing with people’s lives. They were arrogant and blasé—“We can’t fail; we’re great banking institutions”—regardless of the Barings bank failure in 1991. I well remember the chief executive of Barings at the time saying, “It isn’t terribly difficult to make money in the City, old boy,” but the bankers ought to have learned that it is terribly difficult for builders and plumbers to earn money.
The essential truth is that banking is simple—a bank lends money to someone and makes money through the agreed interest rate—but the banks made it complicated. In the debate this afternoon, I have heard about derivatives and arbitrage, but the average person who walks into their bank will think, “What relevance do derivatives and arbitrage have in my life?” The banks made lending into mathematical equations—someone mentioned a biology graduate—and sold debt on, so the money came from several different sources. Eventually, that massive tower block collapsed when the person at the bottom failed. I have been reading Ha Joon-Chang’s “23 Things They Don’t Tell You About Capitalism”, in which he argues that we should ban complex financial instruments. That is an outrageous thing to say, but if bankers and economists do not understand such instruments, how can anybody else be expected to do so?
Before I finish, I want to return to the anger that people feel. In an article in The Sun today headlined, “Bank chiefs grab £15 million bonus”, I read that Stephen Hester of RBS will receive £2.4 million, that Eric Daniels of Lloyds Banking Group will receive £2.3 million, that John Varley of Barclays will receive £3 million and that Peter Sands of Standard Chartered will receive £3.2 million. What message does that send to people? That money is absolutely obscene, including to people who work for those banks. I go back to my experience of working in a high street bank. We were kept on deliberately low wages. The only thing that kept us going was the promise of a bonus. They would say, “We want you to bring in so many leads so stay till 7 o’clock at night. Forget about your family. You’ve got to earn money and put some bread on the table boy.”
That is still going on. Someone came to my surgery the other day and said, “I have to work till 8 o’clock every night because I’ve got to speak to the people I did not speak to in the day. I’ve got to get leads.” No amount of Government legislation or regulation will change that.
Andrew Bridgen
Does the hon. Gentleman not agree, however, that it is
“the hope of reward that sweetens labour”
for us all?
Chris Evans
For people earning £12,000 a year and struggling to pay the bills, the pressure is on to stay after work and phone up leads to earn a quarterly bonus just to get through. That is not right. They should be paid a living, decent wage, which is what the Opposition support. I hope that everyone else will eventually do likewise.
Finally, as I said, no amount of Government regulation or legislation will change that culture. We need to say to the bankers, who were to blame for the economic crisis, “Either you change your culture, or the crisis will happen all over again.” We had better start opening our eyes to that.
David Mowat (Warrington South) (Con)
One of the odd things about this debate is that those of us who believe that structural reform of the banking sector is necessary are characterised as being anti-free market, anti-capitalist and anti-banking. I am none of those things. In fact, I believe in the necessity of such structural reform precisely because I am pro-capitalism, pro-banking and pro-free market. The case for some kind of firewall, along the lines of the one introduced by Glass Steagall, is irrefutable. That will be considered by the Vickers commission over the next year but that is no reason not to discuss it here.
Mel Stride
Does my hon. Friend accept that the problems in Iceland and Ireland were caused solely by retail banks? The Lehman Brothers collapse presaged the financial crisis, but that was wholly an investment bank that never took a retail deposit.
David Mowat
I intended to address that later in my remarks, but I shall take it head on. Lehman Brothers was a bad bank and it rightly went bust. However, that affected a whole lot of other banks, which required massive Government bail-outs, because there was no firewall. Nothing in my remarks will imply that retail banks such as Northern Rock will never go wrong or need to be saved. Frankly, my hon. Friend’s example makes my point rather than contradicts it.
Two or three hundred years ago, capitalism was developed by joint stock companies, which was a clever and wonderful thing. If such companies made the right decisions and were wise, they prospered and grew. The other side of that was that companies failed if they made unwise decisions or mistakes, lost money, or failed to recognise risk—Gaussian distribution or not. In the past 15 to 20 years, unintentionally, a new type of company has emerged. Such companies are not subject to the same penalties for risk as other businesses. That creates moral hazards and poor decisions. In the end, that was a large contributing factor to what happened in this country two years ago.
The arguments in favour of a firewall are overwhelming, but what are the arguments against it? The principal argument against a firewall has been the subject of the most intense banking industry lobbying imaginable, and I hope that when the time comes to legislate, hon. Members and the Government do not bow to it.
The first argument is that such a separation implies that investment banking, derivatives and all that goes with that are casino-type activities and of less value to society. I do not think that at all. I sold my business to investment bankers, I like investment bankers and I understand why we sometimes need derivatives. I have no problem with those instruments, but I do have a problem with the fact that if the people using them mess up, they cannot go bust, because there is not a firewall between their activities and the rest of the banking world. That is the problem.
The second argument was raised just now by my hon. Friend the Member for Central Devon (Mel Stride)—the Northern Rock and Lehman Brothers example. I will not repeat what I said, except to say that Lehman Brothers should have been allowed to go bust, but should not have been able to bring in billions of dollars of taxpayers’ money after it, as it did.
The third argument is that a firewall would be too complicated: banking has now got global and is so mixed up that we cannot separate out investment banking and retail banking. Well, we can. The Basel III agreement contains a requirement that the capital considerations for each part of the banking portfolio be different. That can be done.
The fourth argument is that we can do all this with capital ratios and that if we impose them on banks we will not need this firewall, this separation. That is partly true, but actually they are not mutually exclusive—we need both—and, as was said earlier, capital ratios, unless we are careful, will shrink bank balance sheets and reduce lending at a time when we want more credit. What I am proposing would not do that.
The fifth argument is that, if we did this in this country, in front of the rest of the world, it would put our banks at a competitive disadvantage. That might be true—it is a reasonable argument—but I would say two things in response: first, the banking sector in this country is about four to five times as significant, as a proportion of GDP, as it is in any other country, so we ought to be leading the world in this regard. It matters more to us. Secondly, even if the argument is right, it is not a reason for us not to try to get the world behind us, create these firewalls and get this under control.
Steve Baker
My hon. Friend makes a compelling case. Will he consider the case of fixed-rate products—fixed-rate savings or fixed-rate mortgages—because it seems to me that such products are bound to bring the savings and loans business into contact with the investment business, through interest rate swaps?
David Mowat
I thank my hon. Friend for that intervention. My third argument was that these things are all so complicated and mixed that we cannot separate them out in the way I propose. I made the further point, however, that we have to do that, under Basel III. However, as recently as 15 years ago, firewalls were in place, so it is not that difficult and it can be done, if there is the will. The requirement on moral hazard is such an overriding necessity of capitalism that when it goes, it is terribly dangerous. And it has gone now, which is the guts of what we have been talking about for most of this afternoon.
I am not the only one saying that. Paul Volcker, who was previously head of the Federal Reserve, and John Reed—not the John Reid who used to sit on the Labour Benches, but the John Reed who used to run Citigroup—have asked for this firewall to be put back in place. The Governor of the Bank of England, too, said that of all the different ways we could choose to organise a banking system, the way we have chosen to do it in the UK is among the worst imaginable. We have to act on this. It is very important, and I hope that, notwithstanding the Vickers report, the Government will show leadership on this matter.
Matthew Hancock (West Suffolk) (Con)
I want to speak briefly at the end of what has been a very interesting and informative debate, which I commend the Backbench Business Committee on securing.
I welcome some of the measures that the Government have already taken, so in the light of this debate, I hope that the motion, which states that the Government have taken no action, will not be pressed to a vote. Many Members have accepted that the measures on tax, including a permanent tax on banks, the Vickers review into banking structures, the international push for transparency and the action taken to bring banks together to work on bonuses show that a strong work programme is in place already.
Mr Meacher
I do not want to take up time, because I have a couple of minutes at the end of the debate, but the hon. Gentleman picks up on a point I was going to raise. I did not say that no action has been taken. My motion states that
“no action has so far been taken which would prevent a recurrence of the financial crash”.
That is a very different proposition.
Matthew Hancock
I thank the right hon. Gentleman for that intervention, because it brings me precisely to the final thing that the Government have already proposed, and which I think is central to preventing a recurrence of the financial crash: the decision to move the powers for prudential regulation to the Bank of England and to strengthen those powers.
Having quickly welcomed the action already taken, I want to concentrate on prudential regulation. The removal of powers of prudential regulation in 1997 was central to many of the things that Members on both sides of the House have talked about. The hon. Member for Islwyn (Chris Evans), who is not in his place, spoke passionately about how his managers were telling him to lend more no matter what the customer needed. That was part of the rapid expansion of banks’ balance sheets, because there was no prudential regulation at the top of the size of those balance sheets. We also heard, from Government Members, about the rapid, uncontrolled run-up in balance sheets.
The idea of prudential regulation and having an institution exercising judgment, instead of just lots more rules-based regulation, has come of age. After all, the system before 1997, although imperfect, had prevented a run on any bank in the UK for 140 years, so it deserves some credit, and it deserves studying. So why would more discretion and judgment based in strong institutions work better than more rules? There are three key reasons. The first, as we have heard in many contributions, is that although rules can be set down in statute, statute can take a long time to change, whereas bankers can change and adapt very quickly. We have heard a lot this evening about regulatory arbitrage—another example of how financial institutions will change quickly to make the most out of whatever rules have been put in place on the ground. But the system cannot then adapt quickly.
Secondly and crucially, the system cannot adapt to innovations. We have seen massive financial innovation, especially with the development of computers over the past 30 years. However, to blame that innovation itself for the mess we are in ignores the fact that it was the lack of regulations—as my hon. Friend the Member for Warrington South (David Mowat) pointed out so eloquently, regulation is crucial to a functioning market economy—around these new developments and the attempt to regulate through explicit and specific rules, rather than the exercise of judgment, that was the problem.
Stephen Barclay
Is not one issue that mitigates the need for specific rules the regulator’s 11 principles, which act a bit like the 10 commandments? For example: “Principle 1: you must act with integrity. Principle 11: you must be open with the regulator. Principle 3: you must have adequate risk management.” It is inconceivable, given that those rules have legal force, that some of those catch-all principles could not be used in enforcement.
Matthew Hancock
They were not used, and that is the problem. A massive, heavy and expanding rulebook distracted the attention of regulators away from the big picture.
My third point about why discretion rather than rules is the best way for the future concerns the importance of the macro-economy, because we cannot separate monetary policy from banking policy. The size of banks’ balance sheets is crucial to regulating the supply of money in the economy. Having counter-cyclical rules rather than pro-cyclical capital rules, as we had under Basel II, is crucial. The exercise of judgment over a bank’s balance sheet is best done in the same place as the exercise of judgment over the macro-economy. Bringing those two things back together in one institution—the Bank of England—is a better long-term way of trying to wrestle with such difficult judgments than having them in separate organisations, which, as we heard in an earlier, eloquent speech, ended with the tripartite system, in which nobody was in charge.
David Rutley (Macclesfield) (Con)
I do not know whether my hon. Friend is aware of this, but last week the deputy Governor of the Bank of England appeared before the Treasury Committee and said that he felt that the new twin peaks approach would be a much better model. He felt that the advantage was that it would remove the problems of underlap that were so obvious in the previous system. Whereas there might be some overlap under the current proposal, that has to be much preferable to the previous arrangements.
Matthew Hancock
That is a valid and important point. Central to that point is the judgment of people who look forward and have a broad view, looking after the health not only of the banking system, but of the macro-economy, while also having the ability to change the way they regulate according to changes in the economy, so as to take into account new developments, which is critical. Far from being the simple renaming of the institutions, bringing together macro-prudential regulation with regulation of the economy and monetary policy more broadly is central to restoring the ability to prevent the build-up of credit, as happened over the past 15 years.
Andrew Bridgen
Does my hon. Friend agree that it is better to have a regulator who is fleet of foot than a clunking fist?
Matthew Hancock
In my experience it is always better to be anything than a clunking fist.
I will end by saying this. We do not know what the future holds. We know that regulation is not perfect. It is therefore far better to have one person and an institution in charge of the regulatory structure who can exercise judgment to the best of their ability than it is to try to write a rulebook for a perfect system that we know we will never create. That is why I think that the Government have already put forward such a critical change to our financial architecture—a change that I hope will be accepted by the Opposition and which will form the basis of the good economic governance of our country for years to come.
Mr Deputy Speaker (Mr Lindsay Hoyle)
I call Mr Morris. Are you going to be very brief?
David Morris (Morecambe and Lunesdale) (Con)
I am going to make only a two-minute speech, Mr Deputy Speaker.
This debate has touched a lot on the technicalities of how the banking system works, but I echo the passionate and eloquent speech by the hon. Member for Islwyn (Chris Evans). Commercial banks on the high street do not all operate between themselves in the same way. There are different clearance rates. Cheques can take up to 10 days to clear, which can put families who are in hardship even further into hardship. In the banks’ eyes, banker’s transfers do not occur on the same day, or even over four days. For example, one of our high street banks—one that is more or less state-owned—will take money out of a person’s account instantaneously, but it will take over four days to transfer that money into another account in the same branch. I have a constituent who has a problem in that he paid off his credit card over the counter in a national high street bank, but was told that it would not be credited instantly and that this would take up to six working days. That is outrageous and should be touched on in the reforms, so that each bank is streamlined with the others. In many countries in Europe, such as Sweden, transfers are seamless and instantaneous. I would like the House to consider that.
Chris Leslie (Nottingham East) (Lab/Co-op)
I, too, congratulate the Backbench Business Committee and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on setting up this thoughtful and well-tempered debate. A number of good ideas have been shared among all parts of the House. In fact, there has been much more consensus between the Back Benchers on both sides of the Chamber than between the Front Benchers. We will see whether policy can be shaped by the virtues of our debate, because there has been quite a lot to take away from these discussions.
It is important to reflect on the wide-ranging set of reforms needed to bolster our banks against a repeat of the credit crunch and, as we all want eventually, to create a financial services industry that is sustainable and diverse, and that serves the best interests of both savers and borrowers. There are a number of significant systemic reforms that it is important to reflect on. I shall touch on many of the comments that have been made, but the first point is to look at the motion that is before us. As we can see from the Order Paper, the Government and the Opposition each tabled an amendment to the motion, although neither of us were fortunate enough to have our amendment selected. For our part, although we agree almost entirely with my right hon. Friend, the element in the motion touching on derivatives requires a little more thought.
Many commentators have rung alarm bells about the swirling volumes of derivatives activity in the past decade, with multi-trillion dollar flows and British banks holding at least £l trillion in derivatives. However, derivatives are, for good or ill, a reality of the modern global economy whereby companies and other investors gain exposure to an underlying asset or offset their exposure to that asset without actually buying or selling that asset in the first place. Derivatives are supposed to be designed to reduce risk and volatility for companies, employees and consumers. For example, an airline can hedge—or insure itself—against volatility in fuel prices by taking out a futures derivative, thereby offsetting its exposure to price changes. However, as my right hon. Friend and others have said, the problem is that betting on the future prices of financial assets has proved irresistibly alluring to traders and bankers, who can make billions off the back of this market without having to own the assets on which they are gambling.
There is therefore quite an irony in the fact that products that are intended to help alleviate risk have in many ways massively increased the systemic risk to the economy. Add to that the sheer complexity and opacity, as many hon. Members have mentioned, of some derivative products—collateralised debt obligations-squared, and so forth—and we end up with companies holding derivatives positions that their own management do not understand, failing to appreciate the risks involved. That is why the history of recent collapses has been intricately tied to that problem—including at Bear Stearns, Lehman Brothers, AIG, Long-Term Capital Management and even Barings—yet we have still not properly grappled with it.
The reason why we on the Opposition Front Bench cannot quite support my right hon. Friend’s motion is that it essentially calls for an end to over-the-counter derivatives trading and the introduction of a central clearing house. I can see the attraction of that—the standardisation of products and the stronger likelihood that the regulator could peer inside and comprehend the nature of the risks involved—but the downsides are that derivatives could not be easily tailored to the specific needs of the buyer. With the vast majority of derivatives currently privately traded between two parties, the consequences of that structural requirement for exchange trading in all circumstances could be disadvantageous. For instance, could there be a constraint on the specific maturity of the futures options? Would we be unwittingly re-injecting risk into the economy by constraining the ability to hedge responsibly?
The Opposition need, however, to recognise the urgent and far-reaching reforms that are required. Do we need an urgent and thorough review of derivatives and policy on them? Yes, absolutely: both regulators and markets need more transparency in over-the-counter derivatives activities, particularly given the possibility of greater exchange trading. By the way, we also need greater scrutiny of the role played by the credit rating agencies, as the hon. Member for South Northamptonshire (Andrea Leadsom) and others said, given that they have blessed many products with triple A ratings that did not necessarily translate into reality. Should we require greater registration and transparency in these over-the-counter deals? Yes, absolutely. There is too much secrecy, and the consequences for the taxpayer are ultimately too great.
Chris Leslie
We do not necessarily need to end all bilateral trading of derivatives, but to pick up where the G20 in Pittsburgh left off in 2009. It resolved to move towards greater exchange trading, but not necessarily the end of all over-the-counter trading. I know that we disagree on this specific point in the wording of the motion, but it is important that we should be responsible when considering some of the reforms that are being suggested. It is good that the Backbench Business Committee has enabled this debate to take place today.
I have doubts about the Government's policy on this because they are leaving it very much to the European institutions to lead on this matter, and leaving it up to the European market infrastructure regulations, which are now emerging as the only likely vehicle for reform. It is striking that Ministers are happy to be led, rather than showing leadership on this matter themselves, especially as the UK financial services industry is at the forefront of many of these activities. I urge Ministers to be far more front-footed on these reforms, rather than hanging back and complaining that details and policy are being foisted upon them.
We also need to consider some of the other regulatory shortcomings that have been raised in the debate, including those relating to bonuses, to management incentives skewing behaviour, and to transparency. I do not want to be too partisan, but I find certain aspects of this situation astonishing. My hon. Friends the Members for Streatham (Mr Umunna) and for Leeds East (Mr Mudie) said that the Government needed to show more leadership on banker remuneration. We have seen the appalling confusion and weak will of Ministers even over listing the number of bankers earning more than £1 million. Even that seems to have been a difficult step for them to take.
It is a particular shame that the Business Secretary is not here tonight—at least we have a couple of Liberal Democrats representing him here—especially as he was so vociferous on this subject exactly a year ago in his article in the Daily Mail. He described the proposal to disclose simply the number of bankers earning more than £1 million as a “whitewash”, saying that it would represent only “a small advance”. He went on to say:
“Shareholders who own the banks and the taxpayers who guarantee them have every right to know who is being paid how much and for what…Directors of public companies are already required to declare their earnings…The failure of Walker to grasp this is compounded by Alistair Darling’s meek acceptance of his recommendations. There are splits in the Government…Taxpayers sign the bankers’ bonus cheques, so we must see the names and numbers on them.”
We clearly do not need to wait to see the Business Secretary’s appearance on the Christmas special of “Strictly Come Dancing”; he is perfectly able to perform his volte-faces, somersaults and U-turns one after the other. He is performing spectacular political cartwheels more often than ever before.
Chris Leslie
I would love to hear what the Liberal Democrats have to say about this.
Stephen Williams
Let us see whether the hon. Gentleman can pirouette his way out of this one. During the last Parliament, probably the largest piece of legislation that went through was the new Companies Bill. Given that my right hon. Friend the Member for Twickenham (Vince Cable) called at that time for more disclosure in companies’ reports about directors’ remuneration, why did not the previous Government rectify that anomaly?
Chris Leslie
It is difficult for the hon. Gentleman to criticise the previous Government, when they put the statute in place ready to be triggered by the present Government. It is baffling to my constituents and to his that we cannot allow them to see the simple figure of how many multi-millionaire bankers there are. I am not suggesting that we reveal their names, just the number involved.
Chris Leslie
I am hoping that the hon. Gentleman is going to concede that that needs to happen.
Matthew Hancock
The hon. Gentleman is making an argument for rejecting the Walker review. I was not in the House during the last Parliament. Could he just tell us who commissioned the Walker review?
Chris Leslie
I am not making an argument for rejecting the Walker review. It recommended the disclosure of the numbers, but it is true that Walker has since changed his tune. The reliance on what he calls “regulatory arbitrage”, and the suggestion that if we were to make that change here in the UK alone, we would suddenly see an exodus of the banking community, are absolutely fallacious arguments. We have a responsibility to show a lead, and surely the Government should be able to do that. It would be invidious if that were not the case.
In the short time available to me, I also want to walk through some of the other proposed changes that hon. Members mentioned. They raised issues about proprietary trading, and there are even more Government Members who are in favour of the Glass-Steagall split between investment and retail banking. There has been an interesting consensus on that. That might not necessarily be the right thing to do, but it is certainly worth consideration by the Vickers commission.
The structure of the sector has also been mentioned, as has the question of whether we need to revisit the issue of competition. My hon. Friend the Member for Edinburgh East (Sheila Gilmore) asked how we could remove some of the constraints on mutuals and credit unions, and on others entering the sector, given that the barriers to new entrants are too high. Indeed, I note the very thoughtful speech from the hon. Member for South Northamptonshire (Andrea Leadsom), who mentioned a number of interesting ideas about how reforms might take place. I was quite taken by her suggestion about consumers’ current account numbers being portable. Other interesting suggestions were also made.
Basel III and the question of cushions and reserves are clearly important for guarding against failure and reducing taxpayer liability, but do we need to pay similar attention to liquidity, as the hon. Member for Bromsgrove (Sajid Javid) and my hon. Friend the Member for Wirral South (Alison McGovern) suggested? Should certain institutions have greater cushions and reserves than others? Perhaps that is the subject for a more sophisticated debate at another time.
Other components have to be addressed as well, including the financial capability of consumers and consumer responsibility. Yes, consumers have a right to know more about the products and companies involved, but perhaps it is also important to have a debate about the responsibilities of consumers. That needs to be acknowledged. We need to revisit the question of fairness for the taxpayer, and for public service users, indirectly, as well. Unfortunately, we have heard too much back-pedalling on the banking levy and on the role that the banks need to play in repairing the public balance sheet—[Interruption.] The Minister suggests that he is not back-pedalling, but from what we read—albeit in the newspapers—it sounds as though the Government might reduce the percentages that they want to implement, as announced in the Budget, if they are going to stay within the proposed 0.04% in year one and 0.07% thereafter. I would be more than happy to give way to the Minister on that specific point if he wants to clarify that position once and for all. But perhaps he will keep that for another day. He has also been back-pedalling on net lending targets of the business, although that was in the coalition agreement.
It is important that we have these debates. They show that there is a thirst for democratic accountability on financial services policy. Perhaps one of the lessons that we learn is that simply delegating many of these issues to European institutions or to the regulators is inadequate. There is a democratic deficit, and Parliament has a role to play. Hon. Members who try to find out information on Financial Services Authority reforms and regulations sometimes struggle to get the necessary documentation from the Vote Office, which is not good enough. We need to recognise our role as legislators, because our constituents are watching how we behave. They are watching how we set policy, and they expect us to do that. We should not be blown around entirely by the regulators, by Europe and by the markets. Politicians need to lead, and Ministers need to show greater leadership, and I hope that the Government will do that.
The Financial Secretary to the Treasury (Mr Mark Hoban)
It is a pleasure to take part in this debate, and I congratulate the right hon. Member for Oldham West and Royton (Mr Meacher) on securing it. I would like to pick up on one point that was raised by the hon. Member for Nottingham East (Chris Leslie) when he talked about the Government showing leadership. If I remember rightly, it was his party that said before the election that we could not introduce a banking levy on a unilateral basis. This Government have introduced such a banking levy, and it will raise £2.5 billion in a full year. That is what leadership is about. All that we have heard from the Opposition is that there is more disagreement on policy among the Front Benchers than among the Back Benchers. The problem is that the debate showed that those Back Benchers had more policy than the hon. Gentleman. Nothing in the 15 minutes for which he spoke told us anything about the future direction of the Labour party on the regulation of the financial services sector, other than his vague attempt to justify their decision not to vote for the motion. The right hon. Member for Oldham West and Royton has been hung out to dry yet again by his Front Bench.
It is vital that we learn and act upon—[Interruption.] I ask the hon. Member for Streatham (Mr Umunna) to let me continue. He will have his chance tomorrow in the Treasury Committee. It is good to see that the Leader of the Opposition’s Parliamentary Private Secretary is already revving up for that experience.
It is right for us to learn the lessons of the financial crisis, and to act on them. We must think very carefully about the range of interventions that we make. It was clear from everything that was said today that a range of measures was needed. The hon. Member for Streatham himself said that there was no magic bullet, and that is true. We need to take a range of measures domestically, in Europe, and at G20 level, if we are to learn those lessons of the financial crisis.
Let us begin with what we should be doing at home. We know that the regulatory architecture introduced by the last Prime Minister was fundamentally flawed. As my hon. Friend the Member for West Suffolk (Matthew Hancock) pointed out, he took away the Bank of England’s responsibilities for the regulation of banks. The Bank had the ability to spot threats to financial stability, but it lacked the power to tackle them. The last Prime Minister gave the FSA a dual mandate, which focused on the conduct of business to the detriment of prudential supervision.
Unlike the last Government, we have decided to reform the architecture and the approach to financial regulation, and to implement a structure that works. Before I outline the institutional reforms, let me set out the new approach that we want regulators to adopt. We believe that whether the problem is a threat to financial stability, a flawed business model or the mis-selling of financial products, regulators should intervene decisively and early to minimise its impact on our economy, on financial stability, or on consumer outcomes. The regulators will be required to demonstrate judgment and discretion, which represents a big change in attitude and approach.
However, we do not think that it is enough simply to change the approach; we want the architecture to change as well. We will establish a financial policy committee in the Bank of England with a dedicated focus on macro-prudential analysis and action, to ensure that risks that develop across the financial system as a whole are identified and responded to when that did not previously happen. The FPC will have a strong mandate to protect financial stability, with credible and knowledgeable external membership. It will be able to challenge the prevailing consensus, and to ensure that potential risks are identified, monitored and addressed rather than being ignored, as they were under the last regime.
The new architecture will also ensure that macro-prudential regulation of the financial system is co-ordinated effectively with the prudential regulation of individual firms, and that a new, more judgment-focused approach to regulation of firms is adopted so that business models can be challenged, risks can be identified, and action can be taken to preserve stability. That will be the responsibility of the new prudential regulation authority, which will be an independent subsidiary of the Bank of England.
However, it is not just a question of prudential stability. As a number of Members pointed out today, we also need to reform the way in which we look after the interests of consumers. We will set up a consumer protection and markets authority with a primary statutory responsibility to promote confidence in financial services and markets. Regulation and conduct within the financial system, including the conduct of firms towards their retail customers and the conduct of participants in wholesale financial markets, should be carried out by a dedicated, specialist body with focused and clear statutory objectives and regulatory functions.
As I said earlier, it is also not just a question of regulation. We need to think about the structure of the banking system. It was the last Government who closed down the debate about whether the activities of universal banks should be divided between investment and retail banking. We had the courage to open that debate, which is why we have established an Independent Commission on Banking, led by Sir John Vickers, to examine the structure of banking in the United Kingdom, the state of competition in the industry, and how customers and taxpayers can be sure of the best deal. The commission will consider issues of systemic risk and moral hazard, and will examine the complex issue of separating retail and investment banking functions, which was raised by Members on both sides of the House. It is due to deliver its report to the Cabinet Committee on Banking Reform by the end of September 2011, and its findings will help to shape the UK’s banking sector for decades to come.
One of the issues that has been a focus of international debate is linked to the work of the independent banking commission. Recent interventions have reinforced perceptions that some institutions in particular are too big or too important to fail: the so-called systemically important financial institutions, or SIFIs. They pose a much greater risk to taxpayers and to the efficient working of markets. We believe that it is vital for us to eliminate that source of moral hazard, and to ensure that it is possible to resolve failing firms without triggering a systemic crisis or requiring support from taxpayers. The Government are taking an active role in the G20 and in the Financial Stability Board’s work on the development of a robust, internationally consistent policy framework to address SIFIs and the risks that they pose. We fully support the principle that they should be required to have a higher loss-absorbency capacity than other institutions.
That is just one sphere in which international co-operation is needed. We recognise that financial stability cannot be achieved by any one country operating in isolation. The UK has a commanding position in international financial services, and the industry is global in character. It is therefore vital that we co-ordinate our actions with our international partners to ensure that we have effective means for dealing with threats as they arise. We have consistently argued for strengthened international financial regulation to address the failings that were laid bare by the crisis, and huge progress has been made in strengthening international regulatory standards. Getting these reforms right is vital for financial stability, but it is also vital for the future of our global financial services sector.
Capital was mentioned frequently during the debate. During the crisis, we learned that the banking system lacked the capital that was needed to absorb losses, or the liquidity that would enable it to survive when markets closed. We have been a vocal supporter of the G20’s endorsement of the Basel committee’s reforms to strengthen international capital and liquidity standards. Banks will be required to hold more capital to withstand losses, with the buffer of 2% core tier 1 required under Basel II being replaced by a buffer of at least 7% by 2019. I think that the long transition period gets the balance right. It strengthens the banks’ capital position, but at the same time ensures that banks are able to lend and continue to sustain economic recovery. I believe that this crucial set of reforms will strengthen the resilience of the banking system to the long-term benefit of the economy.
The motion refers to derivatives. I think that the hon. Member for Nottingham East and I agree on one point. I believe that neither of us will support the motion, but we have learnt through the crisis that over-the-counter derivatives in particular lacked transparency and created a complex web of interdependence between the bilateral contract parties, which made it difficult to identify the nature and level of risks involved. The financial crisis has demonstrated how those characteristics increased uncertainty in markets in times of stress, and posed risks to financial stability.
Notwithstanding the comments made by the hon. Gentleman, the UK has shown strong leadership in reforming the derivatives markets. We have continually called for more transparency and central clearing of OTC derivatives. Internationally through the G20 and the Financial Stability Board, and in Europe through the European market infrastructure regulation, we are implementing vital reforms that will address the shortcomings evidenced by the crisis in the derivative markets.
The right hon. Member for Oldham West and Royton has proposed that the Government should establish a clearing house for approval of all financial derivatives. However, in the crisis, the private sector clearing houses successfully unwound the positions of defaulting members. Their prudent risk management meant that they did not need assistance from the public sector, despite being directly exposed to failing institutions such as Lehman Brothers. We therefore believe that clearing houses as private sector entities are able to manage risk effectively, but we also believe that central counter-parties should be bound by high standards given their systemic importance, and that those standards should be harmonised on an international basis. The Government are committed to ensuring that that happens.
The main aim of our reform should be the reduction of systemic risk in the financial sector. It should cover derivatives only when central clearing will indeed bring a reduction in systemic risk. Corporate end-users that trade derivatives purely for the purposes of hedging, as opposed to speculation, will be exempt from the clearing obligation. That will reduce the cost that will be passed on to their customers. I reject the arguments in the motion.
The motion tabled by the right hon. Member for Oldham West and Royton fails to recognise the action that we have taken to reform financial regulation at home and abroad. We have done more in the past seven months than our predecessors did. We are building a new financial regulatory architecture and approach. Banks will hold higher amounts of capital so that their shareholders, and not taxpayers, will bear the losses when the next crisis comes. International reforms must strengthen financial stability, but they should be proportionate and should not choke off economic recovery.
Over the past few months, this Government have led the debate on financial reforms both at home and abroad. We are taking the action that is required to create a much more sustainable and stable financial system, and if the motion is put to a vote, I will urge my hon. Friends to oppose it.
Mr Meacher
I was astonished to hear the Financial Secretary say he thinks that the regulation of financial derivatives in the last financial crisis was adequate, since it seems to me to be clear that that was not so.
This has been one of the most thoughtful, high- quality and rewarding debates I have taken part in, or heard, in the House for a very long time, and we must thank the Backbench Business Committee for bringing a new tenor of openness and genuine discussion into debates, rather than adversarial confrontation.
For Members who may be considering how to vote, let me state once again that I did not say that no action has so far been taken by the Government; I think they have taken action. I said that no action has so far been taken that would prevent a recurrence of the financial crash, and simply shifting regulation from the Financial Services Authority to the Bank of England is certainly not going to achieve that.
I took a brief note of the most important points made by each Member who contributed to the debate, and I was astonished at the high measure of agreement—I will not say consensus—on the issues and, to some extent, on what ought to be done. These included the following: the problem of the creation of runaway credit; the importance of Basel counter-cyclical capital controls; the separation of retail and investment banking; the need for a rebalancing of the economy, with the banks giving more emphasis to industrial investment; improved accountability and competition; the need for universal banking and the re-mutualisation of some banks, perhaps including Northern Rock; the need for higher ethical standards; the overriding need for greater transparency; the need for equity financing; and the need for greater diversification in banking structure. These are all issues—and I have missed out some—on which I think there is broad agreement across the Chamber.
Having had an extremely valuable debate, I hope Members will carefully consider the terms of the motion, as it is quite modest. It was designed to get broad cross-party agreement, and I hope it will achieve that.
Question put.
Independent Financial Advisers (Regulation)
(14 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mark Garnier (Wyre Forest) (Con)
I beg to move,
That this House has considered the matter of regulation of independent financial advisers.
I am delighted that my hon. Friend the Member for West Worcestershire (Harriett Baldwin) and I have secured this debate. As all hon. Members will know, this country finds itself in a dire financial situation, which extends deep into the private lives of many of our citizens. This country has the lowest personal savings ratio in the G20 and the highest level of personal debt, with half of all the personal debt in the EU borne by the inhabitants of these islands. We face a well-known problem of pensions underfunding, involving not just a deficit on pension liabilities but the fact that people are not putting enough aside for their retirement. Mortgages were taken out at the height of the boom, in some cases at levels higher than 100% of the value of the property to which they relate, and mortgage lenders worry about the next time bomb that may hit our economy—a trend towards interest-only mortgages. These are mortgages where the borrower hopes that inflation and an opportunity to downscale will pay off their mortgage. We also have a housing market in which many commentators still consider there is more readjustment to come.
It is against that background that we are debating the regulation of an important group of professionals, namely independent financial advisers. I am particularly keen to talk about that group because if we are even to begin to deal with the problems that I have outlined, we need a resource of professionals who will be able to spread the word and give sound financial advice to the wider population. The marketplace for retail investment advice in the UK is very diverse, involving banks, building societies, stockbrokers and some 33,000 independent financial advisers, as well some other players. It is fair to say that there have been problems in the past, and the Financial Services Authority suggested in its evidence to the Treasury Committee last week that there was and still is a significant amount of mis-selling every year; a figure of some £250 million a year was volunteered, but that is based largely on assumption and extrapolation from previous mis-selling scandals.
Mr Brian H. Donohoe (Central Ayrshire) (Lab)
A number of constituents have come to me because they are very concerned about what the hon. Gentleman is talking about, as they are going to have to revalue themselves and go through another examination. Can he shed some light on why that should be?
Mark Garnier
I trust that the hon. Gentleman is referring to the independent financial advisers, who will have to do that. I will come to that a little later in my speech, if I may, but I will address it specifically.
The point I was making is important because it highlights the significant amount of money being drawn out of the net savings pool of the country. It is only right that the FSA and the regulators should address the problem. They looked into it and surmised that in this marketplace competition is hindered by opaqueness and incentive conflicts, resulting in the interests of firms versus those of customers not being fully aligned. The FSA set up the retail distribution review—RDR—in 2006 to address those problems, and the new rules are due to come into force in January 2013. Specifically, according to the FSA, the RDR aimed to bring about three principal changes. The first was an improvement in the clarity with which firms describe their services to consumers. Secondly, it sought to address the potential for advisers’ remuneration to distort consumer outcomes. Finally, it aimed for an improvement in advisers’ professional standards.
Tony Cunningham (Workington) (Lab)
On that final point, I have also had a number of people writing to me. Would the hon. Gentleman agree that one of the overriding concerns—I have had letters from people with 29 or 30 years’ experience—is that experience does not seem to count for anything?
Mark Garnier
That is a recurring theme and I shall come on to that point, but the hon. Gentleman is right to raise it. It has been raised by huge numbers of IFAs who have got in touch with me, my hon. Friend the Member for West Worcestershire and with many other Members.
The three aims that the FSA has talked about are, I believe, laudable in principle, overall. It is not our intention tonight to derail the retail distribution review, which will improve standards for consumers. I suspect that not a single professional in the industry would disagree with the overall principles. Indeed, Which?, the consumer champion, strongly supports the measures contained in the RDR, and states that its members
“firmly believe that the IFA industry is best placed to offer this advice”.
However, the devil is, as always, in the detail.
In addressing the problems, the FSA has, through the RDR, introduced issues that disproportionately affect the IFA community. The IFA trade organisation, the Association of Independent Financial Advisers—AIFA—suggested in evidence to the Treasury Committee that although some 30% of IFAs strongly supported the RDR and 40% were rather ambivalent towards it, 30% would not put up with the RDR. The 30% who are against the RDR suggest that it would be better to leave the industry altogether, so the community of IFAs would shrink significantly.
Glyn Davies (Montgomeryshire) (Con)
Does my hon. Friend agree that that is particularly damaging in rural areas, where all the independent advisers are either one-man businesses or very small businesses, and that a huge proportion of the 30% who do not like the RDR are likely to come from such rural areas?
Mark Garnier
My hon. Friend makes an important point. Small businesses in rural areas are likely to be most affected because they have so few resources in their offices. As a direct result, poorer communities in rural areas will be denied access to independent financial advice. That is not a good thing.
Lord Turner, the chairman of the FSA, suggested that reducing the number of IFAs might well reduce the overall cost of investor advice. How can reducing competition possibly result in improved service to consumers? The key issues facing the worried community of IFAs can be reduced to just a handful of salient points. The first concerns qualifications, which are probably the cause of the biggest mailbags on this subject. It has been said, perhaps a little harshly, that IFAs hold a qualification no better than that of a McDonald’s burger bar employee—a qualification and credit framework level 3 pass, which is equivalent to an A-level.
The RDR requires all financial advisers to attain the QCF level 4 pass and, in the broadest sense, that is not unreasonable. However, it does not take into account the fact that a great many IFAs have a wealth of experience but, with an average age of 47, little enthusiasm to start taking exams. It is estimated that the exams will require 100 hours of study for each of four modules—that is 400 hours of study. We must bear in mind the fact that that is for a full-time professional who needs to earn a living and who may, as my hon. Friend the Member for Montgomeryshire (Glyn Davies) mentioned, be working by himself in a rural community with little support.
Mr John Baron (Basildon and Billericay) (Con)
Can my hon. Friend come up with any explanation of why grandfathering rights could not be applied to those with long experience as IFAs, given that such experience is much needed in the marketplace by savers who are desperate to make good financial decisions?
Mark Garnier
I can see no reason at all for not introducing grandfathering rights. Indeed, when the FSA was set up it introduced grandfathering rights when IFAs came over from the personal finance authority.
Mr Graham Stuart (Beverley and Holderness) (Con)
I congratulate my hon. Friend on opening this important debate this evening. Jon Marris, a constituent of mine and an IFA, came to see me on Friday. He has already passed the exams that will be required—he has done the 400 hours of study—but, even from his position, he believes it is ridiculous that those who have been in the industry for many years should be forced to go through that. Although he has been able to do this, he thinks that the removal from the market of people who are perfectly capable of doing their job but who might not be able to get through the exams, even though they have shown for many years that they can look after customers, is completely wrong.
Mark Garnier
I think my hon. Friend’s constituent agrees with us all.
The IFA community is broadly in support of raising excellence in the profession, and many are opting to take qualification exams on their own initiative without the dead hand of the FSA pressing them to do so. Indeed, the website unbiased.co.uk lists IFAs by their qualifications, so the move towards improved excellence is already going ahead under its own steam. A significant number—possibly as many as a third—feel that their 20, 30 or 40 years of experience not only trumps any exams but covers a significant depth of knowledge in their chosen areas, which will surpass any exam requirements. In taking exams, they will also be tested on areas they choose not to specialise in. As I and many hon. Members have said, the FSA seems blind to their expertise. The FSA does not recognise that experience and is determined to put out of business any IFA who is reluctant to take their exams or to subject themselves to the FSA’s ill-thought-through in-house assessment.
Mark Pawsey (Rugby) (Con)
Does my hon. Friend agree that if experienced independent financial advisers are driven from the market, those who will lose out most will be those with the smallest amount of assets, who will not get the advice that they receive at present?
Mark Garnier
Absolutely. The other group of people who will lose out because of the removal of these grey-haired sage IFAs will be the younger ones. Who will mentor the young, aspiring and highly qualified but short on experience new trainee? The FSA has no answer.
Let me turn now to fees and commissions. The FSA is further proposing that from January 2013 consumers will no longer be able to choose how their adviser is remunerated.
Tracey Crouch (Chatham and Aylesford) (Con)
Does my hon. Friend know of any survey that has been conducted of whether consumers have any appetite to pay fees for their financial advice?
Mark Garnier
My hon. Friend will not be at all surprised to hear that there are a number of surveys. Which? Undertook a survey that showed that 85% of people would prefer to pay fees, yet a survey by Harris Interactive showed that only 6% of the public said they would be happy to pay fees as opposed to commissions. That is a big problem, I think.
In future, customers will need to agree a fee with their adviser. That means that no longer will a client pay for advice via a commission charged on a transaction.
Justin Tomlinson (North Swindon) (Con)
I congratulate my hon. Friend on securing this excellent debate. Does he agree that if it is believed that commission makes advisers more inclined to promote products with higher commission, the same would surely apply to banks that offer their staff product sales incentives? Should changes not be consistent across the sector?
Mark Garnier
Yes, they should, and it is fair to say that the FSA is looking at the whole sector.
At the moment, every client is given the option of paying for their advice via a fee or commission. Since 1991, every client of every IFA has been given full details in writing of the adviser’s commission, and the overwhelming majority of clients elect to pay by commission. During that period, the market share of the IFA sector has increased from 29% to more than 65%—based on commission charging—with consumers demonstrating a clear understanding of and preference for independent financial advice. It should be noted that independent advice is not the preserve of the wealthy. Some 60% of IFA clients are ranked as C1 or below. If consumers are forced to pay a fee for advice, it is inevitable that many who would benefit from independent advice will not seek it, resulting in only the well-off accessing a significantly reduced IFA sector. The subject of commissions is extensive and I am sure that many hon. Members will want to expand on it in their speeches.
John Woodcock (Barrow and Furness) (Lab/Co-op)
Does the hon. Gentleman not agree that this issue is not clear cut? Surely it is right that there is some concern about the idea of a commission. Is it not the case that the concern over not wanting to pay fees is about paying a fee up front? Could the fees not be back-ended in the way that commission effectively is, making it a flat rate?
Mark Garnier
The issue of commissions is complex and is surrounded by several other issues, one of the simplest of which is that the Office of Fair Trading has deemed it right that the providers of the products should be able to charge or incentivise IFAs and salespeople in a variety of ways. The difficulty with allowing different levels of remuneration to IFAs is that it creates some of the problems we have talked about, but the OFT will not allow a flat rate of commission, which is one solution that could have dealt with this issue.
The risk in being an IFA is a major issue. All professions carry an element of professional risk, which is covered by professional indemnity insurance. In pricing that risk, underwriters take into account the fact that there is a so-called long-stop of liability, which is usually about 15 years, but that is not the case for IFAs. It has been deemed fair for IFAs to have an unlimited period of liability, such that an 80-year-old retired sole trading IFA might be liable for a product sold half a century earlier. It might be that the claimant has a legitimate claim, but in our compensation culture it might be that he does not feel satisfied with what he has got and is just having a go.
In practical terms, for a limited liability company, as the business gets older it becomes less saleable as it accrues a large pool of risk on the products it has sold since it opened its door to trading. Is it fair that an IFA could be chased to the grave in a manner that no other profession allows? Will that indefinite level of risk be an incentive to newcomers coming into the profession? I think that the answer to both those questions is no.
The cost of implementing the RDR is high. Currently, a firm of IFAs with up to 25 advisers is required to put aside only £10,000 by way of regulatory capital. That minimum will double under the RDR, but there is a new element to come in. Under the new rules, firms may be required to put aside 90 days’ worth of operating costs. For the better-run firms with sophisticated systems and offices that could be a significant increase. It is not inconceivable that a firm employing 10 qualified IFAs supported by high-quality support staff could see its regulatory capital rise from £10,000 to £200,000, £300,000, £400,000 or even £500,000. That rule alone is an incentive for firms to go from providing a high-level service to a cut-price one.
But what does all this mean for the cost of the RDR to the consumer? The original estimates for the cost-benefit analysis of the RDR gave a net present value of £600 million for the first five years including one-off costs. That has now risen to a truly staggering £1.7 billion in order to address an unsubstantiated cost of mis-selling £250 million. Moreover, it is by no means the responsibility of the IFA community alone. In 2009, according to the financial ombudsman, just 2% of complaints in this area related to the activity of IFAs, while 61% related to banks, but 65% of the market share is held by IFAs.
Dan Rogerson (North Cornwall) (LD)
I congratulate the hon. Gentleman and the hon. Member for West Worcestershire (Harriett Baldwin) on securing this debate. Does the hon. Gentleman agree that in putting together the RDR, the FSA has throughout consistently ignored all the comment from the industry, this place and elsewhere and that the time has come for it to listen and to review the whole set-up?
Mark Garnier
The hon. Gentleman is absolutely right. The overriding message coming back from the IFA community is of being ignored by the regulator. It has been suggested that Adair Turner, as someone who comes from McKinsey, looks at the issue from a box-ticking perspective as opposed to considering the fundamental needs of the consumer, which is the important issue.
IFAs are going to bear the brunt of the changes, and especially those with small operations in rural communities.
Mr Adrian Sanders (Torbay) (LD)
Is not the problem with the whole process the fact that it is angled disproportionately at hurting small traders, often in the poorer areas of the country? That needs to be reversed if the changes are to receive any credibility in or support from this place.
Mr Andrew Tyrie (Chichester) (Con)
I apologise for breaking up my hon. Friend’s excellent speech. Does he agree that a crucial point that we must get across to the FSA tonight is that the increase in these compliance burdens will be paid for by the consumer who will therefore lose out? The loss of perspective from the FSA and the inflexibility of its approach in implementing the changes are reflected in the large number of people here today.
Mark Garnier
Absolutely, and I am very grateful to my hon. Friend the Chairman of the Treasury Committee for bringing that up.
The £1.7 billion costs being pushed on to the consumer mean that £1.7 billion will be taken out of the savings pool. We simply cannot take that approach if we are trying to encourage people to save and to pay off their debts. That is why the changes are so fundamentally wrong. IFAs will have to bear the brunt of them, especially those with small operations where the requirement to sit exams, recapitalise and install new compliance systems, as well as all the other requirements of RDR, will often be handled by the same individual who is offering advice to the customer. Hector Sants estimated that implementation might mean a loss to the IFA community of 20% of the professionals who work in this arena today. Adair Turner has said that this is an acceptable cost, but I do not agree. It is unacceptable that up to 3,000 professionals according to the FSA’s figures, and more according to other research, will lose their livelihoods. Among those who stay, the cost will be passed on to the consumer, as my hon. Friend the Member for Chichester (Mr Tyrie) has said.
There are many questions to ask. Will the RDR deal with the cowboys? Will a reduction in the number of IFAs encourage a savings culture or detract from it? Is it right that when we are encouraging entrepreneurs to set up new businesses, the outgoing regulator should be bringing about such devastating change to this industry? My constituent Mike Jeacock is typical of the type of IFA who is threatened by the RDR. He runs a high street shop in Stourport-on-Severn and he networks for new business among his mates in the Stourport Workmen’s Club. These are not high-rolling wealth managers prowling family offices in Mayfair. We are talking about people who earn a living honestly servicing the financial interests of people who can afford little but who need financial advice.
The retail distribution review is a significant market intervention, and market interventions, particularly of such a fundamental and far-reaching nature, require overwhelming evidence of consumer detriment and the appropriateness of the solution. In addition, any solution needs to meet cost-benefit requirements. Does the RDR satisfy these tests? It appears to be based on a combination of unfounded assertions, limited and contradictory research and, as regards some of its solutions, little more than a hunch that the outcome will somehow be better than the present system.
It is estimated that up to 10,000 experienced IFAs of good standing will be forced to retire for no valid reason.
Teresa Pearce (Erith and Thamesmead) (Lab)
The FSA says that only less competent advisers will not be able to comply with the new qualifications and that the changes will therefore act as a sort of natural selection for the industry. Does the hon. Gentleman agree that the opposite might be true because it will be the more successful and long-experienced advisers with well-developed client lists who will not be able to comply or who will choose not to, and that we will therefore lose their experience from the industry?
Mark Garnier
Yes, I agree entirely. It is absolutely the case that the harder-working and more successful IFAs simply will not have time to take the exams and start dealing with the dead hand of regulation from the FSA.
With up 10,000 experienced IFAs of good standing potentially being forced to retire for no valid reason, it is estimated that as many as 3 million existing clients, many of whom will be elderly, will lose access to their trusted adviser as of 1 January 2013. I fear that without the FSA looking again at grandfathering the experienced through the process of implementation and without a rethink about commissions, independent financial advice will become the preserve of the wealthy only.
Madam Deputy Speaker (Dawn Primarolo)
I remind hon. Members that there is a six-minute time limit on contributions in the debate from now on so that we can try to ensure that everybody gets in.
Mr George Mudie (Leeds East) (Lab)
I congratulate the hon. Member for Wyre Forest (Mark Garnier) on securing the debate and on putting the case so comprehensively, in such detail and so fairly. This matter is a great problem, but it had gone under my radar as a Member of Parliament until a constituent of mine who is an independent financial advisor came to my surgery and explained what is happening. He falls into the category of being someone in his 50s who for the first time in 30 years is required to study for an examination to keep his job, regardless of how long he has been in the industry with a complaint-free record. I find that amazing.
As a member of the Treasury Committee, I have tried to aid the hon. Member for Wyre Forest—although he does not need aid—or at least stand alongside him to press for an investigation. I find it worrying that decisions can be taken by a regulator without recourse to the House, and almost without recourse to anyone. Last week, as the hon. Gentleman mentioned, both the FSA and the Governor of the Bank of England came before the Committee, which was an opportunity—although we had a full agenda—to press the matter and question them.
The background against which the decision has to be judged is interesting. The FSA, rightly, admitted to many mistakes in the operation of its light-touch regulations. It was probably more open than the Bank of England, but that is another story. After Northern Rock, the FSA was very straightforward in meeting after meeting; it came clean and accepted criticism about light-touch regulation. However, Hector Sants decided in a policy speech to project a new image—from where, I do not know. He stated that in future financial firms would fear the FSA, but there is a pendulum effect. If something is released it tends to go too far in the other direction, and I rather fear that the FSA, in attempting to salvage its reputation—if it had one—has moved too far to demonstrate that it is not a soft touch as well as a light touch.
Members may think that I exaggerate. The FSA is undertaking two reviews; retail distribution is one and the hon. Member for Wyre Forest mentioned the other—the mortgage market review. If Members have not received many letters and e-mails about the RDR, there will certainly be anguished people contacting them when the full power of the MMR comes into effect and young first-time buyers who are self-employed find it difficult to get a mortgage.
Nicholas Soames (Mid Sussex) (Con)
It is not just that the FSA has not listened to the industry or its professionals, which will undoubtedly damage the profession. Does the hon. Gentleman agree that the really foolish thing, which is just as serious, is that it will profoundly damage the interests of the consumer? Yet the FSA seeks to protect the consumer.
Mr Mudie
I completely agree.
I forgot to congratulate the hon. Member for Wyre Forest on securing the debate and on introducing it. I also congratulate all Members in the Chamber. It appears that the only thing we can do is to come to the Chamber and voice our anger and concern. When the Committee discussed with the Bank of England the new powers of the new regulator, it was the British Bankers Association, of all people, who raised the democratic deficit. The point was made that we were handing so much power to the regulators and the banks that there was great danger that they would be pronouncing and taking action on matters that affect us as representatives of our constituents —matters relating to employment and standards of living. In our humility and generosity, we are passing great power to the regulators on matters for which we will be accountable—perhaps not in law, but in the view of the public. We will be accountable for the actions of the regulators, so a rethink is very necessary.
Alun Cairns
I thank the hon. Gentleman for giving way. I, too, pay tribute to my hon. Friends the Members for Wyre Forest (Mark Garnier) and for West Worcestershire (Harriett Baldwin) on initiating the debate. I congratulate them on that.
Does the hon. Member for Leeds East (Mr Mudie) accept that the FSA could be acting in the context of, on the one hand, lack of regulation in the banking industry in the past, leading to a complete knee-jerk reaction and, on the other, disproportionate regulation at the consumer end of the market, such as the debate is highlighting?
Mr Mudie
I do not completely agree. I think the banks could be the beneficiaries if 30,000 independent financial advisers are taken out of the market. The hon. Member for Wyre Forest referred to Lord Turner, whose attitude was that the number would not be 30,000, but between 10,000 and 20,000, which was acceptable, otherwise the FSA would not be doing it. There was no explanation why the number was acceptable, or of the unintended consequences of the decision. The authority had just decided that it would be acceptable.
Ordinary people who have worked in the industry for decades will be hurt by the decision. It is not a knee-jerk response to oppose the direction of a decision and the manner in which it is being imposed on individuals who have worked in the industry without blemish. It would not happen in other industries and other practices. In addition, there seems to be a lack of interest in the diminution of choice for the ordinary consumer of all ages if the decision is forced through.
The Treasury Committee has asked for responses. I plead with every Member, whether or not they are in the Chamber, to do some writing and complain. They should ask the very able Chairman of the Committee, who is standing by the Speaker’s Chair, to call a review meeting so that we can call individuals on this subject. We do not want to tie it up in a long agenda where it receives only 10 minutes’ scrutiny; we want a full meeting where witnesses are placed under real scrutiny and asked both to account for the decision and to reconsider it.
Harriett Baldwin (West Worcestershire) (Con)
All I can say is “Wow!” when I see how many colleagues and Opposition Members have shown up this evening to take part in this historic debate. I believe this is the first time in this Chamber that the Financial Services Authority, which was set up by the former Prime Minister as the independent statutory regulator, has been subject to such parliamentary scrutiny. In fact, I believe that we are today showing that we can, and do, take a real interest in what the independent statutory regulator is doing.
The Chairman of the Treasury Committee pointed out how many Members are in the Chamber this evening for a Back-Bench business debate, when we are not obliged to be here by anyone other than the constituents who have contacted us with their concerns.
Alun Cairns
I support what my hon. Friend said about the number of Members present this evening, which is unusual, as she pointed out. The indication so far is that this is a cross-party issue and that party politics is not playing a part in it. The comments from the Opposition Benches support the comments made in the debate.
Harriett Baldwin
I entirely agree. We have learned in the past few years how important good financial regulation is.
Imagine the outrage there would be in the Chamber if a Minister said from the Dispatch Box, “I am going to put between 20 and 30% of an industry out of business at the stroke of my pen on 1 January 2013”? It is unbelievable that we have allowed an organisation to grow and, unscrutinised by this legislative body, have such a power over our constituents’ lives.
Mr Andrew Turner (Isle of Wight) (Con)
Does not my constituent, Mike Ward of Ward Financial Services, have a point when he says: “People need to understand that business has changed in recent years. People won’t trust banks as much as they did in the past, so they must be careful not to undermine the relationship between themselves and their clients. That would not be the right way forward”?
Harriett Baldwin
I thank my hon. Friend for that intervention. It is the banks that are likely to be advantaged by the change in regulations. I am afraid I have only six minutes in which to raise the many questions that I have about the regulation. I shall focus on a couple of areas that my hon. Friend the Member for Wyre Forest (Mark Garnier) did not touch on much in his remarks, which were extremely comprehensive.
I want to hear more about the handing of a competitive advantage to the banks. It is my understanding from my discussion with the Financial Services Authority that banks that are trading overseas could come into this country and continue to offer advice. The European Union is about to consult on something called the directive for packaged retail investment products. It would be wise for the FSA to wait and see the results of the consultation before it takes permanent steps here to put out of business 20% of independent financial advisers.
I have also heard through the Westminster Hall debate that my hon. Friend the Minister has talked about the free annual financial health check that the Consumer Financial Education Body will be able to offer. I want to hear more tonight from the Minister about how that will be delivered and what the additional cost to the industry through the social responsibility levy will be. Has that additional cost to the industry been factored into the £1.7 billion that is the five-year cost of the retail distribution review?
For the remaining four minutes at my disposal, I shall focus on my main area of concern, which has been raised by colleagues—the question of the qualifications. Imagine if nurses who were qualified were suddenly told that from now on, nursing was to be a degree-level qualification, and that all existing nurses would have to pass that degree-level qualification or they would not be able to practise their profession. That is what is happening to our independent financial advisers.
If I thought that passing an exam would prevent mis-selling and we would never have another incidence of mis-selling in future, I would be more supportive of the idea, but I do not see that an ability to pass an exam, which someone in their 20s might be much better at—certainly, I was—than by the time they get into their 50s and 60s, when they have all that experience about financial advice, precludes mis-selling in the future.
I can offer a few examples. We have been inundated with correspondence on the issue, but a couple of important examples stand out. One adviser wrote to me who is already qualified to chartered financial planner status. He is an associate of the Chartered Insurance Institute, which maps across to a degree-level qualification, but with the FSA’s new standards, it appears that there will be gaps. If advisers with such a qualification do not fill those gaps in the two years available, they will no longer have a livelihood in the industry. That is blatantly retrospective regulation.
Another important example that was brought to my attention was a letter from the chief executive of a friendly society based in Cleveland on Teesside. The case may be raised in the debate; I hope so. The chief executive wrote to me explaining that his door-to-door sales force who sell funeral policies for £1 a week and life policies for up to £5 a week will now be required to take the degree-level qualification. As such, he felt that his friendly society with its 10,000 low-income customers would have to shut it doors. May I urge the Minister to try to influence the independent statutory regulator to be more respectful of experience as a qualification?
Mr Russell Brown (Dumfries and Galloway) (Lab)
Does the hon. Lady agree with this statement: it is one thing to impose new rules on new entrants to the IFA profession; it is quite another thing to disqualify someone who is already qualified?
Harriett Baldwin
Indeed. I understand that there is to be an alternative-based assessment. The Minister mentioned it in the Westminster Hall debate, but I want to try to make sure that he works closely with the FSA to publicise that route more extensively, and that he works with the FSA perhaps to soften the cliff-edge of disqualification on 1 January 2013. We all want to see better qualified financial advisers, no question about it, but to close the door on financial advisers practising their profession on 1 January 2013 is not on.
In conclusion, financial advisers face a triple whammy. We have heard about some of the other issues, but the one that we would all see as being the most illogical is the one about qualifications. As the Government go through the process of changing the way the FSA operates, I urge my hon. Friend the Minister to change the way the FSA regulates the sector.
Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)
The debate might be in danger of becoming a love-in. [Interruption.] Thank you very much. The hon. Member for Devizes (Claire Perry) was making an open-arms gesture, but I do not know whether I want to go down that route. If détente breaks out, I for one will be delighted. I have been contacted by a number of individuals and groups who have significant concerns about the impact of the retail distribution review.
The review purports to set new parameters for this important sector of our economy, and regulation is at its heart. The chief executive of the Financial Services Authority characterised the review under three main headings, which the hon. Member for Wyre Forest (Mark Garnier) set out—the need for a transparent and fair charging system, greater clarity on the type of advice offered, and a better qualification framework for advisers. I have no quarrel with the first two points. We may differ a little about the content.
It is right that IFAs must disclose their charging structures to clients up front and in writing, so that the client has the information in good time, before the advice process starts. It is right that the IFA must also agree and disclose the total charges that the client will incur as soon as those are known. It is right that, from 1 January 2013, IFAs will be able to make an ongoing charge only where they provide an ongoing service. It is also right that from 1 January 2013, product providers will no longer be able to offer commission on their products, and advisers will no longer be able to receive commission set by product providers. That is just hiding the charges within the commission. The major concern on which I think all participants in the debate agree, however, is the concern of constituents who have contacted me regarding the so-called better qualifications for those who work in the market.
One should not automatically be afraid of higher qualifications for individuals who work in this important sector, but the quality of the debate has not been helped by the tactless, ill-informed and unwise comments of the Financial Secretary to the Treasury, who caused great anger among IFAs during a debate in Westminster Hall, when he compared the current level 3 minimum qualification for advisers to that of a McDonald’s shift worker.
Claire Perry (Devizes) (Con)
Does the hon. Gentleman agree that, by focusing so narrowly on qualifications, we miss one of the most important things in any investment industry—experience and a track record? By narrowly defining what we think of as the appropriate qualifications, we completely ignore the experience that many IFAs bring to their positions. They will be forced out by such regulation.
Mr McCann
I agree entirely, and I shall address that point a little later. It is why my constituents and I were so angered by the comparison of the current level 3 minimum qualification to that of a McDonald’s shift worker. It is, indeed, an insult to the many of thousands of people who work for that company—a company whose products, looking around the Chamber this evening, I am sure a few people have sampled.
Dr Andrew Murrison (South West Wiltshire) (Con)
The hon. Gentleman is concerned about the QCF—qualifications and credit framework—level 4 qualification, but is he not concerned also about the impact of the measure on the need for continuing professional development outlined in the RDR, and the fact that it is likely to disadvantage small operators who will not be able to rely on the critical mass of a large organisation when taking time off—probably about a week every year—to conduct CPD?
Mr McCann
I agree entirely. The measure will impact on small businesses, not the big part of the sector, and that is why the Financial Secretary should have been mindful of the commitments people have to make to gain qualifications in the sector. One IFA, in particular, heard the Minister’s comments and blogged:
“I’ve just spent 70 hours revision to pass RO1. Nobody has paid me for my lost time. Nobody has asked me 1 of the 100 questions in the exam for the last 22 years. This guy”—
the Financial Secretary—
“needs to get in the real world.”
That leads me to my main contention: the proposals and timetable to increase the qualifications needed to participate in this sector of the economy are not sensible. Exams and qualifications in the sector are not new, but the proposal to introduce new rules that effectively force people to re-sit exams without taking account of their experience or, most importantly, clean regulatory record is patently unfair. Moreover, the sector will not be able to absorb the cost of revalidation; instead, as other contributors have said, it will be passed on to the customer in the shape of higher fees.
Others have also mentioned that many professional groups in the United Kingdom are not asked to revalidate, so I seriously wonder why we are trying to isolate this particular sector. Why, as other hon. Members have asked, do we want to take away that valuable experience from that important part of the economy?
Our time is limited, and there is a limit of six minutes on each contribution, but I too want to mention one individual who has contacted me in the lead-up to the debate. He is an old friend of mine, a next-door neighbour, and it is important that we bring our experiences to the House when we discuss such issues. Jim Hunter sells financial products, and he contacted me, but he did not complain about the need for transparency, fairness or greater clarity. In fact, having done business with Jim, I know that he had all those ingredients many years ago. Indeed, I am sure that many people who have contacted hon. Members are in exactly the same boat.
Jim was talking to a colleague recently at a meeting. The gentleman is 60 years old, with more than 30 years’ experience in the industry, and if he sat the proposed exams he would be 63 before he finished them. Jim explained that that person would be lost to the industry and have to retire before his time, because he would not study at that time of his life. There are many people like that, trying to make a living for themselves in difficult times, and that ability to earn a living in this important part of our economy will effectively be taken away from them without any real benefit to the economy itself.
Tracey Crouch
Does the hon. Gentleman agree that, although the RDR was introduced with every good intention, further work should be suspended until there has been a full cost-benefit analysis of its impact on the IFA community and, indeed, on consumers?
Mr McCann
I do not think that that point is unreasonable at all, and it could be taken on board.
One point has not been mentioned in the debate, but it is an important one to make in the last minute of my speech. The final thing that my constituent said to me is that many IFAs work on trust. That trust takes a long time to build up with individuals. If you take that experience out of the sector, the trust will go. People will be uncomfortable about going to new IFAs because they will have to rebuild the trust all over again. We should be mindful of that.
The RDR is an important piece of work and it is important that we get it right. For that reason, I urge the Minister and members of the Select Committee to take the comments away, recognise the need for common sense to prevail and work with the industry to come to a common-sense solution.
Heather Wheeler (South Derbyshire) (Con)
I declare my interest: I am an associate of the Chartered Insurance Institute, having studied for and passed my professional exams in 1985. Although I have not practised as an insurance broker since 1987, I wanted to speak tonight because I recall the debate when I was studying about how the importance of exams was a strong factor in professionalising the insurance sector. At the time, I felt that that was an over-egging of the situation, and here we are 25 years later and the Financial Services Authority is using a sledgehammer to crack a nut.
I am totally opposed to the new rules that the FSA is imposing on independent financial advisers. If I felt that it was imposing them because there had been bucket loads of horrendous examples of mis-selling, or because clients had been ripped off, or because there were statistics to show that IFAs had been responsible for the majority of the complaints in the industry, perhaps I could understand. But none of that is true. As we have heard, IFAs are responsible for only 2% of complaints from customers; the banks bear the brunt, at 61%.
Mr Robin Walker (Worcester) (Con)
I and congratulate my fellow Worcestershire Members on having this debate. Does my hon. Friend realise that the figures of 2% and 61% that she has just cited are further strengthened by the fact that the proportion of complaints against IFAs has gone down every year for the past five years and the proportion of complaints against the banks has risen every year over the same period?
Heather Wheeler
My hon. Friend is correct. Is that not interesting? Many of us have been trying to get to the background of why this retail distribution review was brought in and where the FSA was coming from. The statistics really speak for themselves, and I am astonished that we find ourselves in this position.
Alun Cairns
Even if the statistics were much worse than they are, does my hon. Friend believe that the proposals in the RDR would lead to improved and safer advice for clients? I certainly do not believe that they would, even if the statistics were worse.
Heather Wheeler
Absolutely. I thank my hon. Friend for bringing up that point. It is clear that the baby is being thrown out with the bathwater. Nobody at the FSA seems to want to explain why. IFAs that have offered solid advice for years, with unblemished records, should be granted grandfather rights. Like many other Members, I have been trying to find other areas of business where new rules are to be introduced without any grandfather rights. I cannot. Even licensed properties—pubs, to you and me—kept their grandfather rights when the new licensing laws came in a little while ago.
It has been estimated that the effect of the rules being introduced in 2013 will be that we will lose 30% of practising IFAs. Where will the business go? Yes, you guessed it: to the banks—to the people who have the record of providing 61% of the complaints from customers. What is the FSA saying about that? Absolutely nothing. We have to ask ourselves why the FSA is doing this. I cannot find a credible reason. As we have heard, on its own cost-benefit analysis, the cost of introducing these new rules has risen from £660 million to £1.4 billion to £1.7 billion.
I urge the Minister to reopen talks with the FSA, not to allow it to put 30% of IFAs out on the scrap heap and not to reduce individuals’ choice of where to go for financial advice. Finally, he should use all his charms—he knows that I know he has charm—on the FSA, because the Government are new and “choice” and “fairness” are the catchwords that represent us, not “draconian, bureaucratic, Stalinist centrists”.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
I congratulate the hon. Member for Wyre Forest (Mark Garnier) on securing this important debate. I am pleased that the hon. Member for West Worcestershire (Harriett Baldwin) referred to the Kensington Friendly Collecting Society, which is a very good organisation in my area.
As a Co-operative Member, I represent the interests of some people on low incomes who have been denied access to financial advice and products provided by friendly societies and mutuals as a result of the qualification requirements contained in the retail distribution review. The Kensington is a friendly society that has existed in Middlesbrough for 106 years. Mark Brooks, who is the chairman of its committee of management and a constituent of mine, and James Lancaster and Phil Carey wrote to me from the Kensington to raise their situation. The Kensington has 10,000 members throughout the Teesside postcode area. It provides savings and insurance products to those members for as little as £1 per week and a maximum of £5.70 per week. It provides opportunities for its members to obtain basic financial products. Without this provision, members of the society would largely be excluded from financial services and have to go to more expensive services, namely the banks, or to loan sharks.
The RDR is currently being finalised by the FSA. Its most likely outcome will be that the society will close down, which will mean that 10,000 members will lose their ability to save small sums of money for their funeral or for a rainy day. The reason is that the FSA is proposing a blanket qualification for any person offering financial advice—a qualification that is considerably higher than the current requirement. The FSA will not permit exemptions to this qualification structure, and it will not permit a gradual increase in qualifications vis-à-vis the risk and complexity of the product being advised on. The advisers at the Kensington and other societies will be required to obtain degree-level qualifications to sell a simple endowment or whole-of-life policy for a maximum premium of £5.70 per week. This is the only type of product that they sell, and the level of qualification required is disproportionate to the advice that they give.
The syllabuses of the proposed qualifications are irrelevant to the needs of those on low incomes. The exams focus on trusts, inheritance tax, capital gains tax and portfolio management. Those on low incomes may aspire to require this level of financial planning, but in the here and now they need advice on issues such as debt and benefits. The qualification requirements will mean that members of this society and others will be denied access to financial advice after 2012. The society will be unable to recruit new members because its advisers will be unable to offer advice to prospective members. A lack of new members will mean that this society and others will close. As a result, their members will lose access to financial products that they can afford and, in all likelihood, will be excluded from financial services thereafter.
That outcome seems to contradict the aims of the FSA and the Government in tackling financial exclusion. The RDR, while seeking to protect the interests of high net worth consumers, is by default taking away one of the few opportunities that those on low and insecure incomes have to obtain financial products. If the Government and the FSA are keen on promoting financial inclusion and financial literacy, then the existence of friendly societies like the Kensington is essential in delivering such benefits to those on low incomes. The concept of mutuality appears central to the idea of the big society, yet the consequences of the RDR would be to remove the remaining friendly societies that promote this notion.
Jim Shannon (Strangford) (DUP)
Does the hon. Gentleman agree that the reduction in IFA numbers would also have an impact on the volume of new insurance policies and the work that would come from that?
Tom Blenkinsop
Yes, I certainly agree. We would lose skills and experience, as well as putting people out of jobs for no good reason whatsoever.
The qualification requirements would deliver no discernable benefit to the vast majority of consumers beyond the wealthiest few. Let me assure hon. Members that by arguing against the proposed qualifications, I am not saying that such members deserve less than the better-off, but merely stating that they require different things.
The Kensington has increased its premium income by over 40% in the past seven years despite the fact that tax-exempt premium limits have not been increased during this period. That indicates that there is a demand for the service and the products. The Kensington delivers products that fulfil real needs for those on low incomes. For example, in the Teesside area, owing to bad debt difficulties, undertakers will not proceed with a funeral unless the deceased’s relatives can provide a deposit of £750. The Kensington, among others, can fulfil that need because its minimum premium is £1 per week, which is enough to generate £1,000 of death cover. It has a local presence, which means that the agent can deliver a death claim cheque to the family directly within two working days of the member dying, and the whole process is conducted by someone whom the family knows.
The majority of members of the Kensington and other friendly societies in Teesside live in the poorest and most socially deprived council wards in the UK. Our people require honest and appropriately qualified agents who understand the benefits system, can provide advice on debt issues, and can generally assist in all forms of financial planning for those with limited disposable incomes. It is difficult to imagine that any such member would ever require advice on IHT planning, trusts, corporate financial planning, portfolio management or CGT.
The QCF level 4 is a disproportionate qualification for the home service market operating within tax exempt limits. It will not add value to consumers, nor improve the service that they receive. It will make home service sales forces even more expensive to run and will generate further financial exclusion. A more considered qualification that focused on the real, everyday financial issues that affect those on low incomes would be welcome. Current academic thinking reinforces my view, which I assume is shared by other hon. Members, that the only effective method of accessing and engaging those on low incomes in savings and protection products is a direct sales force. Indeed, the Department for Work and Pensions website states that tenant engagement teams are being piloted to increase take-up of home contents insurance,
“particularly as all other traditional methods of promotion (leaflets, flyers, competitions, prizes etc) have not resulted in large scale increases in the number of policy holders.”
In conclusion, the RDR qualification requirements for advisers selling tax-exempt, small premium assurance products are disproportionate and irrelevant to the needs of those on low incomes. The RDR will reduce the access of those on low incomes to basic assurance products at a time when significant amounts of energy and money are being invested in promoting financial inclusion in that area.
Guto Bebb (Aberconwy) (Con)
I congratulate my hon. Friends the Members for West Worcestershire (Harriett Baldwin) and for Wyre Forest (Mark Garnier) on instigating this debate. I was unable to attend the Westminster Hall debate on 20 October, but the transcript indicates the quality of debate that we have in this House on occasion.
Many issues have been discussed at length, so I will attempt not to repeat what has been stated by other hon. Members. However, I will highlight some areas of concern. I concur with hon. Members who believe that the FSA is taking a sledgehammer to deal with problems that are not great enough to warrant it. The FSA’s proposals will damage choice and result in small businesses being forced out of trading. It will affect the choice available to people who live in rural communities in particular. As has been stated, the proposals discriminate against older members of the financial advice community. There will be an effect on the availability of advice and support for those who are less wealthy in our society. All those problems must be addressed.
On damage to choice, Ernst and Young estimates that as a direct result of the proposals, there might be a reduction of about 50% in the number of financial advisers who are willing to carry on trading and that there might be as few as 10,000 fully accredited financial advisers with about another 10,000 providing restricted services. Such a reduction is unacceptable. Even the FSA states that there might be a loss of as much as 25% in smaller firms who are willing to provide this service. It is difficult not to conclude from those figures that the proposals will affect choice. I find it hard to accept the FSA’s argument that it is bringing forward the proposals to serve consumers and give them more protection and choice.
Andrew Bingham (High Peak) (Con)
Does my hon. Friend agree that as well as removing choice, the proposals might lead to people not bothering to save—at a time when people need to save—because they cannot get advice on how to do so or on where to put their money?
Guto Bebb
I accept that point. In particular, I believe that those who are less wealthy in our society will be discriminated against, even though there should be greater encouragement for them to save than other people. That issue relates directly to the damage to choice.
Although I share the Treasury’s view that there is a need to ensure that advice is of a high quality and accept that there has been mis-selling and bad advice—I do not argue against the need for a degree of regulation—it is difficult to accept proposals that even the FSA accepts will result in a reduction in the services that are available to the public. In particular, I remain unconvinced of the merits of the examination process being the be-all and end-all. Are structured learning and examinations really a substitute for experience, integrity and honesty? If I were looking for a financial adviser, those qualities, rather than an exam, would be the first on my list.
Claire Perry
Does my hon. Friend agree that one way of taking the matter forward is to allow consumers to decide? We all believe in consumer choice. If the proposed laws were passed and financial advisers had to have letters after their names, we could have a grandfathering clause so that the consumer had a choice. They could go with experience or with somebody who had sat the exams under the new regulations.
Guto Bebb
There is a lot of merit in that argument, and I would be encouraged if the FSA were to consider such an approach.
As a Member who represents a rural community, I am well aware that the change will have a much greater impact on smaller financial advisers. After all, the cost of regulation is estimated at about £6,000 per adviser. That could be taken as being reasonable in the context of a large, city-based financial advice firm, but for small firms in my constituency such a regulatory burden could be the difference between remaining in business and leaving business.
At a time when the coalition Government are stating clearly that they want the private sector to create jobs, and that they want to get rid of the red tape and bureaucracy that have stifled a generation of jobs in small businesses, I find it odd that the financial advice sector is being earmarked for different treatment. The financial advisers to whom I have been talking support the coalition fully in trying to reduce the red tape and bureaucracy that small businesses face, but they would like to be included in the discussion.
On rural services, we in Aberconwy have suffered in many ways, such as the closure of small post offices. We have also seen the legal aid franchise service stopped for the time being, creating a real threat of no legal aid services being available in any of the small towns in my constituency. I therefore believe that we should be very concerned about the further attack on small businesses in rural communities that we are discussing this evening.
In many small market towns, financial advice is part and parcel of what people have come to expect. When they go into town on market day, they can do their banking and go to the post office, the local shop and the solicitor, but they can also go to the financial adviser. It is not acceptable that people who live in a rural community will have to drive to the nearest large town, or even perhaps use the banks instead. Banks in rural communities, and certainly in my constituency, are now nothing more than counter services. It is a real problem that services in rural areas are under threat.
My hon. Friend the Member for Ipswich (Ben Gummer) made the point about rural services very strongly in the Westminster Hall debate, and I agree with him, but I would go further. In Aberconwy, many professional firms work through the medium of Welsh. If rural financial advice services are taken away from parts of my constituency, people will lose the ability to go to a local financial adviser and deal with their problems in the language of their choice. People in my community switch between Welsh and English in the same way that people go into a café and choose coffee or tea—it is quite natural for people to use their own language when dealing with their own affairs. I wonder whether larger concerns in more anglicised towns on the coast, or further away in Cheshire, will take into account the need to provide a Welsh-speaking service.
On discrimination against older financial advisers, I question why no grandfather rule is proposed. Why are we not willing to consider experience as being of importance? I shudder at the thought of leaving people in my constituency dependent on the banks rather than having an IFA. If having an independent adviser is good enough for some people in our society, it should be good enough for people in my constituency. The proposals should be reconsidered, and I endorse the call for the FSA to think again about the damage that it is doing to a very important service in my communities.
Jim Shannon (Strangford) (DUP)
I congratulate the hon. Members for West Worcestershire (Harriett Baldwin) and for Wyre Forest (Mark Garnier) on introducing this apt motion. It has certainly galvanised a lot of interest in my constituency. Like all hon. Members, I have received e-mails, letters and phone calls, and I have held personal interviews, so I have had lots of information. My constituents have made it clear to me from the outset that this is not just about advisers who provide help to wealthy people who can stay at home and watch their money work and grow. I am speaking tonight on behalf of people who have a small sum of disposable income and who wish to enhance their small pensions at retirement age and seek help and advice from financial advisers. They have asked me to speak on their behalf, and I happen to know that some of them are watching the Parliament channel to see that I say what I said I would say.
One constituent sent me some background information, which sets out the situation very clearly. The retail distribution review appears to offer solutions—at least on paper—to matters which the FSA has identified as problematic within the industry. I am not aware of those problems, which concerns me. The FSA believes that the measures set out in the RDR proposals will provide for greater consumer confidence and engagement within the industry. It is planned that all advisers attain the qualifications and credit framework level 4 qualification by 31 December 2012.
A constituent of mine wrote:
“I have attended seminars at which RDR and the future of Independent Financial Advisers are discussed. They all have the same line…segment your client base…they give guidelines how to do this so that we have an income stream from a fee base structure. If I were to follow this suggestion I would have 3 clients left. When I question this approach, on every occasion the reply is…I need to change my market.”
Did anyone ever hear such advice in all their life? Goodness me!
Tom Blenkinsop
Building society closures and the exodus of the large phone service companies have reduced almost to nil the supply of premium products for those on low incomes, particular the 4 million who still feel disengaged. What do the hon. Gentleman’s constituents think about that?
Jim Shannon
I thank the hon. Gentleman for his comments. I have the same concerns.
It is estimated that it takes 400 hours to do the exams. That is approximately 10 weeks when people do not have the opportunity to earn money or do what they normally do. Advisers in Strangford have painted a different picture to that painted by the retail distribution review. Most of the customers of advisers in my constituency are working class. I have been informed by many financial advisers that they have spent time with people without receiving any financial reward—we have heard that from hon. Members on both sides of the House tonight.
One adviser offered advice to a female client who was about to go through a separation. She was stressed out about her finances, but the adviser spent a lot of his time on the phone to her. For all his work, he earned not a penny. The road that the regulator is pushing advisers down will mean that they will be unable to afford time if they do not get paid. Will we therefore end up with people being unable to afford sound financial advice, exactly as the hon. Gentleman said?
I represent a rural area, as do many hon. Members, including the hon. Member for Aberconwy (Guto Bebb). We are aware how the proposals will affect and impact on people in rural areas. Consumers will suffer substantial and unprecedented detriment owing to the unintended consequences of the proposals. Would it not be wiser or better to protect grandparent rights, as at least two or three hon. Members have intimated? Doing so would give the protection that many need. A substantial portion of the adviser population will leave the industry. Various surveys have been conducted and although there is no consensus on the figures, it is obvious that adviser numbers will fall drastically.
One of my constituents in Strangford wrote:
“I am 54 years of age…the heavy regulation is taking its toll. I am ¾ of the way through the new exam structure. Many advisers are finding it impossible to pass these exams as many are over 55 and are finding the stress unbearable.”
Another hon. Member referred to a 63-year-old adviser for whom contemplating exams will put him away in the head. The result will be anxiety, depression and stress. My constituent predicted a drastic fall over the next three years in the number of independent financial advisers. He continued:
“Advisers are finding the regulations unbearable, and many are having problems due to”
what is taking place. He made a statement that I found moving and honest:
“We are all starting to swallow the negativity thrown at us by the regulator over the past numbers of years, which is trying to kill us off”.
Now IFAs are facing another obstacle and barrier. We cannot afford for any businesses to be lost, especially ones that will take the financial burden off the state by enabling people to supplement their pensions and not need state aid and benefit. They are the people in my constituency and across Northern Ireland on whose behalf I wish to speak.
Robin Stoakley, head of intermediary business at Schroders, said:
“I do see up to 30 per cent of the IFA market leaving”.
How on earth could we support something that would take away 30% of the IFA market? Furthermore, Aviva UK Life marketing director, David Barral, said the firm predicts that by 2013, IFA numbers will fall to 10,000, leaving middle market consumers unserviced.
Andrea Leadsom (South Northamptonshire) (Con)
Does the hon. Gentleman agree that at a time when we desperately need small and medium-sized enterprises to be increasing their activity, not reducing it dramatically, this is a disastrous thing to be happening?
Jim Shannon
I agree wholeheartedly with the hon. Lady. The one great thing about tonight’s debate is that we have, I think, a united front—if that is the way to put it. All the parties are in agreement, which is good news.
Time does not permit me to go through the long list of people in the industry agreeing with the prediction of a sharp decline in the number of advisers owing to these proposals. However, it is clear that there is a definite problem with these regulations and their impact on IFAs. If the adviser population falls by about a third, as predicted, it will leave millions of consumers without an adviser. Some will migrate to other advisers—we understand that—but a great many will be left without a trusted source of advice. The UK currently suffers from the largest saving retirement and protection gaps in its history, and it is essential that these gaps and the current over-reliance on the state are reduced. I think that many in the House are prepared to accept that.
The UK can ill afford to lose 10,000 advisers. Such a catastrophe would intensify the existing problems. The UK’s leading consumer champion, Martin Lewis, of Money Saving Expert, remarked:
“There’s a worrying possibility that the FSA is about to kill off”—
his words—
“independent financial advice in the UK for all but the wealthy. I do hope I’m wrong. I’m not convinced most people will want to pay for advice. The commission route has the advantage that you don’t pay a fee each and every time you want information; you can go without the worry of laying out cash.”
That is an expert’s opinion.
I speak not only for the financial advisers in my area who have been forced out of their jobs, but for the wee man and the wee woman who have asked me to come here and fight their case for them. I also stand for the thousands of people in my constituency who benefit from the current system. People who are forced to pay for all advice offered will be unable to invest much, and therefore will not invest or, worse, will invest somewhere they should not, with dire consequences. I am aware that it is the FSA that is making these recommendations, and I ask the Minister to do the honourable thing and support the alternative proposals put forward. They would benefit the larger advisers, as the FSA is trying to do. However, we also have to look after those disadvantaged consumers, so I urge the House to support them.
Madam Deputy Speaker (Dawn Primarolo)
Order. May I remind hon. Members that I want to begin the winding-up speeches at about 20 minutes to 10? There are 16 Members who still wish to speak in this important debate, although there might be more—I have not seen them all. Hon. Members do not have to use the six minutes, but I am not going to reduce the time limit, because I appreciate that it is difficult to make the strong arguments hon. Members want to make in less time than that.
Tessa Munt (Wells) (LD)
I have taken feedback from my local independent financial advisers in rural Somerset. The general approach to the retail distribution review has fundamental flaws and will inevitably fail in one area—which is surely to encourage people to buy more financial products and to take responsibility for their financial futures. The RDR will fail because the regulator is trying to impose on the industry an advice process and a particular bids model without recognising or understanding the realities of what the public want.
Surely it would be better to find a way of developing an environment in which product providers and advisers have the freedom to develop their own business models, providing that they were honest and straightforward with clients and treated them fairly. That would allow innovation and would have some chance of success. The whole situation is similar to what happens when central Government try rigidly to control everything, instead of delegating responsibility to local authorities. Central Government do not always understand the issues at the grass roots and may get it all wrong. This Government should move us away from a prescriptive approach to one that allows an element of freedom.
Tessa Munt
I want to be brief.
We should consider what an IFA’s clients are seeking to buy when they look at financial products, look at what they do not like about the present procedures and consider whether the RDR will change anything. A constituent of mine has stated that when his clients buy their financial service products, they are seeking a similar experience to that when they buy other goods. First, they want the buying process to be a simple and pleasant experience. If the Government wish the public to buy more financial products and take responsibility for their future, they should not forget that fundamental point. That is not easy to achieve in the current environment. For a start, most clients do not like to be issued with mountains of complex paperwork. They find it quite intimidating.
Secondly, a lot of people visit an IFA with a specific purpose in mind—to invest some spare funds, to discuss their pension, and so on. They wish to restrict the conversation to those points that they believe are relevant and, having listened to what the IFA has to say about the matter, will wish to make up their own minds about whether the product under discussion is suitable for their needs. However, once in discussions, people often have to go through the IFA’s “advice process”, and are no longer responsible for their own decisions. The IFA has to be sure that the product is right for them, so these people find themselves undergoing a time-consuming and irritating process, having to answer personal questions that they often consider an invasion of their privacy.
Thirdly, clients quite rightly seek value for money. Unfortunately, the whole regulatory procedure is so cumbersome that it is no longer cost-effective for those with limited funds to seek an IFA’s advice. The cost of many financial products has risen dramatically. For example, 30 years ago the annual management charge on a unit trust was usually 0.25% or sometimes 0.375% per annum, but now it is usually 1.5% per annum. Much of the increase has arisen purely as a result of regulatory costs. A significant part of the cost increase is driven by regulation, so everyone suffers.
Will the RDR change any of the above? Not in my opinion: there is little evidence that any of those fundamental issues will change as a result of the RDR. We are all in favour of raising standards, but further examination passes will not address any of those issues.
Annette Brooke (Mid Dorset and North Poole) (LD)
Does my hon. Friend agree that it is quite surprising that even where IFAs are well on their way to getting the new qualifications, they are still against the system and see the exams as pointless? The new qualifications will not weed anybody out, which might have been their objective, because everybody sees them as inappropriate for the job that these people do.
Tessa Munt
Absolutely, and I thank my hon. Friend for her intervention.
The cost of paying for the IFA’s time will not change. We are all in favour of raising standards, but further examination passes will not address any of the issues that I have set out, and clients will not mind whether they pay commission or fees. To improve matters, the regulator must lessen the threat of litigation by giving clients the freedom, if they so wish, to take an element of personal responsibility in their decisions and to buy from an IFA after those discussions. The regulator must also stop telling IFAs how to structure their business models and must allow them be innovative. Without the mountains of regulation, most experienced IFAs could significantly improve the service that they offer their clients while dramatically reducing their charges. Also, they could probably employ more people and could significantly improve the customer’s experience.
I would like to quote from two small independent financial advisers in rural Somerset. One says:
“If the RDR goes through in the current format I am likely to lose the adviser…I employ. He is highly intelligent (a university graduate) and has over 20 years relevant experience. He is very competent to undertake the work that he does. However, he is in his…fifties and is busy with two children still at home and another at university. At this stage of his life he simply does not wish to use all of his spare time studying for further examinations. So this will be another person in your constituency without a job—so unnecessary.”
The second person said:
“I am lucky, I have all the necessary exams. I just hope they do not raise the bar again. I really could not face the pressure of having to pass more exams at my age. If it happened, I would have to close and more people would lose their jobs.”
The FSA in this case is judge, jury and executioner. I ask the Ministers to reconsider the rules for 2013, and to reopen talks with the FSA, to make it possible for independent financial advisers to offer the high-quality service that they want to give to their customers.
Nia Griffith (Llanelli) (Lab)
I recently met a group of independent financial advisers who serve Llanelli and the surrounding area. They fully understand the need to have a properly regulated industry, and the need to improve consumer confidence. They want high standards, and I can assure hon. Members that they simply would not get away with it if they did not have high standards, particularly in a close-knit community, where everyone knows whether they have done well or badly in their last transaction. Their next custom really does depend on that. They also made the point that they already have certification. In addition, many of them have a great many years’ experience. They also accept that new entrants to the profession need proper qualifications and training.
A number of difficulties have already arisen with the new scheme. The first relates to the availability of slots to take the exams at the examination centres. One independent financial adviser in my constituency is waiting for a slot to take an exam in January in Bristol. Now, Madam Deputy Speaker, there is nothing wrong with Bristol, except for the fact that it is some considerable distance from my constituency. There is also the inconvenience of having to travel there in the winter, to fill a particular slot for a particular examination. If that slot were not available, they would have to go somewhere else.
Andrew Bingham
Does the hon. Lady agree that, if grandfather rights were to be introduced, as many of us wish, it would not only be fair to existing IFAs but release more slots so that new ones could come into the market, thereby increasing competition and choice for consumers?
Nia Griffith
Indeed, there are certainly issues about the way in which the whole system has been set up and run, and about whether it can be worked properly. As the hon. Gentleman points out, to have so many people trying to take the exams in just two years is not particularly practical. The time scales are extremely tight, and the independent financial advisers have to book into the slots. Another problem, of course, is that they do not always pass the exams.
That brings me to the nature of the exams. As I have said, independent financial advisers already have certification, and I have seen some of the questions that they have to answer in order to gain that certification. Many of them seemed to require a very different kind of knowledge from the knowledge that the IFAs in my area usually need. Furthermore, IFAs are fully aware of their own shortcomings. They know that they have limitations, and that they will sometimes need to pass a client on to someone else for specialist advice.
One very experienced financial adviser in my area is a well respected member of the community who is very much involved in local town centre activities and in keeping the community alive. He recently failed one of these exams, however, which has knocked back his morale and that of a number of other financial advisers who know him. He failed the exam not because he was not perfectly capable of doing his job or because he lacked intelligence or experience. That seems only to confirm that the nature of the exams needs to be reconsidered. We also need to take into account the enormous amount of time that has to be put into them —400 hours has been mentioned, and that is probably the minimum—as well as the costs involved.
I know from experience of developing new examination schemes what happens in such circumstances. Everyone wants to put in their 5p worth and everyone wants extra questions on their area, and the whole thing develops until it becomes so big and unmanageable that no one could possibly want it as a syllabus. Another problem is that people are often terribly worried about being thought of as soft. They are worried that someone is going to tell them that standards are falling, so they decide to put in harder and harder questions to try to counteract that.
Harriett Baldwin
Have any of the hon. Lady’s constituents been able to observe how the qualifications might help to identify those independent financial advisers who might have a tendency to mis-sell, compared with those who might not?
Nia Griffith
My constituents have made clear to me that many of the questions do not bear much relation to what they do in their everyday work, and are certainly not a test of their integrity. That does not mean that they do not want regulation or do not like the idea of having proper qualifications and a respected profession, and it does not mean that we should abandon the RDR altogether. What those people are saying is that we should look at the detail again and create a workable system that can be respected and is a useful tool, rather than one rejected by the profession that will not help anyone in the long run because it will simply lead to an exodus that will have the impact on local communities that many Members have described.
Mr Robert Buckland (South Swindon) (Con)
I probably know some of the constituents to whom the hon. Lady has referred. Some of them have been in touch with me, as well as with my local independent financial advisers. In other professions, when it comes to continuing professional development and examinations, those who specialise concentrate on their specialities, and therefore undergo tests that relate to their experience. The problem with the RDR regime is that it is far too general. That puts people in a really difficult position, which is unfair.
Nia Griffith
My friend and compatriot is right. That is why those responsible refer such people to others. They know that they do not know everything; they know what they do know, and they know what they do not know. This is not about throwing the baby out with the bathwater. It is not about abandoning the system altogether. It is about getting it right: it is about having another look, and establishing whether there are ways of implementing the system that will make sense. We need an arrangement that will not create a time scale that is difficult to adhere to, will not depend on slots that are impossible to secure, and will not involve questions the answers to which people will not need to know in their professional lives. We need modifications to make the system much more manageable.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
I will speak very briefly. I will chuck away my notes, and see if I can do better than six minutes. I am delighted to be able to speak in the debate. I was urged to do so by two constituents in particular—Roger Clark, who is listening to the debate not far away, and Mr William Dixon—but others have written to me as well.
The number of IFAs has fallen from 32,000 to 29,000 in the last two years. When Hector Sants, the excellent and much revered and admired chairman of the FSA, appeared before the Treasury Committee last week, he estimated that between 10 and 20% of IFAs would go out of business as a result of the RDR provisions. I ask Mr Sants this: who are we—who is he—to put 5,800 companies out of business with a stroke of the pen, and what is the problem that needs fixing?
Many Members have quoted the figures this evening. complaints about IFAs to the financial ombudsman’s office: 2%, of which 39% are upheld. Complaints about the banks: 61%, of which 50% are upheld. No doubt my hon. Friend the Minister will say that that is because the banks offer a wider range of services. Of course they do, but I do not think that that explains such a large disparity.
I want to make three points. The first relates to the qualifications and credit framework level 4 qualifications. I am a qualified chartered surveyor, but I cannot think of a single professional body whose members would have to obtain a retraining qualification halfway through their careers. My hon. Friend and neighbour the Member for West Worcestershire (Harriett Baldwin) mentioned nurses, and other hon. Friends have mentioned publicans. None of those have to retrain.
Let me say one or two things about these exams. I agree with others that there should be grandfather rights, and I think that the implementation should be put off for five years. As we all know from the home information pack debacle, it takes time to implement exam regimes of this kind. I think that 31 December 2012 is too soon. I also think that it would be perfectly reasonable to ask new entrants to the IFA profession to undergo the exams, but to give grandfather rights to existing practitioners, many of whom have had many years’ experience.
I understand that two kinds of qualification will be granted under the new regime: a restricted qualification and an independent qualification. Someone will go to an IFA who will say, “I can advise on mortgages but I cannot advise on pensions, because I have only a restricted qualification.” I think that that is thoroughly unsatisfactory.
The second issue I want to talk about briefly is commission-based product withdrawal and the accusations that it can lead to practitioner bias or product bias. The Financial Services Authority asked Charles River Associates to undertake a survey into the matter, and he concluded that
“there was no evidence that moving to”
a fee-based model
“to the exclusion of a commission would lead to benefits since consumers choosing to pay on a fee basis do not receive better advice than those opting for a commission basis.”
I also agree with those who said it will favour the wealthy in society and put the poor at a disadvantage, because the poor cannot afford to pay this fee up front, while the idea of phasing it in over a number of weeks or months would be unfair to IFAs. That proposal is therefore not very sensible either.
The third issue I want to raise is the cost of compliance. Two years ago the cost was estimated to be £680 million; last year it was estimated to be £1.4 billion; today it is estimated to be a staggering £1.7 billion. That is £6,000 for every practitioner. For a sole trader or a small business, that is a huge amount of money, while for large IFAs with a number of partners it does not matter quite so much. I therefore urge my hon. Friend the Financial Secretary to consider very carefully what has been said today. I cannot remember a debate during my entire 18 years in Parliament where there has been such consensus of interest and so many Members have attended when they do not have to be in the Chamber as there is not a three-line Whip.
I urge my hon. Friend to listen to what has been said tonight, and I urge the FSA to think again, and to ask itself what the problem is that needs fixing. These are all small businessmen and small traders; they are precisely the people we were saying throughout the election campaign that we wanted to help, yet these proposals of ours are likely to put large numbers of them out of business.
Finally, I want to refer to the point made by my hon. Friend the Member for Aberconwy (Guto Bebb). I represent a rural area, and I know that banks have closed many of their branches in the high streets of my small market towns. If the IFAs are driven out as well, a lot of my poorer constituents will be left without any form of independent financial advice at all, at a time when the banks, if they are there at all, are offering a reduced service.
My hon. Friend the Financial Secretary is a reasonable man, and I ask him, please, to listen carefully to what has been said tonight. We need to have a rethink on this matter.
George Hollingbery (Meon Valley) (Con)
I, too, will abandon my notes this evening, and restrict my remarks to one or two brief points.
Most of the topics have been more than adequately covered. There have been a great many well-made speeches in which many powerful points were made. There has been a lot of discussion about grandfathering, and I think it is worth pointing out that there are other ways in which IFAs could be grandfathered into the industry other than just a blanket allowance so they can all carry on practising. For example, would it not be possible for IFAs with more than X years of experience to continue advising clients who had been on their books for more than Y years, with their clients’ written consent? I can see no particularly good reason why people should not be able to elect to do that.
Also, if an IFA has X years of experience with no established complaint against their name, might they be able to pay to have an independent examination of their records to establish whether they had been responsible for some of this alleged mis-selling which the FSA is so clear has been going on behind the scenes, but which has not been recognised by many clients? It seems to me that there are ways forward that the FSA could follow to make sure we get the benefit of the experience that exists in the IFA community, and which otherwise looks as though it is going to be lost.
I am very worried that in the short term newly qualified advisers may lose out on the chance to be mentored by experienced colleagues, particularly if large numbers leave the industry. We may well also find that a number of clients suddenly lose the person from whom they have received advice very happily for a number of years, and they might not be at all confident or happy to change that adviser. At a time when clearly so many people have neglected to provide for their later years, it seems to me perverse that we should be reducing the number of suppliers in the market.
Sarah Newton (Truro and Falmouth) (Con)
Does my hon. Friend agree that at a time when the Government are making such welcome reforms to our pensions system, people will need independent advice more than ever, and if we press on regardless with these changes there will be increased costs and less access to such independent advice?
George Hollingbery
My hon. Friend’s point is, of course, very well made. With auto-enrolment schemes more advice, rather than less, is going to be needed, and there is no doubt in my mind that we need more advice right now. In short, the FSA still has not answered a large number of questions adequately, and I will certainly not be convinced that the retail distribution review is adequate or worth while until we receive some of those answers.
Pauline Latham (Mid Derbyshire) (Con)
I congratulate my hon. Friends the Members for Wyre Forest (Mark Garnier) and for West Worcestershire (Harriett Baldwin) on securing this debate and on the passion with which they made their points. Indeed, I congratulate all hon. Members in the Chamber on their passion and strength of feeling about this review.
I have been contacted by a large number of constituents who work in this sector and are worried that the retail distribution review will have many unforeseen negative impacts on their employment. I hope that the review is not a knee-jerk reaction to the recent financial crisis.
Neil Carmichael
A recurring theme of this debate has been the heavy-handed nature of the Financial Services Authority: people have said that a sledgehammer is being used and so on. Is it not time for us to recognise that it ought to be held properly accountable, just as other quangos are and just as we intend them to be? This persistent theme is at the heart of this discussion and we need to address it.
Pauline Latham
I am sure that the Minister will take my hon. Friend’s views forward, and I thank him for the intervention.
I believe it is right that the customer is always put first when it comes to their money. We cannot go back to the financial irresponsibility that led us into the crisis in 2007, which we are, thankfully, just getting out of. Therefore, splitting the financial advice sector into two is probably a good thing, but we must make sure that the advice given by advisers in the primary sector will not stop people moving into a financial position where they will require the full range of services offered by the higher financial advice sector in the future.
My constituents have also suggested that the proposed regulation will force between 30 and 40% of financial advisers to leave the sector, and many hon. Members have mentioned figures of 20, 30 or 40%. It is vital that that does not happen. As my hon. Friend the Member for The Cotswolds (Geoffrey Clifton-Brown) said, we are in the business of keeping small businesses and promoting them. We need to do that in this instance, because we do not want all these people to be out of work at a time when life is difficult.
Training and recognised qualifications are important, as they demonstrate to the customer that the financial adviser they are employing to deal with their future can be trusted. If we all agree that there should be a better qualification, surely it should be for those new to the sector and not for those who have had the years and years of experience that we have heard about in various examples. If this proposed qualification is to be in place by 2013, surely we will be rushing it and too many people will be trying to do it, so there will not be enough providers to allow this to happen.
What will happen to all these people who leave the sector in the rural areas and small towns? Very often there are not many of these people in such places. It might be fine if this occurs in cities, where more choice is available, but there is not a lot of choice in rural areas. There is a worry that a lot of the people who will need to take this qualification if it is imposed will not be able to do so in the short time available to them before 2013. Nick Cann, chief executive of the Institute of Financial Planning, has said that the FSA must develop a “catastrophe strategy” in case it reaches June 2012 and half the advisers are not meeting the RDR requirements.
The other concern that the financial advisers in my constituency have mentioned is that the proposed changes to the sale of financial advice will lead to customers being worse off, as they will not be given the range of options currently on offer. Surely, if anything, we should be looking at providing choice for people. Leading critics suggest that the more lucrative financial advice roles will be moved to the banking sector, which will mean that customers will be offered only options that benefit the bank.
Interestingly, the mystery shopping exercise carried out by Which? across the industry concluded that its
“surveys tend to show that IFAs perform better than banks.”
Based on all the evidence that we have heard tonight, I believe that, irrespective of whether it is the desired outcome or it happens by mistake, the increase in the role of the banks in the financial advice sector is wrong and worrying, and that we should be looking at providing choice.
Richard Howells, the director of Zurich Life, said in June 2009:
“The big question…is still around what benefit it will have for the ultimate consumer. I am still not convinced that all of these changes, when you sit down with a consumer and explain them, actually give rise to a consumer benefit that I can…hang my hat on.”
I believe that the aim of the RDR is vital in ensuring that the consumer is defended and our financial sector is strengthened in the light of the recent crisis, but I do not believe that the changes need to be made as the FSA says at the moment. I simply ask the Minister to ask the FSA to reconsider the outcomes of the review and to ensure that its original aims, set out when it began back in 2006, have outcomes that will be advantageous for the whole sector and, more particularly, for the customer, whom we should be protecting. I am sure that the Minister will ensure that the passionate arguments made in the Chamber tonight are taken forward and that they will colour his views.
Mr Matthew Offord (Hendon) (Con)
The FSA has been held by some observers to be weak and inactive in allowing irresponsible banking to precipitate the credit crunch in 2007, which, as many Members will know, involved the shrinking of the UK housing market, increased unemployment, the public acquisition of Northern Rock, and the takeover of HBOS by Lloyds TSB. I remain fundamentally concerned that we have allowed the same organisation to undertake a review of independent financial advisers in this country.
As you are no doubt aware, Mr Speaker, the FSA has devoted massive resources to the RDR over the last three years, during which time it had taken its eye off the ball so far as the banks were concerned. Ironically, the FSA’s light-touch regulation of the banks, which are, as many Members have said, responsible for the vast bulk of consumer complaints, went on simultaneously with the massive intensification in regulation of financial advisers, who cause hardly any complaints to the Financial Ombudsman Service.
That all came at a time when the mortgage market virtually ceased to exist for financial adviser firms through a combination of tighter lending criteria and positively anti-competitive practices such as dual pricing by lenders. As a result, many financial advisers and mortgage advisers have gone out of business and many more will face the same fate in the next few years.
The sector employs thousands of people, such as my constituent David Barnett who is listening not so far away, and advises millions of others, such as me. Many people will struggle in the years of austerity to come, and those people—our electors—need us to help them to balance their budgets and avert financial disaster when the worst happens. They are looking to us to do that tonight. We must also look towards the financial advisers, many of whom are part of the creation of small and medium-sized economies in rural areas and in some suburban areas, such as my constituency.
The RDR is a long and complex affair, and I shall not repeat the details now. My understanding from my constituents is that it boils down to two main themes—remuneration and qualifications. As it stands, it looks as though the entire remuneration system will be changed to one that will cause confusion, confrontation and a loss of service to the mass market. Qualification requirements are being ramped up and thousands of advisers are under pressure to gain their diplomas before 31 December next year. At the very time when business conditions have never been more difficult, advisers are being forced to spend hundreds of hours earning diploma points when they could be earning a living for their families.
The latest directive from the FSA is a requirement that whenever a life assurance policy is sold financial advisers must illustrate to the client the total premium cost over the entire policy term. The total cost of a life assurance policy is irrelevant—the only costs relevant in the purchase of life cover are that the premiums for the contract recommended are demonstrably fair and competitive for the type and extent of cover being bought when it is bought in a free market and that they consider the potential cost to the client and the client’s family of not having the cover if he or she suffers disabling ill health or death. Requiring an illustration of the total cost over a period of 20 to 25 years simply creates an off-putting and distorted impression to the consumer. Financial advisers are being asked to spell out the total theoretical cost of life cover and thereby to accentuate its negative aspects. A simile for this would be vehicle manufacturers giving prospective purchasers the likely finance, running and maintenance costs of the vehicle they are selling over its projected life. The FSA has gone too far. In fact, it went too far a long time ago, although it should certainly ensure that advisers are competent and honest.
Richard Graham (Gloucester) (Con)
Does my hon. Friend agree with the former chief ombudsman that the idea that complaints will go down after the RDR is wishful thinking? Does he agree with the head of HBOS that the main beneficiaries of RDR will be the bank assurers? We are looking at the law of unintended consequences.
Mr Offord
I certainly do agree with my hon. Friend and many others who have made the same point. The main beneficiaries will be the big banks, including many of those that got us into the difficult situation that the coalition Government are having to address.
I should like the FSA to keep its nose out of normal commercial transactions and to leave business to businessmen such as the many constituents who have been mentioned tonight. If the FSA should be giving the public any message, it should be, “Protection is valuable and essential, so you should see an IFA and get some.” Instead it gives out the message, “Look how much you’ll spend over the life of a policy,” without addressing the benefits of that policy.
Independent financial advisers would like to be left to get on with their jobs, employ people, pay their taxes and look after their clients. They create wealth, look after our voters and, unlike the massive, over-complicated, expensive and unnecessary changes proposed by the FSA in the RDR, their requests are very small, simple, cost-free and necessary. They are just asking the Government to direct the FSA to revise the outcome of the RDR so that there is no change whatever to the current rules on remuneration and disclosure and to move the deadline for diploma qualification to 1 January 2016. I ask the Minister to ensure the same.
Anne Marie Morris (Newton Abbot) (Con)
I will make my comments brief because I am conscious that we are short of time. In my constituency, I have more than 50 very small independent financial advisers, a number of whom have come to speak to me about this issue because they are very concerned about the future of advice in our very needy constituency, which has four towns and 30 tiny villages. Those people serve the financial needs of the community.
We need to consider the increasing overall need. Students are increasingly going to need help to sort out how to finance their education. People in or out of work are increasingly going to have deal with redundancy and will want to know what to do when they suddenly get that lump of money to keep them in health. People will want to know what to do with a small inheritance should they be so lucky to get one. For the elderly, the change in pension provision is extraordinary and we will have to help people to deal with pension auto-enrolment—should they fall out of it or stay with it? There is much to consider and much help is needed.
Of course there are IFAs who have a bad reputation. Some sold products when it was inappropriate to do so just to maximise commission, some sold badly performing products and others mis-sold precipice bonds, which was unforgivable. With a cost of £45 million a year to the consumer, we need to address this issue, but what can we do? The retail distribution review is absolutely welcome, but we must strike a balance. We must get something affordable and the FSA must enable IFAs to remain in business while protecting consumers. How can we do that? The Government have said that 50% of IFAs in the profession would already comply, so what of the other 50%? Clearly, there is an issue and we need to make sure that more of those people stay in rather than fewer; otherwise, the predicted savings to consumers of £1.8 billion will not be made. That is not what this Government are all about, so we need to consider a different way of proceeding.
I spent 30 years in a profession that has parallels with this one and I should like to draw the House’s attention to some parallels that might help the Minister. In my time as a lawyer, I looked at the changes that the Law Society wanted to bring about when it considered introducing continuous professional development for older members of the profession. Instead of putting 35 hours in place immediately, the number of hours was slowly ramped up over a five-year period. The scheme did not just enable people to have out-of-office time; study time in the office and in the evening counted as well, which was helpful. I suggest the Minister looks at that system. We need to look at a modular approach for exams and at distance learning. As one of my hon. Friends pointed out earlier, we need to look at qualifications that are relevant to the business the individual is practising.
I wholeheartedly support the comments that have been made about experience and the idea of grandfathering. I was formerly a professional mentor, and with the European Mentoring and Coaching Council I looked at how we might develop qualifications and accredit people already in a profession. We looked at a framework model that enabled people to qualify when rules changed. I certainly commend that to the Minister.
The point about the big bang in 2013 when everything will change is absolutely right. That is not an appropriate way forward. I hope the Minister recognises that the businesses we are talking about are microbusinesses. Costs are crucial. Fees for IFAs have gone up by 4.8% this year, and I hope he is not thinking about the national financial advice service, at a cost of £50 million to the industry, replacing in any way the financial advisers who will undoubtedly fall out of the system.
Chris Leslie (Nottingham East) (Lab/Co-op)
I congratulate the hon. Member for Wyre Forest (Mark Garnier) on initiating this well-subscribed and, so far, very moderate and well-tempered debate on behalf of the 33,000 independent financial advisers in the industry. Clearly, the matter is of concern. I suspect the Minister is thanking his lucky stars that we do not have a votable motion at the end of tonight’s portion of the debate, as we did in the earlier section on banking reform.
The Financial Services Authority started the retail distribution review many years ago. A consultation paper came out in 2009. Earlier this year, we had the proposals, although they will not come into force until 2012, so this is a useful period when the House should debate and consider them. It is a matter of regret that too few of these crucial regulatory issues are subject to parliamentary scrutiny, as Government Members have observed.
Some extremely legitimate points have been made about the need for sensible transition—if we are to have change—to new arrangements, which, in the words of the hon. Member for South Derbyshire (Heather Wheeler), do not throw the baby out with the bathwater. That is one of the phrases in the debate that particularly comes to mind, but a number of points were very well made, especially when we think about the comments of the chief executive of the FSA. Is it really acceptable that between 10 and 20% of the profession could leave as a result of the retraining requirements, shrinking the availability of independent advice? The hon. Member for West Worcestershire (Harriett Baldwin) rightly questioned what would happen if a Minister were to stand at the Dispatch Box and announce the demise of a similar proportion of an industry.
It is important that we take a pro-consumer approach to regulatory change—as the Opposition certainly do. Undoubtedly, it is necessary from time to time to look at the framework within which consumers get that advice, and I do not begrudge the FSA’s moving in that direction. However, there are some serious questions. On balance, it is right that we move away from fee structures that are, to a certain extent, hidden in the margins, where sometimes commission may not be transparent for customers and products are recommended even though it does not necessarily say on the tin how much of the fee will be returned to the adviser, but—
Chris Leslie
I just want to make a point about the ending of the commission system and the placing of the fee, perhaps straightaway, in an up-front form for the consumer. There may be risks that are similar to those related to the argument about up-front tuition fees, because people may be deterred from taking the advice in the first place. They may feel that the system is too difficult. As my hon. Friend the Member for Barrow and Furness (John Woodcock) said, we have to ensure that any fees are disbursed throughout the period of the product.
Mr Stuart
There will always be some form of bias in the system, at least conceptually, regardless of how we reward IFAs. Whether or not there is a fee-based system, they will still be more likely to receive a fee if they propose the sale of a product. Does the hon. Gentleman believe that getting rid of commission is the right way to go? Why not regulate from the product end? Why not get rid of 10% commission, if that is felt to be a gross abuse? Why not limit the size but allow commission, which the public understand and quite like if it does not force them to pay up front, which it seems from surveys they do not wish to do?
Chris Leslie
As I say, this is a good time to debate those matters. There are options that must be explored. We have not bottomed out the debate. Perhaps the Financial Services Authority can consider not necessarily the hon. Gentleman’s suggestion in particular, but why commission changes are not being made across the wider financial services sector. There have been historic problems with mis-selling of products, not solely from an IFA perspective, and I can see why many people feel that these changes are necessary.
I would not counsel hon. Members to take issue with every section of the RDR—many of those who spoke in the debate did not. It is right, for example, that there should be proper clarity between independent and restricted market advisers, and that rather than waiting for the customer to inquire, there should be full disclosure on that up front.
Chris Leslie
I have only a couple more minutes.
The crux of the matter must be the issue of qualifications—the A-level equivalent threshold for financial advice. Although I understand the move to a QCF level 4 standard, which seems entirely fair, it is sensible that there should be a mechanism to allow some sort of conversion of existing qualifications or existing experience to that new level 4 qualification. I cannot believe it is beyond the wit of the FSA, Ministers and others to find some way of doing that. Hon. Members such as the hon. Member for Meon Valley (George Hollingbery) spoke about how we should look at the grandfathering issue and what options there might be. It is important to move that forward.
Chris Leslie
I should like to conclude because I want the Minister to be able to explain in a way that he did not necessarily do in the first flush of debate on the topic in Westminster Hall, and possibly reflect the views of the vast number of Conservative Members. I am still perplexed that the Financial Secretary to the Treasury chose that McDonalds diploma analogy. Perhaps he will reflect on that and recognise that some IFAs were slightly astounded by that reflection on their professional integrity. He might want to choose his words more carefully.
It is important that parliamentary accountability should be voiced. The more I reflect on these financial services policy issues, the more it strikes me that there is a democratic deficit. No, we do not want to be embroiled in the day-to-day operational issues of regulation, but policy is policy and we are accountable for that. Perhaps, as my hon. Friend the Member for Leeds East (Mr Mudie) suggested, we can return to the issue when we come to the FSA reform Bill and discuss amendments to that. Hon. Members will log and remember today’s debate and we can come to that later on in the day.
It is a shame that there is no motion tonight on the issue. It would have been useful for Members to express the formal position of the House of Commons on the matter. This is a time for the Minister to listen to the debate and perhaps reflect carefully on the measured and worthwhile comments that have been made by hon. Members across the Chamber.
The Financial Secretary to the Treasury (Mr Mark Hoban)
I congratulate my hon. Friend the Member for Wyre Forest (Mark Garnier) on the way in which he opened the debate this evening. He gave a balanced perspective on the changes that we are trying to make to improve standards for consumers, how that sits with the IFA sector and some of the challenges that a change in standards will create.
It is worth reflecting for a moment on the responsibilities of Parliament and of the FSA. Parliament set out the framework by which the FSA operates. The Financial Services and Markets Act 2000 sets out its objective, powers and how it goes about exercising its responsibilities. For example, there is a requirement to consult. As we know, there has been a long process of consultation on the RDR since the previous chairman of the FSA raised the matter in 2006. There have been a number of iterations and debates about consultation documents and discussion papers. Consumer groups, product providers, IFAs and their trade bodies have participated in a very lively debate, but the FSA is rightly responsible for implementing day-to-day regulations, and I know that it takes very seriously parliamentary scrutiny of its role. I spoke to the chief executive this morning about the Treasury Committee’s scrutiny last week and the debate this evening, so the authority is well aware of parliamentarians’ concerns. It is right that the FSA gets on with its job but listens to the issues being raised.
I counsel caution, however. It is all very well to think that we should engage in the regulatory regime when we think we are going to help one group or another, but there are times when regulators make difficult decisions on behalf of Parliament and our constituents, so we need to think very carefully about where the balance is struck. It might be very attractive in the context of this debate for Parliament to take more responsibility, but hon. Members might feel it less appropriate at other times.
Mr Hoban
I have about nine minutes to respond to quite a long debate in which a number of points have been made, and I want to take the opportunity to address some of those issues.
Let me put on the record the importance that I place on independent financial advisers. They play a key role in helping people make financial product purchases and financial choices. High-quality, independent financial advice is vital in ensuring that people are encouraged to save and plan for the future and make the most out of their money. I have used independent financial advisers and been happy with the service I have received, because they have provided me with good-quality advice.
I cannot overstate the detriment to consumers from poor and biased advice. Indeed, the FSA estimates the detriment to consumers from inappropriate advice to be £200 million per annum, and it thinks that the figure could be significantly higher. Consumer detriment has led organisations such as Which? and the consumer panel that advises the FSA to support the measures in the retail distribution review. We need to get that balance right and to address some of the issues that undermine consumer trust in the IFA sector, and the FSA has sought to do so through the RDR.
I have become very conscious—in particular, over the past six or seven months as a Minister—of the financial services sector’s increasing complexity, and consumers must be confident that IFAs are fully up to date and that their advice is underpinned by good technical knowledge. There can be few hon. Members who do not support that stance or recognise the benefits that increased professionalism can bring. Indeed, the FSA finds a clear link between increased qualifications for financial advisers and improved consumer outcomes. Under its reforms, consumers will be confident that their adviser has a minimum level of understanding and expertise that is maintained each year through continuing professional development.
We should also recognise that a number of IFAs already comply with those standards. Just under half of IFAs already hold the required qualification and, indeed, many go beyond QCF level 4. Some 89% of advisers already meet the required hours each year for CPD, and we need to recognise the progress that has been made since examinations were introduced in 2008.
I recognise the strength of the debate about grandfathering, and it is an important debate to have, but we need to think about how much experience is sufficient for people to be grandfathers, and about how we can ensure that that experience covers the range of products necessary to provide whole-of-market, independent advice. We ask people to advise on a range of products, such as pensions, insurance bonds and ISAs, and they need such technical knowledge to do so. Consumers are entitled to know that their adviser has a high standard of technical knowledge, and a minimum qualification standard should deliver that.
The increase in standards will not discriminate against those who have kept up to date with market developments, and they should not have to commit a significant amount of time to study. As I have said, 90% of advisers already undertake the required number of hours for continuing professional development, and I think that over the next two years the measure can be used to fill any gaps between existing and revised standards. As a consequence of lobbying by the IFA community, the FSA has relaxed the regulations, so there will be non-exam-based alternative assessments, rather than formal written exams. That is an important move forward that the FSA has already made, but high standards of technical knowledge will be crucial to help IFAs navigate their clients through the increasingly complex choices that they have to make.
I want to touch on the issue of adviser charging. I am strongly committed to increased transparency in financial services; it is important that consumers—whatever they are buying, be it advice or a product—understand the charges and the returns that they are likely to get. That underpins a whole range of work that we are doing at the moment in the Treasury.
Currently, financial advisers can earn different amounts as commission payments, depending on which product they recommend and from which provider. How much they earn is not always transparent; indeed, Which? found that 82% of advisers failed either to explain the “key facts of cost” document or have a meaningful discussion with their clients about how their advice would be paid for. It is important that remuneration arrangements for advisers work in the best interests of consumers and promote independence of advice.
A number of IFAs have already moved away from commission to a fee-based approach. I know that AIFA, the trade association for IFAs, is helping IFAs change their business model. I do not doubt the integrity of the vast majority of advisers, but no one can doubt the financial detriment caused to consumers as a consequence of mis-selling scandals of the past. Following the FSA’s pensions review in 2002, 1.7 million consumers received compensation totalling £11.8 billion due to pension mis-selling alone.
Advisers should welcome changes in remuneration as a clear way of building consumer trust in the sector. Consumers already pay for advice, as commission is deducted from their premiums or initial investments. Advice is not free; that money comes out of the contribution that consumers make to their pensions, their investment bonds or their savings for the future. However, it is important that both the cost and the value of advice is clear to consumers. These reforms will provide clarity on price and service and that will promote competition. Just as we want transparency on interest rates paid on ISAs to promote competition among ISA providers, I believe that transparency on IFAs’ remuneration will also promote competition and provide a better understanding of the value of advice. It will increase consumers’ confidence in that area.
We want to broaden the range of advice available. A number of hon. Members have raised the annual financial health check that CFEB is going to organise. Let me be clear. The cost of that will be borne by a social responsibility levy that will be paid by institutions from Goldman Sachs through to the high street insurance broker. The cost will not be borne by independent financial advisers alone. The biggest firms, such as Goldman Sachs or Barclays, will make the biggest contributions, and they will make a far bigger contribution than IFAs. Furthermore, consumer credit organisations have also been brought into the scope of this; they will also have to pay their share towards the annual financial health check. It is important that the burden should be shared.
Mr Hoban
I wish to conclude my remarks so that my hon. Friend the Member for Wyre Forest, who opened the debate, can conclude.
We want a more responsible savings culture in Britain, in which people can plan confidently for their futures and are better able to realise their plans. Financial advice has a key part to play in that, and I want to see improved levels of expertise and knowledge and much greater clarity over transparency. It is important that the FSA should work closely with IFAs to get to that point. This evening’s debate has helped the FSA understand the concerns of Members of Parliament. I am grateful to my hon. Friends for securing this debate.
Mark Garnier
I am conscious that I have just over one minute to sum up this incredibly useful debate. There has been an extraordinary amount of unanimity on both sides of the Chamber; the debate has been completely unpolitical. We have talked about financial inclusion for those who need help and about protecting smaller businesses. We have questioned why the RDR was necessary and talked about grandfathering. IFAs are singular in the sense that they are not allowed to be grandfathered; long-stopping is something else that they are singularly affected by. We have talked about pushing savers into the hands of the banks, even though the banks have a worse track record than IFAs.
Importantly, we have also talked about the fact that we need more time to address this issue. I completely appreciate that we have already had six years, but we are entering a period when European legislation will be affecting these matters as well. We are also seeing the FSA moving into areas covered by the Consumer Protection and Markets Authority and the Prudential Regulation Authority. There are ongoing changes that give us an opportunity to extend the period.
I hope that three things have come out of the debate. First, Parliament has not had a chance to do this before because it is the first time that we have had such a Back-Bench debate, so will the FSA please listen following this new development? We have the feeling—
Business without Debate
Mr Speaker
With the leave of the House, we will take motions 3 to 7 together.
Ordered,
Communities and Local Government
That George Freeman be discharged from the Communities and Local Government Committee and Mark Pawsey be added.
Justice
That Jessica Lee and Anna Soubry be discharged from the Justice Committee and Ben Gummer and Elizabeth Truss be added.
Scottish Affairs
That Mark Menzies and Julian Smith be discharged from the Scottish Affairs Committee and Mike Freer and Simon Reevell be added.
Treasury
That David Rutley be discharged from the Treasury Committee and Mr David Ruffley be added.
Work and Pensions
That Richard Graham and Sajid Javid be discharged from the Work and Pensions Committee and Andrew Bingham and Brandon Lewis be added.—(Geoffrey Clifton-Brown, on behalf of the Committee of Selection.)
Dental Practitioners
(14 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Minister of State, Department of Health (Mr Simon Burns)
indicated assent.
Sir Paul Beresford
The Minister is nodding sagely so perhaps I will believe him. The fire prevention regulations are enforced by the local fire authority and any CQC interest in that area is duplication. To my amazement, there is even duplication in the CQC requirements, some of which are addressed many times. For example, evidence that practices have appropriate confidentiality protocols in place must be provided to satisfy outcomes 1, 2, 6 and 21.
Dental providers must comply with 28 standards, but there is no guidance on what the CQC requires as evidence of compliance. Furthermore, it is unclear who the auditors of the process will be. To give an example provided by people who have lobbied me, the NHS Partners Network and the NHS Confederation state that generally, their members have been subject to mixed messages and unclear instructions from the CQC about what to expect from it. They say that in the current financial climate, such uncertainty is particularly difficult for their members and runs the risk of adding significantly to costs without yielding safety and quality benefits. The ultimate guillotine is having one’s practice shut down for failure to comply with a potential deadline of April next year, which is causing deep concern in the dental profession.
Finally, I turn to costs. The current situation is that there is no fee for CQC registration. In contrast, my fee to be paid this month to the General Dental Council is £576, the same as for the majority of dentists. However, the CQC is consulting on proposed fees, which it wishes to divide up depending on the size of a provider. The fees proposed are disproportionate, as the lowest fee is to be £1,500, for a provider with one location, such as my own small, part-time surgery, whereas £48,000 is to be charged for a provider with 101 or more locations.
One of the most glaringly ludicrous points is the extreme jump in fees from one level to another. For example, if a dental firm has 100 practices it will pay £24,000, but if it merely adds one more practice, its fees will double to £48,000. The situation has to be dealt with, and it is in the hands of the Minister and his colleagues to do so. The CQC is charging ahead blindly, apparently with little knowledge and with no response to concerns that have been expressed. It has finally agreed to sit down with the General Dental Council in the next week or two and discuss the potential duplications in registration costs.
I understand that there are organisations similar to the CQC in Wales and Scotland, and both appear to be working closely with the GDC without duplication. The result is that the annual cost to Welsh dentists for their organisation is not between £1,500 and £48,000, but probably in the region of £80 and certainly less than £100.
There is an opportunity for Ministers to act before it is too late, and before too much money is wasted. If necessary, the forthcoming Public Bodies Bill will enable Ministers to remove the CQC from its role of regulating dentists. I remind the Minister that all the problems that it is having with dentists, and dentists with it, are likely to be repeated, and more, in the case of general medical practitioners. They are next on the list.
I await the Minister’s considered response, and I hope that he will take a step back and promise to consider the points made by me and, in particular, by the many organisations that have lobbied on the matter. It would be helpful if there were a serious meeting between Ministers, the GDC, the CQC and the BDA. It is overdue.
The Minister of State, Department of Health (Mr Simon Burns)
I begin by congratulating my hon. Friend the Member for Mole Valley (Sir Paul Beresford) on securing this debate on an issue that I know is of some concern to him and other dentists throughout England. He said at the beginning of his comments that he was a friend of mine and hoped that he still would be by the end of my speech. I echo that, because I, too, hope that we are still on friendly, and hopefully speaking, terms by the end of the debate.
My hon. Friend will know that the coalition Government do not believe in regulation for the sake of regulation. However, there are areas in which regulation is important for the interests of vulnerable people who are less able than others to defend their own interests. The provision of health care and adult social care services is one such area, and since 1 April 2009, the Care Quality Commission has been responsible for regulating those sectors under the Health and Social Care Act 2008.
The Government support the role of the CQC in ensuring that providers of health care and adult social care provide services that, at the very least, meet the essential levels of safety and quality that every patient and service user has a right to expect. I am sure that my hon. Friend would not argue with that, or with the enforcement powers that the CQC can use when providers fail to meet essential levels of safety and quality. He will be aware that the Government are committed to strengthening the CQC’s role as an effective regulator of health and adult social care services in England.
At the moment, NHS and private health care providers are registered by CQC under the 2008 Act, as are providers of adult social care. From April next year, providers of primary dental care and private ambulance services will also be registered. From April 2012, providers of primary medical care will be brought into the registration system.
There are a number of reasons why it is right to bring primary dental care providers into registration and to require them to meet essential levels of safety and quality. First, the current regulatory systems for dentists focus on the competence of the individual. However, how organisations and systems are managed is just as important in protecting the safety of patients. CQC registration will provide the framework to ensure that the provider, as well as the individuals within it, meet essential levels of safety and quality.
Secondly, increasingly complex treatments are being provided in primary care settings. For example, it is likely that more oral surgery will be carried out in primary care in future, and the General Dental Council has seen an increase in complaints about harm caused to patients by the placing of dental implants. Those developments make it even more important to ensure that providers have adequate systems in place to protect the safety of patients. Registration with the CQC will allow potential problems to be identified and addressed before they result in harm to patients.
Sir Paul Beresford
The Minister mentioned the GDC and complaints about dental implants. There has also been an increase in poor endodontic work, all of which can be dealt with adequately by the GDC. The situation does not need a huge, monolithic organisation such as the CQC.
Mr Burns
I am very grateful to my hon. Friend for making that point. If he will bear with me, I will, at a slightly later stage in the course of my remarks, address whether working together can minimise the level of overlap so that there is no unnecessary duplication.
Thirdly, registering primary dental care providers will ensure that the same levels of safety and quality are met irrespective of where care is provided. One patient could be treated in hospital where the quality and safety of their care is regulated by the CQC, while another receives the exact same treatment elsewhere without that same guarantee. Wholly private dental providers, treating some 7 million patients, are currently subject to no formal scrutiny of the service that they provide.
Finally—I know that my hon. Friend has raised this subject in the past—registration will provide greater controls on the decontamination of used dental instruments. Guidance on decontamination is set out in “Health Technical Memorandum 01-05”. Although that has no legal standing, the CQC can monitor whether providers, including those in the independent sector, meet its requirements by enforcing the cleanliness and infection control registration requirement.
It is the view not just of the Government that the registration of dentists will bring benefits; that view is shared by the dental profession. Responding to the consultation on registration of dental providers with the CQC in June 2008, the GDC said:
“We broadly welcome the establishment of the Care Quality Commission…Whilst we are responsible for the registration and regulation of the whole dental team, whether they work in the private or public sector, there has been no additional means of regulating wholly private dental services…up until now. We believe that this role can be covered by the CQC and would further enhance patient protection”.
The British Dental Association was equally supportive, saying:
“Wholly private providers are currently unregulated (beyond individual professional regulation) and we believe it is essential for this to be addressed.”
Sir Paul Beresford
I actually touched on that at the beginning of my short address. The Minister has to realise that the consultation came before the CQC moved into the area of dentistry, before the BDA realised what the CQC was going to do and before the monolithic and, what I called, almost cancerous growth of this organisation.
Mr Burns
I am grateful to my hon. Friend for that intervention. As far as I know, however, the BDA was aware at the time that dentists were going to be registered under the CQC, and as I see it, the comments on the consultation process were made in the knowledge of that information.
I know there has been concern among dentists about the potential impact of registration with the CQC, and my hon. Friend made an interesting and vigorous case highlighting what he perceived to be some of the problems. However, I have some sympathy with those dentists concerned that the process of registering with the CQC will be onerous and time consuming. I can assure him, however, that for the majority of dentists—those who already provide high-quality services—there will, to my mind, be no difficulty in meeting the essential levels of safety and quality.
The experience of HTM 01-05 demonstrates this point. Before the introduction of the guidance, dentists raised concerns about the burden that complying with it would place on them. Only today, we have published the results of the dental national decontamination survey, showing that when HTM 01-05 was published in November 2009, about 70% of practices were already meeting the essential quality requirements for decontamination, with approximately a further 20% of practices very near the essential quality requirements. The remaining small minority of practices were not.
This experience will, I believe, be repeated with CQC registration. Most dental providers already give their patients a high-quality service and will find that they already meet the registration requirements. In those relatively small numbers of cases where dentists do not meet essential levels of safety and quality, registration with CQC will force them to improve. This is the purpose of regulation, and such an outcome would result in safer and better dental care for patients.
My hon. Friend has spoken about the potential for overlap in the role of the CQC and the General Dental Council in the registration of dentists, and he raised it again in his first intervention on me. I would like to address that point now. I read with interest the recent letter from a number of dentists in The Daily Telegraph making the same point as him. The CQC and the GDC are working closely to ensure that the roles of the two regulatory bodies are closely co-ordinated. Indeed, the two regulators have agreed and set out a memorandum of understanding that explains how they will co-ordinate their activities and share information to ensure that they do not duplicate actions and therefore create any risk of double jeopardy. It is vital that CQC registration complements the professional regulation of dentists by the GDC. The important word there is “complements”.
Sir Paul Beresford
I spoke to the president of the GDC last week, and she said they are having a meeting to discuss this for the first time. So the Minister’s information might have gone a little awry.
Mr Burns
I take on board what my hon. Friend says. However, the information I have been given, as I said earlier, is that the two regulators have agreed and set out a memorandum of understanding explaining how they will co-ordinate their activities and share information to ensure that they do not duplicate actions. I trust that that action is correct, I trust that they work closely together to achieve that aim, and I will certainly get back to him if—despite what I have been led to believe—that is not the case.
My hon. Friend also referred to the proposed level of registration fees for dental providers. As he is aware, the Care Quality Commission is currently consulting on its proposals for annual registration fees, which will apply to all providers, including dentists, from April next year. I would like to emphasise that they are proposals for consultation. I would certainly urge all dentists in England to make their views known to the CQC through the consultation process as soon as possible, and certainly before it ends, on 17 January. I heard what my hon. Friend said, and I have seen the consultation document. I can only repeat—and repeat quite vehemently—that it is important that all dentists take part in the consultation process and ensure that the CQC is fully aware of their views before it ends. I should also add that the CQC’s final fees scheme is subject to the consent of the Secretary of State. It would obviously be wrong of me to prejudge the consultation process or what will happen at its conclusion. All I can do is advise my hon. Friend and the profession to ensure that they lobby the CQC as part of the consultation, so that it is left in no doubt about the views and concerns of dentists on the issue.
My hon. Friend also mentioned Criminal Records Bureau checks, which I know have been a particular issue for some dentists. CRB checks are important to ensure that those responsible for the delivery of services are fit to do so. In earlier registration rounds, CRB checks have revealed convictions that were not otherwise declared. Those dentists who already have a CRB disclosure countersigned by their primary care trust can use it for CQC registration. I know that there have been practical problems with getting the required CRB checks carried out, and I understand the frustration that this has caused for some dentists. As a result, the CQC has increased to 100 the number of post offices that can process CRB disclosures on its behalf. That will go some way towards helping to deal with some of the practical difficulties experienced in getting a CRB check. The CQC is also exploring with Post Office Ltd the possibility of extending the service to the entire post office network.
Although there is a degree of anxiety among dentists about CQC registration, I hope—although I am not convinced—that I have reassured my hon. Friend that the majority of dentists, who already provide good services, have no need to fear CQC regulation. For the small number who do not provide a safe service, registration will provide an effective mechanism to bring about improvements for patients. Indeed, that is the very purpose of regulation.
In spite of the concerns, I am pleased to have been told by the CQC that the registration of primary dental care providers is so far proceeding smoothly. More than 7,000 dentists, including nearly 1,600 who operate solely in the private sector, have enrolled in the CQC’s registration process. The CQC has now invited those primary dental care providers to submit applications. I understand that the first completed application was returned to the CQC within three hours and that more than 400 applications for registration had been returned by the end of last week. With what I believe has been a good start, I am hopeful that the task of registering dental providers with the CQC will be completed on schedule by 1 April 2011, and that patients will have the assurance that whichever dental practice they use, whether NHS or private, they will receive care that meets essential levels of safety and quality.
Question put and agreed to.
Ministerial Correction
Asylum: Children
(14 years ago)
Ministerial CorrectionsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Bridget Phillipson
To ask the Secretary of State for the Home Department which UK Border Agency offices provide child care when asylum seekers are being interviewed; and what plans she has for the future of that provision.
[Official Report, 13 October 2010, Vol. 516, c. 299-300W.]
Letter of correction from Mr Damian Green:
An error has been identified in the written answer given to the hon. Member for Houghton and Sunderland South (Bridget Phillipson) on 13 October 2010.
The answer given was as follows:
Damian Green
We are committed to ensuring that parents who are being interviewed about their reasons for seeking protection are not placed in the position of having to give an account of personal victimisation or humiliation in the presence of their children. In general, applicants are advised in their letter of invitation not to bring their children to the interview but to make alternative arrangements.
For some families, child care will be easier to arrange-in London, for example, the majority of asylum applicants are able to reside with family and friends and as a result have a wider support network for child care. We do recognise, however, that this will not be possible for all families.
At present, the only UK Border Agency building that provides child care facilities when a parent is being interviewed about their asylum claim is in the North West. Additionally, however, in the West Midlands, the UK Border Agency is currently in the final stages of discussions with the Children's Society and hope to be in a position to provide a supervised play facility for the dependents of interviewees by January 2011. If these facilities prove successful and cost effective, we will consider extending this approach to other offices.
The answer should have been:
Damian Green
We are committed to ensuring that parents who are being interviewed about their reasons for seeking protection are not placed in the position of having to give an account of personal victimisation or humiliation in the presence of their children. In general, applicants are advised in their letter of invitation not to bring their children to the interview but to make alternative arrangements.
For some families, child care will be easier to arrange—in London, for example, the majority of asylum applicants are able to reside with family and friends and as a result have a wider support network for child care. We do recognise, however, that this will not be possible for all families.
At present, the UK Border Agency provides child care facilities when a parent is being interviewed about their asylum claim in the north-west, Wales and south-west, Leeds and in Glasgow.
Additionally, however, in the west midlands, the UK Border Agency is currently in the final stages of discussions with the Children's Society and hope to be in a position to provide a supervised play facility for the dependents of interviewees by January 2011. If these facilities prove successful and cost-effective, we will consider extending this approach to other offices.
Written Ministerial Statements
Banking Act 2009 (Reporting)
(14 years ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
The Treasury has today published a report required under section 231 of the Banking Act 2009 covering the period from 1 October 2009 to 31 March 2010. Copies of the document are available in the Vote Office and Printed Paper Office and have been deposited in the Libraries of both Houses.
Debt Management Remit 2010-2011 (Revisions)
(14 years ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
The Government are today revising the Debt Management Office’s (DMO) 2010-11 financing remit to reflect revisions to the net financing requirement. The net financing requirement for 2010-11 has been revised upward—by £0.2 billion—from £162.5 billion at the June Budget to £162.7 billion. The revisions to the net financing requirement arise from the net effect of:
a reduction in the central Government net cash requirement (CGNCR) of £1.9 billion;
an increase in sterling financing for the official reserves of £2.0 billion; and
additional secondary gilt market purchases by the DMO of £0.1 billion.
The downward revision to the CGNCR is a reflection of revisions announced today by the Office for Budget Responsibility (OBR) to the fiscal aggregates, which have a consequential impact on the CGNCR. The revisions are set out in the OBR’s “Economic and fiscal outlook, November 2010”, published today.
The increased funding for the official reserves has been provided to meet potential calls under the UK’s IMF commitments. These commitments have recently expanded following parliamentary approval in July 2010 of the UK’s increased contribution to the IMF’s New Arrangements To Borrow. This delivered the UK’s share of the G20 agreement to treble the resources available to the IMF.
The increase in the net financing requirement of £0.2 billion will be met by an increase in the gilt issuance programme in 2010-11 of £0.2 billion. Gross gilt issuance for 2010-11 is now projected at £165.2 billion.
The planned Treasury bill stock as at 31 March 2011 is £60.8 billion—unchanged from the projection at the June 2010 Budget (and compares with levels as at: 31 March 2010—£63.3 billion; 31 March 2009—£44.0 billion).
As at the June 2010 Budget, the Government are confirming the net finance target for National Savings Investments to be a zero net contribution to financing, within a range of +/- £2 billion.
For 2010-11, gross gilt issuance of £165.2 billion is projected to be split as follows:
£52.7 billion of short maturity gilt issuance (31.9% of total);
£38.2 billion of medium maturity gilt issuance (23.1% of total);
£40.5 billion of long maturity gilt issuance (24.5% of total);
£33.8 billion of index-linked gilt issuance (20.5% of total);
This proportionate split is unchanged from that announced in June 2010.
Auctions will remain the Government’s primary method by which gilts are issued. The Government will continue to use supplementary methods—syndication, mini-tenders and the post-auction “top up” facility—to issue gilts in the remainder of 2010-11. For 2010-11, it is projected that:
£132.0 billion will be issued by pre-announced auctions (79.9% of total);
£26.2 billion will be issued by syndication (15.9% of total); and
£7.0 billion will be issued by mini-tender (4.2% of total).
Consistent with provisions in the DMO’s financing remit relating to the post-auction “top-up” facility, average auction sizes in the remainder of the year will be reduced but there will be no change to the number or timing of auctions scheduled for the remainder of 2010-11.
The Government are also publishing today a revised estimate of the fiscal impact of the spending review 2010, based on the OBR’s autumn forecast. Copies of this document have been deposited in the Libraries of both Houses and are available in the Vote Office and Printed Paper Office.
2010-11 | |||
|---|---|---|---|
£ billion | June Budget | Autumn statement | |
Central Government net cash requirement | 146.1 | 144.2 | |
Gilt redemptions | 38.6 | 38.6 | |
Financing for the official reserves1 | 4.0 | 6.0 | |
Buy-backs2 | 0.1 | 0.2 | |
Planned short-term financing adjustment3 | -26.3 | -26.3 | |
Gross financing requirement | 162.5 | 162.7 | |
Less | |||
Assumed net contribution from National Savings & Investments | 0.0 | 0.0 | |
Net financing requirement | 162.5 | 162.7 | |
Financed by: | |||
1. Debt issuance by the Debt Management Office | |||
Treasury bills | -2.5 | -2.5 | |
Gilts | 165.0 | 165.2 | |
of which | |||
Conventional | Short | 52.6 | 52.7 |
Medium | 38.2 | 38.2 | |
Long | 40.4 | 40.5 | |
Index-linked | 33.8 | 33.8 | |
2. Other planned changes in short-term debt4 | |||
Changes in Ways and Means | 0.0 | 0.0 | |
3. Unanticipated changes in short-term cash position5 | 0.0 | 0.0 | |
Total financing | 162.5 | 162.7 | |
Short-term debt levels at end of financial year | |||
Treasury bill stock in market hands6 | 60.8 | 60.8 | |
Ways and Means | 0.4 | 0.4 | |
DMO net cash position | 0.5 | 0.5 | |
1 The additional £2 billion of Sterling financing for the Official Reserves will be provided to meet potential calls on the Official Reserves arising from the commitments made at the G20 London summit. 2 Purchases “rump” gilts which are older, small gilts, declared as such by the DMO and in which gilt-edged Market Makers (GEMMs) are not required to make two-way markets. The Government will not sell further amounts of such gilts to the market but the DMO is prepared, when asked by a GEMM, to make a price to purchase such gilts. 3 To accommodate changes to the current year’s financing requirement resulting from: (i) publication of the previous year’s outturn CGNCR; (ii) an increase in the DMO’s cash position at the Bank of England; and /or (iii) carry over of unanticipated changes to the cash position from the previous year. 4 Total planned changes to short-term debt are the sum of: (i) the planned short-tern financing adjustment; (ii) net Treasury bill sales; and (iii) changes to the level of the Ways and Means advance. 5 A negative (positive) number indicates an addition to (reduction in) the financing requirement for the following financial year. 6 The DMO has operational flexibility to vary the end-financial year stock subject to its operational requirements in 2010-11 |
UK Film Policy
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)
In July the Government announced their decision to abolish the UK Film Council.
Today I am announcing our proposals to support British film going forward.
The British Film Institute will become the flagship body for film policy in the UK. The BFI will be nominated as the distributor of film lottery money via secondary legislation.
The BFI will be entrusted with the remit to support the film industry in the nations and the regions and to lead on audience development and education. Work in support of certification and the media desk will also be transferred to the BFI.
Lottery funding to support film will increase from about £27 million today to more than £40 million by 2014.
Film London will be entrusted with a UK-wide remit to promote the UK as the best place to invest in film, working in partnership with the film industry.
A consultation will be launched next year to consider how to build a more sustainable film industry and how to develop the distribution and exhibition of British films in the UK. This review will be led by the DCMS and the BFI and will include a review of lottery distribution and recoupment policy. Stakeholders will have the opportunity to contribute their views through a formal consultation.
The DCMS and BFI will work with broadcasters and exhibitors on how to incentivise audiences to go and watch British films and increase their exposure, following Odeon’s proposals today which we welcome.
The BFI will work with Film London, BBC Worldwide, and BAFTA on how BAFTA and BBC Worldwide could support the distribution of British films abroad.
The BFI will go through a radical change to take up this challenge and become the flagship body for film policy. The chairman of the BFI will consult his board and detail his views on how this will be taken forward very shortly. We are all clear that these changes will need to be significant and far-reaching and include a review of their management structures to ensure they are properly equipped to take up these functions.
DCMS and the BFI will shortly agree the details of the new direct relationship that will be established, including accountability mechanisms. Our own internal audit will simultaneously audit the BFI’s financial systems and processes to provide assurance that these are appropriate for the significant Exchequer and lottery funding the BFI will be receiving going forward.
Due diligence work will start immediately between UKFC, BFI and Film London in order to produce a detailed transfer plan early next year to provide clarity and certainty to all players, in particular to staff and to lottery applicants. This plan will ensure that there is no gap in lottery distribution as the transfer progresses.
In the meantime the UKFC remains in charge of lottery distribution. All existing commitments will be honoured.
Existing arrangements for lottery distribution will remain in place during 2011-12 to allow time for the review of lottery distribution to take place and provide certainty and stability. The aim is that the conclusions of the review will be implemented in 2012.
The detailed timetable for the formal closure of the UKFC will be published following the due diligence work.
Ground Close Combat Roles (Women)
(14 years ago)
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The Parliamentary Under-Secretary of State for Defence (Mr Andrew Robathan)
In accordance with the requirements of the EC equal treatment directive, the Ministry of Defence has carried out a review of the current policy of excluding women from ground close-combat roles. The policy was last formally reviewed in 2002.
Considerably more direct evidence is available now than was the case when the previous review was carried out. However, the conclusions are mixed and do not provide the basis for a clear recommendation either way as to whether the current policy of excluding women from ground close-combat roles should be retained or rescinded.
The service chief’s view is that women are fundamental to the operational effectiveness of the UK armed forces, bringing talent and skills across the board. Their capability in almost all areas is not in doubt, they win the highest decorations for valour, and demonstrate that they are capable of acting independently and with great initiative. But these situations are not those typical of the small tactical teams in the combat arms which are required deliberately to close with and kill the enemy. The consequences of opening up these small tactical teams in close-combat roles to women are unknown. Other nations have very mixed experiences.
In the light of the inconclusive results of the research and the views of the service chiefs, I have concluded that a precautionary approach is necessary. Accordingly, the current policy of excluding women from ground close-combat roles while ensuring that the maximum numbers of trades are available to provide opportunity to those women who wish to serve their country will continue.
In parallel with this statement, I am publishing a full report on the review, including the research that was carried out, on the Department’s website at
http://www.mod.uk/DefenceInternet/AboutDefence/CorporatePublications/PersonnelPublications/EqualityandDiversity/Gender/WomenInCombat.htm.
UK Civil Nuclear Trade Policy (India)
(14 years ago)
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The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt)
On 6 September 2008, the Nuclear Suppliers Group (NSG) granted India an exception to its guidelines to permit exports to Indian civil nuclear facilities under IAEA safeguards. The UK was a long-standing and strong supporter of the need for such an exception to allow India to develop its civil nuclear power sector for peaceful purposes.
Following this announcement, the UK has developed a strong civil nuclear relationship with India, in line with our non-proliferation commitments and international obligations. The UK-India civil nuclear co-operation declaration, signed on 11 February this year, was a joint statement of our intent in this area. In light of our enhanced relationship following the recent high-level visit, the UK Government would like to restate their policy towards nuclear-related exports to India, the details of which are as follows.
The UK is committed to allow the promotion and facilitation of trade and other commercial activities between India and the UK relating to the peaceful civil use of nuclear energy to help India meet its energy needs, taking into full account both India and the UK’s respective international commitments and obligations. At the UK-India summit in New Delhi on 29 July 2010, the Prime Minister and Indian Prime Minister Dr Manmohan Singh welcomed the opportunities that had opened up for co-operation in the civil nuclear power sector, including with regard to nuclear trade and exchanges between scientific institutions.
The UK’s position is a reflection of the positive approach that India is taking in addressing the issue of nuclear proliferation, which is of mutual concern to both countries. It is also a reflection of the agreements and commitments India has made; in particular, India’s move towards separating its military and civil nuclear programmes and implementing IAEA safeguards at its civil nuclear facilities.
Prior to the Nuclear Suppliers Group exception, the UK’s policy was to refuse export licences for all NSG trigger list items to India.
In November 2008, the UK revised this policy, and has since assessed all export licence applications on a case-by-case basis against the NSG guidelines for nuclear transfers as applied to India, as well as our wider nuclear non-proliferation treaty obligations. In line with the NSG guidelines, the UK will authorise the transfer of NSG trigger list exports to IAEA safeguarded civil nuclear facilities when satisfied that the transfers will not contribute to the proliferation of nuclear weapons or nuclear explosives activities, or be diverted to acts of terrorism.
The UK will continue this policy. As set out in the NSG guidelines:
for an NSG trigger list export, we will continue to take into account whether its export is for peaceful purposes, whether it is destined for a nuclear facility safeguarded by the IAEA and whether there is an unacceptable risk of diversion to an unsafeguarded facility. To this end, the UK will seek assurances from the Indian Government that the export will be used only for safeguarded nuclear activities which are not related to nuclear explosive activities; and
for an NSG dual-use list export, we will continue to take into account whether its export is for a nuclear-related end use, whether it is destined for a nuclear facility safeguarded by the IAEA and whether there is an unacceptable risk of diversion to an unsafeguarded nuclear fuel cycle activity.
The UK will therefore only license the export of NSG controlled goods to nuclear fuel cycle activities safeguarded by the IAEA, or for non-nuclear related end uses where we do not assess there is an unacceptable risk of diversion to an unsafeguarded nuclear fuel cycle activity.
We will also favourably consider applications to export licensable items other than those controlled by the NSG to India for a nuclear-related end use, including those assessed as licensable under the WMD end-use control, unless there are specific proliferation concerns related to the export. In particular, such assessment will take into account:
the utility of the items for export to a nuclear fuel cycle or nuclear explosive activity;
the legitimacy and credibility of the stated end use;
the nature and business of the stated end-user (including whether they are linked to unsafeguarded nuclear fuel cycle activity or nuclear explosive activity); and
any diversionary concerns.
In line with our international obligations, the UK is committed actively to encourage the UK’s nuclear scientific institutions and universities to establish greater links with Indian institutions, and to develop co-operation in nuclear research and development of the civil uses of nuclear energy technology. Where an export licence is required for such co-operation, the UK will continue to assess applications on a case-by-case basis in line with the NSG guidelines. Such assessment will take into account whether the transfer is of information already in the public domain or is assessed as basic scientific research, as well as the standard provisions of UK export control legislation.
Dental National Decontamination Survey 2010
(14 years ago)
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The Minister of State, Department of Health (Mr Simon Burns)
In recent years we have gained a better understanding of the risks of transmission of infectious diseases like hepatitis from poorly maintained health care premises and instruments which have not undergone effective decontamination. The risk to individual dental patients is small but, with 1.5 million people undergoing dental treatment each week and some 500,000 people infected with blood-borne viruses many of whom may be unaware of their infection, we cannot afford to be complacent.
Because of this risk and evidence that some dental practices might not be achieving adequate standards, the Department issued health technical memorandum 01-05 “Decontamination in primary care dental practices” in November 2009. In implementing the HTM we have sought to strike a balance between protecting patients and the constraints imposed by the layout and structure of dental practices which, while being easily accessible in the high street, may have limited scope for expansion and upgrading.
I am today publishing the report of the dental national decontamination survey which was undertaken at the start of the year. The primary aim of this, the first national survey of current standards of decontamination in primary care dental practices, was to provide a baseline to compare standards in general dental practice at the time of issue of the HTM 01-05 with those set in the guidance. The HTM is intended to encourage continuous improvement in local decontamination by giving dental practices a range of options to achieve the essential quality requirements (EQR) identified in the HTM and progress to best practice.
EQR is a level of decontamination which will achieve significant risk reduction, while best practice offers an optimum level of protection. The main features of best practice are the provision of a dedicated room for decontamination away from where clinical care is delivered and the use of an automated washer-disinfector, for the cleaning of instruments.
All practices are expected to be operating at EQR by the end of this year; no timeframe has yet been set for the achievement of best practice because of the need for further information to be obtained about the constraints imposed by the design and structure of some dental practices.
I am very grateful to the primary care trusts (PCTs) and the dental practices which participated in this voluntary survey, and to the Health Protection Agency which worked with the Department in bringing it to completion. In total 75 PCTs participated in the survey which involved nurses with training and experience in infection control visiting 487 randomly selected dental practices. Practices were assessed in relation to essential quality requirements and best practice at the time that the HTM was published.
The results of the survey showed that around 70% of practices were already working at EQR with some 20% of practices already achieving best practice. Approaching 20% of practices were very near EQR with the remaining minority operating at an unsatisfactory standard.
These results show that the majority of practices were meeting EQR and it is likely that this figure would have increased over the year as practices began to implement the HTM.
I was very encouraged to learn that well over two thirds of practices were already meeting EQR. As to the remainder, the survey data show a number of practices need to improve their cleaning of instruments which is a critical part of the decontamination cycle. The Department is encouraging practices to acquire automated washer-disinfectors, whose use is a feature of best practice, to achieve a uniformly high standard of cleaning of dental instruments.
The Department has, in collaboration with the Infection Prevention Society, produced a self-assessment audit tool to allow all dental practices to assess their level of compliance with the quality standards in the guidance. By applying the audit tool, practices will be able to compare their standards to those included in the sample survey.
The quality of local decontamination will be one of the factors the Care Quality Commission (CQC) will take into account in monitoring standards when dental practices are brought within its remit from April 2011. The CQC will wish to ensure that it only registers practices that can demonstrate local decontamination is carried out to acceptable standards.
The dental national decontamination survey report has been placed in the Library. Copies are available for hon. Members in the Vote Office and for noble Lords in the Printed Paper Office.
Budget Responsibility and National Audit Bill [HL]
(14 years ago)
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The Deputy Chairman of Committees (Baroness Pitkeathley)
My Lords, I remind Members of the Committee that, as usual, if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Clause 1 : Charter for Budget Responsibility
Amendment 1
Lord Eatwell
Lord Eatwell
My Lords, before we start our discussion of the Bill, let me say how grateful I am to the Government Chief Whip for postponing the beginning of this Grand Committee until now. It would have been impossible to have prepared a reaction to the Autumn Statement in time without her indulgence, for which I am most grateful.
There is an inconsistency in the Bill, which Amendments 1, 3 and 4 in my name are designed to correct. The inconsistency derives from the fact that the charter, which is referred to in Clause 1, is supposed to provide guidance as to the main duties outlined in Clause 4. Clause 4 lists those duties as sustainability, fiscal forecasts and economic forecasts, yet Clause 1 calls for guidance only on fiscal and sustainability issues; it makes no mention of economic issues. That is the core inconsistency.
The issue to be addressed is rather more than formal, as sustainability issues and, indeed, fiscal balance are not independent of economic performance. For example, it is quite possible to have a sustainable very small state or a sustainable very large state. Equally, it is possible to have a sustainable stagnant economy and a sustainable dynamic economy; in fact, I am sure that that is what the Minister would claim the coalition is creating. More specifically, different assumptions about the performance of the world economy as a whole will impact on the fiscal forecast and on any concept of sustainability. If we are to provide consistent advice in the charter to the Office for Budget Responsibility under its duties in Clause 4, the amendments in my name, which would introduce the word “economic” into the clauses, should be accepted.
Moreover, the charter introduces a fourth element, which is the promotion of “intergenerational fairness”. It would be helpful if the Minister could, when he sums up, define exactly what this means. Perhaps I could help by setting out what it cannot mean. It cannot have anything to do with the fiscal balance as such, as the size of a deficit defines the content of redistribution between different groups of current and future generations of UK citizens—essentially, redistribution between taxpayers and lenders. It certainly has nothing whatever to do with redistribution between generations. What it can mean is that there is some impact on investment and the growth path of the economy, but that is very much economic policy—the very dimension that has been left out of Clause 1. That is why I want to introduce the word “economic” into Clause 1. I believe that this is exactly the point that my noble friends Lord Peston and Lord Barnett make in their amendment in this group. To make this entire story consistent across Clauses 1 and 4 and the reference to the promotion of intergenerational fairness, it seems imperative to introduce the word “economic” in the places suggested in the amendments. I beg to move.
Lord Higgins
I am having some difficulty in tracking down the reference to intergenerational transfers. Am I right in thinking that the wrong line is given in the noble Lord’s first amendment?
Lord Eatwell
It is in the charter, which is referred to in Clause 1, and I shall attempt to find it for the noble Lord. I have a fresh copy here rather than my marked-up copy. Paragraph 3.1 of the draft charter states that an objective is to “promote intergenerational fairness”.
Lord Peston
My Lords, I shall speak specifically to the amendment in the name of my noble friend and myself, but what I say will also be very relevant to the other three amendments in the group.
Overwhelmingly, economists—I certainly include myself here—regard budget responsibility, or more generally financial soundness, as desirable, but within serious economics that desirability would be a means and not an end in itself. The end that one would have in mind in asking, “Why financial soundness?”, or, “Why financial responsibility?”, is the behaviour of the real economy. I know nothing in economics that tells anybody anything other than that the behaviour of the real economy is what we should be concentrating on. That is the specific purpose of my noble friend’s amendment and it is quite specifically the purpose of Amendment 2.
Noble Lords whose memories go back a long way will realise that the amendment in my name and that of my noble friend Lord Barnett is simply an echo or, perhaps more than that, more or less a restatement of Section 11 of the Bank of England Act 1998, which set up the Monetary Policy Committee of the Bank of England. Essentially, it is derived from the very famous subject of that section. We wish precisely that to appear in this Bill. Indeed, it would be absolutely absurd for the Monetary Policy Committee of the Bank of England to take account of Her Majesty’s Government’s economic policy for growth and employment—the real economy—and for the OBR not to do so. It is difficult to think that anyone could rationally have talked themselves into that position and I cannot believe that that is the position that the Government want.
Lord Oakeshott of Seagrove Bay
My Lords, like the noble Lord, Lord Eatwell, I was rather struck by the word “intergenerational” in the draft charter for budget responsibility. The Treasury’s objectives for fiscal policy are to,
“ensure sustainable public finances that support confidence in the economy”,
which is fine, and,
“promote intergenerational fairness, and ensure the effectiveness of wider Government policy”.
Can the Minister tell me why we need the word “intergenerational”? It seems that one of the basic objectives of fiscal policy is to promote fairness and, of course, our coalition agreement holds fairness very high. Why do we need the word “intergenerational” here? As it is a draft charter, perhaps I may ask that the word be taken out from the final version.
Lord Myners
My Lords, I support my noble friend Lord Eatwell. I think that I need do no more than cite our debate a few minutes ago in the Chamber when the Minister repeated the Statement on the OBR made earlier today in the other place by the right honourable Chancellor of the Exchequer. The central emphasis of that Statement was the economy. It would seem therefore that the Government intend to use the OBR and the charter in support of it to give confidence to their economic projections. I therefore suggest to the Minister that no harm would be done, and considerably greater precision would be achieved, if the words proposed by my noble friend were inserted in Clause 1.
Lord Higgins
My Lords, am I wrong in thinking that the amendment refers to line 6 and not line 5 of the Bill? Be that as it may, no doubt we can sort it out if it is wrong. I have great sympathy with the view put forward by the noble Lord, Lord Eatwell. We shall see what response we get from the Government. Perhaps we may also have from the Government a little clarity with regard to the charter for budget responsibility, since it is described as a draft. Are we to understand that the Government will amend it in line with the comments made by this Committee or will we be able to amend it at some later stage more formally?
An interesting point was made about “intergenerational fairness”. I understand that we must be concerned with fairness generally, but we should realise also that the sudden introduction of this expression reflects a considerable change of view in the Treasury from previous years. It is of course possible for us to consume in this generation and pass on a lesser inheritance to future generations. However, if we are to appraise intergenerational fairness, we need not simply a government balance sheet, on which we have made a little progress, but a national balance sheet, which successive Governments have hitherto failed to provide. If the relevant paragraph is to have any credibility, we need further data. It would be helpful if the OBR could take a first shot at a national balance sheet. The argument that we should widen the charter a little from relating merely to implementation of fiscal policy seems reasonable, but I look forward with interest to hearing what my noble friend the Minister has to say.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, since one or two noble Lords have joined us since the beginning of our sitting, perhaps I should repeat in essence what the noble Lord, Lord Eatwell, said about why we started rather later than anticipated. As he said, a request from the Opposition that Grand Committee should begin after the Statement in the Chamber to allow them to prepare a response was agreed to through the usual channels. I apologise if not all noble Lords were aware of the change of plan. I think that the Chief Whip announced it to the whole House following Oral Questions, but perhaps not everybody was there.
Perhaps I should go back to the Government’s overall approach to the charter as background to Amendments 1 to 4, because they all touch on the addition of economic objectives.
Lord Peston
I may implicitly be criticising my noble friend Lord Eatwell in saying that I was not under the impression that the charter was part of what we are dealing with here. There is no specific amendment at this point about it. I want to talk about the charter, but I do not want to be forced to do it now just because it has been mentioned. Apart from the fact that the economics of intergenerational fairness, as my noble friend will know as well as I do, are so complex that I doubt that we would make much progress with the matter here, I am a little disturbed that we are suddenly going off in a direction that does not relate to the three amendments before us.
Lord Eatwell
I introduced the charter into this in the sense that Clause 1 refers to the charter for budget responsibility and we have the draft before us. I do not think that it will be subject to parliamentary scrutiny. It will be placed before Parliament but will not be subject to scrutiny. I was therefore taking advantage of the Committee because, as the draft charter has been published, we have the opportunity to discuss it.
Lord Newby
Just as a point of clarification for the noble Lord, Lord Eatwell, Clause 1(7) states:
“The Charter (or the modified Charter) does not come into force until it has been approved by a resolution of the House of Commons”,
so it has at least vestigial parliamentary scrutiny.
Lord Sassoon
I shall explain the way I see it and deal with the things that may be relevant this afternoon. We are talking about the charter, which we have produced in draft to aid scrutiny of the Bill. I hope that people will think that that is helpful. There were, quite rightly, demands to see it, which is why we produced it a week ahead of the Committee stage. It will be formally laid in another place following Royal Assent to the Bill, so it necessarily remains in draft until that point. We will listen carefully and, if there are issues that touch on the charter that could in our judgment improve the drafting, we will take them on board.
The relevance of the charter is how it fits with the architecture relating to the responsibilities of the OBR. We also have to remember that certain things in the charter do not directly relate to the fiscal mandate but are background information to it. I take the point that we should not get too far into discussions of irrelevant things, but intergenerational fairness is part of the fiscal objective that is in there as background information to the fiscal mandate, which comes in the subsequent paragraphs and links directly to the responsibilities of the Office for Budget Responsibility. The noble Lord, Lord Eatwell, is correct that intergenerational fairness can take on different definitions, but here we are using the term in a fiscal context to mean that future generations should not be burdened by deficits or the cost of servicing debts accumulated to pay for consumption by current or previous generations.
Lord Eatwell
That was the point that I was trying to make in a speech that I made in the House the other day. If there is a deficit and you are paying interest on that deficit, it sounds like a burden, but you are paying it to the people who lent you the money and they are predominantly other British citizens, so all that you are doing is transferring part of national product from one lot of British citizens—the taxpayers—to another lot of British citizens, the lenders. You are not actually creating an intergenerational transfer. An intergenerational transfer can be made, as the noble Lord, Lord Higgins, pointed out quite accurately, by changing the volume of investment in any one year, which changes the growth rate of the economy and affects future income per head. A fiscal measure alone is not an intergenerational transfer.
Lord Sassoon
I am grateful to the noble Lord, Lord Eatwell, for his explanation of how intergenerational transfers work. I am not sure what difference it makes to the analysis but, for better or worse, it is not the case that substantially all of the debt—he did not use that term—is held by UK citizens or bodies. The burden of debt that we have is well spread among international holders as well.
We should not get too far side-tracked. Intergenerational fairness is an important point, but the objectives for fiscal policy are, as I say, the background in the charter. People can see the context in which the critical elements of the Treasury mandate are set out in paragraphs 3.2 and 3.3 of the draft charter. Those are the two elements that bite particularly on the mandate of the OBR. The full objectives for fiscal policy include supporting and improving the effectiveness of monetary policy, which relates to the independent operations of the Monetary Policy Committee of the Bank of England. We must remember how the architecture fits together.
Let me say a bit more about the background to the charter. Its purpose is to improve the transparency of the fiscal policy framework and, within that, to include the guidance on the role of the OBR within the broader framework. The charter is concerned with fiscal policy and includes the Treasury mandate for fiscal policy. It was important to have that document for people to see ahead of this discussion. The fiscal policy framework is part of the Government’s overall approach to economic policy. Indeed, given the fiscal situation that the Government inherited, the coalition made it clear on its formation that reducing the budget deficit and setting public finances on a sustainable path to build confidence and to create the conditions for economic recovery were the overriding priority.
The noble Lord’s first amendment would require that the charter be expanded to relate to overall economic policy. Amendments 2 and 3 concern the addition of economic policy objectives, which means that we need to be clear about them. They are set out in the paper The Path to Strong, Sustainable and Balanced Growth, which was published today. To achieve the objective of delivering growth that is consistent with values of freedom, fairness and responsibility and to improve the well-being of the British people, the Government must employ all their macroeconomic and microeconomic policy tools and frameworks. I mentioned that monetary policy is operated by the independent Monetary Policy Committee of the Bank of England. That provides one set of tools that play a role in meeting the Government’s economic policy objectives.
It may be helpful to remind the Committee that the Bank of England Act 1998 provides:
“In relation to monetary policy, the objectives of the Bank of England shall be … to maintain price stability, and … subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment”.
I know that comments have been made about that, but it is probably not right this afternoon to go into the question of how all this works. The point is that the Bank of England Act does not set out the Government’s economic policy objectives. That is not what we are trying to inject—nor should we—into the legislation that governs the operation of the Office for Budget Responsibility.
Financial stability policies are similarly crucial to delivering the overall economic policy objective. The Government have taken steps to reform the financial stability framework, providing the Bank of England with control of macroprudential regulation and oversight of microprudential regulation. Also, microeconomic policies create the conditions for growth and they, too, are essential. Fiscal policy represents another crucial set of tools that the Government use to achieve the overall policy objectives. The charter is the place where, for the first time, we have a transparent exposition of the framework. However, the charter is not itself the framework. It replaces the code for fiscal stability, which was part of the previous fiscal framework. Replacing that code was recommended by the Treasury Select Committee. The code did not contain economic objectives. Therefore, the charter remains a document relating to fiscal policy and should not be expanded to contain overall economic objectives.
Lord Myners
Surely the “therefore” does not follow. Simply because the code did not include economic policy, it is wrong to say that therefore the charter should not. There is an opportunity, with the OBR and the charter, fundamentally to change the architecture with which we review and analyse the progress and success of the UK economy. I for one have warmly welcomed that from the opposition Benches, but the insertion of the word “therefore” in that sentence is simply illogical and misses the point of achieving the full potential that the OBR can offer.
Lord Sassoon
My Lords, we could add an awful lot of not directly relevant things into the charter and make a document of biblical proportions that discusses all sorts of things. The charter, unlike the previous Government’s code, explicitly sets out the Government’s fiscal policy objectives, so we have moved on. However, there is no point in moving on to all sorts of things that do not need to be in there, which is what the noble Lord, Lord Myners, suggests. Yes, we have moved on. The charter explicitly includes the Government’s means to achieve the fiscal objectives and the fiscal mandate. The coalition’s programme for government made it clear that accelerating the reduction of the deficit to ensure recovery was the greatest challenge. That all links through to the policy actions that we have taken. Through the creation of the independent Office for Budget Responsibility, credibility has been restored to the forecasts on which fiscal policy is based. I think that it is that that we all broadly welcomed at Second Reading and we must not lose sight of ensuring that the linkage between the Bill and the charter is focused on that single, critical objective.
The charter is a fiscal policy document, which helps to deliver the Government’s economic policy. To deliver the economic policy objective, the Government employ a wide range of macroeconomic and microeconomic policy tools and frameworks and, for those reasons, I believe that the amendments are not appropriate. The charter is not the Government’s economic policy framework but a document to underpin the work of the OBR, and that is all that it is proper to be. On that basis, I hope that noble Lords will withdraw the amendment and not press Amendments 2 and 3.
Amendment 4 is similar in nature to the other three amendments in that it concerns the fiscal mandate, which is the means for achieving the fiscal objectives. It is the Government’s quantified and specific target or fiscal rule, which will help to steer fiscal policy over the medium term. In setting a specific target, the mandate steers policy towards achieving the more general and strategic objectives that the Government have set for fiscal policy. The amendment suggests that the fiscal mandate is the key means of achieving the Government’s economic objectives. That is not the case. The ambitious and appropriate fiscal mandate that the Chancellor has set is crucial to delivering our fiscal objectives as a Government, but a much wider suite of economic policies, as I have explained, contributes to the Government’s economic objectives.
As I mentioned, the monetary policy framework, financial stability policy and microeconomic policy all contribute to the Government’s economic objectives. It is correct that the Government create an economic policy environment where all policy frameworks and tools contribute to their economic policy objective, yet the fiscal mandate should remain a fiscal target in a statutory fiscal charter and we should not stray from that.
There are a couple of other points that it is perhaps worth touching on before I conclude. On sustainability, the OBR will bring forward a sustainability analysis next summer, which will include,
“long-term projections for the public finances and an assessment of the public sector balance sheet”.
My noble friend Lord Higgins raised a question on that. It is referred to in paragraph 4.15 of the charter, so sustainability and the question of a balance sheet are absolutely in the work programme. Having explained the whole context for the charter within the overall fiscal framework, I hope that noble Lords will see fit not to press the amendments.
Lord Oakeshott of Seagrove Bay
My Lords, I listened at considerable length to the Minister reading out his brief in response to the amendments but I wondered whether, by any chance, he could do me the courtesy of answering my question, which I thought was fairly simple and clear. Why are we having just the word “intergenerational” with fairness? He has said that he does not want a Bible. I am suggesting that he might make it shorter, but why “intergenerational”? Why not any other sort of fairness? The document says that these are:
“The Treasury’s objectives for fiscal policy”.
This is a government document, so could the Minister please address the question that I raised?
Lord Sassoon
I was not meaning to be at all discourteous to my noble friend. I thought that I had explained that a lot of things could be set out in a full description of the policy frameworks but that the objective is to have a short encapsulation of fiscal policy objectives as a background to the specific mandate for fiscal policy. As I also said, this is of course a draft charter. I am listening to that and other comments that are being made on the charter. I absolutely confirm that. I fully understand that there are other aspects of fairness; indeed, I read out another formulation of the coalition policy approach to broader economic policy-making, so I am absolutely listening to my noble friend’s point. Fairness, without any specific reference to “intergenerational” or any other kind, is indeed central to the economic policy objectives of the coalition Government.
Lord Oakeshott of Seagrove Bay
I am glad that we are starting to get the matter addressed, but this is Committee stage and it is no good, if I may say so, taking a Civil Service attitude of, “We’ll think about anything that comes in”. This is Committee stage. I have made a proposal and suggested the document should be shorter, not longer. I know that it is a draft. I have said that, if the Minister cannot explain why intergenerational is the one bit of fairness that is picked out, why not leave out “intergenerational” and just say “fairness”? Could we actually engage here, please? What is the answer?
Lord Higgins
Before my noble friend replies to that, perhaps I may delay the Committee for a moment or two more. First, I apologise to the noble Lord, Lord Eatwell. His reference in the amendment to the lines in the Bill is correct. I was working on the original version of the Bill, which the Treasury has subsequently corrected. I just hope that the Public Bill Office has sorted out all my numbering; otherwise, I will have a lot of work ahead of me.
We should be extremely grateful to the Minister for providing the draft charter; otherwise, we would be relying purely on what is in the Bill, which leaves a large number of questions unanswered. Perhaps I may pursue the point raised by the Minister with regard to the fiscal mandate. There is no initial capital letter in “mandate” in the draft charter, which perhaps there should be. It states that the mandate is,
“a forward-looking target to achieve cyclically-adjusted current balance by the end of the rolling, five-year forecast period”.
That is an extremely important statement. My problem is that there are shades of Gordon Brown, rather like Banquo’s ghost, in the reference to “cyclically-adjusted”, because Gordon Brown was a master at changing the dates of when the cycle began. If the mandate is to mean anything at all, we need to know when the Government think that the cycle began. If my noble friend cannot answer now, perhaps he might come back to it later.
Lord Sassoon
My Lords, at the risk of repeating myself, the Government’s broader economic policy objective is clear and includes the achievement of strong, sustainable and balanced growth that is more evenly shared across the country and between industries. That is consistent with values of broad freedom, fairness and responsibility. That is absolutely clear, I hope, as regards our broader economic policy objectives. However, as I have tried to explain, what we are talking about is the narrower context for the fiscal policy mandate. I am not personally very keen on too many capitalised terms, but I hear my noble friend’s plea for an initial capital for “mandate”—it is certainly a critically important part of the construct. I will take away the thought.
This is the first time that these fiscal policy objectives have been tabled. We are not debating the charter in the way that we are debating the Bill, because the charter is not part of the Bill itself. It is not a question of debating the precise words, therefore, but I take the point. There are many things within the broader definition of fairness that do not impinge directly and narrowly on the conduct of fiscal policy. Therefore, I am not sure that it would be right to talk about fairness in its full richness here, but I have certainly listened carefully.
As to the question of cyclical adjustment, the absolutely critical point is that cyclical adjustment is now done by the independent OBR; it is not done by Ministers, who could and did rewrite, on a regular basis, the start and end points of cycles. That is important and I am grateful to my noble friend for drawing attention to it.
Lord Barnett
The Minister asked us to withdraw our amendments, so I hope that the noble Baroness will forgive me if I reply.
I had hoped that the noble Lord, Lord Sassoon, on this occasion in Committee, when we have tabled serious amendments, would give us a good reason for withdrawing them. I have listened carefully. Neither my noble friend Lord Eatwell nor my noble friend Lord Peston had taken umbrage at the Government’s economic policy and what they seek to deliver—much as my noble friends and I might disagree with the Government. We were putting serious amendments, which it seems from all that the Minister said there is no good reason for rejecting. I can see nothing in the amendments that should cause the Government any problem.
Our amendment relates to the Bank of England Act, which the Government have accepted and are not seeking to amend, whatever they eventually put in the charter. The Minister was not with us when we debated these matters at length. The three words “subject to that” not just implied but provided a clear remit to the Monetary Policy Committee. I am not sure that it always carried out that remit very well or very carefully, or even, as the current governor has recently been saying, that the Monetary Policy Committee was allowed to discuss these things—a report of something that he said implied that he did not want the Monetary Policy Committee to discuss them.
All we are saying, and all my noble friend Lord Eatwell is saying, is that these words should be inserted. I do not recall either of my noble friends taking umbrage at any of the policies that the Government are proposing. That is not the purpose of Committee stage; its purpose is to have a serious discussion about whether an amendment should be accepted. I had hoped that the Minister would look at this first group of amendments more seriously, unlike with his Answers in the Chamber or to our Written Questions, which he seems not to take very seriously. On this occasion, at the start of the Committee stage, I had hoped that he would take it seriously before asking us to withdraw an amendment that has been put down very seriously without any party-political talk. He has not given me any good reason to withdraw it.
Baroness Noakes
I have been listening to what my noble friend has been saying. He seems to be saying that we cannot have the words relating to economic policy because we want this to relate to fiscal policy only. If we step back, it seems to me that the economic policy of the Government ought to be as capable as the fiscal policy of being subjected to the transparency objectives that the Government have set out. Indeed, one of the things that the Government are to be genuinely lauded on is their approach to transparency, not only in relation to the Office for Budget Responsibility but also, for example, in relation to the publication of expenditure amounts over £25,000.
Transparency has been one of the watchwords of our Government, but we come to the Bill and, for some reason, we are saying that the Office for Budget Responsibility will be required to look at our fiscal policy mandate only, not at our economic policy objectives. It seems to me that there is a transparency deficit if we are saying that we have to exclude economic policy, as it seems directly related to what the OBR will be doing. The only reason that my noble friend has given is that the Government have decided not to include it. Like other noble Lords, I am struggling for the rationale for excluding the Government’s economic policy.
Lord Peston
Before the Minister rises, I shall raise a point of order. I was under the impression that, when we meet in Grand Committee, we do not divide the Committee at all, so withdrawing amendments is totally irrelevant. I have no intention of withdrawing my amendments, but I am not going to divide on them. Rather like the noble Baroness, Lady Noakes, I want to hear the Minister give some reasoned answers including that he would like to think about it a bit more. He does not have to agree with us, but I thought that the whole point of meeting in Grand Committee was to behave non-politically, if I may say so, and co-operatively to clarify the Bill in order to make progress when we go back into the Chamber, when, no doubt, we will divide the House. I am beginning to get very irritated with the repetition of “withdraw the amendment” because I do not think that we are here for that purpose. We may withdraw it formally, but that is not the point.
Lord Myners
I quite recently sat in the chair in which the Minister is sitting and my experience is that the favoured word that comes from officials at Committee stage is “resist”. As my noble friend Lord Peston has pointed out, there is no need to resist. The purpose of this session is for the Minister to listen in a considered way to points made from the coalition Benches and the opposition Benches and to do us the courtesy of giving us a fair and reasoned explanation. The Minister has not done that. In fact, he has fallen back into the trap of the way in which he handles Written Questions, which is, on the whole, by completely ignoring the Question in the Answer that he gives. I plead that he seeks to answer the questions that are reflected in the amendments and, in particular, the observation from the noble Lord, Lord Oakeshott, that intergenerational is a specified fairness as opposed to a general commitment to fairness that I understood the coalition to support.
Lord Sassoon
First of all, of course I take everything that is being raised this afternoon extremely seriously, but it would not be helpful to the Committee if I said, in some sort of Panglossian way and in approving terms, that I was equally sympathetic to all the points that were being raised. Points will be raised in this Committee to which I shall be more or less sympathetic and I shall try to give some indication of that, because I do not think that it is helpful to the Committee’s consideration, or to noble Lords at Report, if I just give an equally sympathetic ear to all points regardless of whether I believe that they have merit.
I am sorry that I failed to get across the key simplicities of where we are on Clause 1 and the proposed amendments, but the Bill’s purpose, which has been widely recognised, is to bring a new degree of independence to the construction of the forecast and to the establishment of whether the Government are likely to meet their fiscal policy mandate. Those are huge advances on where we have come from and the Bill is very much focused on that. Clause 1 and the linkage to the charter are all about that.
This Government have many other transparency objectives, but it is not the objective of the OBR and this Bill to stray into other areas related to economic policy-making. The purpose of the budget responsibility parts of the Bill is very much focused on the central core mandate of the OBR. Of course, it would be possible to turn the charter for budget responsibility into a much wider analysis of government economic policy, but that is not the charter’s purpose, nor is it the purpose of the Bill. The discussions about intergenerational transfer of fairness and all those things are important issues, but the key element for the consideration of Clause 1 is that the charter sets the appropriate and focused background in which the OBR can do its work.
We have set out a new and unprecedented set of objectives for fiscal policy, but it is not they but the mandate that flows from them that is the critical element. I am listening to questions about the drafting of the objectives, and I shall consider those carefully in the charter, but that is a very different matter from requiring in the Bill a direct linkage through to economic policy objectives.
Baroness Browning
Does my noble friend recall the concern expressed by the Treasury Committee when Sir Alan Budd appeared before it and the regrets expressed by Sir Alan when the interim OBR strayed into the area of employment forecasting? The feeling was that that was very unhelpful to the credibility and reputation of the OBR.
Lord Sassoon
I am grateful to my noble friend for reminding us that the OBR should be set a focused mandate. It is then up to the OBR what it considers is appropriate, in its analysis, to explain as background to the mandate that it has been given. It is clearly neither necessary nor helpful to give this Bill different purposes from those that it has—to set a remit for the Office for Budget Responsibility, which is what the charter intends to do, and only that.
Lord Myners
Barely an hour ago, the Minister was telling the House that the OBR report had broken new ground in making employment and unemployment forecasts and what a wonderful step this was compared with what had happened under the previous Government. In response to the observation from the noble Baroness, Lady Browning, I believe that Sir Alan Budd’s reservation was that he had allowed OBR employment forecasts to be released one day early in order for them to be used by the Prime Minister in Prime Minister’s Questions rather than that he had any reservations about the OBR moving into the area of employment and unemployment.
To go back to the point of the amendment tabled by my noble friend Lord Eatwell, fiscal policy and economic policy are inextricably linked and the Minister has given us no good reason why the two should be treated entirely separately so far as the charter is concerned. My anxiety is that, unless the Minister provides us with better explanations on these points, the Committee stage will be wasted, because all these amendments will be repeated when the Bill returns to the House. The Minister is failing to make appropriate use of the opportunity that Grand Committee provides for such matters.
Lord Sassoon
I think that some noble Lords want to have it every which way. The fact is that within the mandate that the interim OBR is being given, it has felt it appropriate—and we welcome this—to set out forecasts for a wide range of things. It is not that these employment forecasts were not done before; it is just that the previous Government chose not to share them with the British public and the economic commentators. The 150-page document that has been put out today is the best indication that the OBR is not going to hold back on analysing and laying out the full background as it considers appropriate under the minimum forecast requirements set out in paragraph 4.10 of the charter. I suggest that we can take confidence from the fact that there is nothing that the OBR feels inhibited about in doing whatever is necessary to underpin the conclusions that it needs to come to on the fiscal mandate and in laying out the full forecast.
Lord Myners
May I briefly beg the noble Lord’s indulgence one last time? I take great comfort from what he says and I fully agree about the failures of the previous Government to disclose fully a wide range of economic forecasts. I cannot be more supportive of the OBR’s broad intention in this and in many other respects. However, there is a provision in the Bill under which the Government can give the OBR guidance, and that guidance stands above all others, including the point that the OBR should perform its duty objectively, transparently and impartially. Therefore, can the Minister confirm that the Government will not be using the guidance process in any way to restrict the OBR’s ability to comment on general economic matters? If the Minister could give us that assurance, it would give me considerable encouragement.
Lord Sassoon
I am grateful to the noble Lord and I confirm what he said about the broad purposes and the general greater transparency that flows from all this. I do not believe that anything in the Bill restricts the OBR’s ability, within its mandate, to lay out whatever it considers appropriate. Indeed, I do not think that anything in the guidance will dictate the methods of analysis that the OBR undertakes. The guidance absolutely cannot include provisions on that. The charter seeks to explain what transparency means. Perhaps it is appropriate to highlight paragraph 4.8 at the top of page 12 of the charter, which states:
“Transparently means that the OBR is to act openly, setting out with clarity the assumptions and judgements that underpin its work. It should proactively seek to make available its analysis. It should publish reports according to a regular and predictable process”.
It gives very wide latitude in the areas to which the noble Lord rightly draws attention. We are not seeking to circumscribe how it does this.
Lord Barnett
The noble Lord now seems to be saying that the OBR can already do the job that the amendments are suggesting. In that case, why not accept the amendments? He has not given us a good reason for rejecting them. He seems to be saying that the OBR can already do the job and the amendments are not necessary, so what harm would including them do?
Lord Higgins
I shall try to speed up the proceedings in the light of what the noble Lord, Lord Barnett, has said. We have a specific amendment to the Bill and the Minister can say one of three things. He can say: “I accept it and will table an amendment at a later stage”; “I do not accept it for the following reasons and we will return to the matter if we wish at the next stage”; or, “I am not sure, so I’ll think about it and return to it at the next stage”. I am not in the least clear whether he proposes to accept, reject or think about the amendment.
Lord Turnbull
May I respond to the noble Lord, Lord Myners? He talked about not restricting the OBR’s ability to comment on general economic matters. We are trying to create an instrument of fiscal policy, not a council of economic advisers that can comment on issues, such as whether the economy is competitive, whether we have the right set of industry instruments or whether the policies are correct for the flexibility of the labour market. The OBR can forecast the effects of the policies as they stand. There are references to the Government providing the OBR with as much information as possible to enable it to make those forecasts, but it is not the OBR’s role to become a general commentator, as happens in some other countries, on all aspects of economic policy generally. Some of the amendments seem to be taking us towards that goal.
Lord Sassoon
I am grateful to the noble Lord, Lord Turnbull, for pointing that out. I do not accept the analysis of the noble Lord, Lord Barnett. Yes, it is correct that, as exemplified by what we have seen today, the OBR indeed has the freedom to do what Members of this Committee are asking for, but that is not what these amendments are essentially about, as the noble Lord, Lord Turnbull, pointed out. Clause 1 is not about the Office for Budget Responsibility doing things; it is about the Treasury producing a document to be known as the charter for budget responsibility. We could require the Treasury to produce all sorts of documents laying out economic policy and a huge number of other things, but the point of the clause is for the Treasury to prepare a document, the purpose of which is to set the background against which the OBR does its work. I have obviously failed to explain it, but the very distinguished former Permanent Secretary has come to my aid to point out that the Bill will set up an office focusing on fiscal policy. That is why the charter relates to fiscal policy. We do not want to widen it out, as the noble Lord said, to a document that sets a background for this office to go into all sorts of wider economic commentary. That point, as my noble friend reminded us, was made by the Treasury Select Committee.
Lord Myners
That is why the Chancellor of the Exchequer and other Ministers must be very careful when they present the reports of the OBR to the committee. Clearly, in the other place, as repeated in our House, the report of the OBR was given by the Minister as an economic commentary. In the Minister’s response to questions, he used the OBR to validate the correctness of the Government’s economic strategy. The noble Lord said earlier that we cannot have it one way and then the other. I suggest that he and the Government cannot either. I hope that he will now answer the question asked by the noble Lord, Lord Higgins.
Lord Sassoon
First, Robert Chote and the Office for Budget Responsibility presented their own report this morning. I was unable to watch the whole of the Q&A session and do not know how long it went on, but it was wide-ranging. I believe that the document was seen on embargo terms by journalists ahead of the presentation so that they could ask informed questions of the OBR directly afterwards. Before somebody else challenges me on this, I should say that the OBR has pointed out that it will not always be able to present a document first if it is opining on new policy announcements. There will always be an opportunity to question the OBR directly on its forecasts, but that will be one part of the supporting architecture alongside a variety of other measures of performance, as well as new policy developments related to that, which a Chancellor will always at any time be responsible for. Of course, Chancellors must represent the OBR’s work correctly, but it is entirely appropriate and necessary for it to refer to that work in the broader policy context, just as I have explained that the charter and the Bill relate to only one—albeit critical—element of the Government’s overall economic policy-making framework.
Lord Higgins
Am I right in thinking that the Minister rejects this amendment?
Lord Sassoon
Yes, I am rejecting it. I am nervous of getting another lecture of the formalities of how we operate in Grand Committee. I had understood that we went through the formality of my doing the proposers of amendments the courtesy of formally asking them whether they will withdraw. If that is not the process, somebody will no doubt advise me. While the amendment has led to some interesting observations about the precise wording of the fiscal policy mandate and other aspects of the charter, in relation to the basic question of whether the Bill—and, by implication, the OBR’s work—should be opened up to a much wider commentary on the Government’s wider economic policy, I think absolutely not.
Lord Peston
There is no problem on the formalities. I am someone who has become a great advocate of Grand Committees as a way in which to deal with almost all our Bills, because I interpreted these Committees as a place where there could be a meeting of minds and where the Minister thought about things rather than writing down, as my noble friend Lord Myners said, “Reject, reject, reject”. If that is really what we are going to get, I do not know whether I personally will bother to waste my time with him. I regard it as outrageous if we are going to get rejection after rejection on the next amendment and the one after it. If that is going to be his style, because essentially that is what he has been told to do, why are we here?
Baroness Noakes
If the noble Lord does not ask for the amendment to be withdrawn, it will be agreed.
Lord Peston
It is not the formalities that I am talking about but the style.
Lord Sassoon
I am only a new boy to this process, but I cannot believe that the noble Lord, Lord Peston, is beginning to suggest that because a Bill comes into Grand Committee we have to accept everything that is proposed in amendments. Yes, there may be a run of amendments that I and the Government see little merit in but, if I see merit in them, I shall respond accordingly. There does not seem any point in my saying in a wishy-washy way that it is all rather splendid and that I shall go away and think about it when I think that the amendments do not have merit.
Lord Peston
The noble Lord misses my point, which is to ask whether this is how he is going to treat all the amendments. He knows how he is going to treat them because the documentation is sitting behind him at this very minute. If that is what is going to happen, except on trivial amendments, I repeat my question: why are we here? We expect the Government to say, as a minimum, on some of the substantive amendments, “The arguments have been good and we must go away and think about them”. If we are not going to get that on anything substantive, I repeat: why are we here?
Lord Sassoon
We should not prolong this for too long—although I am happy to. If I feel, having heard the arguments, that I should take the amendments away or that I should accept them, I will say that. I will try to tell noble Lords what I believe, but I do not believe that these amendments have any merit. If there are amendments that I believe have merit, I will endeavour to make that abundantly clear.
Lord Eatwell
My Lords, I realise that this is the first time that the Minister has had to face a Grand Committee and perhaps he will be better prepared next time we meet. However, as to these amendments, I have just four points to make in response to our debate.
The first is purely technical, in that the Bill as drafted is inconsistent. Clause 6(1)(a) states that the charter for budget responsibility may include guidance about the,
“assessment or analysis required to be prepared under subsection (3) or (4) of”,
Clause 4. However, subsection (3) of that clause refers to “fiscal and economic forecasts”. The charter is therefore required by Clause 6 to provide guidance on economic forecasts. The Bill is inconsistent if “economic” is not included in Clause 1. It is not at all clear what the Government really intend to do. It is only clarity that I seek here. As noble Lords have said, there is no great economic or political point behind all this. Actually, there is a good economic point, but there is no great political point. The amendment aims purely at making the Bill consistent.
My second point is that, in its consideration of fiscal policy, the OBR has to have some guidance as to the Government’s overall economic policy. Otherwise, it is not possible for the OBR to make a coherent assessment. If you do not believe me, just look at this document, the OBR’s Economic and Fiscal Outlook, which is exactly that. It is a very fine document, if I may say so. For example, the delayed rebalancing scenario and the weakening demand scenario are discussed in the document. Why is that? It is because the OBR is linking different economic performance to the consequences for fiscal performance. That is exactly what this document does.
I accept the point made by the noble Lord, Lord Turnbull, that we are not trying to set out some broad economic assessment committee, but, as another gloomy Cambridge economist, he should recognise that there is a clear interrelationship between economic and fiscal policy. The intention of these amendments was simply to capture that relationship. If this could be done in a better way and could make the Bill consistent, I would be very happy. If the Minister says, “We’ll think about this and see if we can achieve that in a better way”, so that this document does not trespass beyond the mandate given by the Bill to the OBR, I would be very happy.
I turn to Amendment 4. The Minister asked why the fiscal mandate should require an economic dimension. Here, there is a bit of economics involved, because there is a view among some economists that the economy has a normal rate of activity and a normal rate of employment to which it persistently returns having moved away from them because of some economic shock. It is clear that that is not the view of the economists who wrote this document, otherwise they would not have written such scenarios. It recalls the remark of the Nobel Prize-winning economist, Professor Robert Solow, that this view of policy was a vision in a dream. The fiscal mandate requires some economic dimension, because you could have different results depending on the nature of your economic policy—they are interlinked. That is all that I am trying to capture in my amendments—nothing more and nothing less.
I say in response to the noble Lord, Lord Oakeshott, that I do not think that the drafters of the charter know what “intergenerational fairness” means or what the economics of intergenerational transfers consist of. The noble Lord, Lord Higgins, got it exactly right: it is about changing the rate of investment in the economy. It has nothing to do with fiscal policy as such and it should not be in the charter. The suggestion of the noble Lord, Lord Oakeshott, that the word “intergenerational” be removed would provide some validity to a sentence that currently has none.
I am afraid that I must reflect the general opinion around the Grand Committee that these points have not been answered; indeed, I am not clear that they have been understood. Accordingly, I shall need to return to them on Report, by which time some more careful thinking about them will hopefully have been done.
Lord Sassoon
We have gone into territory in this discussion that is well beyond the consistency of the Bill. Consistency is important and we of course want to get it right. I see no difficulty in having consideration of an economic forecast, as provided for by Clause 4(3)(a), without there being a government statement in the charter on broader economic policy. I accept that there is a critical need for the OBR to make an economic forecast to underpin its assessment of the fiscal mandate, but I am still struggling to grasp the point on consistency.
Lord Eatwell
Perhaps I could help the Minister. Clause 6(1)(a) requires the charter for budget responsibility to give guidance on how to pair subsections (3) or (4) of Clause 4. Subsection (3)(a) of that clause refers to “fiscal and economic”. The charter must therefore include guidance on “economic”. At the moment, it does not.
Lord Sassoon
We are possibly getting this a little confused. Of course, in order to make an economic forecast, it may be appropriate for the charter to give, as it does in paragraph 4.10, guidance on economic forecasts, but that is very different from setting out in the charter the Government’s broad economic policy objectives. It is unnecessary, distracting and inappropriate for the charter to go into the broad economic policy objectives of the Government. However, I quite see that it is appropriate for the charter to go into questions that touch on economic forecasting. Indeed, it already does that, which is completely compatible with the terms of the Bill.
I will of course look again if it is a narrow consistency point. However, in trying to make a consistency point on what does not, from my reading of the Bill, need to be tidied up, the amendment opens up a much bigger swathe of territory, as I am sure the noble Lord is well aware, by including in Clause 1 broad questions of economic policy objectives. Yes, it is appropriate to talk about economic forecasting guidance in the charter—indeed, it is there—but its being there is much more specific and appropriate than opening up the charter to economic policy which, I would suggest, is simply not relevant. We will have a look again at the consistency question. My reading of it is that we do not have an issue there, but I will look at it again.
On the intergenerational question, I made the point that I am listening to what people say. I do not pretend for one minute to be an expert on the different interpretations and consequences of intergenerational fairness, but I will take back the suggestions that we have had on that from both sides of the Committee. Again, that is not something which, if there was any merit in changing the charter’s wording, needs any amendment to Clause 1 of the sort that we are discussing.
Lord Eatwell
My Lords, I am grateful to the noble Lord but there is a consistency point here, because the issue of timing the forecast is qualified by, “in particular”. The general role of Clause 6(1) is to provide,
“guidance … about how it should perform its duty under section 4”.
Those duties under Clause 4 include economic forecasts. I repeat that I have no intention of trying to create some general economic assessment. My main point is: economic and fiscal policy are intimately and necessarily linked. I was trying to capture that linkage in my amendment. I am quite willing to believe that my amendments do not capture it successfully, but it is capturing that point that I am looking for. I hope that, when we return to this on Report, that point will be appreciated and that the Government will be able to reply in some positive way about their response to this particular argument. In the mean time, I formally beg leave to withdraw Amendment 1.
Lord Barnett
“( ) the objectives for economic policy of Her Majesty’s Government, especially for growth and employment,”
Lord Barnett
My Lords, I want to stop my noble friend from getting too angry. Like the noble Lord, I have a little experience of replying to debates on Finance Bills—rather more than he has, it seems. For five years, I had at least two Finance Bills a year. I would have told the Committee an hour ago that I would think about the matter again, so I am glad that he has done that now, even it has taken him an hour and 17 minutes to do so. If he had done that an hour ago, we could have ended this debate in that length of time because there was no need for it. I agree with the noble Lord that we meandered wide from the subject and had no need to do so. I think that I now speak on behalf of my noble friend as well in saying that, in the circumstances, I beg leave to withdraw the amendment.
Lord Higgins
Lord Higgins
This amendment is grouped with Amendments 6, 8 and 35, which are rather more sophisticated than my amendment. Clause 1(7) states:
“The Charter (or the modified Charter) does not come into force until it has been approved by a resolution of the House of Commons”,
and my amendment adds “and the House of Lords”. The variations on that suggest the Economic Affairs Committee of your Lordships’ House and so on. It would seem appropriate that the charter should be considered by a resolution in each House and, if we have any serious problem at that stage, we ought to be able to express a view one way or another. It is a somewhat draconian measure because it would presumably mean that the charter was or was not accepted, but over the years, and despite the row we had on the Floor of the House this afternoon, there increasingly seems to be a tendency for your Lordships’ House to be more involved in affairs involving money. Therefore, I hope that the Minister will accept this amendment.
Lord Barnett
My Lords, I hope this group will last only a very few minutes and that the Minister will accept the amendments. As we debated this afternoon on the Floor of the House, this is not a money Bill. I do not think the Speaker in any way thought about certifying it as a money Bill. Every Bill costs a few bob, but in no way could this be described as a money Bill. I assume that the Minister is going to say that he will accept the amendments. It is quite straightforward: there is no reason whatever why the House of Lords and its Economic Affairs Committee should not be involved in looking at what the OBR is saying. When I was on the Economic Affairs Committee and the Select Committee on the Monetary Policy Committee, my noble friend Lord Peston was in the chair, and we had the Governor of the Bank of England, the Chancellor and almost everybody else there. I can think of no good reason for the Minister having the word “resist”. I hope he will not use it because there is no reason to refuse these amendments. I hope he will support them.
Lord Newby
I rise to support the noble Lord, Lord Barnett, and possibly to bring to the Minister’s attention the fact that when the Monetary Policy Committee was established, a specific committee of your Lordships’ House was established for the sole purpose of reviewing the way in which that committee worked. There can be no issue of propriety about whether the House of Lords should have a role here. This raises a broader question about the coalition’s view of the role of the House of Lords on financial and economic matters. The previous Government and the former Prime Minister were almost implacably opposed to this House having anything to do with economic affairs, which I thought was a pity because there is clearly expertise here. Last week, we discussed ways in which the House of Lords might play a part in tax policy-making. That would be very sensible as well and it would form part of the piece, along with these amendments, under which the House of Lords would have an enhanced role.
Baroness Noakes
My Lords, if this document is really about fiscal policy and the fiscal mandate only, it is entirely logical that the approval of the charter and the other matters referred to in the other amendments in this group should be for the other place. If it were widened to include economic policy, which most of us here, with the exception of my noble friend, favour, then it would be entirely logical for it to be widened to include the House of Lords, but I believe that, as currently drafted, it is entirely logical to confine it to the other place.
Lord Turnbull
I shall take issue with the noble Baroness, Lady Noakes. I think there is a distinction between the substance—fiscal policy—which it is well accepted is a privilege matter for the House of Commons, and what we are talking about—the governance structure of policy—which is, in a sense, a quasi-constitutional issue. We are talking about the charter, not fiscal policy. This is an area in which the House of Lords has some expertise. Therefore, I conclude exactly the opposite—that the charter should be rightly within the purview of the House of Lords, even when the fiscal policy is not.
Lord Myners
My Lords, we all now wait with bated breath to see whether the word “resist” appears on the Minister’s brief. Perhaps I may share my own experience with the Committee. When I became a Minister, I was told that of course there would be some duties in the House of Lords but that I should not worry about that. In fact, every effort would be made to reduce those duties to an absolute minimum. I came to the conclusion that most people in the other place had a very poor appreciation of what happens in the House of Lords and of the excellent work that this House does, particularly in revising legislation. That is particularly pronounced in the Treasury. When I became a Minister in the Treasury, I found that there was almost no institutional knowledge there about the processes of the House of Lords. The noble Lord has succeeded me as a Peer based in the Treasury, but you then have to go back 25 years to the noble Earl, Lord Caithness, to find the last Member of the House of Lords who was a Treasury Minister, and another 10 years before you come to Lord Cockfield, who was a GOAT in his own day, although not so described. The Treasury starts with a disposition that matters to do with the economy and finance should not detain the House of Lords. Therefore, the purpose of the amendment is correct in ensuring that the House of Lords is respected in the contribution that it can make by virtue of the breadth of experience represented on the Benches. I support the amendment.
Lord Barnett
When I was Chief Secretary to the Treasury, I could not care at all what the House of Lords was doing about Finance Bills, because it could not amend them. The noble Lord is quite right. My noble friend Lord Davies was my PPS for much of that time, and he knows that one place we did not care about was the House of Lords, because it could not amend our Bills.
Lord Peston
My Lords, perhaps I could take us back into the history of some of this. When what became the Bank of England Act 1998 appeared before us as a Bill, it had exactly the same fault that this Bill has in referring to the House of Commons as the House that would look at the Monetary Policy Committee of the Bank of England. My noble friend Lord Barnett and I moved an amendment in a slightly different form from this one. It said, “delete House of Commons and insert Parliament”, and it was accepted. I did not know it at the time but that happened over the dead body of my right honourable friend the former Prime Minister and Chancellor. However, that went in. At the same time, we set up the sub-committee of the Economic Affairs Committee to look at the Finance Bills. As my noble friend Lord Barnett pointed out, we cannot amend Finance Bills, but the Clerk of the Parliaments wrote a definitive statement, which I hope the Minister has read, saying that there was nothing in Erskine May to prevent the House of Lords looking at Finance Bills. The House cannot amend them, so we set up the sub-committee of the Economic Affairs Committee to look at them. The House of Lords can look at the substance of Finance Bills—it can look at any bit of them, according to the Clerk of the Parliaments. That is the definitive view. However, it can only draw attention to certain considerations; it cannot amend. So that is the history.
The amendment in this context would do exactly the same thing. It would enable the House of Lords, in various ways, to involve itself in scrutinising the Office for Budget Responsibility, as my noble friend Lord Myners pointed out, but we would have no powers to order it to do anything at all. That is essentially the position of the House of Lords in making a contribution.
I think I may be speaking only for myself when I say that I have a certain amour propre for your Lordships’ House. I have been here a long time. In my younger days when I was an LSE student, I would have abolished it like a shot. When I got here, one of my noble friends said, “You were hardly here a day when you sold out, and you just love the place”. That has been my position for 23 years. I take a certain offence from the fact that the Bill does not include the House of Lords.
Lord Oakeshott of Seagrove Bay
I rise briefly strongly to support the amendment. The noble Lord, Lord Sassoon, might be pleased to know that I had the pleasure of serving under the noble Lord, Lord Peston, for several years on the Economic Affairs Committee and sub-committee and he was as peppery then as he is now, so it is nothing personal. It was a worthwhile committee. You need only look round this Room to see the range of expertise and economic distinction available in this House. I remember that there was a former Chancellor of the Exchequer and very distinguished economists of all sorts. I endorse the remarks of the noble Lord, Lord Myners, and thank him for engaging more seriously with this House as a Treasury Minister than we have had in the past. That committee was excellent, and it could do nothing but add to the quality of debate and economic governance in this country to pass this amendment.
Lord Eatwell
I have a couple of comments to make on the amendments. With respect to the engagement of my noble friend Lord Myners in the House, that was increased by the noble Baroness, Lady Noakes, from the other side, who kept him working hard.
On the remarks with respect to the charter, there is a good point. The Economic Affairs Committee of your Lordships’ House takes a long-run view on fiscal affairs, which is what you want to get into this charter. It is about the whole philosophy that the Government have talked about. In the examination of the Finance Bill by the sub-committee of the Economic Affairs Committee, there is tremendous expertise considering technical aspects of fiscal policy. To quote another example of involvement by your Lordships’ House, I had the privilege of serving on the pre-legislative committee on the Financial Services and Markets Bill, which was a committee of both Houses. It enormously improved the Bill before it got to the legislative stage and saved a lot of time in the House.
With respect to the charter, my noble friends and the noble Lord, Lord Higgins, have hit on an absolutely central and valid point. On the amendment referring to appointments, it might be a little cumbersome unless we put the two committees together. What if the two committees disagreed? It would all become rather messy, so I am rather agnostic on that. The key amendment is Amendment 35. My noble friends have spotted an obvious oversight in the drafting of Schedule 1. Of course, the OBR should provide evidence to the relevant committees of both Houses. I am referring to evidence that is within the terms of its remit as defined in the Bill. If it is independent, it should be shown to be such by providing evidence in that way. We ought to have the word “reasonable” here so that reasonable requests for attendance can be made. After all, the OBR is rather small, and it cannot be attending things all the time. Whether the drafting is appropriate, I am not sure, but it is an entirely sensible point that when necessary the OBR should appear before committees in your Lordships’ House.
Lord Brooke of Sutton Mandeville
My Lords, I apologise to the Committee if I have acted improperly by rising after the noble Lord, Lord Eatwell. I tried before.
The noble Lord, Lord Higgins, and I at different stages in our lives were Treasury Ministers in different Administrations under different Prime Ministers. Both of us served for several years. Before that time, I had the privilege of serving as a Back-Bench Member on the Finance Bill when the noble Lord, Lord Barnett, was Chief Secretary. There is symmetry here with my first experience of the noble Lord as a tutor on the Finance Bill because he was extremely scathing about the first group of amendments that I tabled. My noble friend Lord Lawson of Blaby had to rescue me and explain that there was more to my amendments than the noble Lord, Lord Barnett, was suggesting. However, the reason why there is symmetry with this moment in the Grand Committee’s affairs is that the second time I moved amendments, which was the very next group, the noble Lord accepted them with enthusiasm, which was extremely good for a young pupil. We have just experienced everyone being mildly upset with my noble friend the Minister, but it is just possible that everything will be set right by what he has to say.
Two of my noble friends on this Grand Committee, as Conservative Peers, have taken opposite views of these amendments. Obviously there are things to be said on either side. I am going to extend the Minister the courtesy of listening to him, not least because that also seems to me one of the purposes of Grand Committee.
Lord Sassoon
Oh dear! Where do I start? I should say—because I genuinely mean it—that it is important to have full and appropriate scrutiny in your Lordships’ House of what the OBR is about. However, we must be careful. I do not want to be too hidebound by some inappropriately narrow interpretation of propriety and convention, but I think that we need to be careful about the balance between achieving full scrutiny here and not crossing inappropriate lines. We need to remember that there are a lot of important provisions in the Bill that will enable scrutiny by Parliament as a whole, so the Budget Responsibility Committee will indeed be available for Select Committee scrutiny. Its forecasts and very full analysis, which we have discussed at some length, will be laid directly before both Houses. On funding, there will be separate reporting of the OBR’s expenditure in the Treasury estimates presented to Parliament, and of course there have already been quite a number of Written Questions. The noble Lord, Lord Myners, does not always like the way that I reply to his Questions, but perhaps if he would cut them down from six to one a day, I could focus even more attention on providing him with a really good Answer. However, as he knows, Questions that he and other noble Lords send in which relate to the OBR’s responsibilities always get passed on to the OBR.
Lord Myners
I shall bear that in mind. If the Minister is struggling to keep up with his work, I will obviously make an effort to lighten the burden on him. However, I hope that he makes a serious effort to answer Written Questions. There are some examples in Hansard today which are so far from the mark in terms of attempting to answer the Question that they treat the House with a disregard which is inappropriate.
Lord Oakeshott of Seagrove Bay
It is not just under this Government that that has been happening; it is a problem with the Treasury generally, although it has been happening particularly under this Government. If the Treasury made a bit more effort to answer Questions honestly and fully the first time, we would not need to ask them two or three times. It is a bad problem.
Lord Sassoon
I had not intended to go down this interesting byway, but there has been a singlehanded contribution by the noble Lord, Lord Myners, to a considerable increase in the number of Written Questions. I am very happy to give him the figures, although I do not have them to hand. The number of Questions for Written Answer that the Treasury has had to deal with in the past six months has been significantly above the figure that previous Ministers in the Treasury—principally the noble Lord himself—have had to face. Nevertheless, our record on answering Questions on time has improved dramatically, and I am very happy to supply the noble Lord with the data. I am conscious that we are scheduled to go on for only another 35 minutes, so perhaps we should go back to the Bill. However, with regard to answering Treasury Questions, I am happy to discuss the relative performance of this Parliament compared with the previous one if it would interest the noble Lord, although I shall do so on another occasion.
We want plenty of scrutiny in this House. Clauses 1(4), 1(6), 2(3) and 8(2)(b) all confirm that the OBR’s reports will be presented to the whole of Parliament, not just to another place. I will return specifically to the question of committee scrutiny, but it is important that the Economic Affairs Committee of your Lordships’ House should have, and will have, responsibility for whatever it thinks appropriate in considering economic and fiscal issues, including those that relate to the OBR. However, I do not believe that any of the amendments in this group are necessary to achieve that.
When it comes to the relatively narrow but important point on formal approval of the charter, perhaps this will not surprise noble Lords, but I very much lean towards the argument of my noble friend Lady Noakes, because, critically, the charter contains the fiscal mandate, which I believe should be properly considered in another place, rather than here.
Lord Peston
Is the noble Lord actually saying that the definitive view of the Clerk of the Parliaments is mistaken? The Clerk of the Parliaments states categorically that this House can look at fiscal matters; end of story. Why is the Minister taking the view that he is taking?
Lord Sassoon
I have made it completely clear that I think it is absolutely appropriate and important that this House considers fiscal and economic matters; and within the framework of the Bill there are opportunities to which I have specifically drawn attention, whether they are on the Floor of the House or in the Economic Affairs Committee. I am not for one minute challenging the ruling, but that is a different proposition from the specific proposition that this House should be responsible for voting on the adoption of the charter, which has within it a specific mandate that is in the province of another place. That does not cut across the absolute right that this House must have, whether in full session or in a committee, to consider fiscal matters, and I have drawn attention to four references in the Bill where that is made completely clear. That is different from the question of the approval of and voting on the charter, which contains the mandate. That would be straying into territory into which this House should not stray, as my noble friend Lady Noakes has said. The same principle held under the previous fiscal policy framework. I am not saying that just because something was held previously it should necessarily mean that it should always be right, but it is important in this context to remind ourselves that the code for fiscal stability, which the charter replaces, was approved and subject to amendment through a resolution in another place; and the fiscal targets set through the fiscal responsibility—
Lord Turnbull
Perhaps I may suggest a way through this. One of the problems is that the action in subsection (7) could take place before the House of Lords has had a chance to comment on it. There is not even a right of consultation and no right even for noble Lords’ views to be heard before the House of Lords votes. If the Minister wants to retain the ultimate right of decision, something may perhaps be done about the sequencing, whereby the decision does not take place until the Economic Affairs Committee or whoever has had a chance to consult on this matter. That would enshrine the right to involvement, but would not give the House of Lords a right to decide in areas where you do not think it should have that right.
Baroness Noakes
My Lords, I do not like to be in disagreement with the noble Lord, Lord Turnbull, as I seem to be on all things today, but this is wrong. We are allowed to look at finance Bills and the Clerk of the Parliaments has said that we can look at fiscal matters. We are allowed to examine and report on finance Bills but we have no right to influence the outcome. We have no vote on it and it is for the committee in this House to ensure that it produces something in good time for the other place to take it into account. That does not have to be written into law.
To take the issue of the charter, it is obviously available in draft. There is nothing to stop the Economic Affairs Committee of your Lordships’ House from taking a view, but it is the responsibility of that committee to make sure that it produces its report in good time for it to be considered by the other place before any decision is made. Any decisions are the competence of the other place and it is not normal to write in a consultation between your Lordships’ House and the other place.
Lord Sassoon
I am grateful to my noble friend. Clearly, whether it is comments from the EAC or the comments that we have already had today—we will no doubt get more as we consider this Bill—as any comments come in on the charter, we will listen. We are very willing to take them in any form. I am not sure whether there is a way to accommodate another formal sequencing of comments, but we are absolutely open to comments and the charter has already been out there in public for a week.
It is also worth mentioning that the Delegated Powers Committee of your Lordships’ House has looked at all the delegated powers in the Bill, including the provisions for the charter to be approved in another place. It is perhaps worth reminding ourselves that that committee said:
“There is a very full memorandum for the Committee from H.M. Treasury which covers all of the delegated legislative powers and also some other powers of an administrative character. There is nothing in the Bill to which the Committee wishes to draw the attention of the House”.
That is an important and considered view from our guardians of delegated powers. I take the point from the noble Lord, Lord Turnbull, that we should not lose any opportunity to get comments on the draft. I hope that I have reassured noble Lords that we absolutely see the Economic Affairs Committee and the House itself continuing to take a broad interest and to play a part in holding the Government and the OBR to account on this framework but, on this precise point, we must be careful not to stray over the line of constitutional propriety in a way that was certainly enshrined in the previous fiscal arrangements.
I should say one or two things about Amendment 8. The noble Lord, Lord Eatwell, described it as “cumbersome”. I was not going to use anything quite so direct but he goes to the heart of the point. Clearly, Parliament plays an important role in scrutinising the appointment of the chair of the OBR and other members of the BRC. I think that we have gone further, in that respect, than in any other appointment processes. However, whether it is because it is cumbersome or simply goes a step further than is necessary or appropriate, we believe that the Treasury Select Committee is the most appropriate means to exercise that scrutiny, given the nature of the body.
I do not want to labour the point, but we must remember that the chair and other members of the BRC may appear before the Economic Affairs Committee to discuss the work of the office. From a government perspective, I would welcome the scrutiny of the EAC, but I think it is right to preserve the role of the Treasury Select Committee on, specifically, the appointment.
This links with Amendment 35, the final amendment in this group, which requires that OBR members must appear before or provide evidence to the Treasury Select Committee or the Economic Affairs Committee of your Lordships’ House when requested. To restate the point, I agree with the principle of the amendment, but my understanding is that the power to summon individuals to give evidence to parliamentary committees is already in the Standing Orders and that is the way that we customarily leave it. This amendment would place in statute arrangements relating essentially to the internal procedure in the House, and I believe they are not matters that it would be appropriate or necessary to put in the Bill.
This group of amendments helpfully draws attention to the important role of this House in scrutinising critical aspects right across the OBR’s remit. That is important in the context of, particularly, the EAC’s ongoing role in broader economic policy-making. There is nothing in the Bill that constrains that, but we should not stray over the line in the one rather narrow element that some of these amendments relate to. It is not necessary to enshrine in the Bill matters that are customarily dealt with through the Standing Orders. I hope that I have sufficiently answered noble Lords’ concerns on these issues and explained how we think that the proper role of the House is very much enshrined and that the amendment will be withdrawn.
Lord Peston
On Amendment 35, is the Minister saying that he is absolutely confident that, within our normal arrangements, this amendment is not needed because it would be inconceivable for the office to refuse to appear before the Economic Affairs Committee of your Lordships’ House on the grounds that it was none of its business? Is he saying categorically that he knows that it could not refuse—to use my noble friend Lord Eatwell’s word—a reasonable request from the Economic Affairs Committee to appear before it? Is he absolutely certain that is so, because the amendment went down to get a reply that said it is not needed?
Lord Sassoon
My clear understanding is that the Standing Orders absolutely give all the necessary authority to committees of this House to summon members of the OBR, just as they summon other people to appear before them. I see no let or hindrance particular to the OBR.
Lord Higgins
My Lords, the Minister is absolutely right that Amendment 38 is not necessary, but his reply was otherwise somewhat disappointing. We will, no doubt, wish to consider that, particularly the reference to the Delegated Powers Committee, before the next stage of the Bill. In the mean time, I beg leave to withdraw the amendment.
Lord Higgins
“( ) The Treasury shall not make economic forecasts covering the same areas as those of the Office for Budget Responsibility.”
Lord Higgins
In moving the amendment, I think that it would be helpful to discuss Amendments 21, 33 and 38. I shall dispose of Amendment 38 immediately as it is rather oddly grouped with the other amendments. It refers to leaving out “paragraph (c)”. That part of the Bill says that the OBR must,
“publish the report … lay it before Parliament, and … send a copy of it to the Treasury”.
I tabled the amendment as it seems rather absurd if the office has to publish and lay the report before Parliament that it should need to send a copy to the Treasury. We could make a substantial saving in public expenditure on postage by eliminating that and I hope that my noble friend will accept that amendment.
Amendments 7 and 21 take a diametrically opposed view to that expressed by the noble Lords opposite in Amendment 33. Amendment 7 states:
“The Treasury shall not make economic forecasts covering the same areas as those of the Office for Budget Responsibility”.
There is a case for including that in the Bill because, otherwise, after going through all the expense of the OBR, we will find the Treasury still duplicating it unnecessarily. I hope that my noble friend can accept that amendment.
Amendment 21 is an important amendment dealing with the forecasts and suggests that we should insert,
“which are agreed with the Bank of England; the agreed forecasts will then be used both by the Treasury and the Bank of England”.
If our economy is not to be managed in a totally schizophrenic manner between the fiscal and monetary side of things, it would be quite absurd if the two bodies will not use the same forecasts. Otherwise we are bound to end up with a situation where monetary policy goes one way and the forecast on which the decisions are based may be quite different from that of the Office for Budget Responsibility. That seems an eminently sensible suggestion. It is categorically contradicted by the amendment in the name of the noble Lords, Lord Peston and Lord Barnett, which says that the,
“Office must always act independently of the Monetary Policy Committee of the Bank of England, especially in regard to its forecasts”.
I do not think that the Bank of England can have one set of forecasts and the Treasury another without there being some risk that economic policy is in conflict between monetary and fiscal policy. I beg to move.
Lord Turnbull
My Lords, I speak almost in direct contradiction to the noble Lord, Lord Higgins. The current draft of the fiscal framework says:
“The Government intends to adopt the OBR’s fiscal and economic forecasts as the official forecast of the Budget Report. The Government retains the right to disagree with the OBR’s forecasts and, if this is the case, will explain why to Parliament. The Treasury will continue to maintain the necessary analytical and macroeconomic expertise to provide on-going advice to the Government”.
I would say that that is absolutely spot on and what the relationship should be. Treasury Ministers have the ultimate accountability and should, if they feel it essential, be able to state their view and then justify it in a very important area, which is different from monetary policy. They take fiscal policy decisions; they do not take monetary policy decisions. This is the correct formulation and I hope that it will be supported. The Treasury will, of course, need to maintain a separate apparatus. If the entire forecasting apparatus were transferred to the OBR it would be necessary for the Treasury, for all sorts of other purposes—if only to answer questions from Parliament—to retain some apparatus. Then you would get unnecessary duplication.
On the question of whether the Bank and the OBR should agree a common forecast, it is surprising that someone from the Conservative Party is suggesting a monopoly. I think that the element of competition is important and, if the two forecasts differ, we ought to know why. Parliament, the EAC and its equivalent committee, the Treasury Select Committee, should examine why the two bodies have different views, rather than try to suppress them and coerce them into some kind of lowest common denominator. Therefore, I am not attracted at all to this group of amendments and I think that paragraph 3.7 of the draft charter is exactly where we should be.
Lord Newby
I almost agree with the noble Lord, Lord Turnbull, but it would strike me as slightly odd if at this stage, when the office is being established as the definitive independent forecaster on which the Government are going to base their actions, the Government retained the right the disagree with the OBR and carry on as though it did not exist. In terms of the central forecast, it would be a bit like having a dog and barking yourself. Perhaps the Minister can give us an example of a circumstance in which the Government envisage they might invoke that right.
Baroness Noakes
I do not quite agree with my noble friend Lord Higgins on this. In particular, the prohibition in Amendment 7 on the Treasury making economic forecasts does not appear realistic. I know that we are concerned that there will be a recreation of the functionality that has now been transferred from the Treasury to the OBR, but the plain fact is that the Treasury has to consider whether to accept the forecasts. It may wish to disagree and, if it cannot do its own forecasts, how is it going to deal with that position? This is a very difficult area but I do not think that it would be right to legislate in this way.
My noble friend’s Amendment 38 made me look at Clause 8. This is a small point but I should be grateful for my noble friend’s comments. He suggested that the OBR need not send a copy of its report to the Treasury. Can he explain how this quango lays a document before Parliament? Does it not normally go through a government department to Parliament? It was always my understanding that documents were laid via Ministers, although I may be wrong.
Lord Higgins
Perhaps I may intervene for a moment before the Minister replies. Amendment 21 suggests that there should be a discussion between the Bank and the Treasury to agree the forecast. The noble Lord, Lord Turnbull, says that we want competition and so there may be two separate forecasts. That is fine but the two ought to be reconcilable, and in any event there should ultimately be a set of agreed forecasts which form the basis for the Government taking action. I do not think that you can have one set of policies on the monetary side being made on the basis of one forecast and fiscal decisions being made on the other. So far as concerns the point made by my noble friend Lady Noakes, it seems that the whole object of this exercise is to say that the Treasury shall not have its own forecasts and that the forecasts should be independent. However, I look forward to hearing what the Minister has to say.
Lord Barnett
I do not agree with the noble Lord, Lord Higgins, on Amendment 21 because I do not see why the Treasury and the Bank of England should necessarily agree. Perhaps I may make one or two points about the previous replies that we have heard from the noble Lord, Lord Sassoon. He said that amendments are unnecessary because the powers are already in the Bill. Although they are unnecessary, equally one could say that accepting the amendments would do no harm to the Bill, as they would only be repeating what is in the Bill. He also made the case for reserving the power for the Commons—at least he has given us a reason for rejecting an amendment. I disagree with him. I reserve the right to consider the matter on Report because I see no reason why the House of Lords should not consider these matters.
Lord Eatwell
The amendments raise in different ways an important issue in relation to the draft charter. The noble Lord, Lord Turnbull, drew attention to paragraph 3.7, which states:
“The Treasury will continue to maintain the necessary analytical and macroeconomic expertise to provide on-going advice to the Government”.
That sounds perfectly sensible. However, it goes to the heart of the rather grey area of what OBR independence means that the same paragraph should declare:
“The Government intends to adopt the OBR’s fiscal and economic forecasts as the official forecast for the Budget Report”.
Indeed, according to the draft charter:
“The OBR’s forecasts are essential inputs to the Government’s ongoing policy-making”.
And yet, the Government retain the right to disagree. I can see that the Government can maintain the right to disagree with anybody, especially with an independent body—which the OBR is supposed to be—but I do not then see how they can adopt the OBR’s fiscal and economic forecasts as the official forecast for the Budget report. They cannot adopt something with which they disagree as the official forecast; it just does not work. They cannot have it both ways; it is nonsensical.
It is obvious that the OBR will need to work closely with staff at the Treasury and other government departments in developing costings. That is why we should expect consistency between the OBR’s forecasts and those used by the Treasury—after all, they have worked together to bring them to fruition. They are the crucial decision variables. In his foreword to the forecast document that we discussed in the Chamber today, Robert Chote thanks government departments for providing the decision variables which have gone into it. The OBR is in essence a rather peculiar body. It is not really a non-departmental public body; it is a Treasury non-departmental public body which plays a crucial role in the development of policy. As paragraph 3.7 of the charter precisely states, it is the “official forecast”. I do not understand how the Government can disagree with the official forecast. They can disagree with the OBR, for example, when it takes a punt in describing some scenarios, as it does in the charter, but how can they disagree with the official forecast?
I cannot see why there is a need to require consistency between forecasts put forward by the Treasury and those put forward by the Bank of England. The noble Lord, Lord Turnbull, referred to competition between forecasts. I would take a rather different view and say that to require consistency would endow forecasts with spurious precision, whereas there are number of judgments in forecasts which are worth discussing in the context of the formation of economic policy.
The underlying point is that the OBR is distanced from official policy-making to a degree that was not possible in the past. That is an achievement of which this Government should be proud. But to describe the OBR as “independent” is an exaggeration. It is useful for propaganda purposes, but it is not credible to grown-ups, because it has to be involved in policy-making. There is a degree of independent methodology but not really of judgment, which is a different dimension. The Minister has to answer the following question: how can there be an official forecast with which the Government then disagree?
Lord Sassoon
Let me start with the easy end of this. Some important points were raised, not least the crucial point raised by the noble Lord, Lord Eatwell. I am very grateful to the noble Lord, Lord Higgins, for trying to save postage—we do look at every bit of possible wastage around government. However, on the point that my noble friend Lady Noakes raised, the construct here is that in Clause 8(2) the OBR is required to lay its reports before Parliament, and that means directly. So it is probably worth the price of a postage stamp or somebody pressing an electronic button, or whatever one does these days, to ensure that, given that this is an independent body, it does not forget to send a courier round to the Treasury as well. That is probably a failsafe that we should have in there.
On the nub of the questions around the linkage of the forecast to the Treasury and the linkage between the forecasts of the OBR and the MPC, the noble Lord, Lord Turnbull, kindly drew our attention to paragraph 3.7 of the charter. That is the critical one. In the first sentence it says:
“The Government intends to adopt the OBR’s fiscal and economic forecasts as the official forecast for the Budget Report”.
That is the Government’s intention, but the charter continues by saying that the Government,
“retains the right to disagree with the OBR's forecasts”.
Lord Eatwell
Will the Minister clarify this for me? Is he saying that while the Government intend to accept the OBR’s forecast, they may actually reject it? Is that what he is saying here?
Lord Sassoon
I would not express it in quite those terms. It is absolutely the intention and the expectation that the Government will adopt the forecast in all but the most extreme circumstances. In answer to the challenge of my noble friend Lord Newby, it would be wrong to start thinking about hypothetical contexts. It is right, and it is the intention of the construct of the Bill and the charter, as the noble Lord, Lord Turnbull, explained it—and I agree with him that this is the appropriate construct—that ultimately the Minister directly accountable to the electorate and Parliament should retain the discretion not to use the OBR’s forecasts. That should be only a fall-back situation that needs to be legislated for. It is ultimately a decision that must be made by a Minister who is directly democratically accountable as part of the Government, as I hope we would agree, because it is so critical to underpinning economic policy. That does not change the fact that the OBR will be responsible for producing the official forecast or that the Government expect that there will be circumstances in which they disagree with the forecast. Nevertheless, it is entirely appropriate that that failsafe is allowed for and, in those circumstances, the Chancellor of the Exchequer will have to make the nature of the disagreement absolutely clear to Parliament. It will be completely transparent and the Chancellor should answer that question. That is exactly what we intend to have, but that does not mean that we are taking the OBR’s forecasts in any way lightly; it is a failsafe mechanism ensuring appropriate parliamentary and ministerial accountability.
There was one thing on which I may have misunderstood or misheard the noble Lord. He may have said in passing that he believed that the construct made it necessary for the OBR to be involved in policy-making. I see the noble Lord indicating that he did not say that. Good. Our construct means that the OBR absolutely is not involved. Just to be clear, it should not be involved in policy-making, and that is linked to why, at the end of the day, the Chancellor must have the right in extreme circumstances to disagree.
Lord Eatwell
Just to clarify, the point that I was trying to make was that the charter states that the OBR plays an important role in policy-making by providing forecasts and other estimates. In other words, those forecasts and estimates are part of the toolkit for making policy, but the OBR does not itself make policy decisions. That is what I meant to say.
Lord Sassoon
I am grateful that we have got that clearer. I should move on briefly to the question of whether it would be appropriate to align the forecasts of the OBR with those of the Monetary Policy Committee. Again, I am very much with the analysis of the noble Lord, Lord Turnbull, on this. It is worth mentioning what Robert Chote, the OBR chair, said on this subject. He made it clear during the hearings of the Treasury Select Committee that, as he sees it, the OBR and the Bank of England are independent bodies and each needs to make its own judgments for its own reasons. I completely agree, but he went on to say that he recognised that it would be valuable for the Bank of England and the OBR to have regular exchanges of views about areas of common interest. I expect that the OBR will exchange views with a range of organisations and individuals and, when introducing its document today, the OBR made it clear that in this first document it had met a range of organisations and individuals. In that context, of course, I would expect the OBR regularly to talk to the Bank of England, and each would be very interested in the other’s approach to these matters. However, it is critical that at the end of the day the OBR acts independently of the Monetary Policy Committee, of the Treasury and of all these other fine forecasting bodies.
These are important matters, and I hope that I have clarified the intention of the legislation in these areas. However, I believe, as do the majority of noble Lords who have spoken, that the OBR’s forecasts must ultimately be independent. Therefore, I ask my noble friend to withdraw his amendment.
Lord Higgins
My Lords, it seems to be still absolutely clear that having monetary policy based on one lot of forecasts and fiscal policy based on a different set of forecasts is likely to turn out to be very bad news indeed.
Secondly, on the question of whether the official forecast is to be predominant—a point that the opposition Front Bench made—it seems to me that the whole fanfare at the original press conference was saying, “No more fiddling figures by the Government or the Treasury—we will have a totally independent forecast”. Now we are told that it will be an independent forecast, but that the Government, if they do not like the OBR’s figures, might perhaps produce their own. I fail to see the point of the entire exercise if this is so. We will no doubt wish to return to this later, but, meanwhile, I beg leave to withdraw the amendment.
Lord De Mauley
My Lords, this may be a convenient moment for the Committee to adjourn until Wednesday at 3.45 pm.
House of Lords
Palace of Westminster
Lord Haskel
To ask the Chairman of Committees what is the condition of the building structure of the Palace of Westminster.
The Chairman of Committees (Lord Brabazon of Tara)
My Lords, as your Lordships would expect with a building as old and heavily used as the Palace of Westminster, there are some very significant maintenance issues which require considerable investment. The Parliamentary Estates Directorate is in the process of formulating a 25-year strategy to address these challenges. The most pressing problem is that the mechanical and electrical systems are in a poor state of repair, which is why we have embarked on a five-year programme of “aggressive maintenance” to mitigate the most serious equipment failures. At the same time, investigative studies are taking place to scope the longer-term programme of works.
Lord Haskel
My Lords, I thank the noble Lord for that reply. Is he aware that on the odd occasion when I have seen him in conversation with worried-looking officials, it has normally been about the state of the building? As we spend an awful lot of time here, can he tell us what is the state of the walls, the foundations and, in particular, the roof?
The Chairman of Committees
My Lords, the walls and foundations are in reasonably good condition. If I look worried, it is largely because of the mechanical and electrical programme which I mentioned in my Answer; that is a serious programme. As for the roofs, noble Lords will be aware that the first phase of replacement of the cast iron roofs has taken place down at Speaker's Court end, and the scaffolding is now being removed. That is the first phase. We need to take stock of the results of that work before we move to the next phase, which will be the south return—down that end of the building. Unfortunately, the results of the work on the first phase have been more difficult than we had anticipated. We had anticipated that about 10 per cent of the roof tiles would be good; as it turns out, in some places, nearly half have had to be replaced.
Lord Trefgarne
My Lords, although what the noble Lord has described is no doubt essential, can he give us an indication of what it is all going to cost?
The Chairman of Committees
My Lords, I can give the House an indication of the cost of the first phase of this program for M&E, which is budgeted at £69 million to go to 2015. After that, it is anybody's guess.
Viscount Montgomery of Alamein
Turning to a different aspect of the building, can the noble Lord tell us what is happening about the cellars, because they have historically—especially 400 years ago—been the source of trouble? Perhaps there may be some special interest there.
The Chairman of Committees
My Lords, I hope that the cellars will no longer be a source of trouble. Of course, it was not this building where that happened, it was its predecessor. The cellars are now crammed full of old pipes, wiring and, in particular, asbestos, of which there is a lot. All that is having to be dealt with.
Baroness Sharples
Will the noble Lord please comment on the heating system in the House?
The Chairman of Committees
My Lords, first, I am well aware that there have been problems with the heating in various parts of the building. I hope that your Lordships will agree that it is better today than it was last week—particularly in the Chamber. It is a major problem with an old building such as this that a lot of the hot air that we produce in this House leaks out through doors, and so on, being left open. We are conducting serious work on this. We have someone looking around the place to see where the main causes of trouble are.
Lord Berkeley
My Lords, can the noble Lord confirm that the roofs of the Chamber and the Royal Gallery were replaced about 10 years ago? I recall a committee on which I was sitting going up and being shown the new or refurbished tiles. They haven’t gone wrong again, have they?
The Chairman of Committees
Certainly as far as the Chamber is concerned, the ceiling was replaced some years ago when one of the things fell down. I was in the Chamber when it happened and we had to move into the Royal Gallery for a shortish period. As for the roofs, I am not aware that the actual roof tiles were changed at that time.
Viscount Falkland
My Lords, can the Chairman of Committees give some comfort to our admirable curator’s department which, because of the many valuable pictures in the Palace, is on a constant state of alert for water coming into the building? The water usually comes in at this time of year, normally as a result of bad repairs to the original structure, which was obviously of a much higher standard than the repairs.
The Chairman of Committees
I am aware that there have been problems particularly above the Royal Gallery, where the gutters, which are extremely difficult to get at to keep clean, have sometimes caused water to come in and go down the walls of the Royal Gallery and possibly damage the paintings there. It is something that we keep constantly under attention. We also employ birds of prey to deal with the other birds which make a mess.
Baroness McIntosh of Hudnall
My Lords, can the Chairman of Committees tell the House what will be the impact of the two Houses sitting during September on the necessary programme of works, given that the House authorities have historically been able to count on a long period to get some of these essential works done? In particular, can he say whether this is likely to have a detrimental effect on the costs?
The Chairman of Committees
My Lords, a September sitting does incur additional works expenditure because of the need to accelerate or delay individual projects. The extra costs involved will, of course, vary each summer depending on the proposed schedule of works. Last summer, we estimated that a September sitting in the House of Lords would have added approximately £1.3 million to the cost of shared and Lords-only projects. Those concerned were made aware of those figures.
Lord Stoddart of Swindon
In the light of the need for an uninterrupted run of work, particularly on engineering and electrical works, is it not unfortunate that the House has been called to sit in September 2011, which will of course interrupt that essential work?
The Chairman of Committees
My Lords, I rather think I just answered that very question for the noble Baroness. I do not think that I have any more to add to what I have just said.
International Aid
(14 years ago)
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Lord Sheikh
To ask Her Majesty’s Government what proportion of the United Kingdom’s international aid budget is currently spent through international bodies; and whether they have any plans to change this proportion.
Baroness Verma
My Lords, I thank my noble friend for asking the Question. I know that he shares a great interest in overseas development. In 2009-10, 62 per cent of DfID’s aid budget was spent through multilateral organisations. This includes funding at headquarters level and support for particular programmes and projects at country level. The Government are currently reviewing their bilateral and multilateral spending in order to maximise effectiveness and value for money. These reviews will determine the future shape of our aid budget in terms of how much funding we provide to different countries and international organisations.
Lord Sheikh
My Lords, I thank the Minister for that response. Is she satisfied that these multilateral bodies to which we contribute are assiduous in ensuring that we gain value for money as a result of the contribution made? What more can be done to guarantee that our foreign policy priorities are reflected in the distribution of funds through this mechanism?
Baroness Verma
My Lords, multilateral organisations have strong controls in place on financial accountability and transparency. The UK, as a shareholder, has helped to shape these controls and we work hard to monitor effectiveness of multilateral expenditure. The ongoing multilateral aid review is assessing the overall effectiveness of organisations. Each multilateral organisation has its own mandate designed to address a specific challenge. The review is also looking at the relevance of each organisation to the UK’s objectives.
Baroness Kinnock of Holyhead
My Lords, does the Minister agree that the European Commission has made significant progress on aid effectiveness and transparency? Does she also agree that the budget support, which the Commission gives directly to developing countries, makes a huge difference to their ability to meet the MDGs and to provide predictability and long-term funding?
Baroness Verma
My Lords, I agree with much of what the noble Baroness has just said. Some 56 per cent of the world’s ODA is provided through the EU and 43 per cent of the European Commission’s overall budget goes to low-income countries. The EU also supports middle income countries, where 75 per cent of the world’s poor live. The effectiveness of EU aid has increased steadily over the past 10 years. It is now faster, more flexible and more predictable. Over the past five years, EC aid has helped 9 million children to enrol in primary education and 31 million households to access better drinking water.
Lord Waddington
Does my noble friend agree that the EU’s involvement in overseas aid is the worst possible example of EU empire building? Is it not quite absurd that we should hand over money to Brussels to be laundered there? A considerable sum is taken out for the payment of the bureaucrats and then what is left is handed over to the recipients. Would it not be far better if all the aid went direct from the donor countries to the people who need it?
Baroness Verma
My Lords, what my noble friend refers to is an agreement with the previous Government under the Lisbon treaty. We did not agree with that, but unfortunately it is now in place and we will need to make it work. We will need to make sure that controls are in place. However, spending through the EU has its own management systems—the Internal Audit Service, the European Court of Auditors and the independent European Anti-Fraud Office.
The Countess of Mar
My Lords, does the noble Baroness agree that in African countries and other third-world countries agriculture is the primary source of income for a vast majority of their populations? What proportion of DfID’s spending goes directly on agricultural projects?
Baroness Verma
My Lords, the noble Countess is right. Some 75 per cent of the developing world’s poor—2 billion people—live in rural areas. The majority depend on agriculture to provide jobs and incomes. Agriculture has a key role to play in helping to meet the millennium development goal of halving the proportion of people in the world suffering from extreme poverty and hunger. Further allocations to agricultural programmes in each country will be determined after the bilateral reviews.
Lord Tomlinson
May I invite the noble Baroness to turn again to the question asked by the noble Lord, Lord Waddington, and stand up and say quite clearly to him that he is wrong?
Baroness Verma
My Lords, in my answer to my noble friend I think I answered what he asked.
Lord Lawson of Blaby
My Lords, does my noble friend recognise that although economic development is well intentioned the preponderance of academic studies have demonstrated that in fact it does more harm than good? Will the Government now reconsider allowing overseas development aid to increase substantially at a time when severe cuts are necessary in all other forms of public expenditure?
Baroness Verma
My Lords, I cannot agree with my noble friend. Development aid helps millions of people and even though we are going through difficult times ourselves, we will not save money on the backs of poor people.
The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, the noble Lord, Lord Lea, can speak and then the noble Baroness.
Lord Lea of Crondall
My Lords, it is interesting to see the dinosaur tendency coming out on this. Does the Minister agree that multilateral aid in a typical African country is far more effective than seven or eight European countries giving different views on auditing and different views on public expenditure generally?
Baroness Verma
My Lords, we will deliver aid through multilateral agencies as well as through bilateral programmes. However, as the noble Lord is aware, we are going through reviews to make sure that the money spent is best directed towards achieving better outcomes.
Baroness Falkner of Margravine
May I help my noble friend by congratulating her on this Government’s stance on international development? Are we going to continue to press for reform of the multilateral institutions, most notably the IMF and the World Bank, so that their recipients are the beneficiaries of better governance?
Baroness Verma
My Lords, my noble friend has raised a very good point. That is why we are determined that any money spent on aid, through both our bilateral and multilateral programmes, is reviewed and spent in the most effective way possible.
Legal Aid
(14 years ago)
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The Minister of State, Ministry of Justice (Lord McNally)
My Lords, on 15 November 2010 the Government published proposals for reform of legal aid, including social welfare law. We propose that legal aid be retained in the highest priority cases—in debt and housing when someone’s home is at immediate risk, for homelessness, and in cases involving serious disrepair. We will retain legal aid in community care cases. Under these proposals legal aid would no longer be routinely available in other social welfare law matters.
Lord Bach
My Lords, I thank the noble Lord for his Answer. I accept that savings have to be made in the legal aid budget, but why, in the Green Paper, are the Government so ruthlessly targeting social welfare law, particularly during a recession? There is to be no legal aid for welfare benefit advice, none for education advice, none for employment advice, and precious little for housing and debt advice. Sixty-eight per cent of the legal help scheme is to be cut. Does the Minister not understand that appropriate legal advice, given early, can and does help solve multiple problems, changes lives, and prevents huge social costs later on? If the noble Lord’s party were in opposition today, it would, and he knows it, oppose these proposals with all its might. Why will it not do the same today?
Lord McNally
My Lords, I think the noble Lord gives the clue to his question. As he said very honestly in his response to the original Statement a couple of weeks ago, when in government, the Opposition were planning cuts in legal aid. Whenever one makes cuts, one has to draw the line somewhere, and the Opposition are rightly leaping to the defence of people on the wrong side of that line. We have made a decision in terms of making savings in the legal aid budget and we have done so in a way that we believe targets help to the most vulnerable.
Lord Thomas of Gresford
My Lords, over the past year, more than 300 specialist citizens advice bureaux caseworkers have dealt with 40,000 welfare benefit cases, 60,000 debt cases, 9,000 housing cases and 3,000 employment cases. These specialist CAB caseworkers have been paid for using legal aid funding. Will this continue?
Lord McNally
No, my Lords, but what is clear is that the citizens advice bureaux provide advice. The problem that we faced—and the previous Administration faced it too—is that legal aid is being used to cover a wider range of advice and help which can be better funded and supported in other ways. My honourable friend Jonathan Djanogly is having meetings with representatives of Citizens Advice in the next week. We will be looking at ways of helping citizens advice bureaux and other non-legal providers of advice.
Lord Elystan-Morgan
My Lords, will the Minister face the stark reality of the situation; namely, that there is little point in citizens’ fundamental rights being enshrined in statute if those rights cannot be upheld, where appropriate, in the courts of law? Does he recollect the studiedly sarcastic words of a High Court judge spoken 80 years ago? “The courts of this land are open to all, exactly the same as the Ritz hotel”.
Lord McNally
Yes, I am familiar with the quotation. The problem is that, in the 60 years since legal aid was introduced, its scope has increased considerably. Like the previous Government, we were convinced that as a contribution to cutting government spending we had to find ways of reducing the legal aid bill. I do not pretend that these are easy decisions, but as I said before, the difference between being in opposition and being in government is that you have to take those decisions. We have done so.
Lord Beecham
My Lords, has an estimate been made of the increasing number of people who will be compelled to seek support from advice agencies, including citizens advice bureaux but many others as well, as the result of the withdrawal of legal aid and advice for such a wide range of significant topics? Will the noble Lord indicate whether any estimate has been made of the increased funding that will be required to support those agencies? Will the Government be making provision for that extra funding?
Lord McNally
My Lords, we estimate that the proposals on civil and family legal aid might affect between 460,000 and 512,000 people.
The Earl of Listowel
My Lords, I welcome the early intervention fund set up by the coalition Government. Will the noble Lord consult his colleagues to see whether more can be done to intervene and assist families earlier so that fewer children are taken into local authority care? Does he agree that that would be an important way of saving money in this area of social welfare law?
Lord McNally
I will come to the second half of the earlier question, and I apologise for not answering it. This is precisely the thinking behind our proposals. Under what I will call the old regime of legal aid, far too many cases, particularly in the area of family law, were taken down the legal route. We believe that mediation and other forms of settlement would be far more effective. On the question of the not-for-profit organisations such as citizens advice bureaux and others that are going to be hit by the cut in legal aid, the Government are setting up a transition fund, the announcement of which will be made tomorrow. Affected bodies can apply to this fund. Moreover, as I have said, my honourable friend Jonathan Djanogly is having direct talks with representatives of Citizens Advice to see whether there are ways and means of helping them.
House of Lords: Elections
Lord Grocott
I am glad the noble Lord, Lord Taylor, has acknowledged that this secret committee, of which we know neither the agenda nor the minutes, is considering this matter. It would be nice if we could be told more about it. I would put it to him that the most crucial recommendation in the report of the Cunningham committee on conventions between the two Houses was this:
“Should any firm proposals come forward to change the composition of the House of Lords, the conventions between the Houses would have to be examined again”.
Given that the committee had its report unanimously endorsed by both Houses of Parliament—a pretty rare occurrence—is it not the clear responsibility of the Government to reconvene the committee or establish a similar committee so that this crucial matter of the constitutional impact of an elected House of Lords on the relationship between the two Houses can be debated publicly? It is the very least the Government should provide.
Lord Taylor of Holbeach
We will indeed be debating this and the whole issue of House of Lords reform when we have the report of the committee. The noble Lord may recall that during his debate I answered a question from the noble Lord, Lord Brooke of Alverthorpe, on exactly this issue. I suggested then that he was putting the cart before the horse. We need to see the shape of House of Lords reform, as proposed by the draft Bill, before we are able to consider how the conventions would fit in to that new House. To try to anticipate the reports of the committee would be a great mistake.
Lord Maclennan of Rogart
My Lords, does my noble friend recollect that the Government to which the noble Lord, Lord Grocott, belonged produced a White Paper following the report of the Cunningham committee? It indicated that the relationship between the two Houses that the committee had described would be fit for purpose unless the functions of the new elected House of Lords were changed. Can he say whether “this secret committee”, as referred to by the noble Lord, Lord Grocott, is considering functions as well as composition?
Lord Taylor of Holbeach
The functions of the House inevitably depend on its structure. It is a circular argument, is it not? I cannot imagine that the noble Baroness the Leader of the Opposition and my noble friends the Leader of the House and the Deputy Leader of the House would be sitting on this committee without engaging in the whole question of how this House functions and how its conventions would fit in with any reformed House. I can understand the impatience of the House to find out what this committee is producing but we need to have patience until early in the new year when the draft Bill comes before us.
Lord Cunningham of Felling
My Lords, I suppose I should declare an interest as the person who had the honour to chair the committee. Does the Minister not understand that the committee made it clear—and it and both Houses were unanimous on this point—that, based on the evidence given by the Clerk of the Parliaments and the Clerk of the House of Commons among others, if there was an elected Chamber the conventions governing the relationships between the two Houses were bound to be called into question by those in the second Chamber who had a mandate equal to that of those in the superior Chamber at present?
Lord Taylor of Holbeach
I thank the noble Lord for his concise précis of a complex report; it is exactly the basis of my arguments in answer to the Question. Of course the conventions will depend on the shape of this House following an election. As I said in answer to the noble Lord, Lord Grocott, the issue of the relationship between the two Chambers and the conventions on which it is based are being considered by the Joint Committee.
Lord Waddington
Does my noble friend agree that there would be no point in creating a new Chamber which could claim democratic legitimacy and then saying that it should have fewer powers than the existing House?
Lord Pannick
How can the conventions of the House be properly considered by the committee with no representation whatever on it from the Cross Benches?
Lord Taylor of Holbeach
This has been the subject of earlier questions and the noble Lord will know the answer: it is a cross-party committee and the Cross-Benchers are not constituted as a party. However, they add immeasurably to the value of the House and I am sure that all representatives of this House and the parties will be mindful of that fact.
Arrangement of Business
Baroness Anelay of St Johns
My Lords, immediately after the Business of the House Motion, my noble friend Lord Sassoon will repeat a Statement on the Autumn Forecast. The Grand Committee on the Budget Responsibility and National Audit Bill will commence five minutes after the conclusion of the Statement.
Business of the House
(14 years ago)
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15:54 - Division on Lord McKenzie of Luton's amendment to the Motion. - Ayes: 169 / Noes: 202 - Lord McKenzie of Luton's amendment to the Motion disagreed.
Lord Strathclyde
That Standing Order 46 (No two stages of a Bill to be taken on one day) be dispensed with on Tuesday 7 December to allow the Savings Accounts and Health in Pregnancy Grant Bill to be taken through its remaining stages that day.
The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, in light of the extremely unusual amendment in the name of the noble Lord, Lord McKenzie of Luton, it may be helpful if I say a few words to set out the Government’s position.
The Motion in my name seeks the agreement of the House to suspend Standing Order 46 on Tuesday 7 December to allow the remaining stages of the Savings Accounts and Health in Pregnancy Grant Bill to be taken formally immediately after Second Reading. This is necessary because Standing Order 46 prevents more than one stage of a Bill being taken in any one day. This is a perfectly standard Motion for a Bill that has been certified as a money Bill by Mr Speaker in another place.
The established practice of the House in respect of money Bills is to have a Second Reading debate and then to take the remaining stages formally. Why do we do this? Because the Parliament Act 1911 restricts the powers of the House of Lords in relation to money Bills. Under that Act this House has one calendar month to pass a money Bill without amendment. If it does not do so, the Bill is given Royal Assent without the agreement of this House. If this House passes amendments, the other place, quite properly, totally disregards them if it chooses to do so. This House does not normally go into Committee on a money Bill because there is no point and successive Governments have chosen not to waste the time of the House in this way.
With the agreement of the usual channels, the Government have set aside a whole day for the Second Reading debate next week. Ultimately, it does not matter whether the Motion of the noble Lord, Lord McKenzie is agreed to; it does not make any difference. We can amend the Bill, re-amend it or reject it outright, but it will become law anyway in exactly its current form. However—and this is the serious part—apparently, after 99 years of this House respecting both the spirit and the letter of the Parliament Act 1911, the Opposition feel that now is the time to change that. In nearly 100 years this House has never seen an opposition challenge to money Bill procedures under the Parliament Act. The House might forgive the noble Lord, Lord McKenzie of Luton, for inexperience in such matters if he were new to the Front Bench opposite, but until just seven months ago he was a Minister of the Crown. He and his colleagues know exactly how these things should work.
Only last week the House considered two money Bills. The Opposition did not see fit to challenge the certification of Mr Speaker on those Bills. The noble Lord even responded for the Opposition on one of them. There were no Motions on the Order Paper last week—those Bills were taken through their remaining stages formally, in the normal way, after a Second Reading, with the Opposition’s agreement—so the established practice of dealing with money Bills was perfectly acceptable to the Opposition last week, but not, it seems, this week. Indeed, it is even worse than that. The way in which this House deals with money Bills was perfectly acceptable to the Opposition when they were in Government. Between 1997 and 2010, this House considered a total of 64 Bills that were certified as money Bills by Mr Speaker in the other place. Over 40 per cent of them were in the last Parliament alone. We disagreed with many of these Bills; we felt that the financial policies of the party opposite would lead the country to financial ruin, as it almost did, but how many of these Bills were taken through substantive stages after Second Reading, or were subject to a challenge from the then Opposition on grounds of process? None at all. It was not seen as this House’s way of doing things, so why is it seen as the way for us to proceed now?
There is a feeling from this side of the House of, “Here we go again”. The Opposition are clearly set on continuing their procedural mischief-making. A clear pattern has emerged. Back in June we had a Motion to refer the Local Government Bill to the Examiners, two weeks ago we had a similar Motion on the Parliamentary Voting System and Constituencies Bill, today we have an unprecedented Motion on a money Bill, and tomorrow yet another unprecedented procedural Motion is due to appear on the Order Paper.
A few weeks ago I asked from this Dispatch Box whether the party opposite wanted to be a serious party of opposition, or whether it wanted to see the kinds of procedural ploys, wheezes and games that we see again today. The answer is becoming increasingly clear—the party opposite would prefer to manufacture time-wasting debates than to get on with the important business of the Public Bodies Bill on today’s Order Paper. They want to make this place like another place: a House that spends hour after hour on procedural debate. I have to tell the noble Lord that this vision for the House is not shared by the majority of noble Lords.
There is no issue, and there is no need to challenge the way in which this House deals with money Bills; this is nothing but an attempt at opportunism. I am sure that noble Lords will see it for what it is, and I beg to move.
Amendment to the Motion
Lord McKenzie of Luton
As an amendment to the above motion, to leave out from “that” to the end and insert “it is desirable that the Savings Accounts and Health in Pregnancy Grant Bill should go through its legislative stages in a timetable which allows this House to scrutinise the provisions of the Bill and allows both Houses to pass the Bill without recourse to enactment under section 1 of the Parliament Act 1911”.
Lord McKenzie of Luton
My Lords, the purpose of the amendment is to enable your Lordships to have a proper Committee stage of the Savings Accounts and Health in Pregnancy Grant Bill rather than just the usual, truncated process with, in effect, only a Second Reading, as proposed by the noble Lord, Lord Strathclyde. Indeed, I thought that the latter part of the noble Lord’s contribution was, frankly, unworthy. I had hoped that he would deal with the issue on the basis of the argument advanced. This is not a wheeze; it is not a ploy; it is not mischief making or opportunism. The amendment would require a timetable in which consideration of the Bill was concluded within one month of its introduction into your Lordships’ House, which in effect means by the time that the Commons rises for Christmas.
The Bill has been certified as a money Bill by the Speaker of the House of Commons. The amendment seeks not to challenge that certification but to deal with the consequences of the Bill’s being so designated. The noble Lord, Lord Strathclyde, said that we have not sought to do so in similar debates on recent Bills that have gone through your Lordships’ House. Indeed we have not—as he outlined, I participated in such a debate just last week—but this is a different Bill. We are trying to achieve a Committee stage only for the Bill before us.
The noble Lord rightly cited the Parliament Act, but the Companion says:
“If a money bill, which has been passed by the Commons and sent up to the Lords at least one month before the end of a session, is not passed by the Lords without amendment within a month after it is sent to them, the bill shall, unless the Commons direct to the contrary, be presented for Royal Assent without the consent of the Lords. This does not debar the Lords from amending such bills provided they are passed within the month, but the Commons are not obliged to consider the amendments”.
Why on earth the noble Lord seeks to pre-empt what we might do—whether the Bill might be amended if we had a Committee stage, and indeed what the Commons’ reaction to that might be—is a little strange. We do not see the Committee process as having no point.
The Bill will do three things: it will stop any further government contributions to child trust funds; it will end the savings gateway; and it will abolish the health in pregnancy grant. It was somewhat surprising to us that a Bill of this nature was designated as a money Bill, particularly given that the setting up of each of these arrangements was by way of separate primary legislation that included all the usual stages in your Lordships’ House. It was also a surprise to our colleagues in another place. A reading of their proceedings will illustrate their clear belief that there would be the opportunity to continue to advance the argument for some changes to the Bill at this end and, in so far as I can tell, the Minister, Mr Hoban, did not offer a contrary view.
The Bill’s being certified as a money Bill denies this House the full opportunity to bring its knowledge and experience to bear on major matters of social policy concerning poverty, family and child welfare and the health of pregnant women. I do not propose to speak in detail to the range of issues that might be raised in Committee, but I will say that that particularly denies the opportunity to develop and amend how the Bill impacts on looked-after children. For example, the position of looked-after children has been the subject of ongoing discussion, initiated by Paul Goggins MP, about the hiatus between the abolition of child trust funds and the promised introduction of junior ISAs. That is very much work in progress. The discussion, involving the Minister, recognised that looked-after children have only the state or their corporate parent to make the equivalent of parental contributions to these savings vehicles.
As we know, it is often the case that issues emerge during the consideration of legislation in another place. Amendments may be proposed, arguments advanced and rebuffed and then reconsidered and reformulated for consideration here. Knowing that there can be a second bite at the cherry—a chance for some reflection, challenge and consensus building—has proved an important element in improving legislation. We know that some stakeholders are particularly frustrated at knowing late in the day that the House of Commons was possibly their only chance to improve legislation. Noble Lords may have heard from Action for Children, Barnardo’s, the Zacchaeus 2000 Trust, Gingerbread and the Family and Parenting Institute. We are seeking the opportunity for the Bill to have a proper Committee stage so that those matters that some consider to be unfinished business can be properly examined. The rules allow it; we know it must be done expeditiously in order not to fall foul of the one-month rule; and we would co-operate in the timely scheduling of the Bill’s stages.
This matter raises a broader issue. As I have made clear, we do not seek to challenge today a certification of the Speaker, but we need to understand it and its possible future ramifications for our deliberations. We understand that this is a money Bill because, although the setting up of child trust funds, the savings gateway and the health in pregnancy grant were matters of policy, a parliamentary measure that only withdraws funding for them is a money Bill, notwithstanding the fact that removing funding involves prioritisation—and therefore policy changes—and will bring to an end these particular policy mechanisms. We fear that such designation paves the way for the Government to rely on the cloak of deficit reduction in a way that would deny your Lordships the opportunity fully to scrutinise swathes of policy, from the withdrawal of education maintenance allowance to changes to the benefits system. That would deny this House what it does best. This is a matter to reflect on both here and in another place.
For today, we simply ask to have the opportunity to have a proper Committee stage on a Bill that has significant social policy ramifications. If we cannot achieve even that, what hope is there for the future? Let me be clear that the amendment seeks not to challenge the Speaker’s decision—the amendment accepts the decision—but to apply to the full, and without expanding, the restricted opportunities available to this House when dealing with a money Bill. The amendment does not seek to frustrate the timetable of the Government. If we do not pass this Bill by Christmas Recess, the Bill will go for Royal Assent anyway. The amendment would not undermine the thrust of the Government’s deficit reduction plan, whatever our disagreement with that plan. This is about us—all parties and none—having a chance to input into important policy changes that will affect the lives of many young people and families. That is, after all, why we are here. I beg to move.
Baroness Hollis of Heigham
My Lords, I support my noble friend. I do not want to go over the ground that he has laid out on why, on this particular measure, he is not challenging the Speaker’s ruling that this is a money Bill, even though I find it very difficult to understand why a policy established by primary legislation requiring expenditure could then be revoked under the description of a money Bill. I say this because almost every piece of social security legislation could in future fall under the remit of being labelled a money Bill and therefore not available for debate or scrutiny in this House.
Let me give two examples, in which I suggest that this House has more experience and more to offer on this debate than most other agendas, and probably more than the other place. We know, for example, that there is a question over whether the mobility component for people in long-term residential care will be removed. In previous debates my noble friend Lady Wilkins and the noble Baroness, Lady Campbell, spoke passionately about that. Such a move would remove money resulting from a policy established in primary legislation back in 1992, by the then Government, which we all supported. Under this precedent, that could be labelled a money Bill, and notwithstanding the expertise of this House in disability matters, about which this House feels very strongly indeed, we would not be permitted to debate it. It not just about this House and about Parliament—hundreds of thousands of disabled people would be affected as a result.
In another example, a week or two ago I led a debate on housing. There were half a dozen of us on these Benches, half a dozen from the Lib Dem Benches, who made very powerful speeches, half a dozen from the Cross Benches, and one person, the noble Lord, Lord Brooke, from the Conservative Benches. We analysed forensically the issues associated with changes in housing, and I welcome the fact that the Government appear to be listening to some of those concerns. In future, if this is a precedent, nearly all those issues that we debated would be, and could be, classified as a part of a money Bill and not available for this House to discuss, explore, revise and, if necessary, to ask the other place to think again about.
This is extraordinarily dangerous. There is hardly any piece of government policy that does not involve expenditure. This means that, in theory, almost every piece of policy could be regarded as a money Bill and this House would be denied scrutiny of it. I have given just two examples from social security but it could affect a lot of local government funding as well. I hope that your Lordships will today accept my noble friend’s amendment; and that perhaps consultations could take place between the two Houses to make sure that the other House realises the seriousness of the precedent that could be set, and that we would be walking away from a major part of our responsibility to the public we seek to serve.
Lord Trefgarne
My Lords, I am not by any means the longest serving Member of your Lordships’ House but I have been here for 48 years. This is the first time in all of those 48 years that I have heard a challenge to the Speaker’s certification of a Bill as a money Bill. The amendment is quite inappropriate. It seeks to drive another coach and horses through our constitutional protections—so much a feature of the previous Government. The amendment should be quickly withdrawn.
The Earl of Listowel
As vice-chair of the Associate Parliamentary Group for Children and Young People In and Leaving Care, I find myself in sympathy with the noble Lord, Lord McKenzie of Luton. The interests of such children and young people need to be considered very carefully. I am concerned that so little time is being allowed to debate the impact of the Bill on these young people. I would grateful to learn from the Minister how it will affect the trust funds for children in care, established by the previous Government, and how the Minister plans to make up for any loss to young people leaving local authority care. Many of us have felt ashamed of our historic treatment of young people in local authority care. It is beyond any doubt that their interests have been overlooked. It was deeply gratifying to see the seriousness with which the previous Government took the welfare of this neglected group and it is encouraging to see the coalition sustaining this.
Ten years ago, only 1 per cent of young people in local authority care went to university. Recent research has highlighted that 8 to 9 per cent are now accessing higher education. That is still disappointing but it is a more than 800 per cent improvement on the past. The lesson is that many of these children can do far better in life than we have allowed. We need to be better at keeping their interests close to our hearts. Given their chaotic early experiences in their families, and often in care, it is vital to offer young people leaving care all the help we can as—we hope—they recover from this chaos and find direction for their lives. That is why the trust fund for children in care is so important to these young people. It helps some of them to make a fresh start and makes up in a small way for the fact that they are often left high and dry, without the support our own children would receive from us.
I support the noble Lord’s amendment. I understand the Minister’s predicament; there is no room for complacency about reducing the deficit. However, we have let these children down too often before by not placing their interests high enough in our priorities. I would welcome information from the Minister on what steps he and his colleagues may be considering to protect the interests of these children once this legislation is passed. A meeting to discuss this would be very welcome.
Baroness Butler-Sloss
My Lords, I have some difficulty in understanding the purpose of this amendment. I understand that the Leader of the House has told us that, regardless of what we do in this House, the other place has absolutely no need to take any account of us because this is a money Bill. If it were not a money Bill, I would have some sympathy with the noble Earl, Lord Listowel, and the speakers from the Labour Benches. However, since this is a money Bill, I cannot see what good we can do or why one day would not be sufficient to deal with all these matters. Everybody can—to use a colloquialism—sound off in one day totally effectively when we are dealing with a money Bill.
Lord Grenfell
My Lords, this is a very difficult situation. I am totally convinced that this is not a money Bill and it is disgraceful that it is being presented as such. However, we are faced with a different problem: the certification by the Speaker that it is a money Bill. I fully agree with my noble friend Lady Hollis of Heigham who says that this would set an unfortunate precedent. I fully agree with those who say that this Bill deserves a proper examination in Committee. However, we are faced with a fact, which is that it has been certified as a money Bill.
We should be thinking about whether there is some way in which we can have a proper discussion—perhaps in a Joint Committee—on what a money Bill is, because that is the problem. It is open to abuse if one side says that this is a money Bill and the other side says it is not. We need to have a proper discussion of what a money Bill is and get it settled once and for all.
Lord Strathclyde
My Lords, it might be useful if I added a few thoughts from the Government Front Bench. I totally respect all of those who spoke in favour of the Bill and those who had problems on issues with the Bill. At some moments it sounded as if we had already started the Second Reading of the Bill rather than dealing with the Motion on the Order Paper. I have no detailed view on the different aspects of the Bill. The right time to deal with those would be on Second Reading.
The point in my introduction was made—if I may say so—far more ably by the noble and learned Baroness, Lady Butler-Sloss. It does not matter if we have this Committee stage. In the words of the noble Baroness, Lady Hollis of Heigham, we can explore, we can advise, we can amend, we can even reject, and we can ask the House of Commons to think again. The House of Commons is under no obligation whatever to deal with any of these issues. That is the nub of my argument. There is no point doing any of these things because it is a waste of our time. Let us spend our precious time on things that are useful and have an impact rather than on those that do not. I have very little further to add and in light of what I and others have said, I call upon the noble Lord, Lord McKenzie, to withdraw his amendment.
Lord Richard
My Lords, it is quite clear—to me at any rate—that there is a genuine issue here. One could argue whether the Speaker should or should not have certified it. The fact is that he did certify it and, therefore, certain consequences flow from that, which I accept. However, the danger as it is perceived, certainly by me, and, I suspect, by many on this side, is that that certification will become too gross, happen too often and be too restrictive as far as this House is concerned.
This issue is important in relation to this Bill. However, it is even more important in relation to a whole host of other Bills coming up. If one wishes to certify something as a money Bill, you can invariably find some excuse for doing so, as my noble friend Lady Hollis said. There is no point in the noble Lord shaking his head. He knows that as well as I do. So I ask him very simply: can he put his considerable weight behind an attempt to get some clarification on what is or is not a money Bill by negotiations or discussions between this House and the other place? Otherwise, we will have this issue coming up again and again, which would be extraordinarily unhealthy.
The Countess of Mar
My question has a bearing on what the noble Lord, Lord Richard, has just said. Does the Speaker in another place make a decision entirely on his own or with legal advice from the Clerks in the House of Commons?
Lord Elystan-Morgan
My question is very much along the same lines. It goes to the root of the question raised by the noble Baroness, Lady Hollis. Is she right when she says that the mere fact of a Bill involving public expenditure makes it possible for it to be certified as a money Bill? If that is so, then it is extremely serious and of massive constitutional relevance.
Is it then the case—I do not have the wording of the 1911 Act before me—that since 1911 it has been a matter of restraint not to certify possibly thousands of Bills that might have been money Bills but for good reason have not been so regarded? Am I right in thinking that although the 1911 Act very considerably curtails the effect of any amendment made by this House, there is not one word in it that suggests that we should not discuss a money Bill?
Lord Strathclyde
My Lords, that is precisely why the Government have allocated a whole day for discussion and debate on this Bill. There will be a very full Second Reading day on it, especially given this debate. It is right that this House’s voice should be heard, but it cannot be heard more than the Parliament Act 1911 allows. This is so well precedented over the past 99 years that even I, who like history and historical anecdotage in the House of Lords, find this whole debate extraordinary.
The noble Countess, Lady Mar, and the noble Lord asked about the Speaker’s role in all this. Parliament Acts are a long-standing part of the constitutional settlement of the United Kingdom. Under the Parliament Act 1911, Mr Speaker is under a statutory duty to certify a Bill a money Bill if, in his opinion, it contains provisions dealing with national taxation, public money, loans or their management. The important words there are “a statutory duty”. It is not a choice; Mr Speaker has no discretion in the matter. That goes to answer the point of the noble Lord, Lord Richard, who gave the impression that somehow there was discretion in this matter, and that I could say to the Speaker, “On balance, old boy, could you certify rather fewer money Bills?”. That is not the case. It is done on advice given by Mr Speaker’s Clerks on the basis of a statutory provision. The decision to certify this Bill a money Bill is taken entirely by Mr Speaker in another place. We accept the consequences of that because of the 1911 Act and all the precedents that have been set over the past 100 years. In my opening speech, I talked about the 60-odd money Bills that have arisen in the past 13 years. The outrage on the part of noble Lords opposite is extraordinary given that, seven months ago, they were sitting on this side of the House but never once did they scratch their heads and say, “These money Bills are a bit odd. We really should repeal the 1911 Act”.
Baroness Royall of Blaisdon
I do not dispute the fact that, when in government, we issued a number of Bills that were money Bills; I think the noble Lord said that there were 30. However, the difference is that we knew that a Bill had been certified a money Bill before it ended its legislative process in the House of Commons. Can the noble Lord tell me the last occasion on which a Bill was certified a money Bill at the very end of its legislative process in the House of Commons? That is a big distinction, as the House of Commons understood that this Bill would go through all its legislative process in this Chamber.
Lord Strathclyde
My Lords, I am very happy to answer questions on this from other noble Lords as well, if they so wish. However, I find it very difficult to help the noble Baroness the Leader of the Opposition on this matter. It is as if noble Lords assume that I had greater knowledge than I have of what decisions were being taken in another place on the certification of money Bills, or when the decision was taken. My understanding is that it is a decision not of the Government but of Mr Speaker, taken on advice from his Clerks. I dare say that the stage at which he makes that decision is up to the internal procedures of another place. The point about this House is that we have to deal with the effects of the decision that has been taken in another place. We have no discretion in the matter. If it is certified a money Bill, a money Bill it is. If it is a money Bill, whatever we do to it matters not a jot because another place can ignore that comprehensively.
Baroness Hollis of Heigham
Will the noble Lord ensure, not just as leader of the government party, but as Leader of the whole House, that future legislation, such as social security legislation, will not come up here with the imprimatur that means that we cannot discuss disability issues and the like?
Lord Strathclyde
My Lords, it is very hard to answer that question as Leader of the whole House without looking back in the mists of time at the reasons for the 1911 Act. The reason we have had the privilege of dealing with monetary and taxation legislation is in the history of 100 years ago. With the best will in the world, I have no intention of reopening that any more than any of my predecessors have done over the last 99 years.
Lord Strathclyde
My Lords, I suppose it was because Mr Speaker was not advised by his Clerks that it was a money Bill. If it had been a money Bill, we would have disposed of it rather more quickly than we did.
Lord McKenzie of Luton
My Lords, this debate has been interesting, but mostly not about the substance of the amendment that was moved. Most noble Lords, I think, were exercised about the definition of a money Bill. I made clear when I moved my amendment that, except for the purposes of the amendment, it has been certified a money Bill, and I do not seek to challenge that, as the noble Lord, Lord Trefgarne, suggested.
On the definition of a money Bill, the preamble to the bit about taxation et cetera talks about measures that contain “only provisions dealing with” certain issues. One of the points that arise from this particular example is whether the ability to corral a few things that are only about taxation, and not to have them as you might naturally otherwise have them—as part of a broader Bill—opens up the possibility of getting more money Bills certified than would otherwise be the case. However, I agree with the range of speakers—the noble Lords, Lord Richard, Lord Grenfell and Lord Elystan-Morgan, and the noble Baroness, Lady Hollis—who say that it would be good to have some sort of process to try and better understand when a money Bill is a money Bill and what the rules are that apply to that.
The noble Lord, Lord Strathclyde, said that this is all a waste of time and that it is pointless, but if he read the 2007 version of the Companion, he would see that paragraph 7.189, on money Bills, says:
“On a few occasions minor amendments have been made by the Lords to such bills and have been accepted by the Commons”.
This presumption that it is all a waste of time, that nothing could ever happen that could change the Bill, is simply not the case. Even if it were, if it was felt that matters should be pressed on the Government in relation to a Bill, why should we not avail ourselves of the opportunity to do so? I stress that my amendment does not seek to change the rules at all or to say that the House of Commons Speaker was wrong in certifying it as a money Bill; it merely seeks to take advantage of what the Companion enables us to do as a House.
The noble and learned Baroness, Lady Butler-Sloss, said that she did not understand if this did not lead anywhere. In any event—this is the point made by the noble Lord, Lord Strathclyde, as well—we will have a full day on a Second Reading debate. However, there is a difference between a debate on the Bill at Second Reading and in Committee, as all noble Lords know. The Committee stage is an iterative process, a chance to press the Minister in detail on a range of points. A one-day Second Reading does not provide the same facility. It provides an opportunity for some broad debate but not for the detailed scrutiny that we believe this Bill requires.
As ever, my noble friend Lady Hollis got it absolutely right; if we do not take this opportunity to try to secure at least a Committee stage on this money Bill, what hope is there for dealing with a raft of very profound provisions coming down the track that the Government would corral in such a way that the Speaker would designate them money Bills?
I believe that the Deputy Chief Whip wishes to speak.
Lord Shutt of Greetland
My Lords, we have a medical emergency in one of the Division Lobbies. I beg to move that the House do now adjourn for 10 minutes.
Lord McKenzie of Luton
My Lords, in the circumstances, it is time to bring this to a close. I do so by reiterating that my amendment is not about challenging the decision of the Speaker—it accepts it. It simply seeks to take the full range of opportunities, in so far as they exist, to scrutinise this Bill, given that it is and has been designated a money Bill. It does not frustrate the Government’s timetable because, if we do not get it through within a month of arrival in your Lordships’ House, it goes for Royal Assent in any event.
Given the substance of the Bill, this is a very small ask of your Lordships’ House, and I believe we ought to take this opportunity to have a full Committee stage on this Bill. Given the debate, I beg leave to test the opinion of the House.
Autumn Forecast
(14 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, with the leave of the House, I should like to repeat a Statement made by my right honourable friend the Chancellor of the Exchequer in another place. The Statement is as follows.
“I would like to make a Statement regarding the Office for Budget Responsibility’s first autumn forecast. I will also inform the House about further measures that the Government are taking to support economic growth, including the new growth review launched today and a far-reaching programme of reforms to our corporate tax system. Following yesterday’s announcement by European Finance Ministers, I would also like to take the first opportunity to update the House about the Irish situation and the UK’s involvement.
First, on the OBR’s autumn forecast—copies of which were made available in the Vote Office earlier today—we should take a moment to recognise the significance of this occasion and the practical demonstration of this Government’s commitment to transparency and independent forecasting. Today is the first time that Members of this House will engage in debate about an autumn forecast that has been produced by the independent Office for Budget Responsibility—rather than conjured up by the Chancellor of the Exchequer—and made available to read two hours before the Statement. This is also the first forecast by the new independent chair of the OBR, Robert Chote, with the other members of the Budget Responsibility Committee, Stephen Nickell and Graham Parker, whose appointments were approved by all Treasury Select Committee members from both sides of this House. The country can have full confidence in the independence of these members.
The OBR report published today includes some 150 pages of information—an unprecedented level of detail and transparency—much of which is of the kind that was available to previous Governments but never published. I would like to thank the Budget Responsibility Committee and the staff of the OBR for their hard work in putting together this autumn forecast. I hope that we will now entrench this major improvement in the making of fiscal policy by passing the legislation currently before Parliament. While today’s figures are, of course, independent, they are still just forecasts and we must treat them with the degree of caution with which one should treat any forecast. Indeed, the OBR is explicit about that. The report illustrates the uncertainty surrounding any economic forecasts with the use of fan charts rather than claiming the infallible certainty that my predecessors asserted when they provided their forecasts. Indeed, the only thing that was infallible and certain was that those political forecasts were wrong.
With that caution in mind, let me turn to the forecast. After the deepest recession since the war, the greatest budget deficit in our peacetime history and the biggest banking crisis of our lifetime, recovery was always going to be more challenging than after previous recessions, but the message from the Office for Budget Responsibility is that Britain’s economic recovery is on track. The economy is growing; more jobs are being created; and the deficit is falling. The OBR’s central forecast is for sustainable growth of more than 2 per cent for each of the next five years, with employment rising in each and every year. At a time when markets are gripped by fears about government finances across Europe, today we see that the Government were absolutely right to take the decisive action to take Britain out of the financial danger zone. Britain is on course both to grow the economy and to balance the books—something that some people repeatedly said would not happen.
Let me take the House through the detail of the forecast. The forecasts for the economy are broadly in line with those produced for the June Budget, despite the more challenging international conditions. I would also like to point out that they are very similar to the European Commission forecast for the UK, which is also published today. They forecast that Britain will grow faster over the next two years than Germany, France, Japan and the United States of America as well as faster than the average for the eurozone and the EU. The OBR forecasts real GDP growth of 1.8 per cent this year, 2.1 per cent next year, 2.6 per cent in 2012, 2.9 per cent the year after that, 2.8 per cent in 2014 and 2.7 per cent in 2015.
Growth this year is now expected to be considerably higher than was forecast in June. In the OBR’s judgment, some of this improvement is likely to be permanent and some of it a temporary impact of stock building. As a result, the OBR forecasts that the rate of growth next year will be 0.2 percentage points below the forecast that the OBR made in June. The OBR also predicts above-trend growth for the four years after that. The level of GDP, or the overall size of our economy, is forecast to be around half a percentage point higher next year than was forecast in June and, indeed, higher throughout the whole forecast period.
Some have made predictions of a so-called ‘double-dip’ recession. While the OBR points out that,
“growth has been volatile as this is a common characteristic of post recession recoveries”,
its central view is that there will be no double-dip recession. Its forecast is for growth next year of more than 2 per cent, and it expects that the slowest quarter of growth, in the first quarter of next year, will be 0.3 per cent, rising back up to 0.7 per cent by the last quarter of next year. The OBR also forecasts that CPI inflation will fall from 3.2 per cent in 2010 to 1.9 per cent in 2012, once the short-term effects of the VAT rise and other temporary factors fall away.
Crucially, the OBR forecasts a gradual rebalancing of the economy as we move away from an economy built on debt to an economy where we invest and export—again, something that some people said would not happen. The OBR expects more demand to come from business investment, which is set to grow by more than 8 per cent for each of the next four years, as well as from exports, which are expected to grow on average by more than 6 per cent per year. This new model of sustainable economic growth will rebalance the economy towards investment and exports and away from an unhealthy dependence on private debt and public deficits. We will thus bring to an end the unsustainable situation that saw families save less and less year after year so that they ended up, in the words of the OBR report today,
“effectively borrowing money to purchase increasingly expensive houses”.
The OBR has also published today a full forecast for the labour market—something that, I point out, previous Chancellors chose not to publish. Employment is forecast to grow in every year of this Parliament. Total employment is expected to rise from 29.0 million to 30.1 million—that is more than 1 million additional new jobs. On unemployment, thanks to faster than expected growth in the economy, the OBR now expects the rate to be slightly lower this year, at 7.9 per cent instead of 8.1 per cent. Its forecast for the unemployment rate for next year is unchanged from the June Budget, at 8 per cent. For future years, the OBR predicts a gradual decrease in unemployment, with the rate falling every year. By the end of the Parliament, the OBR forecasts that unemployment will fall to just above 6 per cent—that is about half a million fewer unemployed people than at the beginning of this Parliament.
The trend in the claimant count is similar to that for the internationally recognised Labour Force Survey measure of unemployment, but the level is expected to be higher. The OBR explains that this revision is mainly due to a change in the way that flows from employment and support allowance on to jobseeker’s allowance as a result of the new work capability assessment are modelled. In other words, more people are assumed to be flowing off ESA and on to JSA. This is a key part of our reforms to create a welfare system that encourages people to seek work and to reduce costs for the taxpayer—in short, we will stop hiding people who can work in the incapacity statistics. Crucially, in each year fewer people are expected to be on both those out-of-work benefits combined than in the June forecast.
I can also tell the House that, following the spending review, the OBR has now recalculated its estimate of the reduction in headcount in the public sector. In June, the OBR forecast a reduction in headcount of 490,000 over the next four years. In its latest forecast, the estimate has come down to 330,000, which is a reduction of 160,000. The bulk of the revision results from the action that we have taken to cut welfare bills rather than to cut public services. Our difficult choices on child benefit, housing benefit and other benefits—each of which were opposed by the party opposite—mean fewer posts will be lost across the public sector. Those headcount reductions that still need to take place will happen over four years, not overnight. The OBR also forecasts that private sector job creation will far outweigh the reduction in public sector employment. As the report says,
“A period of rising total employment alongside falling general government employment is in line with employment trends during the 1990s when total employment increased by 1.3 million over six years while general government employment fell by around half a million”.
However, the most important point is that the lesson of what is happening all around us in Europe is that, unless we deal decisively with the record budget deficit, many thousands more jobs will be at risk in both the private sector and the public sector. Let me summarise the forecast for the public finances, which shows that Britain is decisively dealing with its debts. Borrowing this year is expected to be £1 billion less than we forecast in June. The OBR forecasts that public sector net borrowing will fall from £148.5 billion this year to just £18 billion in 2015-16. Government debt as a share of GDP is projected to peak just below 70 per cent in 2013-14 and then fall to 67 per cent by 2015-16. The debt ratio is now expected to peak at a lower point compared to June—at just below 70 per cent instead of just above it.
On the OBR’s central forecast, we will meet our fiscal mandate to eliminate the structural current budget deficit one year early, in 2014-15. The same is true for our target to get debt falling as a percentage of GDP. Indeed, to use the OBR’s own words,
“The Government has a slightly wider margin for error in meeting the mandate than appeared likely in June”.
For the first time, the OBR has also tested the resilience of the fiscal mandate to two alternative scenarios for the economy that critics have put forward. In both cases the mandate is met. It is clear that our decisive actions have proved to the world that Britain can live within her means. This Government have taken Britain out of the financial danger zone and set our economy on the path to recovery. That is the judgment of not only the OBR but the IMF, the OECD, the European Commission, the Bank of England and all the major business organisations in this country.
Already our efforts are paying off. Today’s forecast shows that the cost of servicing the Government’s debt has come down. Compared to the June forecast, the OBR predicts that we will save £19 billion in interest payments between now and the end of the forecast period. That is £19 billion that will no longer be paid by British taxpayers to private bondholders and foreign Governments. That is £19 billion that would have been wasted and will be saved instead.
This is an uncertain world, but the British recovery is on track. Employment is growing; 1 million more jobs are being created; and the deficit is set to fall. The plan is working, so we will stick to the course. This is the only way to help confidence to flourish and growth to return. I urge those who, when they see what is happening to our neighbours, seriously suggest that I should abandon the decisive plan that we are following and borrow more and spend more, to think again. What they propose would be disastrous for the British economy. It would put us back in the international firing line from which we have worked so hard to escape. It would mean higher deficits and jobs lost. We should reject that path.
Stability is a necessary pre-condition for growth, but it is not enough. Our economy’s competitiveness has been in decline for more than a decade and that has undermined its ability to create jobs and grow. That is why we have already announced: four annual reductions in corporation tax; axing the jobs tax; cutting the small companies rate; expanding the loans scheme; simplifying health and safety laws; investing in science and apprenticeships; and promoting exports through trade missions.
Let me set out some of the other things that my right honourable friend the Business Secretary and I are announcing today to support growth and a rebalancing of our economy. At the Budget, I set out a plan to reduce the main rate of corporation tax to 24 per cent—its lowest ever rate—to demonstrate our commitment to tax competitiveness. I can now tell the House that the most significant programme of corporate tax reforms for a generation are today being published for consultation with the business community. We propose to make the UK an even more attractive location for international business and investment by reforming our outdated and complex rules for controlled foreign companies. We have seen a steady stream of companies that have left the UK in recent years. This Government, unlike the previous Government, are not content to sit by and watch our competitiveness leach away and our corporate tax base being undermined.
Another tax issue of crucial importance to our corporate sector is the tax treatment of income from intellectual property. For a long time, we have argued that we should increase the incentives to innovate and to develop new products in this country. To encourage high-tech businesses to invest in the UK and to create high-value jobs here, we can confirm that we will introduce from April 2013 a lower 10 per cent corporate tax rate on profits from newly commercialised patents.
We have been consulting with the business community, and I can tell the House that, as a result of that measure, GlaxoSmithKline will today announce: a new £500 million investment programme in the UK to manufacture a newly developed respiratory device at Ware in Hertfordshire; the launch of a new £50 million venture capital fund to invest in healthcare research; the construction of a new facility at the University of Nottingham to develop “green chemistry” technology; and the building of Glaxo’s next biopharmaceutical plant in this country, with sites in Northern England and Scotland being considered. In total, GlaxoSmithKline estimates that 1,000 new jobs will be created in the UK over the lifetime of those projects.
Today, we also launch a cross-government growth review. This will be a determined, forensic examination of how every part of Government can do more to remove barriers to growth and support new growth opportunities. Too often the natural inclination of Governments is in the opposite direction: creating new regulations; putting up new barriers; and making life more difficult for entrepreneurs and innovators. We are starting to turn the super-tanker around. Together with the Business Department, the Treasury will lead an intensive programme of work that will involve all parts of Government and use evidence provided by the business community and that will report by next year’s Budget. We will identify cross-cutting reform priorities that can benefit the whole economy. Specific priority will be given to: improvements to the planning system and employment law; more support for exporters and inward investors; and reforms to the competition regime. At the same time, we will begin a new sector-by-sector focus on removing barriers to growth and opening up new opportunities. Some of the resulting changes will be substantive on their own; others will in very specific ways help particular industries. Some may be controversial if they confront vested interests. However, brick by brick, we will remove the barriers that are holding Britain back.
Finally, Mr Speaker, I would like to update the House on the international assistance package for Ireland. I attended the Europeans meetings in Brussels yesterday. We agreed a three-year package for Ireland worth €85 billion, which,
“is warranted to safeguard financial stability in the euro area and the EU as a whole”.
Of that, €35 billion will be used to support Ireland’s banking sector, with €10 billion going towards immediate bank recapitalisation, and €50 billion will be used for sovereign debt support. Ireland will contribute €17.5 billion towards the total package and the remaining €67.5 billion will be split, with one third coming from the IMF, one third from the European financial stability mechanism and one third from bilateral loans and the eurozone facility. The terms of the IMF loan will be determined over the coming weeks.
In principle, our bilateral loan is for £3.25 billion and we will expect the loan to be denominated in sterling. The rate of interest on the loan will be similar to the rates levied by the IMF and the eurozone. This loan to Ireland is in Britain’s national interest. It will help one of our closest economic partners manage through these difficult conditions. I should also tell the House that the eurozone Finance Ministers—without me present—discussed a permanent financial stability facility. I have made it clear in the subsequent ECOFIN meeting that the UK will not be part of that. The president of the euro group made it clear that the UK will not be part of the permanent bail-out mechanism and that the European financial stability mechanism, agreed under the previous Government in May and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.
Mr Speaker, when we came into office, Britain was in the financial danger zone. Our economy was unstable, our public finances out of control and our country on the international watch-list to avoid. We took decisive action. Now the independent Office for Budget Responsibility has confirmed that the British recovery is on track, our public finances are under control, a million jobs are set to be created and our economy is rebalancing. Today we take further measures to secure growth and create prosperity. We do so based on the foundation of stability that we have now secured. Britain is on the mend. I commend this Statement to the House.”
Lord Eatwell
My Lords, I am grateful to the noble Lord for repeating the Statement made by the Chancellor of the Exchequer in another place. I agree entirely with him that there is a refreshingly independent tone to the OBR report. However, the Chancellor’s Statement is old-fashioned spin and I shall try to untwist it a little.
The Autumn Statement embodies a wide range of forecasts on aspects of the UK economy, on fiscal performance and on sustainability—a matter to which I will return later. However, as the Statement makes clear, once we attempt to forecast performance beyond two or three years, considerable uncertainty intrudes. For example, while the OBR suggests that there is a 50 per cent probability of the growth rate in 2014 being 2.8 per cent—the figure that the noble Lord quoted with certainty—it is also noted that there is a 10 per cent probability of growth being zero in that year and a 20 per cent probability of growth being zero or less.
This might be regarded as a little worrying, but it is, after all, four years on. Far more worrying is the fact that the OBR finds that there is a 20 per cent probability of growth being zero or less next year. So, to be reasonably safe, leaving aside these longer-term forecasts, let us focus on the current year and next year. Or, to put the matter in political terms, the year of Labour policies and the year of coalition policies, for the obvious reason that coalition policies can have had no significant effect on 2010, but will certainly start to have an effect on 2011.
So what does the OBR say about 2010, the year of Labour policies? Two factors stand out. First, in every forecast made by the OBR since the pre-Budget forecast of early June, the outturn in the economy has been significantly better than was forecast by my right honourable friend Alistair Darling in his March Budget. Growth has been steadily revised upwards and the deficit downwards—down now by a full one percentage point of GDP. These OBR results give the lie to the Minister’s persistent mantra that the situation that the Government found on taking office was worse than expected. In fact, month after month it has been consistently better than was expected in March. Let us hear no more of that fiction, and let us hear no more sneering from the Chancellor about my right honourable friend’s political forecasts. As the OBR itself made clear in its press release in June, Mr Darling was in fact overly cautious, a truth that has been borne out by subsequent data.
Now let us turn to what the OBR has to say about coalition policies. In June the OBR forecast what the impact would have been if we had just left Labour’s Budget in place for the next five years. Today we have the OBR forecast for the impact of coalition policies, and what do we find? In 2011, growth is down. In 2012, growth is down. By 2014, the coalition has at last caught up with the Labour growth rates—but then, four years hence, who knows what extra follies it will have committed?
Before turning to some wider economic issues in the Autumn Statement, I want to ask the Minister a couple of more technical points about the document. First, in paragraph 3.5 on page 27, and indeed elsewhere, the OBR makes it clear that the fan charts that the Minister referred to, which express the probability of particular outcomes, do,
“not represent our subjective assessment of the specific upside and downside risks that we see to this forecast”.
Why not? Why are we presented, in this long and important document, with an assessment of risks to the economy that the OBR does not actually believe? Is the hidden assessment of downside risk greater than that set out in the Autumn Statement? Surely we have a right to know.
Secondly, the OBR notes in paragraph 4.124 on page 119 that the estimates of the Government’s fiscal position do not include the likely impact of the sale of shares in the Royal Bank of Scotland and Lloyds Banking Group. Why not? Surely, given the enthusiasm with which the OBR has graphed analyses of uncertainty, some probability could be assigned to a central estimate of receipts from such sales. Perhaps the Minister will give us his estimate of such receipts and the impact on the overall deficit programme.
Thirdly, and most importantly, since it is an important part of the mandate of the OBR, is its consideration of long-term fiscal sustainability. In this consideration, starting at paragraph 5.27 on page 140, the OBR concludes that government policies imply a long-term budget surplus year after year of 2.1 per cent of GDP. This simply cannot be right. If the balance of payments is roughly zero or, as over the past decade, shows a deficit of about 1 per cent of GDP, then a long-term budget surplus of 2.1 per cent means that private sector debt is being accumulated at over 3 per cent of GDP a year—just the sort of private sector debt accumulation that brought about the recent crisis. Is this what the Government define as sustainability? This is truly an economy built on debt.
I am particularly worried about that point, as it echoes the Government’s fundamental misunderstanding of what has happened to fiscal balances over the past three years. That should be corrected by the OBR analysis in box 3.3, which shows that the fiscal deficit growth was directly linked to a sharp increase in savings in the corporate and household sectors. If government spending had not offset that increase in savings, the fall in output would have been truly calamitous.
A key element in the estimates in the Autumn Statement is the Government’s shift of spending cuts, as the Minister noted, from departmental spending to the welfare budget; this is clearly spelt out in table 4.16. Does the Minister agree that there is to be a cumulative reduction in DWP benefit payments of £9.1 billion over the next five years and a reduction in child benefit of a cumulative £7.9 billion over the next five years? This Government are attempting to balance the budget by squeezing the poor and by squeezing children.
We will await with interest the Government’s review of corporation tax. If I may be given the indulgence of making a forecast, the Government will find it far more difficult to simplify rules on controlled foreign companies than they might expect. But when do the Government expect the results of the review to be announced?
We on this side are delighted that the Government have announced a cross-cutting government growth review—about time too. Perhaps it will involve somewhat smaller cuts in investment—in public investment—than the Government currently plan. But what has actually been announced today? The only substantial announcement in this document is the investment programme by GlaxoSmithKline, which everybody welcomes. Everything else consists of rhetorical promises. When will we have a concrete growth strategy to replace this wishful thinking? When will the Government publish their long-awaited growth White Paper?
We on this side of the House welcome the financial assistance to the Republic of Ireland. It is certainly late; let us hope that it is sufficient. I was, however, a little puzzled by when the Chancellor said:
“In principle our bilateral loan is for £3.25 billion…”
What does “in principle” mean in this context?
What is made clear by this Autumn Statement is that there is as yet no sign whatever that the Government’s gamble of cutting living standards for the next three years is going to pay off. The policies that underpinned a solid recovery this year are being put into reverse. It is the poor who are paying the price.
Lord Sassoon
My Lords, it is always depressing to come back to face the noble Lord, Lord Eatwell, with his perpetual attempts to talk down the prospects of the economy. We have always said that the recovery is going to be gradual. It is on track. The recovery and the economy are borne down because they have to bear the legacy of the unbalanced growth and the excessive debt that was left behind by the previous Government. The noble Lord does not look forward; he is not grateful for the fact that the OBR has confirmed in its independent forecast that we have a pattern of rising employment in each year of the forecast. Instead, he continually wants to chip away at techie points around the way that the forecast has been produced. The transparency and the information have been vastly increased—and he chips away at it. Well, fine.
I am grateful that the noble Lord welcomes, as we all do, the £500 million new investment announced today, and I am sure that there will be a lot more to come. I was up in the north-west of England on Friday talking to a great sweep of businesses from some of the largest multinationals, like Siemens, through to very regional businesses like the Blackpool leisure centre, to family businesses such as the business that puts together Chevron motor cars. I do not recognise the picture that the noble Lord paints. These businesses are looking to the future. They recognise that there is a lot of rebalancing of the economy to do, but they are producing world-class science; the Daresbury science and innovation centre is one of the world’s great leaders. It was thanks to the foresight of the noble Lord, Lord Sainsbury, under the previous Government, that that project got going. The current Government have just announced a public-private partnership to take forward that project for the next 20 years, creating, on that one science park alone, 6,000 jobs. This is the view of Britain that I see when I get out and about, and which seems to be in no way reflected in the technical analysis of the noble Lord and some of his friends opposite.
The noble Lord talks about the fan charts. Well, we have not had the fan charts before; we now have them. He can do the analysis; he can see that the OBR has produced upside and downside scenarios. As I have said, the different scenarios that were suggested to the OBR—not its own scenarios—show that under them the fiscal mandate will be met. Yes, we have taken radical steps on welfare reform. Yes, it is correct that, by doing what we did to take more people out of welfare, we have been able to protect many more front-line public service jobs. That welfare reform is not about anything other than protecting the poor and getting a fair deal for this country. We must have a welfare system in which families who choose to go out to work are able to earn and retain more than families who choose to live on benefits. We must have a system in which housing benefit is designed so that families who go out to work are not penalised in their housing choices, compared to families who are not working.
The noble Lord talked about cuts in investment. As he may remember, when we discussed the spending review only a few weeks ago, we increased the amount of money going into public sector investment in economically enhancing infrastructure by more than £2 billion a year through the spending review period, compared to what was in the Budget and what we inherited from the previous Government. I am grateful for the work of the OBR in producing this forecast. It confirms that the judgments that my right honourable friend the Chancellor made are absolutely right. In the 2011 Budget we will update on our progress.
Lord Higgins
My Lords, can my noble friend confirm the rather surprising and welcome news that, despite all the cuts in public expenditure and the tax increases, growth is none the less expected to continue in the coming years, and that, similarly, unemployment is expected to fall? Having said that, I raise the position with regard to Ireland. Many people in this House believed that it was right to make Ireland a special case, but can we be sure that it is a special case and we will not find ourselves bailing out other eurozone countries to prevent their defaulting? Is it not the case that the Irish, having been bailed out, would be better able to achieve economic growth in the future if they were no longer in the euro? The reality is that the euro was designed to prevent members leaving by eliminating their own currencies. However, we need to provide some form of escape route for those countries—not only Ireland but the others on the periphery—that continue to suffer because they have an inappropriate exchange rate. Perhaps some form of alternative currency, to be used when a country wishes to withdraw, ought to be provided.
Lord Sassoon
I am grateful to my noble friend for pointing out that growth is expected by the OBR to continue to be above 2 per cent in every year of the forecast from next year onwards. I am happy to confirm this. Indeed, the OBR forecasts that employment will rise and unemployment will fall throughout the period.
In respect of Ireland and the eurozone, I can confirm that the UK will not be part of the permanent bail-out mechanism that the eurozone will put in place. Having said that, I do not wish to speculate about the future of the eurozone, which is very important to the UK. Europe accounts for 40 per cent of our trade and it is in the interests of this country to do what it can to support the stability of the eurozone. That does not mean that, with the exception of Ireland and its particular circumstances, we will directly support any bail-out operation.
Lord Soley
The noble Lord might consider recommending to the Chancellor of the Exchequer that this Statement be submitted for the Booker Prize for creative literature. It really is rather strange. In repeating the Statement, the Minister said that some people said that these growth figures would not happen. That is not true. They said that they would happen as long as we did not cut too deeply or too fast. That is what the previous Government said. The growth figures in the first seven months of this Government are down to the previous Government’s policies and the general policies within industry. The Minister might care to remember—as I pointed out a number of times when I was sat on that side of the House—that British manufacturing output was growing and that we were the sixth largest manufacturing country in the world. At the same time, French manufacturing was in decline. At the same time, President Sarkozy has expressed concern that the French might have trouble with their triple A rating.
It is also not true to say that this is the largest deficit in peacetime history. Simply typing “history of the national debt” into any search engine, or going to the library, will tell him that national debt in peacetime, as a percentage of GDP, was significantly higher through most of the 19th century—it was the way we financed the Empire—and much of the 20th century. Indeed, it was only the previous Labour Government who paid off the final debt from the Napoleonic wars and the Second World War. Can the Minister now tell us why he thinks that cutting faster and deeper in the coming year will help when we are already recovering? In a year’s time he will not be able to carry on the political, or party propaganda, line that somehow or other in seven months the Government have turned it round. They have not. That was already happening. What matters is the next 12 months.
Lord Sassoon
My Lords, earlier on I thought I heard the noble Lord, Lord Eatwell, describe 2010 as the year of Labour policies, but he said it so sotto voce that I left it there. The noble Lord, Lord Soley, now talks about the strength of the economy this year as being down to the previous Government’s policies. I remind noble Lords of what the OBR says about the reason why growth is now forecast by it to be much stronger in 2010 than had been previously forecast. It is principally down to the confidence of industry in restocking. That position has changed in its forecasts since June. I wonder where that confidence comes from. It comes from the fact that we came in in May and took immediate and decisive action to get the economy under control, which has resulted in British business restocking because it knows that sustained growth is coming. Let us stop going on about this and celebrate the fact that the growth is there and that industry has the confidence to understand precisely that.
Lord Newby
My Lords, can the Minister confirm that, at the end of this period, with job losses in the public sector being 160,000 fewer than was predicted earlier on in the year, there will in fact be over 350,000 more people working in the public sector than when the Labour Government came into office in 1997? Can he also give an estimate of how much less the reduction in private sector employment will be as a result of this revised forecast over the forecast in June?
Lord Sassoon
I am very grateful to my noble friend. I can confirm the figures that he quoted. The relevance is that, for all the rebalancing of the economy that we are doing and the very significant rebalancing of the welfare system, the shift of jobs out of the public sector is now very significantly below what was achieved even within the past 20 years in the early 1990s. Therefore, we should have confidence in the productive capability of the private sector to absorb that number of jobs many times over. I can only stand by the figures for the net increase of employment that are set out by the OBR in its tables.
Lord Turnbull
Can the Minister explain how the results of the main findings of this report were extensively reported in the press over the weekend and indeed this morning? It says on page two that the Treasury was given the final version 24 hours in advance. It leaves the rather worrying conclusion that perhaps that process, which was brought about by the creation of the Statistics Commission, has not proved as watertight as we might have hoped.
Lord Sassoon
I, indeed, read some of the newspapers over the weekend with interest, but the forecasts have been handed over exactly in the way that the OBR suggested. My reading of the press was that they were making educated guesses because the forecasts of the OBR in respect of this year and next year have moved much in line with market forecasts. The press are always bound to speculate in contexts such as this one. Indeed, that is what they were doing.
Lord Campbell-Savours
My Lords, what did the noble Lord mean when he said “in principle” in regard to the question of the noble Lord, Lord Eatwell, which he did not answer?
Lord Sassoon
My Lords, forgive me but which of the questions of the noble Lord, Lord Eatwell, are we talking about?
Lord Eatwell
It was the point about assistance to Ireland—I believe that the relevant figure is £3.25 billion—being preceded by the words “in principle”; that it would be that sum in principle.
Lord Sassoon
My Lords, forgive me, I should have pointed out that the details of the package are still subject to final negotiation. I guess that the lawyers have to trawl over the press release, as it were, and my right honourable friend’s statement that the loan is not the loan until it is absolutely bolted down in the formal documentation. The terms of the loan are still subject to final negotiation alongside the IMF and eurozone packages.
Lord Naseby
Is my noble friend aware that listening to the noble Lord, Lord Eatwell, reminds me of Cambridge in November—rather dour and foggy with not much light being shown on the country’s economic situation? Is it not a fact that, since the general election, the United Kingdom’s long-term interest rates have been falling every month and that prior to that period they were going up every month?
Lord Sassoon
I am grateful to my noble friend for pointing out the changed direction of travel since the new Government came in. I do not want to wade into a Cambridge argument. As a mere Oxford man, I always found my economics professors rather more cheery in their outlook, but perhaps my memory is clouded.
Lord Deben
Will my noble friend not allow the noble Lord, Lord Eatwell, to get away with the idea that this year is Labour’s year? The fundamental change is that we have confidence; under them, we would not have had confidence. We would not have been able to pay our bills and we would have found ourselves in much the same position as Ireland.
Lord Sassoon
I am very grateful to my noble friend; his analysis is absolutely right.
Lord Myners
My Lords, I welcome the establishment of the Office for Budget Responsibility and the independent committee. That is a significant step forward and one on which the noble Lord and the Government should be congratulated. However, we can see a contrast between a thoughtful, objective, fact-based analysis from the committee of the OBR and the spin that was placed on it by the Chancellor of the Exchequer. That is a very good and valid reason why the OBR should be invited to ensure that its own conclusions are presented to Parliament in an accurate, unbiased and objective way rather than as we have seen today.
It is disappointing to see that, even at the end of the five-year period, the output gap will still remain substantial—that is, we will still have significant unused capacity in the economy. Will the noble Lord confirm that the noble Lord, Lord Eatwell, is correct in his analysis that an improvement in the balance of payments and a decline in public sector borrowing will inevitably be associated with a significant increase in private sector debt? Is that an assumption which the Government accept and support? Can the noble Lord tell us whether the rate of interest paid by Ireland will be higher or lower than that assumed to be paid by the Government of Iceland?
Lord Sassoon
My Lords, it is always good to have the noble Lord, Lord Myners, present. I do not suppose that his Government ever applied any spin to any numbers. He shakes his head. Oh, well. All our memories are failing. Seriously, the difference this time is that we have a much greater, more transparent analysis of the numbers—over 150 pages of numbers. I am grateful to him for welcoming the formation of the Office for Budget Responsibility, and I hope he will be with me, giving it a fair wind in Committee on the Bill shortly.
There is a serious point here. Not only are there 150 pages of analysis and a lot more detail than was ever given before, and not only has that been available a couple of hours before my right honourable friend’s Statement, but we will be able to pick over it in the next few weeks. The OBR itself will come to the Treasury Select Committee and answer questions there and all sorts of other questions in different fora.
As to his specific question on the output gap, yes the numbers show that it will be 0.9 per cent in 2015, down from 3.3 or 3.4 per cent as it is now and from 4.2 per cent as it got to in 2009. As to the levels of private sector debt, I do not accept the numbers given by the noble Lord, Lord Eatwell; I accept the numbers that are in the OBR’s document. There will be a total leverage in the economy that is very far down on the over-leverage with which the previous Government left us.
Lord Hamilton of Epsom
Does my noble friend the Minister accept that one of the critical things that it was important for the coalition Government to do was to reassure the financial markets that we had a handle on the whole question of the deficit which we had inherited? That is one of the reasons—my noble friend mentioned this—why interest rates have come down since the coalition Government took over and since the new Budget was announced, and one of the reasons why the interest burden is going to be much less over the coming years.
However, is it not rather depressing that the noble Lord, Lord Eatwell, still goes on about the possibility of a double-dip recession when it is quite clear from these forecasts that the chances of that are almost nil?
Lord Sassoon
I am very grateful to my noble friend. I absolutely share his view both on the depressing scenarios that the Opposition choose to paint and on the overall scenario for solid growth which the OBR confirms.
As to the judgment of the financial markets, I have looked at this morning’s numbers, and the UK spread over the German 10-year Bund has gone down from 96 basis points at the date of the general election to 60 basis points today, which is a very significant measure of confidence by the international markets in our consolidation plan.
Lord Ryder of Wensum
My Lords, in welcoming the Statement, I declare an interest as the chairman of the Institute of Cancer Research. Is my noble friend aware that, in exports, the pharmaceutical sector is by far the most successful sector in this country? It contributes between £3 billion and £4 billion a year in surplus to our balance of trade. If, as seems likely, the Government’s new immigration policy prevents the pharmaceutical industry and research organisations such as my own from attracting the brightest and the best to this country under tier 1 and tier 2, will the Minister give me a clear undertaking, in the interests of the economic growth to which he referred, that the Chancellor of the Exchequer will have a quiet word with the Home Secretary to persuade her to change her policy as it stands at present?
Lord Sassoon
I am grateful to my noble friend for pointing out the huge success of the pharmaceutical and biopharmaceutical industry in this country. That is why it is so welcome to have the news today that GlaxoSmithKline is putting further facilities into this country that will only enhance the position of the United Kingdom in that critically growing sector of the economy. I am sure that the pharmaceutical companies fully recognise that, in the announcement made last week by my right honourable friend the Home Secretary, intra-company transfers of employees were taken out of the immigration cap. That means that skilled employees of multinational companies can be brought freely into this country, and for those earning more than £40,000 there will be no time limit on the length of time they remain in this country. My right honourable friend is very aware of, and has recognised, the importance of skilled industrialists and others being able to get employment in our growing industries.
Lord Brooke of Sutton Mandeville
My Lords, while enjoying the historical intervention of the noble Lord, Lord Soley, does my noble friend recall the remark of the Leader of the House in the wind-up to the Queen's Speech debate of 1951 when he said that all incoming Governments find skeletons in the closet, but his Government had found them swinging from the chandeliers? Secondly, does he recall the conduct of Mr Butler's economic policy between 1951 and 1955? Finally, does he remember that at the 1955 general election the Conservatives tripled their majority?
Lord Sassoon
Well, I have now been reminded. I was not quite around at the time, but I am very grateful to my noble friend for reminding us of these important lessons of history.
Lord Liddle
My Lords, does the noble Lord agree that, while any progress in rebalancing the economy is welcome, and while it is heartening to hear that the forecast for public sector job losses is lower than it was, this is contradicted by the Local Government Association, which forecasts an increase in job losses as a result of the impact of the spending round on local government? Does he not also accept that many of us on this side of the House are worried about these job losses—about their impact on regions that are heavily dependent on the public sector and about their impact on young people? Already, there are worrying signs of a rise in unemployment and inactivity among the young. Is it not disappointing that the Statement does not contain any policies that are likely to address these problems?
Lord Sassoon
My Lords, I would rather stick by the forecast of the independent Office for Budget Responsibility than the forecasts of others. It is the OBR forecast that is important and central today. Of course it is regrettable that any number of public sector workers—or indeed people in any other part of the economy—will lose their jobs. However, because of the numbers—much reduced in the latest forecasts—of public sector workers who will lose their jobs, not overnight but over the next four or five years, interventions that we have already announced, such as the £1.4 billion regional growth fund, are so important. We have targeted support very much at the regions to make sure that the transition between employment in the slightly shrinking public sector and employment in the strongly growing private sector is as smooth as possible.
Public Bodies Bill [HL]
20:09 - Division on Amendment 17. - Ayes: 147 / Noes: 156 - Amendment 17 disagreed.
Lord Greaves
Lord Greaves
My Lords, I am glad that I was here in good time. I will speak also to Amendment 103 in the same group. These amendments would require persons and bodies exercising functions transferred to them under this Bill to act according to the principles of sustainable development.
I am aware that the coalition Government have ambitious plans to be the greenest Government ever. The coalition agreement itself has specific commitments to tackling climate change, protecting wildlife and a series of environ1mental objectives alongside the objectives of economic prosperity and fairness in social policy—all the components of sustainable development. The Minister and I had many happy discussions on sustainable development in the previous Parliament, when we occupied different roles.
In July this year, the Secretary of State for Defra, Caroline Spelman, said:
“This Government are committed to sustainable development and to becoming the greenest Government ever, promoting economic development, environmental protection and an improving quality of life for everyone in the UK”.—[Official Report, 22/7/10; col. WS 83.]
I want to write this into this Bill.
Many of the bodies listed in this Bill have a range of generic and specific duties or policy commitments that are there to safeguard the general public interest. The risk across a range of such duties and commitments is that these safeguards will be removed as functions are transferred to a range of companies, community interest companies, charities, other unincorporated organisations or persons, even indeed to government departments. The purpose of this amendment is to safeguard the public interest in one respect—sustainable development.
The danger is that this Bill, and its operation, will result in this and other safeguards being written out or restricted by the constitution or viewpoint of the body or person that is taking over the functions. It is easy to think of a lot of examples. Somewhere functions may be transferred to perfectly good organisations with perfectly desirable objectives. For example, should the management of Natural England’s national nature reserves, or some of them, be outsourced to other conservation bodies, it is entirely foreseeable that future management arrangements might consider not other environmental outcomes but merely the contribution that national nature reserves might make to the very narrow area of nature conservation. It is appropriate, however, that other outcomes ought to include those which Natural England would consider at the moment, such as the contribution reserves could make to local economies and social outcomes—for example, enhancing the health of local people through increased provision of health walks, which may well contribute to better physical and mental health among the people taking part.
The point is that, at the moment, a large number of these organisations have it written into their objectives and their purpose that they have a wider objective and purpose than simply the very narrow one associated with the particular facilities or services being provided.
There have been many attempts over the years to provide the best legal framework for sustainable development and protecting the environment. Over 100 different duties have been established in law, many of them for the bodies and offices listed in this Bill. The purpose of this amendment is to make sure that, if services, facilities and functions of these organisations are transferred to other people or to other bodies, these essential purposes and safeguards remain. I beg to move.
Lord Maclennan of Rogart
I support my noble friend and the amendment. Undoubtedly, it may be regarded as not belonging in a skeleton Bill but it provides a safeguard to ensure that the Government’s intentions are made good. It is not an additional, unnecessary decoration on the Christmas tree.
In Schedule 1, there are a number of bodies which can significantly affect the environment: the Commission for Rural Communities, the Environment Protection Advisory Committees, the regional and local fisheries advisory committees and the various regional development agencies. In Schedule 3, there are the internal drainage boards and the Joint Nature Conservation Committee. In Schedule 4, there is the Marine Management Organisation. In Schedule 5, there are the internal drainage boards. I select those merely at random; there are many more. For the avoidance of doubt, it would be a safeguard to include the amendment.
Lord Hunt of Kings Heath
My Lords, the noble Lord, Lord Greaves, is right to remind us of our previous debates on sustainability and climate change. I recall the days when the noble Lord, Lord Taylor, was standing here and urging the Government to do better. He now has an opportunity to show that he is consistent in taking this message into government.
The noble Lord, Lord Greaves, has pinpointed a potential weakness in the construct of the Bill. Noble Lords will know that the Bill allows a Minister by order under Clause 1 to transfer a function that is being abolished to an eligible person. The definition of eligible person includes in Clause 1(3)(a) to (e) companies limited by guarantee, community interest companies or a body of trustees or other unincorporated body of persons. Subsequent clauses extend the ability of Ministers to transfer functions of bodies listed in Schedules 2 to 7.
It would be helpful to know the criteria under which functions of public bodies might be transferred—in particular, to companies or unincorporated bodies of people. So little information is available. The impact assessment is distinguished by its inability to give any figures whatsoever for the financing consequences of the Bill. In particular, the Bill and the Explanatory Notes are silent about how desirable government policies will be transferred when those functions are transferred to companies or to unincorporated bodies of people. Sustainable development is a very good illustration of the point. We are told that the current Government are taking forward desirable policies on sustainability. Those policies relate not just to central Government but to local government and to other public bodies. Many of the organisations listed in Schedules 1 to 7 would be expected to enact the general principles of government policy on sustainability.
If those functions are now to be transferred outside the public domain into companies or into unincorporated groups of individuals, the question arises: how do we ensure that sustainability issues will be carried forward? How will that be monitored, or are the Government saying that, once a function has been transferred outwith the public sector, they are washing their hands of it and there is no guarantee that sustainability issues will be carried forward? That is an important debate.
Lord Taylor of Holbeach
I am very grateful to my noble friend Lord Greaves for bringing forward this amendment. As the noble Lord, Lord Hunt of Kings Heath, made clear, I am well rehearsed on the arguments for sustainability and I would like to think that the Government too share the conviction that sustainability lies at the core of good governance within government.
This amendment seeks to add a further requirement that when functions are transferred from one body to another, the duty to promote sustainable development transfers along with the function, whether or not the duty is set out in statute. I am happy to confirm to my noble friend Lord Greaves that the Government absolutely share his desire to make sustainable development a key part of public life and a consideration that runs through everything we do.
Lord Foulkes of Cumnock
If it runs through everything that the coalition Government are doing, how does the noble Lord reconcile with that the selling off of parts of national parks? We are going to come to it under Amendment 74 from the noble Lord, Lord Greaves. Surely that contradicts everything that the Minister has just been saying.
Lord Taylor of Holbeach
I think the noble Lord is anticipating government policy incorrectly. There is no question of us selling off the national parks—the noble Lord must allow me to correct him. We will debate national parks because they feature in the schedules to the Bill. It will give an opportunity for my noble friend Lord Henley—who is the Minister within the department—to explain in full the Government’s proposal in this respect. The statement that the Government are proposing to sell off national parks, or part of the national parks, is incorrect.
Lord Foulkes of Cumnock
I am grateful if that is correct but the Minister may have seen a report on “Countryfile” on BBC television yesterday in which it was absolutely clear that land within national parks is already being sold off. How does he reconcile that with what he has just said, the sustainability argument and the concern that the coalition professes?
Lord Taylor of Holbeach
I think I have answered the question as best as I can. I cannot refer to a television programme which I have not seen, so it would be best if I were allowed to move on by stating the general principle that underlines our approach to this amendment. I consider it to be useful because it does indeed give us the opportunity to debate the issue of sustainability within the context of this Bill. No doubt it will arise when we come to further issues and parts of the schedules.
Where we differ from the amendment is how we go about achieving this important objective. We believe this amendment would go further and potentially add unnecessary bureaucratic hoops through which some public bodies will have to jump. It is a general and not a specific requirement to those bodies which already have a sustainability requirement. We do not want public bodies to get distracted by having constantly to prove to us that they are delivering sustainable development. We expect it of them. We do not necessarily expect them to be saying that they are doing it all the time. We want them to get on with delivering their core functions in a sustainable way.
The noble Lord, Lord Hunt, asked specifically about when private companies are involved in delivering a service that is currently undertaken by a public body. It is up to the relevant Minister in charge to determine how much they will be held to account, for example by attaching conditions to the contract or funding agreement. It is then for that Minister to account to Parliament and the public for such decisions. This reform programme is about making public bodies more accountable and more efficient.
Lord Hunt of Kings Heath
Does the noble Lord agree that one of the problems with this Bill is that potentially all the functions listed in Schedules 1 to 7 could actually be transferred to a company or a body of trustees or other incorporated body of persons? This is our problem with debating this Bill. The powers that it gives to Ministers are so draconian that all of these functions could find themselves in the private sector in one way or another.
The Minister is saying that we should not worry because it will be up to each Minister to decide whether in any contractual situation they may or may not put something in about sustainability. But does he accept that our problem is that that gives far too much control to Ministers and that parliamentary oversight is very limited?
Lord Taylor of Holbeach
On the contrary: Ministers are accountable to Parliament. If Ministers do not perform how Parliament expects, it is up to Parliament to make that clear. I have no difficulty with this. It is about making Ministers accountable for the conduct of the public sector. We want to mainstream sustainable development so that it is not a bolt-on option, but integral to everything that public bodies do. But we are committed to doing it on a non-statutory basis. For that reason, I ask my noble friend to withdraw his amendment.
Lord Maclennan of Rogart
The Minister gave the impression that it might involve new bodies in a continuing dialogue with Ministers about sustainable development. But he will have observed that Amendment 103 makes it clear that the transfer of public functions will go to bodies and,
“be subject to the requirement to promote sustainable development”,
only where it is appropriate. That would seem to allow the avoidance of the kind of tiresome debate that he has adumbrated in the early part of his remarks. This would be just a safeguard, a safety net. From that point of view, it could be a helpful addition to the Bill.
Lord Taylor of Holbeach
My Lords, ultimately, there is no greater safeguard than the will of Parliament, as expressed through the accountability of Ministers at the Dispatch Box, on all issues. I understand exactly what noble Lords are saying from all sides of the House, but for a Government committed to building sustainability into all their activities, there is no need to make it explicit. It is implicit in all that this Government are doing.
Lord Greaves
My Lords, I am grateful for some of the assurances that the Minister has given. But the debate which has taken place on this amendment—I thank everyone who has taken part—comes to the core of a major flaw in the Bill, as the noble Lord, Lord Hunt, suggested. Sustainable development is just one example of the safeguards written in countless reams of legislation relating to the bodies listed in the schedules to this Bill.
The Minister said that I am trying to make one further requirement: I am tempted to say that I am trying to make a requirement. As the Bill is set out, there are few clear legislative requirements for when functions are transferred from existing bodies to other bodies, whether they are existing bodies being closed down or they are just being run down and having some of their functions transferred.
There was a slight diversion in the discussion about national parks. Indeed, national parks are one of the important areas to be included in our discussions about the particular bodies affected by this Bill. I do not want to pre-empt that debate, except to say that it is very good that the Defra Minister, my noble friend Lord Henley, will take part in that debate. Finding out exactly what the Government intend for national parks will be a crucial part of the scrutiny of this Bill. I thank the Government and my noble friend Lord Henley for that. No doubt my noble friend Lord Taylor is rather pleased that the noble Lord, Lord Henley, will be taking part in it. There is no doubt that national parks authorities are in the process of selling off or leasing out property for other people to manage. I raise the issue of the Losehill educational centre in the Peak District near Castleton. The national parks authority is considering proposals by people who are willing to buy it and take it over. So there is a certain amount of selling-off going on as a result of reduced budgets and there is a great deal of concern and alarm over Losehill, but that is a diversion from this debate.
The Minister said, “It is about making public bodies more accountable and more efficient”. I am sorry the previous group of amendments was not moved because accountability is crucial here. If functions are being moved to the private sector in some cases—
Lord Hunt of Kings Heath
My Lords, perhaps I may reassure the noble Lord that we have found a better place to bring it back so we will have an opportunity to debate it later in Committee.
Lord Greaves
My Lords, that is one assurance I can well believe.
This amendment is about keeping some of the safeguards which exist in legislative form in relation to some of the bodies listed. There are many more safeguards of different sorts which are in legislative form at the moment. One of the real concerns over this Bill is the process by which Parliament will be able to scrutinise and the Government will be accountable to Parliament in the discussion of whether these safeguards are going to remain. Ministers are indeed accountable to Parliament, but ministerial accountability to Parliament at the Dispatch Box, when we can ask questions and raise debates and so on, is rather different from legislation written down in the statutes of the land, in the law of England, which can, if necessary, be challenged in court. It is a different sort of accountability if people are responsible to the courts of the land for following the laws which have been set down by Parliament. It is in many ways a much more robust form of accountability and we are concerned that it is going to go if, as the Minister says, the Government prefer that all this is done on a non-statutory basis. The ministerial orders which will be responsible for making a lot of the changes proposed to the organisations set out in the schedules are in themselves legislation. To suggest that a lot of it will be non-statutory suggests that those orders will not contain these safeguards, and that, too, is a major concern.
These are important issues which go beyond the particular issue of sustainable development and I am sure they will come up again and again as we continue to debate this Bill. For the moment, I beg leave to withdraw the amendment.
Baroness Henig
“(2) A Minister may, subject to section 8, by order transfer all functions, powers and duties of an office or body specified in Schedule 1 to either—
(a) any Minister, the Scottish Ministers, the Northern Ireland Department or the Welsh Ministers, or(b) an eligible person.”
Baroness Henig
This is a probing amendment arising from the fact that Schedule 1 includes a collection of very different bodies in terms of the Government’s intentions as to their functions, powers and duties. It is a very miscellaneous group and I think we can discern four or five categories. For example, there are some bodies that are for straight abolition, and British Shipbuilders would fall into that category. There is then a second category where the powers, functions and duties will revert back to Ministers or to departmental civil servants. Then there is a third category where the powers, functions and duties are being transferred in whole or in part to another public body. And there is yet a further category where powers, functions and duties are being transferred in whole or in part to a private body, for example Consumer Focus to Citizens Advice. Then there are some like the Security Industry Authority—I declare an interest as chairman of that body—where the powers, functions and duties are going eventually, via phased transition, to a private body but with a residual public function.
When my noble friend Lord Whitty and I were looking to try to devise an amendment, we could not allocate these different bodies to the different categories without naming each one of them, which we found impossible to do. That is why, as I say, this is a probing amendment. Does the Minster recognise that there are different consequences, not least for Parliament, of the different intentions for bodies in Schedule 1? I am asking for these to be spelt out in the Bill because they materially affect what is going to happen to these different bodies.
On Amendment 11, my noble friend Lord Whitty was looking to delete “other incorporated body” as an eligible body to transfer into on the grounds that he found it too wide and too unaccountable in terms of its range. So the gist of these amendments is to try to get some coherence and recognise that different bodies should be dealt with in different ways. I beg to move.
Lord Hunt of Kings Heath
My Lords, I support my noble friend in her amendments. As we have already briefly debated, Clause 1(3) is very important because it specifies which bodies and functions can be transferred from the bodies listed in the schedules. My noble friend is, first, seeking clarity and then, importantly, asking the Government questions, particularly about their ability to transfer functions to an unincorporated body of persons.
I find it surprising that the noble Lord is proposing to give himself power to give such functions to a group of unincorporated persons. It would be helpful if he could explain under what circumstances this could happen and what safeguards would be in place. In a sense we are following on from our previous debate. Will the accounts of such organisations come under the auspices of the Comptroller and Auditor-General? Will freedom of information or data protection legislation apply to the same extent as when functions are delivered in the public sector? Potentially all the functions carried out by all the bodies listed in these schedules could be transferred to such bodies. My own view and that of the Opposition is that those powers are far too open-ended. The noble Lord has said that in the end accountability is to Parliament, and that is so. However, the problem we have, as the noble Lord, Lord Greaves, has spotted, is that it is likely that even when we have orders, they will in themselves give considerable discretion to Ministers in their dealings with the functions that are encompassed by the bodies listed in the Bill.
When it comes to the orders, we have another problem. We have the Cunningham committee’s report on conventions. We debated that in Question Time this afternoon. But the noble Lord, Lord Taylor, will know that the conclusion of the Cunningham convention in relation to this House seeking to defeat secondary legislation is now disputed by the noble Lord, Lord Strathclyde, the Leader of the House, in correspondence between himself and the Merits Select Committee which has been published in the past few weeks. So we are not even sure at this stage whether the Government even accept that it is the right of this House to vote to seek to defeat the Government on secondary legislation.
Behind the amendment moved by my noble friend lies a real concern about the draconian powers being given to Ministers and a doubt whether the kind of parliamentary scrutiny currently envisaged in this Bill is sufficient to ensure proper discharge of ministerial accountability to Parliament.
Lord Pannick
My Lords, I should like to add a question to the series of questions put by the noble Lord, Lord Hunt of Kings Heath, and give my support for the amendment tabled by the noble Baroness, Lady Henig. Is it the Minister’s understanding that if these functions are transferred to a company limited by guarantee, for example, judicial review in the courts would apply to the exercise of those functions by such a body, and would the Human Rights Act apply where appropriate to the content of any decision taken by such a body? This is of obvious importance because if the answer is no to either of those matters, the very important safeguards that exist when the functions are exercised by public bodies would be lost.
Lord Blackwell
My Lords, since this is the first time that I have participated in Committee on the Bill, perhaps I should declare my interest as a board member of Ofcom. I have to admit that I am puzzled by these amendments. The purpose of the Bill is to enable the Government to bring forward over time specific and detailed proposals on each of these bodies and to put those proposals in front of Parliament. A huge prize can be won by enabling this process to be conducted as quickly and effectively as possible. If we try to box the Government in by defining all the proposals up front and limiting the scope of what the answers might be, we complicate the process in a way that will make it impossible for the Government to bring forward those proposals one by one and to have the debate around them that each will require. These amendments are self-defeating because, in trying to put the cart before the horse by asking the Government to specify what they want to do before bringing forward the detailed proposals, they would limit the Government’s scope for action.
Lord Berkeley
My Lords, I found the intervention by the noble Lord opposite quite interesting because I do not think that Ofcom is on any of these long lists. However, a similar regulator, the Office of Rail Regulation, is on a list, and I shall speak to that in a later amendment. I am sorry; Ofcom is on the list set out in Schedule 7. Given the amount of legislative time it has taken over the years to set up these organisations, it seems a bit odd for the noble Lord to suggest that it is all right for them to be abolished, changed or whatever by secondary legislation without any debate.
Lord Blackwell
I want to make it clear to the noble Lord that I am speaking in a private capacity and not representing any body.
Lord Taylor of Holbeach
My Lords, I thank the noble Baroness, Lady Henig, for moving her amendment, which also stands in the name of the noble Lord, Lord Whitty. It and the amendments grouped with it raise interesting aspects of the Bill and I am grateful for the debate that has taken place. They concern the definition of an eligible person in Clause 1, and the ability of Ministers to transfer functions to persons so defined. Perhaps I can best help by saying that when we come to the debates about the different bodies, I will debate in some detail their functions and where they are going, as well as the nature of the changes that will be involved. I am sure that we will have every opportunity to do this.
Amendment 7A would remove Clause 1(2) and replace it with a new subsection that allowed for the transfer of functions to a Minister in the UK Government or the devolved Administrations, or to an eligible person. Amendment 9 would remove subsection (3)(a), thereby removing Ministers from the list of eligible persons under subsection (3). However, Ministers would still be covered by the proposed amended definition in subsection 3(b) of,
“any other person exercising public functions”.
So, taken together, these amendments would have no real substantive effect on the Bill.
Amendment 11 would remove unincorporated bodies, other than bodies of trustees, from the list of eligible persons under subsection (3). This amendment would prevent the transfer of functions to a variety of organisations, such as unincorporated partnerships. Perhaps I may illustrate this in a way that might particularly interest the noble Lord, Lord Liddle. I refer to the transfer of the regional development agencies to the local enterprise partnership structure, and the way in which that might function. The impact of Amendment 7A would be far wider because it would remove the option for Ministers to transfer any public function to an unincorporated body regardless of the nature and scope of the policy intent. I do not believe that this is a desirable outcome because it would risk ruling out a range of innovative approaches to the delivery of public functions. Our specific intention for the transfer of functions from RDAs is that local enterprise partnerships should be free to adopt the arrangements that suit them best as part of our move towards more locally driven, targeted approaches to growth.
I know that we will have an opportunity to talk about this in detail as a policy when we come to the debates on those bodies, but the amendment would remove the option to form an unincorporated partnership, and would go further by limiting options for public bodies reform in general. So, from that point of view, we resist the amendment because it goes to the heart of some of the changes that we are proposing.
Finally, Amendment 16A seeks to require that when a Minister lays an order under the powers in the Bill, the order names the eligible person to which any transferred functions are to be transferred. We do not believe that it is necessary to include such a provision in the Bill as the orders and the accompanying explanatory material, which has already been the subject of various amendments in Committee, would give this information as a matter of course. Indeed, the provision of such information would be covered by the proposed requirement to provide, as part of the explanatory material, the reasoning for the order.
Lord Rowlands
I apologise for interrupting the Minister. I wonder whether it might help the Committee if the Government could publish very soon some of these orders in draft form. There are precedents for doing such a thing, and at least we would know and understand a bit more the nature of the orders themselves.
Lord Taylor of Holbeach
The noble Lord, Lord Rowlands, has made an interesting suggestion. I think that by the time we have gone through a number of debates on individual bodies, noble Lords may well have quite a substantial idea of the pattern that the orders may well form. I hope to be able to provide noble Lords with the background to a lot of the changes that are anticipated by this legislation.
Perhaps I may respond to some specific points. The noble Lord, Lord Hunt—it might have been the noble Lord, Lord Pannick—asked about audit. Where public bodies are retained as a result of the 2010 review process, and in particular where functions have been transferred to them from other bodies, I assure the Committee that they will continue to be subject to the existing requirements for accounting, reporting, and data confidentiality issues. NDPBs are required to have in place robust governance and accountability arrangements, and both the Cabinet Office and the Treasury provide detailed guidance on the matter. Published annual reports and accounts are the main vehicle by which departments and public bodies regularly inform Parliament and the public about their activities and expenditure.
On freedom of information, I further reassure the House that where bodies already subject to the Freedom of Information Act are merged to form new arm’s-length bodies that are established by and at least partly constituted by appointments made to government, steps will be taken to ensure that they fall within its scope. Where a body’s functions are transferred to another body that is already subject to the Act, they will naturally be subject to that Act.
Lord Hunt of Kings Heath
Will the noble Lord clarify one point? My assumption is that when a function is transferred to a company, a board of trustees or an unincorporated group of people, the FOI requirements will not be so transferred. Am I correct?
Lord Taylor of Holbeach
It is surely up to the Minister to determine to what extent that is transferred. It is certainly not referred to here as being an obligation on any transfer. One would expect any orders that are presented to be covered by the Explanatory Notes accompanying any secondary legislation.
Lord Clark of Windermere
Can I press the Minister a little more on freedom of information? I listened very carefully to what he said, and he promised that any current statutory obligation for freedom of information would be transferred to a private company taking on a body’s duties and functions. At the moment this duty is statutory. Will it continue to be so?
Lord Taylor of Holbeach
If another non-departmental public body takes them on, that will indeed be the case.
On the whole business of freedom of information, it might be opportune for me to say that the Government are committed to extending the scope of the Freedom of Information Act to provide greater transparency, and a number of options for meeting this pledge—including the further extension to additional bodies carrying out public functions—are being considered by the Ministry of Justice. I therefore expect the House to be informed about this during the passage of the Bill.
Lord Greaves
Can I follow that with a question? If a forest was sold to a private landowner and the terms of the sale included a continuation of existing access for the public to the forest and its facilities, would that still be classed as a public function even though it was being carried out by a private landowner?
Lord Taylor of Holbeach
To the extent that the sale would impose conditions on any buyer, I imagine that the terms of such a sale would insist that this right of access was written into the agreement. Indeed, to the extent that the Government are responsible for safeguarding public interest in this respect, it would be for them to ensure that the agreement was held to by any prospective purchaser.
Lord Greaves
I am sorry; I did not make myself terribly clear. If right of access, which perhaps is a public function, and other public goods provided by that forest are to continue, would the private landowner be subject to the freedom of information provisions?
Lord Taylor of Holbeach
I am sorry but I will, if I may, go back to the whole business of public access. Public access is a right; it is enshrined in law. If people have right of access, they have right of access; it cannot be challenged. It would be up to the Government to ensure that any body that was party to a contract that included public access maintained that responsibility.
Baroness Henig
I thank the Minister for his full and considered reply, and all those who have intervened on this amendment. I do not seek to box the Government in; I seek clarity on the serious issue of what will happen to many of these bodies. A lot of parliamentary time and effort went into establishing them and it is really important to spell out the consequences of their abolition, which clearly will differ depending on the category of abolition we are talking about. We are talking not only about abolition; clearly we are talking about abolition and something else. Questions from noble Lords have pointed up their very sincere and strong anxieties as well as the important issues at stake. More of these issues will emerge as we go through this Bill.
We will be able to debate them one by one, but I sought in this amendment to get them into some sort of category so we can see similarities and debate them as classes.
Lord Taylor of Holbeach
I utterly understand the purpose of the noble Baroness’s amendment and the challenge it presents to the Government to give her answers. This has been a very general discussion on the whole reform programme and a number of matters have been raised. I hope it will be of help if I deal on reflection with questions to which I have been unable to supply full answers in a letter that I can leave with the Library of the House, as well as addressing it to her, of course, and to the noble Lord, Lord Whitty, so that people can be properly informed on all the aspects that have been raised in what has been a very valuable debate.
Baroness Henig
I am most grateful to the noble Lord for taking seriously the spirit of the amendments. As I said before, we are trying to get at this issue of different categories. I am grateful for his response. I said at the outset that these were probing amendments, and I therefore beg leave to withdraw the amendment.
Lord Liddle
Lord Liddle
My Lords, I hope I will not detain the House for long on this set of amendments. Like the noble Baroness, Lady Henig, I tabled them as probing amendments that are intended to be helpful to the Government by giving them an opportunity to think again about some of the issues at stake.
The issue is the broader subject of the future of economic regeneration policy—regional development policy—and we will obviously have a political debate about this when we come to Schedule 1. Several of us will move amendments to delete from the schedule the abolition of the regional development agencies. That is not the purpose of this set of amendments, however, which assume we will be largely unsuccessful. They are basically about the architecture of the scene on that assumption.
The point of Amendment 12 is basically that the local enterprise partnerships that are being set up should be one of the “eligible persons” to whom functions can be transferred in this situation. At the moment there is a lot of concern out there that these bodies are being set up without assets, money or any clear role. This is an opportunity for the Government to clarify that they intend them to have clear functions and that they will be taking powers to transfer functions to them. This is therefore an opportunity to help the Government to reassure people that this is the case.
Secondly, the Government have said that their policy in this area is motivated by localism and that they want to ensure that there is more local control over these things. They have painted the regional development agencies as a top-down new Labour monstrosity that was not really the localist solution favoured by the coalition Government. Amendment 16 basically states that if one accepts that that is the motivation—of course, I am willing to give the Government the benefit of the doubt if that proves to be the case—then surely the Government should transfer the functions of the abolished RDAs to local bodies within the region rather than centralising them.
Again, the fear is that many of the officials who never liked the setting up of the RDAs in the first place will grab back these powers to the centre: that they have taken advantage of the feeling of localism that inspired the Government’s proposals and have said, “Right, we shall take back to the centre many of these functions”. I do not think that that is what the Government intended, and the purpose of Amendment 16 is to prevent the Government from centralising these functions and to keep them at a regional or local level. I beg to move.
Baroness Armstrong of Hill Top
I support my noble friend Lord Liddle. He is much identified with the west of the north—if I may put it that way—whereas I am identified with the east coast, where we have rather a lot of snow at the moment as well as very particular problems.
I hope that the Minister will think a little more about the constitutional issues. In reality, the RDA in the north-east was not imposed from London. Way back in, I think, 1987 or 1988, my noble friend Lord Radice put forward in a Private Member’s Bill in the other place the idea of establishing a regional body in the north-east. There was much pressure at that time within the region for such a body to deal with economic matters and regeneration. At that stage, we were going through the end of ship-building in the north-east and—as I knew all too well—the closure of steelworks. We also knew that we were coming to the end of the coal-mining industry—thereby hangs a tale, but I shall not go there—so the body was created in the region but it also received the support of the then Conservative Government. The RDA in the north-east started in a totally different way from the other RDAs, as it was started through local enthusiasm and commitment to the region as a whole, which is a very small region in comparison to the rest of the country.
Amendment 16 deals with an important issue, given the fear in the north-east that some of the critical decisions will now go to the body that is to be chaired by the noble Lord, Lord Heseltine. The Government—and I shall make these arguments later as the Bill progresses—are making a huge mistake in the north-east. It is simply not true to say that people there want the RDA to be broken up. I listened carefully to the Minister last week when he said that the idea had come before the election from discussions that his party were involved in with business. In the north-east, that was not the message that business was giving. However, I shall say much more on that later.
In reality, the RDA in the north-east came from the locality, was acknowledged by the Minister’s party when it was previously in government and has continued and fitted into the structure and architecture that my party introduced after it came into government in 1997. There is great fear and anxiety about the new architecture but, whatever the architecture is, the north-east will work with it—even if we think it a mistake—because we want the best for the people and industry in the region. However, we wish to make sure that decisions—particularly on some of the bigger projects—stay local and are not taken into the national body that the noble Lord, Lord Heseltine, will chair. I hope that the Minister can give us that reassurance through these probing amendments.
Lord Beecham
My Lords, I, too, support the amendment moved by my noble friend Lord Liddle, and I associate myself with the remarks made by my noble friend Lady Armstrong. I, too, come from the east side of the region. Indeed, she spent the early part of her career in the ward that I now represent and she has obviously benefited greatly from that experience.
Today’s debate is quite significant in terms of the problems of the north-east. This morning, I read that Durham University Business School has produced a report for the soon-to-be-abolished One North East that suggests alarming implications for the region. The report refers to 50,000 jobs being lost in the near future, 20,000 of which will be in the private sector, with a loss of £2 billion to the regional economy over the next few years. The report has provoked the chairman of the development agency—a leading private sector businessman in the region who hails from Sunderland—to renew his criticism of the current trend of government policy. It is clear that he is very critical of the decision to abolish the agency and that the private sector in the region, for the most part, wishes the agency to continue. If the current policy is maintained, of course that will not happen.
In addition to those serious concerns, there is another issue that could be partly addressed by an amendment along the lines of Amendment 16, which seeks to require that,
“the ‘eligible person’ to which functions are transferred must be located within the region”.
I invite the Minister to agree that if Amendment 16 is accepted—and even if it is not—the same principle could be applied to the assets built up by the agency within the region. When I asked a Written Question about that recently, I received an answer that I would say was remarkable for its opacity if it were not, I am afraid, characteristic of most of the Written Answers that I and other noble Lords receive. Referring to the White Paper on local growth, the Written Answer stated:
“As set out in the White Paper … RDA assets and liabilities will be transferred or disposed of in line with a clear set of principles which include a key aim of achieving the best possible outcome for the region consistent with achieving value for the public purse”.—[Official Report, 22/11/10; col. WA 286.]
However, the White Paper states that the principal criteria will be,
“that a reasonable balance is reached as part of disposal/transfer between national deficit reduction, national policy aims and local ambitions/opportunity”.
In other words, the local element seems to be the back runner in that field of three considerations.
I hope that the Minister will give a clearer indication that the proceeds of any asset disposal—if assets are indeed to be disposed of, although they may well be better retained within the portfolio of agencies or other bodies that survive the abolition of the RDAs—should be directed to the region to which they have made a significant contribution over the years. The regions will be desperately in need of those, to judge by the report published by One North East today.
Lord Greaves
My Lords, I have considerable sympathy with the gist of Amendments 8, 12 and 16. I am aware that we will discuss regional development agencies in their own right not much further along in the Bill—at least, not much further down the page—so I will reserve most of what I want to say for that time. However, we have to see the amendments and the future—or non-future—of RDAs and where their functions are going to go in the context of what will, in effect, be the destruction or removal of the entire regional tier of government in this country. That may be a good thing or a bad thing, but things will be very different from what they are now.
In my view, this decision has been made from a very south-east of England perspective. People tell me that, given London’s governance arrangements nowadays with the mayor and the London Assembly, a regional development agency in London is redundant. I can understand that. People also tell me that the regions that have been created and drawn on a map in the south-east make no sense whatsoever. In any case, it is not clear why a regional development agency is needed in a part of the country that, at least to those of us who live in the north of England and other distant parts of the realm, appears to be relatively prosperous compared with the regions in which we live.
There may be a question as to whether a uniform pattern of regional government is required across the country, but what is—and always has been—clear is that some level of regional government, or governance, in the northern regions is essential. We now face the position in which, not very far to the north, Scotland has its own Parliament, which has an increasingly federal relationship with the rest of the UK. Scotland is able to make decisions for itself and, clearly, can attract and create investment in a way in which we cannot. The idea that Yorkshire, however you define its exact boundaries, and the north-west of England—never mind the north-east, about which other noble Lords have spoken eloquently—are not regions in their own right with an important role to play in economic development in particular and in a series of regional associations, and in regional provision of services of many kinds, seems to me to be nonsense.
I forgot to declare my interest at the beginning of Committee stage as a member of Pendle Borough Council, so I do that now. Some of us who live perhaps in the fringe areas of the north-west get very uptight about what we see as the attempted dominance of the region by Manchester and Liverpool as Greater Manchester and Merseyside. Nevertheless, no one who lives in the north-west would deny that they live in the north-west, which is a clearly understood and accepted region of England. It seems extraordinary to me that our regional level of government is being abolished altogether.
I am all in favour of decentralisation and devolution within the region, but whether the local economic partnerships—which I hope will be set up in all areas, although we have not got them in Lancashire yet—will be the answer is a matter that we will need to see in future. If we are not careful, we could end up with a hotchpotch system in which LEPs will be very effective in areas such as Greater Manchester and Merseyside but much less effective in areas such as Lancashire, because they may not reflect the genuine economic geography there. There is a big argument going on within Lancashire, as some noble Lords will know, about exactly which areas the LEPs will cover. If we are not careful, there is a real danger that we will end up with a two-tier system, which would be unfortunate.
Viscount Eccles
My Lords, I have lived, and worked in industry, in the north-east for 55 years. I have been disappointed that so far in this debate we have heard nothing about the role of the local authorities. Nor have we heard from that region, which, from my perspective, is the Tees, the Wear and the Tyne; that is where the development has taken place. Middlesbrough is the largest importer of cars in the country—noble Lords might not think that is a fantastic thing to be done in that particular town, but there it is. I have worked in Stockton-on-Tees, in Hartlepool and up the coast of Durham when there were coal-mines, which the noble Baroness, Lady Armstrong, was reminding us about. We equipped Wearmouth and Westoe in the middle of Sunderland, I worked in Gateshead and I closed a foundry in Jarrow.
Noble Lords need to remember that in that part of the country, including Northumberland—with the greatest respect, it is completely different from, for example, the Durham bit of Teesside; again we have these curious metropolitan boundaries, as well as the county boundaries—the people of the north-east, as it was then called, voted against having a regional assembly.
I would be the last person to criticise One North East; I have benefited from it in my life in Barnard Castle, at the Bowes Museum. But if there is a body that has a lot of money, a lot of people are going to beat a path to its door, treat it with respect and have all sorts of negotiations with it that end up with successful grants. The matter is much more complicated than just being complimentary about One North East.
I dissent from my noble friend Lord Greaves, however; I do not believe that there is a place for regional government in the north-east of England. There is a place for strong local government; the noble Lord, Lord Beecham, does not have to be told about that. It is quite likely—in fact, I would put my money on this—that a combination of whatever the Government propose in the place of RDAs, some functions for central government, some important functions for local government and some important functions for councils and private sector organisations is quite likely to be a more effective force for development than trying to create a regional body that represents neither the history nor the beliefs of the people in that part of England.
Baroness Royall of Blaisdon
My Lords—I beg the noble Lord’s pardon: after you.
Lord Maclennan of Rogart
I undertake not to delay the House for long. We no doubt wish to hear from the noble Baroness.
I would find it helpful if the Minister could indicate, in the context of the debate that we have had, whether it is considered that the functions currently exercised by the RDAs would be transferable to any of the bodies listed in Clause 1(3)(b), (c), (d) or (e). It is not clear on the face of it whether that is the case. I have little doubt that under Clause 1(3)(b) a “person exercising public functions” might, in view of the interpretation clause, include the transference of the RDA functions, which are conferred under an enactment—that enactment presumably being the subordinate legislation that the Bill provides for. However, it is not quite so clear that the last three sub-categories—companies limited by guarantee, a community interest company or a body of trustees—are appropriate for this.
There is, incidentally, no reference to local authorities here. That is something else that we might wish to consider at a later stage on the Bill. I am seeking clarification to assist the debate when we come to the substantive question about the RDAs later.
Baroness Royall of Blaisdon
My Lords, I also support the amendments tabled by my noble friend Lord Liddle. This brief debate has demonstrated the importance of this issue and how many questions are still to be answered about the transfer of powers, functions and assets. I humbly suggest to the Minister that, before we get to the substantive discussion on RDAs, it would be helpful if we could have some details about the transfer of the various functions and assets. That would help us all manage the debates in a more seemly fashion.
Everyone has declared where they come from. I come from the south-west, and one of the issues that we are pondering is how European funding is going to be distributed and by whom, who is going to be accountable and so on. I would be grateful if, among the information coming to us, the Minister could tell us about that.
This debate goes to the heart of localism. My noble friend Lord Liddle’s Amendment 16 goes right to the heart of that debate, and it is eminently sensible that the body that is going to be responsible for the functions is based in the regions and in as local an area as possible, precisely because people in London do not know the real needs of the regions, as the noble Lord, Lord Greaves, said. They do not know the employment potential or the real employment needs.
I would link these arguments to the Statement that we have just heard about the OBR and the importance of growth. I wonder how LEPs are going to fit in with whatever comes out of the Government’s White Paper on growth. As we know, the RDAs were a catalyst for growth and employment in the regions. RDAs are going and LEPs are coming in their place, so what can we expect of LEPs as catalysts for growth in the regions? How will the Bill interact with the White Paper?
Lord King of Bridgwater
My Lords, I support the noble Baroness in speaking for the south-west, although I do not regard her as being in the south-west at all. That is one of the problems of the south-west region. She rightly identified that certain parts of the south-west, such as Cornwall, have a different category status.
I had the responsibility at one time of proposing the abolition of the metropolitan county councils. There is a certain déjà vu about some of the arguments that are coming out in this debate. People at the time, for example, said that the councils were indispensable—mainly the people who served on them. With regard to the major cities, I remember going to Birmingham and being berated by both the Conservative and Labour leaders of Birmingham City Council about the uselessness of the West Midlands County Council. I noticed that, with the exception of the GLC, hardly anyone stayed up late to observe the funeral obsequies of the metropolitan country councils.
Amendment 16 is a very good idea. There are all sorts of good ideas that can be added to a Bill to complicate the issue. I do not know if he did it intentionally but the noble Lord, Lord Greaves, explained why it is not actually a very good idea, because the areas in question are all different when you are trying to lay down a particular requirement that applies to all the bodies that may now appear to take the place of the RDAs. London, the south-east and the south-west are quite different, while it is true that the north-east has problems of its own.
There is always a temptation—we have been in opposition ourselves—to add all sorts of amendments and requirements. Amendment 16 is a good idea and it would be a very silly Government who did not observe the points that it makes where it is sensible to do so. However, it is not inevitably bound to be the right thing to do. In this case I would not support Amendment 16; it may be the right thing to do in almost all cases but not in every one, and no further complications should be added to the Bill.
Lord Taylor of Holbeach
I thank the noble Lord, Lord Liddle, for moving this amendment, because it has led to a really interesting debate, and it gives the Government an opportunity to explore and explain further the details of the policy initiative which is represented by the abolition of RDAs and their replacement by local enterprise partnerships.
I start from the position of being a provincial. I am a fen-man. I come from an area that is rather overlooked by almost everybody. I live within five miles of the eastern region, but I happen to be in the east Midlands; it is an example of where regionalism tends to draw quite arbitrary lines. Sometimes those lines can be much harsher than when a lot of smaller bodies integrate within a jigsaw of interests. The noble Baroness, Lady Armstrong of Hill Top, and the noble Lord, Lord Beecham, talked about the north-east. It is not an area that I know well but I know it well enough to know that it is not a monolithic area; indeed, it is very different and the interests of Tyneside are different from those of Teesside, Wearside, the Durham coal-field and all those different integrated parts. It has been a problem and a challenge to Government to develop a policy that is going to provide proper, sustained economic growth in the regions of the country. The noble Baroness referred to initiatives going back 20 years or so; I can remember—I am young enough, or old enough, to remember—Harold Macmillan, and Quintin Hailsham with his flat hat on. I will not talk about recently departed individuals in the north-east, but it shows that it is a long-standing issue.
The great advantage of this debate is that it gives me, as my noble friends Lord Eccles and Lord King of Bridgwater have said, an opportunity to explain the Government’s policy. We could have had an afternoon’s debate on this sole subject, could we not? Probably we will. At least I can give an outline of the background, and I hope that will inform our debate yet to come.
I would like to set out the Government’s rationale for abolishing RDAs and encouraging the establishment of local enterprise partnerships. The Government’s economic ambition is to create a fairer and more balanced economy. We wish to see business opportunities in a broad range of sectors balanced across the country and between businesses. Our local growth White Paper, which was published in October, sets out how we will put businesses and local communities in charge of their own futures, rather than having to rely on centrally imposed RDAs. We are encouraging businesses, local authorities—noble Lords questioned where local authorities fitted into this pattern—and their partners to develop local enterprise partnerships, based on real economic areas such as Greater Manchester. My noble friend Lord Greaves mentioned the slight unease he sometimes had in the north-west at the dominance of the big conurbations of Manchester and Merseyside, for example. Rather than these artificial, created regions—
Baroness Armstrong of Hill Top
My Lords, I hesitate to intervene; however, one of the points I am simply trying to make is that the architecture in the north-east was not imposed from the centre. It was something that came up within the region at the time, and had enormous support and continues to have that support.
Lord Taylor of Holbeach
The Government are hoping that their proposals for local enterprise partnerships will be equally supported. Indeed, I hope through debate to be able to show the opportunities that exist; the thrust of the policy is exactly what I am sure the noble Baroness would seek to achieve also.
New partnerships are based on where people actually live and work. Businesses and civic leaders will work together to drive sustainable economic growth and create the conditions for private sector job growth in their communities; that is exactly the scenario that I hope the noble Baroness would agree to. The partnerships will be developed from the bottom up, rather than the top down.
Baroness Armstrong of Hill Top
My Lords, I find this argument really quite strange. The LEPs are being dictated. That is the only thing that we are being offered, even though the Secretary of State said in one of his first statements on this, when he was newly appointed, that he saw the rationale for the north-east to retain a RDA. Indeed at the beginning of June, after the election, he appointed the new chair and it was only two or three weeks later that he then decided, no, he was going to impose a different structure. What the Government are saying may be true for the rest of the country—it is for others to argue that—but it really is not true for the north-east. I am trying to get the Minister to understand that very different positions come from the north-east, and that somehow, if the Government are looking for bottom-up proposals, they are going to have to accept that and go back to the drawing-board on the north-east.
Lord Taylor of Holbeach
I do not believe that that is the case, and having listened to my noble friend Lord Eccles talk about his experience in the north-east, I do not think that the Government have got this wrong. The north-east will discover that local enterprise partnerships will provide a vehicle that links with existing local councils, local communities and local businesses in a way that the RDAs never achieved. They will be a much more powerful driver for economic growth. I must argue that because that is the position that the Government take.
Lord Maclennan of Rogart
Can the Minister say that a local authority is an eligible person under the provisions of Clause 1?
Lord Taylor of Holbeach
The arrangements at the moment for local enterprise partnerships require the complementary co-operation of local businesses as well as local authorities. In other words, we are looking slightly beyond just local authorities, although local authorities will be channels for government funding where it is considered to be appropriate. Local enterprise partnership structure is a combination of local authorities and the business community.
I have sometimes seen criticism that the Government have not been clear enough about how they want these partnerships to be organised and what they want them to deliver. This is quite deliberate because we have set out a number of key criteria. The partnerships need to have support from businesses and local authorities, they need to be based on real economic geography, and they need to offer real added value and ambition. Beyond this, it is for the partnership to decide how it will be structured and the policy areas it will cover. We work on the clear basis that local people know best what their needs are.
We acknowledge that the RDAs have done good work during their existence. I am full of praise for the high-quality people who have worked for RDAs and have supported them. Noble Lords will no doubt point to examples when we discuss each RDA at a later stage. However, since they were created in 1999, the RDAs have had a combined budget of more than £21 billion. Despite this, they have not succeeded in their primary aim of narrowing the gap in economic performance between the three regions in the greater south-east and those in the rest of England. It is necessary to take a new approach if we are to achieve growth throughout the country. The Local Growth White Paper also announced a regional growth fund worth £1.4 billion over three years. Businesses and communities, including those working through local enterprise partnerships, will be able to bid for money from this fund. Its aim is to support projects and programmes that have the potential to stimulate growth and, in particular, to help those areas that are currently dependent on the public sector to achieve private sector-led growth.
Lord Beecham
Does the Minister acknowledge that the north-east alone had £340 million in its annual budget? What, therefore, is the total reduction in the £1.4 billion? It must be very significant.
Lord Taylor of Holbeach
I am not in a position to comment in detail on the noble Lord’s figures. That is a matter for discussions elsewhere. All I know is that the focus of the regional growth fund will be, as I just said, on those areas where communities have become particularly dependent on the public sector for employment and where private sector-led growth offers an opportunity for future development in those parts of the country. The fund will support the best proposals that come forward, wherever they come from and whether they come from private enterprise or the local enterprise partnerships. It will complement the other measures that the Government are taking to support growth through investment, education and skills, improvements in competition and research and innovation.
I turn now to the noble Lord’s specific amendments. While Amendment 12 is designed to achieve the practical and sensible aim of allowing transfers of functions from bodies appearing in Schedule 1 to the Bill to local enterprise partnerships, we do not believe it is necessary. As I have said, in inviting businesses, local authorities and their partners to establish LEPs, Ministers chose to allow them the maximum level of flexibility. This extends to the type of partnership arrangements that they should put in place, which will be a matter for the partners themselves. Because of this, the Government do not intend to give local enterprise partnerships a statutory definition in the localism Bill or elsewhere. In other words, there will be no uniform model for local enterprise partnerships; they will be unique to the location in which they operate.
With this in mind, the Bill is deliberately drafted to allow transfer of functions and assets to local enterprise partnerships, whatever legal form the partners choose to give them. Clause 1(3) defines an “eligible person” in a very wide way, including companies limited by guarantee and community interest companies. We expect many local enterprise partnerships will take these forms. In addition, in the case of transfers from the RDAs, Note 2 to Schedule 1 allows transfers to any body corporate. Therefore, the Bill as currently drafted already allows transfers to local economic partnerships in whatever form the partners choose to give them. There have been questions about what will happen to RDA assets. This was all set out in the Local Growth White Paper. RDA assets and liabilities will be disposed of or transferred in line with a clear set of shared principles, which include aiming for the best possible outcome for the region, consistent with achieving value for the public purse.
Lord Liddle
My Lords, I thank the Minister for his last point on arranging a briefing for us. Some of us are still mystified. Personally, I am mystified as to why, if local enterprise partnerships are such a good thing, they cannot be included in the Bill. That seems to be a contradiction in terms.
The more important point is about the transfer of functions from the RDA. I hope that the Government will seriously think about this again. What I heard from the Minister was that there is an intention to centralise quite a lot of these functions. There is an intention that it will be top-down and that the growth fund will decide which projects will go ahead. When I have read Government policy statements, it seems to me that, on areas such as innovation, the marketing of the region and skills, it is intended that these functions will be conducted at national level.
I will not detain the House any longer on this tonight. I hope that we will have the opportunity to come back to it. I look forward to the briefing that the Minister has promised and, on that basis, I beg leave to withdraw the amendment.
Lord Borrie
Lord Borrie
My Lords, we now come to the long list of bodies, listed alphabetically, that are scheduled in Schedule 1 for abolition. The council to which the amendment refers was only recently created by the Tribunal, Courts and Enforcement Act 2007. It is an advisory non-departmental public body sponsored by the Ministry of Justice. Its main functions are to keep the administrative justice system under review, indicate how the system might be made more accessible, more fair and more efficient and make any proposals needed for desirable change. It is a successor body to the Council on Tribunals set up in 1958 on the recommendation of the Franks committee. Sir Oliver Franks—later Lord Franks—was the chairman. It was called the Committee on Tribunals and Inquiries—an eminent body—to which I recall giving evidence, with others, from the Society of Labour Lawyers in 1957. The later Leggatt report of 2001, chaired by Lord Justice Leggatt, proposed not abolition—as this Government have—but to advocate a wider remit for the Council on Tribunals to focus particularly on the needs of users—or consumers, if you like—across the whole administrative justice landscape.
Those noble Lords who were here for the first Committee sitting may recall that the noble and learned Lord, Lord Woolf, intervened and made the point that the Council on Tribunals had,
“played a significant part in the development of administrative principles of good practice”.—[Official Report, 23/11/10; col. 1023.]
The noble and learned Lord went on to mention a number of areas, including welfare, fiscal disputes and many other kinds of disputes, which over the years have been dealt with by tribunals of all kinds. They have become famous for their work and have taken a greater and greater part of judicial work than ever before.
Following our Second Reading debate on 9 November, in which I queried the inclusion of the Administrative Justice and Tribunals Council in Schedule 1, the Minister helpfully wrote to me a letter, dated 16 November, that was also placed in the House of Lords Library. In this letter the Minister agreed with me that the council and its predecessor body, the Council on Tribunals, had done a useful job, but went on to say that oversight of administrative justice policy was now a function of the Ministry of Justice. A body like this council—or the council as extended by the 2007 Act—should continue to exist only if it was “needed to provide impartial advice”.
The purpose of bringing forth this amendment is to remove this council from the list of potential bodies to be abolished. My contention is that this body is still needed to provide impartial advice. The council and, for five decades, its predecessor, the Council on Tribunals, invariably consisted of judges, practitioners, academics and others from various backgrounds, acting, of course—because this is the only basis on which they would belong to such a council—on a part-time basis. The Government and the relevant department—the Lord Chancellor’s Department, later the Ministry of Justice—had the benefit of a number of people with knowledge of the workings of tribunals, which could go to the work of the Council on Tribunals, be published in its specific reports and its regular annual reports. Although I express an interest as a former academic, the academics who were appointed to the Council on Tribunals often had knowledge of foreign systems of law that helped to feed into and inform the discussions of the Council.
Full-time civil servants within the Ministry of Justice have their value and place. They are important people. I certainly do not wish to denigrate them. However, full-time civil servants cannot replicate the breadth of knowledge and empirical experience that is so useful when an advisory body like this is called in to assist. I believe its abolition would be a serious loss. I beg to move.
Lord Newton of Braintree
My Lords, I rise now not to trample on the noble and learned Lord, Lord Lloyd, whose name is the second listed in support of Amendment 17, but because he indicated that he would like me to speak before he does. I have already declared in earlier stages of the House’s proceedings that I have a really strong, though now historic, interest in this matter, as I was chair of the Council on Tribunals and then of the Administrative Justice and Tribunals Council for all but a month of 10 years—in other words, for, roughly speaking, one-fifth of its entire existence. I did not want to take the lead on the amendment because that might have looked odd against that background, but I am delighted that the noble Lord, Lord Borrie, has done so. For this purpose I regard him as my noble friend not least because, during the passage of the Tribunals, Courts and Enforcement Bill, it turned out that we had a remarkable number of things on which we saw eye to eye. I am very happy to support him.
I was going to give—the noble Lord, Lord Borrie, has done this for me, so I need not give it again—a sort of potted history of the origin of the Administrative Justice and Tribunals Council, the Leggatt report, the part that the council has played in the creation of the proposed integrated courts and tribunals service and the contribution that I, like the noble and learned Lord, Lord Woolf, feel that the council has made. However, the odd thing—which the noble Lord, Lord Borrie, did not mention—is that the Franks report had its origin in something that happened in the mid-1950s, which one or two in the House may remember, in an incident called Crichel Down. The Crichel Down affair was thought to be a scandalous abuse of executive power that led to such great concerns that it was in effect the origin of the Council on Tribunals and of much that has happened in the intervening period. Indeed, that incident constitutes one of the few instances since the war in which there was a principled ministerial resignation following something that had happened in a minister’s department. The Government may contend that there is no longer any risk of any kind of abuse of executive power in the dealings between citizen and state. The situation may be better than it was—I am glad that the Chief Whip is not present to hear this possibly tendentious remark—but I do not think that we would be discussing the Bill today if there was no risk of abuse of executive power. I do not believe that the need for safeguards has disappeared.
We are discussing not an ephemeral body that was set up on a transient whim but a council that has been a consistent part of the scene—and generally valued as part of the scene—for some 50 years. As the noble Lord, Lord Borrie, has said, the council’s powers were extended and its remit widened by Parliament only three years ago, with general support, as far as I can recall, and not a hint of opposition from any quarter in this House. However, now the council is included in Schedule 1 to the Bill. The remarks of the noble and learned Lord, Lord Woolf, have already been referred to, so I will not repeat them, but I will seek to build on what has been said about the council’s importance. The volumes of possible cases—not actual cases—between citizen and state include: 6 million benefit claimants; 2.5 million applications for visas; more than 25,000 applications for asylum; more than 220,000 pupils with statements of special educational needs; nearly 60,000 applications to the Criminal Injuries Compensation Authority; and nearly 25,000 complaints resolved by the Parliamentary and Health Service Ombudsman. What we are talking about is administrative justice in all those areas—involving tribunals, ombudsmen and the like—between the citizen and the state. In reality, the council is probably more important to most citizens than the courts, though with nothing like as high a profile.
Let me give the House the success rates in the appeals over which the Administrative Justice and Tribunals Council has had some kind of oversight function or watchdog—although I never used that word—role. Its success rates are as follows: for criminal injuries compensation, 43 per cent; for social security, 41 per cent; for immigration and asylum, nearly 40 per cent; for education admission appeals, more than 30 per cent; for education exclusion appeals, a quarter; and for the Care Standards Tribunal, 25 per cent. This is not an insignificant corner of the judicial system.
The great schedule of quangos to be abolished was published on 14 October, but most of those were simply declared subsequently not to be quangos and disappeared—a marvellous piece of smoke and mirrors—although there are still about 500 left. In the original list, the Ministry of Justice included three justice councils—the Administrative Justice and Tribunals Council, the Family Justice Council and the Civil Justice Council—and four procedure rule committees. For some reason, one of those three councils has landed up in Schedule 1, whereas the other two are in Schedule 7. All four procedure rule committees—civil, criminal, family and tribunals—are in Schedule 7. All of those—the two other justice councils and the four procedure rule committees—are said to be retained because they perform a technical function that should be independent of government. The odd one out is the Administrative Justice and Tribunals Council, which operates in this crucial area of justice between citizen and state. The document just said, “Abolish—no longer needed”. It did not say why; it just said that, to use a phrase that I used a week or so ago, the AJTC is for the chop.
That decision is all the more difficult to understand when you compare the terms of reference of the Administrative Justice and Tribunals Council with those of the Civil Justice Council. I shall not read out those terms, as they have been rehearsed briefly by the noble Lord, Lord Borrie, but you could hardly get a piece of tissue paper between them except for some odd bits of drafting. As the noble Lord has rehearsed, the terms of reference of the Administrative Justice and Tribunals Council require the council to look across the scene as a whole and at the needs of users. That seems to me, if anything, to be not less but more relevant in a world of staffing cutbacks, attempted cutbacks in legal aid and the desire to promote alternative dispute resolution as a more efficient way forward. Such objectives are supposed to be advanced by the council, which the Bill proposes to eliminate.
I do not want to say too much more, but I will ask a number of questions. Whatever the reason for the proposal—we have not been given a serious reason—the one thing that it cannot be is the coalition’s rhetoric about taking decisions back from bodies outside government, or at arm’s length, into government itself. I ask the Minister a rhetorical question: at the end of the debate, will he give me a list of the decisions that the Administrative Justice and Tribunals Council takes, or could take, that should be taken by the Government? This is not going to trouble him very much. If he likes, I will give him a blank sheet of paper now, and he can give me a blank sheet of paper back as the answer because there are no such decisions.
I will also pose some questions that are not at all rhetorical. The noble Lord, Lord Borrie, indicated that the Minister had said that there was some kind of oversight role of the administrative justice system in the Ministry of Justice. Unless things have changed much more dramatically in the past year or so than I have caught up with, there is no serious centre of responsibility for administrative justice in the Government. The Ministry of Justice is responsible for the Tribunals Service. This may have changed in the past year, but I think that I am right in saying that the Cabinet Office is responsible for ombudsman policy. However, individual departments often go down their own curious track in respect of ombudsmen. That was illustrated during the passage of the Tribunals, Courts and Enforcement Bill, when the Department for Transport or the Department of Energy—I forget which—argued for competing ombudsmen. The competition was between suppliers of services choosing which ombudsmen they wanted rather than consumers choosing which ombudsmen they wanted—a daft policy, if ever there was one. Therefore, ombudsmen do not seem to be controlled within a principled framework. If I am right in saying that the Cabinet Office is responsible for this matter, the Ministry of Justice is obviously not responsible.
The responsibility for education admissions and exclusion appeals lies essentially with education departments and local authorities. Policy on parking fines is in the hands of the Department for Transport. Each department is responsible for its own standards of complaints handling, review and all the rest of it. This is diffused across government. In reality, that has to be the case, especially for complaints handling and reviews. It seems to me that a body that can look from outside the immediate confines of government across the field is at least as much needed in this area as in any other.
Let me ask a further few questions before I conclude what I had not intended to be so long a speech. Is it the Government’s view that there is no longer a need for this body, or anything like it? If so, why? If not, how will the role and purpose be performed in future, and by whom? Bearing in mind that the structure of the AJTC included a Scottish committee and a newly created Welsh committee, I want to ask whether the devolved Administrations were consulted before the AJTC appeared in Schedule 1. If so, did they agree? What will happen if Scotland or Wales, or both. wishes to maintain the AJTC committees that they currently have?
There are dozens more questions to be asked, but I will not go on any further. I am not expecting immediate answers from the Minister, and I certainly do not want answers hastily concocted by his excellent officials on the basis of briefing provided by departments to which they do not belong. I am not saying that there is no case for any kind of change or movement. There could well be some scope for rationalisation. Rather curiously, since I do not much like Schedule 7, I would be far happier if the AJTC was in Schedule 7 rather than in Schedule 1, so that at least the Government would have some time to give proper thought to it and come forward with some serious proposals. If the Minister says that all these questions will be answered when an order is made under Schedule 1, I have to say to him that, in my view, we should have both the rationale and the answers to these questions before—not after—his colleagues are given powers to abolish such a body by not much more than the stroke of an administrative pen. I look forward to his comments on these and other points.
Lord Lloyd of Berwick
My Lords, I, too, support this amendment, and I am very glad to follow the noble Lord, Lord Newton, with all his lengthy experience of how the council actually works and how much good it has done over the past 10 years and, indeed, for far longer. I add something only because I was much involved when the Tribunals, Courts and Enforcement Bill was going through the House in 2007. I thought it might be of interest to the Committee to look again at what Sir Andrew Leggatt said in 2001 about the old Council on Tribunals, since it was on his report that the 2007 Act was based. It does not seem to have occurred to Sir Andrew Leggatt that the council would cease to be of any utility once the new system had come into operation—quite the contrary. Briefly, he said in his overview:
“The Council—
that is, this council—
“should act as the hub of the wheel that is the Tribunals System. Its functions should include taking evidence from user groups, from the Tribunals Service, from the departments, and from the Judicial Studies Board about how well the system is working. This oversight”—
note the word “oversight”—
“should be in addition to, not instead of, the direct relationship that will exist between the participants in the tribunal process”.
A little later he says:
“Departments”—
that now would include the Ministry of Justice—
“should be under a duty to consult the Council on primary (in addition to secondary) legislation, and it should be given specific … authority to comment on it”.
Those were Sir Andrew’s views, and they were, of course, adopted by Parliament in the 2007 Act. Section 44 sets up the new council, and it is included under the following chapter heading:
“Oversight”—
again, note the word—
“of Administrative Justice System, Tribunals and Inquiries”.
In the schedule, its functions are described as follows:
“The Council is to … keep the administrative justice system under review”.
The schedule goes on to say that,
“‘the administrative justice system’ means the overall system by which decisions of an administrative or executive nature are made in relation to particular persons”.
It really could not be clearer than that.
Lord Howe of Aberavon
My Lords, I am the final person who has their name down in support of the amendment, and I support all the points made so far by noble Lords on all sides of the House. I confess that when my noble friend the Minister first presented this set of propositions upstairs to a collection of us from all sides of the House, I was reckless enough to describe the prospect as a potential tsunami of constitutional vandalism. That phrase struck me because of the structure of the Bill, which has since been criticised by the Constitution Committee. However, the more I have heard about the way in which my noble friend has been handling the Bill and responding to debate in this House, the more I am convinced that that is certainly nowhere near his intention, nor near the intention of the Government.
The Government may have been misled in the definition of their objective by the rationale set out by the Minister for the Cabinet Office, Francis Maude. He said that the Government should not leave this to people or bodies that were unelected and allowed to remain when their mission had long been accomplished. This is the approach: to see what may have outlived its usefulness. A Cabinet Office press release of 14 October this year states that,
“the Government’s presumption is that state activity, if needed at all, should be undertaken by bodies that are democratically accountable at either national or local level”.
No one could quarrel with that. However, the power is often exercised by Ministers and civil servants—no doubt most of the time in good faith—and it ignores the necessity of having an independent, external review. That is why the structure of this law—recounted in full by the noble Lord, Lord Borrie, and the noble and learned Lord, Lord Lloyd, rests on history. The noble Lord, Lord Borrie, recollected the Society of Labour Lawyers in the 1950s, and I recollect similar activity in what was then the Inns of Court Conservative and Unionist Society. We pressed for change under the leadership of people such as Lord Gardiner and Lord Simon of Glaisdale, seeking to promote the case that was scrutinised by Lord Franks and that led us, as has already been recounted, to the Tribunals and Inquiries Act 1958. The remarkable thing is that that has been the foundation for further review and reform. Noble Lords have already gone through that and brought us up to date with the Inquiries Act 2005 and the Tribunals, Courts and Enforcement Act 2007.
Perhaps I may add an anecdote of my own. It was my good fortune, while practising the profession that I have long since forgotten but of which I am still proud, that after representing Coal Board officials at the Aberfan inquiry, I was appointed to conduct an inquiry into misbehaviour at Ely Hospital, Cardiff. It was an ad hoc inquiry of the kind that has been repeated in many cases since. It was also an illustration of the way in which administration can go wrong. Throughout the operation of the inquiry, we struggled to secure our independence. In the first instance, we were not allowed to announce our existence, but we pressed for that to happen in order to appeal for outside witnesses. We were told that we could not have sufficient legal representation within the organisation. When we submitted our first report, we were told that we were going beyond our requirements by exceeding the mere description of facts and by daring to venture recommendations, and so on. My colleagues and I wrote two reports, one of which included the recommendations and one that did not. Happily, we were able to make sure that the then Secretary of State, Richard Crossman, who had a special adviser who had been a colleague of mine at Cambridge, knew of the existence of the two drafts and immediately authorised publication of the full draft. This decision was acclaimed later in a biography by Anthony Howard as one of his most courageous acts.
The point of the anecdote is to illustrate the extent to which conduct within a democratically elected institute can be less than perfect. That is why we have the structures that the noble and learned Lord, Lord Lloyd, went through so carefully—the outside tribunals and bodies to which appeals can be taken. The Tribunals and Inquiries Act was replaced to some degree by the Tribunals, Courts and Enforcement Act 2007—after the preceding body had been in existence for 50 years. Its position was enhanced and its structure detailed in Schedule 7 of the Act, which covered some 11 pages. Therefore, we have a body that has been well established for a specific purpose: to oversee areas that might otherwise be left entirely to elected bodies and people appearing before them. It would be wholly indefensible to remove this body from the existing structure of our balance between administration, law and politics.
Lord Pannick
My Lords, I add my support to this amendment and agree with all that has been said. There is a further reason why it is so essential that we retain an independent and impartial body to review the performance of tribunals; so many of the decisions of these tribunals concern the implementation of government policy, and it is government departments that are the defendants in those tribunal proceedings.
It is undoubtedly a fact today that a far greater proportion of legal rights are vindicated in tribunals than in 1958 when the Council on Tribunals was established. It will be the inevitable consequence of the reductions in legal aid that those trends are exacerbated. It is therefore even more important today than it was in 1958 that there be an independent and impartial body that supervises and assesses the performance of these judicial functions.
Baroness Scotland of Asthal
My Lords, it is with mixed feelings that I rise to speak about the Administrative Justice and Tribunals Council and add my voice to all of those who are urging the Minister to think again in relation to this council. What has been said by my noble friend Lord Borrie, what has been said so eloquently by the noble Lord, Lord Newton, and by the noble and learned Lords, Lord Lloyd of Berwick and Lord Howe of Aberavon, supported by the noble Lord, Lord Pannick, is not only correct but I hope the Minister will take comfort from the fact that he could not have been shot at by more accurate huntsmen. If he is feeling that he has been holed beneath the water, he should draw comfort from the fact that the whole House has done it and not just those noble Lords who sit behind him.
I have pleasure in rising because I am pleased to add my voice to those others. There is also, however, concern and a little sadness that I am driven to speak at all, prompted by the Government’s as yet unsubstantiated case for abolishing the council. It is sad to see the council head the list for abolition under Schedule 1.
This House will remember the debate in 2007. The noble and learned Lord, Lord Lloyd, and others are right to say there was unanimity in this House about the necessity to keep the council, the sagacity of Sir Andrew Leggatt’s report and the rightness of supporting it. The Minister may recall that the late and much missed Lord Kingsland said in relation to the then Government’s proposal that they had got it absolutely right by following Sir Andrew’s arguments. He was talking about constitutionality. The noble and learned Lord, Lord Lloyd, was therefore right to quote what was said by Sir Andrew Leggatt and to endorse it.
I was also concerned, when looking at the Chairman’s foreword for the most recent annual report of the Administrative Justice and Tribunals Council, to read:
“However, as the text of this foreword was being finalised we learned that the AJTC is to be included among the MoJ sponsored Arms Length Bodies to be abolished through the Public Bodies Reform Bill, due to be introduced in Parliament in the autumn. Whilst recognising the absolute prerogative of Ministers and Parliament to take such a decision, the outcome is disappointing and it is unfortunate that we were not included in the discussions leading to this decision. However we look forward to contributing to the debate”.
The foreword points to the fact that this council in its various forms has done sterling work on behalf of individuals for the past 50 years and has throughout been applauded for its achievements. My concern is aggravated therefore by the quality of the process undertaken by the Government in making this choice. The annual report sets out all the reasons why the council should be retained. There are many around this House who feel that the inclusion of the council on the Schedule 1 list is extraordinary.
That feeling of unhappiness is exacerbated when one considers the millions of people who may be affected by the acts and omissions undertaken by various administrative bodies which have their roles scrutinised by tribunals with the council supporting them.
I, too, agree with the comments made by the noble and learned Lord, Lord Lloyd of Berwick, and echoed by the noble and learned Lord, Lord Howe, that if we are to go through the list organisation by organisation, entity by entity, it will take some considerable time if each body is to be given the scrutiny it deserves.
Your Lordships will know that if the council is to remain on the list, a great deal of unhappiness—not just in this House but for individuals who are adversely affected by that decision—will be occasioned. I should conclude with a view comments from Sir Andrew Leggatt himself, when talking about the Administrative Justice and Tribunals Council. He said:
“There should be one guiding principle. In origin, many tribunal functions started within the administrative process. Tribunals were established because it was clear that the citizen needed an independent means of challenging possible mistakes and illegalities which was faster, simpler and cheaper than recourse to the courts. Tribunals are an alternative to court, not administrative, processes. They will keep the confidence of users only in so far as they are seen to demonstrate similar qualities of independence and impartiality to the courts”.
His words go to the heart of why judicial and quasi-judicial bodies need additional protection, and is why I and many others support the amendment. Independence has to be established and has to be seen, felt, and tasted. If the council is removed, I add a question to those posed by the noble Lord, Lord Newton: how is that to be guaranteed if everything is invested in the department, which may be in need of challenge, assistance and advice?
I urge the Minister to say this evening that the council's name will be struck from the schedule. Then the House would not be put through the burden to vote and the noble Lord may have greater time to consider the other bodies which may or may not merit inclusion.
Lord Taylor of Holbeach
I thank the noble and learned Baroness for her contribution, and the noble Lord, Lord Borrie, for presenting the amendment. As all noble Lords have said, this is the first body to be debated—not because it is the most important but because of the way in which we have ordered our alphabet. I might have chosen a different one to start with, I might add, but I think that the whole House will understand that. I am grateful for the widespread and learned comments from various noble Lords around the House, including my noble friend Lord Newton and my noble and learned friend Lord Howe, whose experience I respect.
Perhaps I can put this decision into context and explain to the House the Government's thinking. I should start by saying that this body is not itself a tribunal. It is a council which has a role in advising on how tribunals might best function, but it is not a tribunal. That the amendment would remove the Administrative Justice and Tribunal's Council from the schedule is in many ways a tribute to the development of the Tribunal Service under the previous Government. As noble Lords will know, there has been a considerable expansion of the Tribunal Service, and it is to that Tribunal Service that the public has access. I quite agree that tribunals are a much better way of resolving matters of injustice in the vast majority of cases involving individual citizens.
The Administrative Justice and Tribunals Council is an advisory body. It was set up under the Tribunals, Courts and Enforcement Act 2007—as several noble Lords, including the noble Lord, Lord Borrie, mentioned—to advise the Lord Chancellor, the Ministers of the devolved Administrations in Scotland and Wales and the Senior President of Tribunals on administrative justice. That is its role. To be clear, the AJTC is not a judicial body. Its abolition would not have a direct impact on judicial independence or judicial decision-making.
I assure my noble friend Lord Newton that Ministers have been engaging with Ministers in the devolved Administrations and that assurances have been given that the Scottish and Welsh committees of the council can continue and will receive funding until the autumn of next year. The devolved Administrations will thereafter make further arrangements as necessary for their jurisdictions after the abolition of the council.
Lord Newton of Braintree
Does that mean that we will have the ultimate absurdity of the Government abolishing the Administrative Justice and Tribunals Council for England while the Scottish and Welsh Administrations decide that they need a similar body in Scotland and Wales? It gets dafter by the minute.
Lord Taylor of Holbeach
That is entirely up to the devolved authorities to determine. I make no apologies; there is logic behind that. The tribunal system in the devolved authorities has not undergone the same development as has been undergone in England. The specific development in England occurred during the previous Government, and that situation could continue, although I think that it is unlikely.
Lord Sewel
The noble Lord mentioned the devolved authorities—the noble Lord, Lord Newton, has already taken him up on one point—but he indicated what is likely to happen in Scotland and Wales. That can happen only if the devolved authorities themselves agree to the legislation. Is a legislative consent order already in place?
Lord Taylor of Holbeach
It will be necessary to get a consent motion from both devolved authorities. I think that I have said that before when we have been discussing this matter.
Lord Sewel
That is helpful, but what happens if the devolved authorities do not proceed with the legislative consent order?
Lord Taylor of Holbeach
We have no reason to suppose that that will happen. We are talking to the devolved authorities about this whole business. Indeed, the Scottish Parliament has already passed its own public bodies review, which has been running for two years now, so it is not a strange thing for people involved in Scottish politics to come to terms with a Bill such as this.
To return to my remarks, one of the council's functions is to keep under review the constitution and working of tribunals. That function dates back to the AJTC’s predecessor body, the Council of Tribunals, which, as noble Lords have said, was established by the Tribunals and Inquiries Act 1958. That Act was the result of Sir Oliver Franks’s report on administrative tribunals and inquiries, which was published in 1957. The tribunals landscape has changed immensely since the late 1950s, and much of that change has been relatively recent. I hope that I have paid adequate tribute to the previous Government’s work in that regard. Sir Andrew Leggatt’s 2001 review, Tribunals for Users, calls for a more unified tribunal structure supported by an independent Tribunal Service. April 2006 saw the beginning of that. The Tribunal Service was set up to administer the tribunals within the Department for Constitutional Affairs. Then came the Tribunals, Courts and Enforcement Act, which received Royal Assent in 2007. The main effects of this legislation included the creation of a new, simplified statutory framework for tribunals to provide coherence and enable future reform and the unification of the tribunals’ judiciary under the Senior President of Tribunals.
It was envisaged that the AJTC, set up under the 2007 Act, would advise on the development of the Tribunals Service and be able to offer proposals for change. This the AJTC did, first under the very capable leadership of my noble friend Lord Newton and more recently under the chairmanship of Richard Thomas. It has played an important role in helping in the creation of the Tribunals Service and deserves proper recognition for this.
However, we have now moved from a structure in which tribunals were funded by the departments whose decisions they reviewed, which left appellants feeling they were always at an away match. We now have a unified Tribunals Service which is well established, supporting the majority of central government tribunals, and run by the Ministry of Justice. So I believe that the AJTC has served its purpose in helping to set up the unified service.
The review of public bodies that the Government have undertaken has resulted in agreement that remaining central government tribunals outside the Tribunals Service will either transfer in or will be considered for transfer in. In addition, the development of tribunals policy—
Lord Lloyd of Berwick
On that last point, I find it very difficult—perhaps the noble Lord could deal with this—to reconcile that argument with the fact that the tribunal is contained in the same act. There was no suggestion that the council was to come to an end when the Tribunals Service took effect—not in the slightest.
Lord Taylor of Holbeach
At that time that was certainly the case. I accept that. The 2007 Act did not do away with the council. The noble and learned Lord, with a slip of the tongue, said “tribunal”. It is not a tribunal; it is an advisory council. It is very important that noble Lords bear that in mind.
In addition, the development of tribunal policy and the development of governance arrangements for the Tribunals Service mean the AJTC’s review function is no longer needed. I concur with the noble Lord, Lord Borrie, that the input of the judiciary and academics is crucial to the improvement of services and policy development. I do not envisage that their involvement will cease with the abolition of the council. Officials will continue to seek their views as part of policy development in relation to tribunals and administrative justice reform.
The AJTC also has a role in keeping statutory inquiries under review. For any noble Lords present who are not familiar with the AJTC’s work, I should perhaps explain that this role does not include keeping under review public inquiries such as Dunblane or Shipman. The AJTC has focused mainly on inquiries relating to land use.
The Planning Inspectorate, which is an executive agency of the Department for Communities and Local Government, is responsible for the determination of planning and enforcement appeals and routinely holds statutory inquiries into a range of land use developments. The Planning Inspectorate has now established a robust quality assurance unit, operating across all functions of the inspectorate to ensure appropriate standards and procedures are upheld. The quality assurance unit can, if necessary, recommend changes in the inspectorate’s audit committee or the inspectorate’s main board. The inclusion of non-executive directors on the inspectorate’s board ensures external scrutiny. Therefore, the AJTC’s review function in relation to statutory inquiries is no longer required.
Of course, the AJTC was given broader statutory functions under the Tribunals, Courts and Enforcement Act 2007 than its predecessor body, the Council on Tribunals. These are to keep the administrative justice system under review; to consider ways to make the system accessible, fair and efficient; to advise on the development of the administrative justice system; and to put forward proposals for change and make proposals for research.
If the noble Lord, Lord Newton, suggests that one of the functions of the AJTC was to act as a curb on executive power, I have to say that this was not a function of the AJTC and perhaps I can clarify that by going back to the 2004 White Paper Transforming Public Services: Complaints, Redress and Tribunals. It proposed a widened remit for an Administrative Justice and Tribunals Council but it also envisaged that the then Department for Constitutional Affairs would,
“take the lead on co-ordinating redress policy across Government. Its task will be to facilitate development of more integrated and consistent dispute resolution systems for the benefit of the public. It will take a systemic view across the various means of tackling disputes and the roles of the different organisations that provide them (courts, tribunals, ombudsmen, independent complaints handlers, etc). It will propose ways of dealing with gaps, weaknesses and overlaps while drawing on the unique qualities and key strengths of the distinct elements of the current arrangements”.
That was the last Government’s proposal under the 2004 White Paper for the role of the Department for Constitutional Affairs. In recent times, priority has been given to reforms to the tribunals system but, as the Ministry of Justice has taken on what is properly its responsibility and a wider administrative justice capability is being developed, it will take the lead—
Lord Warner
I am sorry to interrupt the Minister in full flow. I have listened very carefully to this. He has made much of the fact that the Ministry of Justice will take on a series of roles and functions that noble Lords seem to be mistaken in thinking that the advisory council would be performing. Can he give us some idea of how many people in the new, streamlined Ministry of Justice will be available to actually give this kind of support to the tribunals?
Lord Taylor of Holbeach
No, I cannot give that answer. The noble Lord correctly referred to the advisory council. We are talking about executive responsibility envisaged by the previous Government, vested in the Department for Constitutional Affairs and currently recognised by this Government as being vested in the Ministry of Justice. As I was saying, it will take the lead on the co-ordination redress of policy across government, facilitating development of more integrated and consistent dispute resolution systems. It will also take a systemic view across the various means of tackling disputes and the roles of the different organisations that provide them. By enhancing the policy function, the Ministry of Justice will be well placed to look across the entire administrative justice system.
The noble Lord, Lord Newton, is absolutely correct: the Cabinet Office is responsible for ombudsmen policy, including the Parliamentary Ombudsman. Each department is responsible for ombudsmen within each policy area on which it leads. However, administrative justice includes both tribunals and redress by ombudsmen and therefore the Ministry of Justice will take a systemic view across government, including ombudsman functions, as part of its role leading on administrative justice policy. For example, the Ministry of Justice recognises that administrative justice is an end-to-end process and that getting it right at the start of this process—that is, good-quality original decisions by the public bodies concerned—is vital. Getting it right first time benefits everyone concerned.
Of course, the departments and public bodies making the original decision have the primary responsibility to ensure high-quality decision-making. That said, the Tribunals Service has been actively working with the larger decision-making agencies whose appeals it deals with—for example, the Department for Work and Pensions and the UK Border Agency, and my noble friend Lord Newton referred to the very large number of cases that that can involve—to review end-to-end dispute resolution procedures and feedback arrangements. The Tribunals Service will continue to work with decision-makers to improve getting it right first time and will seek to spread lessons learnt among relevant decision-making bodies to drive up standards.
Lord Newton of Braintree
I am aware that the House wants to get on, but, before my noble friend concludes, perhaps I may make just three points. First, he referred to users. When I was chair, the Tribunals Service asked me, on behalf of the council, to chair the users’ groups for mental health and for war pensions on the grounds that the council could do it better than it could. I should like to know whether the Government know the view of the senior president of tribunals on this proposal. How will the position of a body such as the Down’s Syndrome Association, which has recently written to me—I have its letter here, but I will not read it, in which it raises concerns about the reduction in legal aid, to which the noble Lord, Lord Pannick, referred—be represented by the Ministry of Justice? It is complaining about the effect on tribunals, and the proposals on legal aid have come from another part of the same department under the same Secretary of State. How can that be the case?
There are a lot of other questions. I could say a lot more, but I am deeply depressed by the fact that my noble friend has not felt able to go further in terms of being willing to look at this. The Government should look at this again and should recognise the strength of feeling that is by no means confined to the opposition Benches, as is very clear. I hope that, even now, he will say that further consideration will be given to this, so that those of us who would like to reach a rational, considered, thought-through conclusion can at least have some chance of hope that that might happen.
Lord Taylor of Holbeach
I am sure that the proceedings of this House will be widely studied. I am certain that the Government want to take note of all that is said in the debates on this Bill. But I return to my previous comment to the noble Lord, Lord Borrie, and hope that he will withdraw his amendment.
Lord Borrie
My Lords, in this debate there has been not a single person who has given support in any way to the Minister’s propositions. Not a single person in this debate, which has gone on for an hour and a quarter, has done other than sit on their hands or support the amendment, which I am glad I put forward. It is normal for someone in my position, who is summing up and is to determine whether there should be a vote or not, to give some mention of his supporters. I have been most fortunate because support has come from the experienced noble Lord, Lord Newton, a former chairman of the council, from the noble and learned Lords, Lord Lloyd of Berwick and Lord Howe of Aberavon, my noble and learned friend Lady Scotland, and from the noble Lord, Lord Pannick.
The second thing that someone in my position normally does is say what a good debate we have had. But we have not had a good debate because the only propositions on the other side were from the Minister, who I am bound to say, on the same lines as the noble Lord, Lord Newton, was a great disappointment. He stuck closely to the brief, which clearly had been prepared long before this debate began. There is nothing necessarily wrong in doing that in part; but, surely, after all the points that have been made in favour of this amendment from all sides of the House, there could have been some give—some notion that, instead of just saying, “This body has outlived its usefulness; all its work can now be done by civil servants in the Ministry of Justice”, something positive could be given. Nothing was given. My view is that we should go to a vote on this amendment and I appeal to noble Lords from all sides of the House to support the view that this body should be removed from the list of bodies to be abolished in Schedule 1.
Health: Academic Health Partnerships
(14 years ago)
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Baroness Finlay of Llandaff
To ask Her Majesty’s Government how they propose to preserve United Kingdom academic health partnerships.
Baroness Finlay of Llandaff
My Lords, I declare my interest as a clinician and as a former vice-dean of a medical school. Clinical academics are at the heart of academic health partnerships. Traditionally, clinical academics have mostly been doctors and are the clinical academic leaders of today. But other health professions are joining this group who are employed by universities to research and teach, as well as having direct patient responsibilities. Medical schools are at the heart of this unique position that juxtaposes research abilities within the clinical context, stimulating questions that need answering and permitting studies to be planted in reality.
The UK has a fantastic record in biomedical research. Some 10 per cent of all the academic output in the world is from the UK, but we have less than 1 per cent of the world population. Twelve per cent of listed medical research citations are from the UK, second only to the US, and 19 of the 75 most widely prescribed drugs were discovered here. Investment in biomedical research made over the past 20 years is reaping dividends. The challenge is to get the findings translated into routine practice. Research assessment exercises have tended to steer towards basic science as it is easier for the RAE than applied research. Simultaneously, NHS management has been driven by targets. It is the UK medical schools that sit in the middle of this financial tension. Although tension can be creative, there is a danger that knee-jerk financial responses can undermine long-term, potentially very profitable investment if academic and clinical medicine are forced apart by short-term commissioning decisions.
Countering this pressure has been the National Institute for Health Research, in large part inspired by Dame Sally Davies. Its impact has been phenomenal. Schemes it has supported are being copied and rolled out in the devolved Administrations. Clinical academic training fellowships are attracting increasing numbers of the brightest young doctors as state-of-the-art activities are introduced into trusts, adherence to guidelines improves and evidence-based best practice spreads. The five major health sciences centres in England, Imperial College, King’s College, University College London, Manchester and Cambridge, are direct products of this initiative. They build on the juxtaposition of research and direct clinical care, with major laboratory research linked to clinical practice. But there is also a major benefit to UK plc from all the other academic centres. So I ask the Minister for reassurance that the Department of Health is working closely with the Department for Business, Innovation and Skills to maintain our profitability from clinical academia.
There is good evidence that clinical outcomes are better from all routine clinical services that are research and teaching active. Indeed, that was recognised in the White Paper. Medical schools responsible for the undergraduate teaching of tomorrow’s doctors are all active in research and they have clearly demonstrated that investment pays dividends. For example, every pound of public money invested in cardiovascular research has, after 15 to 20 years, generated a benefit of 39 pence annually in perpetuity. Recent translation of research into practice is illustrated by the reconfiguration of stroke management in London, with better clinical outcomes now that many stroke units have been rationalised down to centres managing hyper-acute stroke providing rapid thrombolysis, decreasing morbidity and long-term care needs.
We take for granted the many previously unimaginable surgical procedures and drug treatments that are now an everyday occurrence. When people are seriously ill they want a specialist to guide their management; someone who is research-active in the area of their disease. I ask the Minister how the importance of academic medicine will be recognised by the GP consortia, many of which will be led by GPs who are not involved in research. How will public health research be supported and financed as public health moves to local authority control?
The health and wealth agenda is served by maintaining the momentum in clinical academia, yet we are already seeing an adverse drift. The pharmaceutical industry is drifting off to other countries with consequent revenue and job loss to the UK. In 2002, 6 per cent of the clinical trials in the world were conducted here but by 2007 this had fallen to 2 per cent.
The recent NHS White Paper speaks strongly of the benefits of research with 10 distinct references to it. It states:
“The Government is committed to the promotion and conduct of research as a core NHS role”.
It goes on to recognise that, particularly in lean financial times, research can provide routes to improve health outcomes and reduce inequalities. Following the consultation on the White Paper, can the Minister reassure us that the commitment to those centres that develop research and unlock synergies between research, education and patient care, remains stronger than ever?
Medical schools have been working with their NHS university hospital partners to plan for the future. They recognise that health and higher education have flourished with political support over recent years and that the global recession’s impact on the UK’s economy will change this growth trajectory. Future success and sustainability require that the core businesses of teaching, research and healthcare delivery are aligned to weather the changes in the financial climate. Collaborative working, not competitive vying for resources, will be the way forward.
Within the NHS the governance system should be based on proportionality of risk rather than “one size fits all”. Clinical research ethics committee processes have speeded up but bureaucratic blocks to research still exist so that opportunities cannot be grasped even though economic recovery will depend on them. Inspection processes, such as the Medicines and Healthcare products Regulatory Agency inspections, can seem excessively laborious. I ask the Minister: what levers are there in the new NHS to address such blocks to innovation and research?
The new GMC document, Tomorrow’s Doctors, requires the doctors of the future to focus on leadership and a lifetime commitment to improvement in recognition of the importance that such a skilled workforce will bring to the wealth of the nation. Training does not end with a medical degree. Postgraduate training takes years and currently it is the responsibility of postgraduate deans, but where will the postgraduate deans sit? They are not mentioned in the White Paper.
Clinical academics emerged during the postgraduate years. The Wellcome Trust postgraduate fellowships aim to recognise and grow the UK’s future medical academics. As specialty and primary care trainees develop an understanding of applied research when working clinically, and as strategic health authorities disappear, it makes sense for universities to be persuaded to house the postgraduate deans, who will not usually be RAE returnable and so will need to have some honorary contract arrangement. However, these deans need a ring-fenced budget to have a lever on foundation trusts to employ this workforce and ensure high-quality training.
Vice-chancellors, too, need to understand the benefits brought from effective partnerships with the NHS and from engaging with the postgraduate training agenda. Structures and performance that match the NHS agenda require incentivisation: for example, by adding locally relevant work with industry to the criteria rewarded by panels assessing the impact of research for the funding councils.
Academic health partnerships can bring solutions to pressing public health issues, both here in the UK and globally. They represent an investment in our foreign policy. They can bring solutions to the requirements of an ageing population susceptible to multiple chronic diseases. Even stronger links between education research and service delivery can optimise the health and wealth of the nation. I look for reassurance that there is an ongoing and, indeed, increasing commitment to this agenda.
Baroness Donaghy
My Lords, I am grateful to the noble Baroness, Lady Finlay of Llandaff, for initiating this important debate. My interest in academic health partnerships arises from my time as a non-executive director at King’s College Hospital and currently as an independent panel member of the National Institute for Health Research, and to that extent I declare an interest.
The formation of King’s Health Partnership was the result of an enormous amount of discussion and consultation among the foundation trusts of King’s, Guy’s, St Thomas’s and SLAM, together with King’s College London. It is not the first time there has been co-operation between universities and hospitals; it is a long and honourable tradition. What is new for this country is the extent to which that co-operation takes place. To integrate care, education and research through governance and staff co-operation is vital if patients are to receive the full benefit of the existing research which is taking place.
While not attempting to claim that the King’s Health Partnership is the only viable model, its networking approach has some huge advantages—buy-in from the staff, transparency and galvanising the support of the local communities in the area. AHSCs are important because of their potential for co-operation with the pharmaceutical industry and in attracting the best staff from home and abroad. In this, I add my plea to the Government that they will not stand in the way of attracting the world’s best researchers and clinicians to this country. The intergovernment concession will not fit this particular case and it would be a tragedy if we were to slip down the league table because we were not able to recruit from abroad; this is a highly mobile population.
As a panel member for NIHR I can see for myself the wonderful work which is being done in this country by highly distinguished clinical academics, a significant number of them clustered around academic health science partnerships. Groundbreaking work is being done on Alzheimer’s, multiple sclerosis, diabetes and various forms of cancer which will be translated into treatments within the foreseeable future. However, some of this work is expensive and some of the research is not cost effective in terms of the tariff received. The AHSCs were established without any guarantee of extra money and have been consolidated through good will, commitment and a vision for the future. Unless the Government take these extra costs into consideration, it will be difficult to see how this good will and vision could continue indefinitely. I ask the Minister for an outline of the Government’s commitment to the continuation of these partnerships and some information about how they intend to promote them.
Lord Alderdice
My Lords, I too want to express my appreciation to the noble Lady, Baroness Finlay of Llandaff, for obtaining this debate. As the terms of the motion are reasonably wide in referring to academic health partnerships, there are a number of elements that I would like to address briefly in the few minutes that are available to us.
When one thinks about academia, it seems to me that one should think not just of research but of the teaching of undergraduates that helps them to develop, of training—the clinical dimension of the work has to continue even in the postgraduate period—and, of course, of research. However, over the past 30 or so years, quite substantial changes have taken place in our approach to academic health partnerships. If one goes back 30 or 40 years, a great deal of academic work focused on medical practitioners who had a particular interest in and aptitude for this kind of work. Such practitioners spent part of their time employed by the National Health Service, largely, but they also did academic work, often with honorary contracts with universities.
Two or three major changes have occurred since then. One is that, as health trusts of various kinds—primary care trusts, hospital trusts, community trusts and so on—were set up and became increasingly business orientated and managerial in their approach, each trust looked at how far research was helpful to its own business plan. If the research was not directly productive, there was a disincentive to doctors to focus on research. As time has gone on, that has become an ever greater problem because doing research has itself become more difficult. There are many more ethical hoops—quite understandable in many cases, though not all—and funding has become more difficult. Junior medical staff, who might have been more than delighted to participate in research 20 or 30 years ago because it helped their curriculum vitae, now find that such research does not benefit them too much and it is much more difficult for them to find time for it. Research has become a much more difficult exercise with the increasing managerial approach in the NHS.
Universities, too, have had to look at whether or not they could be collaborative in that rather relaxed, laissez-faire way. Universities have demanded clinicians who focus very heavily on research and do well in the RAE, while NHS physicians have increasingly focused on their NHS clinical work. In addition, of course, there is now a much wider body of healthcare professionals involved in all these activities. The focus is not just on doctors but on the whole range of healthcare professionals—and quite rightly so—and that means that the picture has changed very dramatically. Meanwhile, the amount of resource available for research has not increased in a commensurate way. That is also true for teaching. Therefore, it has sometimes been the case that there has been a widening without necessarily a deepening of the quality of teaching and training.
It is not as though the new Government are coming to a situation in which everything has been perfect. In the past few years, there was a recognition of some of those issues by the previous Government. Following the Darzi report, the Government promoted some important centres of excellence, which have already been referred to in the debate and which are to be commended and supported. One of the concerns of the noble Lady is that the Government’s proposals should take away nothing from the progress that has been made. I very much hope that my noble friend will be able to reassure us on that, because the White Paper makes clear that,
“The department will continue to promote the role of Biomedical Research Centres and Units, Academic Health Science Centres”—
which were, of course, what came out of the Darzi report,
“and Collaborations for Leadership in Applied Health Research and Care, to develop research”.
At this stage, where change and development is being proposed, one wants to be reassured that those centres of excellence will indeed be built upon. There is, in fact, a tribute earlier in the White Paper to the importance of the work of the noble Lord, Lord Darzi. I also note that specific emphasis is given to the NHS commissioning board taking some responsibility for promoting involvement in research and the use of research evidence.
However, although it is extremely important to ensure that the relatively small number of high-quality centres of excellence is maintained, sustained and developed, that is not enough. There must be some way in which we can begin to rekindle the interest of young doctors, nurses, psychologists, social workers and the panoply of health professionals to realise that research is an important component in their own professional development and that, if they are to understand the implications of research papers, they must have at least a little experience of research early on. Therefore, I seek some reassurance from my noble friend that, as we move forward into potentially exciting opportunities for a newly configured health service, we will try to regain some of the creative excitement about research and academic work of all kinds that I think has been somewhat lost in the overly managerial and overbureaucratic approach that has been applied not only to healthcare but, at times, within some of our leading academic institutions.
Lord Kakkar
My Lords, I congratulate the noble Baroness, Lady Finlay of Llandaff, on having secured this important debate. I declare my own interest as a clinical academic and chairman for clinical quality at UCL Partners academic health science centre.
Healthcare systems around the world are facing considerable challenges. We know that in developing countries there is now an epidemic of diseases not previously experienced in those countries, such as diabetes, obesity, cardiovascular disease and so on. In our own healthcare system, we face similar challenges from chronic diseases that will need to be managed in an effective way, frequently with attention on prevention rather than just on treatment. We also still face serious disparities in access to healthcare, clinical outcomes, escalating costs for healthcare and variable quality across the healthcare system, as we have seen this past weekend with the publication of the Dr Foster report on adverse events experienced throughout the healthcare system in England.
Over the past 50 years, many of the advances that have helped us to improve outcomes and the quality of care that we provide to patients have been academically led. There is a growing recognition that the contribution of academic medicine is potentially even greater now than in previous decades because the challenges that we face are much greater. As we have heard, there is a developing movement throughout the world, certainly in mature healthcare systems, for the development of academic health science centres, which are well placed to face the challenges that have been identified as the pathway of discovery care. That continuum needs to be bridged to ensure that research activity, stimulated by endeavour, careful thought and intellectual enterprise, can be converted into new interventions, therapies and systems and into pathways of healthcare to improve clinical outcomes.
It is now well recognised that there are two important gaps that academic medicine and institutions can overcome in this discovery care continuum. The first is the gap characterised as “from bench to bedside”, taking those discoveries and having appropriate translation medicine to ensure that those discoveries can be tested and presented to the wider clinical audience—clinical colleagues and other healthcare professionals, as we have heard—in such a way that they might be adopted to improve clinical care and outcomes.
The second gap is to move from a very difficult place where there is expert acceptance of the discoveries and their evaluation from basic and clinical research, and to ensure that those are broadly adopted. Indeed, it is quite shocking—here I must declare a further interest as director of the Thrombosis Research Institute in London, which is involved in many collaborative research programmes with industry in the area of thrombosis—that this weekend we saw, in the Dr Foster analysis of adverse events in our healthcare system, some 62,800 reported adverse events, 30,500 of which were deep-vein thrombosis or pulmonary embolism. That is quite striking as we have known for over 30 years, thanks to research, much of which was conducted in the institute that I am now director of, that there are simple ways to assess patients at risk of thromboembolism and simple methods that can be applied to those at risk to reduce their risk of developing a blood clot while in hospital or soon after being discharged. It is well recognised by experts. We have guidelines. Indeed, we have the active programme from the Department of Health in this area. There is still a gap, however, in its widespread adoption. I very strongly believe that academic health science systems have an important role to play in overcoming this gap and ensuring that what we understand can be applied not only in single institutions but broadly across healthcare systems to improve clinical outcomes, and in ensuring that the research effort is properly applied to benefit the largest number of potential patients.
We have also heard that there are important economic benefits to be derived from having a strong academic clinical base. One of the purposes of the five academic health science centres, which we have heard about previously in this debate, is to ensure that the United Kingdom remains an important target for inward investment by the bio-pharmaceutical industry for research and that the opportunity to collaborate with industry delivers not only clinical benefit for our patients but economic benefit for our country.
Will the Minister confirm—I am sure this is the case—that academic health science centres remain at the very heart of Her Majesty’s Government’s agenda for healthcare and ensuring that we can achieve the very best clinical outcomes, quality, access and value in our healthcare system? Will he also confirm that the opportunity will be taken to explore whether the remit of academic health science centres can be explored so that they focus much more on becoming academic health science systems across entire sectors or health economies, driving the potential for broader integration—both vertical integration across primary, secondary and tertiary care, and horizontal integration, as we have done at UCL Partners—in developing provider networks that are focused not on the outcomes that an individual institution can achieve but on the outcomes that are achievable across the entire patient pathway and are focused on improving clinical outcomes for the continuum of care, particularly for the management of patients with chronic conditions? Will he also confirm that we will look at how academic health science systems can facilitate primary care commissioning as that moves forward and is developed in the coming years, and that we will continue to ensure that the contributions that the United Kingdom can make globally to academic health science systems and centres are maintained and that our country continues to benefit from participation in those systems and centres?
Lord Butler of Brockwell
My Lords, I, too, thank the noble Baroness, Lady Finlay, for the opportunity to discuss what I think is a very exciting and positive feature of our national scene: the partnership between academic and health activity. It is also a pleasure to follow my noble friend Lord Kakkar, whose professional interests, as he has explained, lie in north London but whose personal interests lie, like mine, in south London.
The question asked by the noble Baroness, Lady Finlay, is how the Government propose to preserve academic health partnerships. I should declare an interest as chair of King’s Health Partners, one of the five national AHSCs about which the noble Baroness, Lady Donaghy, has already spoken so fluently. Indeed, I endorse everything that she said. The noble Baroness, Lady Finlay, was right to emphasise the great advantages that Britain has in contributing academic research to medicine and how this country punches above its weight in those areas. As the noble Lord, Lord Kakkar, said, this is not only a benefit to health treatment but an enormous economic benefit through the investment of big pharma in this country. Perhaps that investment is second only to financial services in its importance to the economy of the country. But it is fragile, and we have already seen some signs of that fragility with GSK’s decision to move many of its activities to Shanghai and Merck’s departure. We must strive to maintain this country’s attraction for big pharmaceutical companies. It is very reassuring that the Government recognise that. The emphasis on the importance of research in the Government’s White Paper is also greatly welcome.
As other speakers have said, the five AHSCs are among the most valuable instruments for bringing together academia and the National Health Service, which might, as the noble Lord, Lord Alderdice, said, have drifted away from each other somewhat in the past 15 years. I pay tribute to the steps that the previous Government took to reverse that trend, not least by establishing the AHSCs. To reflect on the partnership with which I am associated, what does that partnership bring together? In King’s College London, it brings an outstanding research university and a leading medical training institution; in Guy’s and St Thomas’ and King’s College Hospital, it brings two of the world’s leading teaching and clinical care hospitals; and in the South London and Maudsley Hospital, it brings one of the nation’s leading psychiatric hospitals.
I invite the House to consider what we can achieve in modern healthcare by closer links between those institutions. First, as has been mentioned, we can bring research and clinical care closer together, and accelerate the translation of the very exciting discoveries that are made all the time in research to the care of the patient.
Secondly, there can be a closer link between mental and physical care. I particularly emphasise this in the case of the partnership with which I am associated. It is a weakness of our present system that psychological morbidity in patients with physical illness and physical morbidity in patients with mental illness have not been sufficiently recognised and addressed.
Thirdly, there are the integrated pathways of care for patients. This is, I think, very close to the Government’s heart and their policy in the White Paper. Like the other two London AHSCs, King’s Health Partners is working with local GPs and local authorities to establish new models of preventive medicine and community care, as well as tertiary care.
Finally, there can be more effective medical training not only through the university and teaching hospitals but in the community through the health innovation and education cluster—the HIEC—for which King’s Health Partners has been given the lead for south London.
This link between research and clinical treatment is personified in the chief executive of King’s Health Partners, Professor Robert Lechler. He is not only a distinguished researcher and clinician at Guy’s Hospital but vice-principal of the university. This link is repeated in many others who hold joint appointments in the university and member hospitals. The challenge for the AHSCs is to realise the opportunities that these existing links represent.
As has been mentioned, the previous Government, in setting up the AHSCs, did not give them any extra funds, unlike the Dutch Government, who recognise the importance of their equivalent of AHSCs through higher-intensity payments for them. Despite the lack of a financial incentive, when I came into this work, I, like others who have spoken, was hugely impressed by the enthusiasm and commitment not only of the four partner institutions in the AHSC with which I am associated but also—again, this has been mentioned—among the world-renowned researchers and clinicians who form part of them. This really is a movement that is supported at the grassroots level by those who work in the field. Like others, I hope the Minister will be able to say tonight that the Government endorse the objectives that I have described and see AHSCs as crucial to achieving them.
Baroness Thornton
My Lords, I join other noble Lords in congratulating the noble Baroness, Lady Finlay, on drawing this important matter to the attention of the House. As has so often happened in the past, the noble Earl and I are usually, or probably, the least qualified people to answer this debate, given the quality of the contributions that have been made this evening. I particularly thank my noble friend Baroness Donaghy for her thoughtful contribution.
Evidence from around the world demonstrates the profound role played by world-class research and teaching in driving innovation in healthcare. Academic health science centres are designed to maximise clinical and academic synergies by ensuring that clinical research and teaching staff work in concert to unified plans that transcend the separate structures of their respective clinical and academic institutions. In 2007 a review of healthcare in London led my noble friend Lord Darzi in a framework for action to recommend the creation of a number of academic health partnerships. In October 2007 Imperial College Healthcare became the first to be established in the UK when Imperial College London’s faculty of medicine merged with the Hammersmith Hospital and St Mary’s Hospital NHS trusts. I know that several more—mentioned by other noble Lords—have subsequently been established, notably Cambridge University Health Partners, King’s Health Partners, Manchester Academic Health Science Centre, UCL Partners, Barts and The London NHS Trust.
We can be proud of the achievements of these innovative partnerships and the benefits that they have brought in their own areas to the cities that they are in and across the world. The engines of clinical innovation— for example, at Barts and The London—will be 70 new clinical academic units, clusters of closely related specialties or sub-specialities working to a single plan for clinical care research and teaching. For example, guests from all over the world flew to London the week before last for the opening of a new cardiovascular biomedical research unit at the Royal Brompton Hospital. The BRU is a joint initiative between the Royal Brompton and Harefield NHS Foundation Trust and Imperial College London and puts the partnership at the forefront of international research into the most challenging heart conditions. It is funded by the National Institute for Health Research.
There appear to be three legs to the AHSC stool. For it to work properly it needs excellent education, excellent healthcare and excellent research. It also needs time. This is not a five-year project; this is a 15 to 20-year shift in the development of excellence and innovation in these areas. My understanding is that the funding of the academic health science centres is a mixture of MRC, DBIS and NIHR. Under the current structure, SHAs and PCTs have delegated responsibility to administer research funding. In addition to his powers to conduct or assist research, the Secretary of State has a duty under Section 258 of the 2006 Act to ensure that facilities are made available for universities with medical or dentist schools in connection with clinical teaching and the research connected with clinical medicine or clinical dentistry. This duty is delegated to the strategic health authorities and PCTs under the regulations.
Therefore, my first question to the Minister—echoed around the House—is unsurprisingly: how will this particular aspect be delivered and funding allocated under the new NHS structure? Who will undertake these duties with the demise of the strategic health authorities and PCTs? Linked to that, we need to ask about workforce planning. As many noble Lords have mentioned, clinical academics need to be fed through to these bodies. How will that happen?
The British Medical Association has recommended consideration of the roles of networks, health innovation and education clusters and the National Institute for Health Research and how these will fit into the Government’s overall plans. Can the noble Earl assure the House that the funding for the National Institute for Health Research is, indeed, safe?
On the necessity for ensuring excellence in education, we also need to look at the implications of the Browne review of university funding because we need to know how the leg that concerns teaching and universities will be affected. Presumably the cutbacks in the funding of higher education will have an impact on AHSCs in relationships with universities as they collaborate with them. There is the potential for a double whammy here, both in costs to individual students and, indeed, in the cutbacks that universities are to suffer as a result of the CSR settlement. Like other noble Lords, I welcome the fact that research has been protected under the CSR, but it seems to me that at least two legs of this stool are looking a bit dodgy. I invite the Minister to tell the House how the Government intend to support the future of these partnerships in the long term.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, I begin by joining all other noble Lords in thanking the noble Baroness, Lady Finlay, for having tabled this debate and spoken to it with her usual deep knowledge and enthusiasm. She is absolutely right to highlight the essential links between universities and the NHS as well as the importance of medical research and education which are, as she so eloquently described, essential for the ongoing success of the UK economy and of a high-quality NHS. The Government absolutely recognise and support the need to maintain investment in these areas for the benefit of patients.
The noble Baroness raised a number of specific issues to which I will respond in a moment. It is right to remind ourselves that most of the issues that have been raised should be considered within the context of the UK. Although there will be shared principles across the four Administrations, we are also dealing with devolved matters. However, my responses today will inevitably deal with England alone.
Since the NHS was founded in 1948, investment in health research has brought incalculable benefits for patients. Treatments have been improved, inequalities have been reduced and productivity has increased. In both the strategic spending review and our White Paper, Equity and Excellence: Liberating the NHS, we have emphasised the importance of research, as the noble Baroness rightly noted. Despite the incredibly challenging pressure on budgets across government, we are committed to increasing spending on health research over the next four years. When funds are tight is precisely the time when innovation, investigation and invention become most valuable. In the long term, research saves money and allows us to identify new ways of preventing, diagnosing and treating disease. It is essential if we are to increase the quality and productivity of the NHS, which are, after all, the best ways of making savings.
The Department for Business, Innovation and Skills will ensure that Medical Research Council expenditure is maintained, ensuring that total health research funding will increase. Among other things, the extra funding will support the National Institute for Health Research. I was grateful to the noble Baroness for her appreciation of the NIHR’s work and, indeed, to other noble Lords for the tributes which they paid to it. Through the NIHR, the Department of Health spends more than £50 million every year to fund posts aimed at encouraging junior doctors to pursue clinical research careers. Through the intrinsic bond between the NHS and universities, the NIHR is turning laboratory-based discoveries into cutting-edge treatments that make a real difference to people’s lives. Through its internationally recognised biomedical research centres and units, the NIHR is helping to translate pure research into practical success.
The noble Baroness, Lady Donaghy, referred to academic health science centres, in particular the King’s Health Partners, and that was a theme strongly taken up by the noble Lords, Lord Kakkar and Lord Butler, among others. As the noble Lord, Lord Butler, said, there are now five academic health science centres in England. Their core mission is to bring together world-class research, teaching and patient care in order to speed up the process of translating developments in research into benefits for patients, both in the NHS and, as the noble Baroness, Lady Finlay, said, across the world.
The noble Lord, Lord Kakkar, referred to the UK as a target for inward investment in these areas. He will be interested to know that we are taking forward a range of measures to promote and develop the UK as a place for inward investment by global industry through the Office for Life Sciences and the health and business departments. The noble Lord, Lord Butler, referred, I think in passing, to funding for academic health science centres. It is worth pointing out that AHSCs are underpinned by funding from NIHR as well as the research councils and other funding sources.
The coalition Government confirmed in the White Paper that they see an important role for AHSCs in delivering the translational research agenda, unlocking synergies between research, education and patient care. As regards their potential development as institutions, which the noble Lord, Lord Kakkar, invited us to consider, as he knows, AHSC status was awarded in March 2009 for a period of five years and will be subject to review. However, we will be working with interested parties to determine the next steps for AHSCs, and I take his suggestions fully on board.
For now, I think it is right for me to acknowledge that the organisations in AHSC partnerships are already making extremely impressive contributions to the translational endeavour. Our announcements in the spending review will allow us all to work even harder to ensure that the breakthroughs made by our world-class scientists are pulled through into real benefits for patients. The noble Lord, Lord Butler, referred briefly to mental health research, and he was right to pinpoint that area as one on which we should focus. The Department of Health is the largest UK funder of mental health research, and our investment in research infrastructure is having a significant and positive impact on the numbers of patients recruited to clinical trials in this area.
The noble Lord, Lord Kakkar, referred very eloquently to the process of promoting translation from bench to bedside and into widespread adoption. I can confirm that undoubtedly the AHSCs have a role to play in crossing those translation gaps. Together with the NIHR investment in biological research councils, biological research units, and collaborations for leadership in applied health research and care, I am confident that we can make a real impact on getting cutting-edge ideas faster into improving health. We will continue to promote the role of BRUs, BRCs, academic health science centres and collaborations for leadership in applied health research and care, all of which can help develop research and unlock the synergies to which I referred earlier.
In England there are also 17 health innovation and education clusters, which are cross-sector partnerships between NHS organisations, the higher education sector and industry. Their task is to bring quickly the benefits of research and innovation directly to patients. They will also strengthen the co-ordination of education and training, and bring together those responsible for healthcare with the local academic community. Currently in their first year, they focus on a variety of healthcare themes in line with local strategic objectives. We need to reward locally relevant, high-impact work and to encourage partnerships with industry. Through HEFCE’s research excellence framework, we will continue to develop an assessment framework that rewards the impact that the highest levels of research excellence have on society and on the wider economy.
I doubt that many people do not also recognise the importance of medical education. It ensures that the next generation of clinicians develops skills and expertise to meet patients’ needs. Linked to this is the complex area of workforce planning—to which the noble Baroness, Lady Thornton, referred—to ensure that we have the right numbers with the right skills in the right places. Aligning workforce planning and education, both in universities and in postgraduate medical training, must be considered in the context of the White Paper proposals and of our forthcoming consultation on education and training. The White Paper reforms are bold, and the way that we plan and develop the healthcare workforce needs to respond to and support the reforms, and align with new ways of commissioning and providing services. There is an opportunity now to review and fundamentally reshape the whole system for planning and developing the workforce. The Government have committed to consult widely on the design of a new framework for education and training. We will publish a consultation document shortly. The new system will be driven by patients' needs, led by healthcare providers and underpinned by strong clinical leadership.
There has been concern in some circles about ensuring that graduates of UK medical schools are able to obtain full registration with the GMC by securing a place on the first year of the foundation programme. To date, this has always been the case. Although there have been more applicants to the programme for 2011, the programme office has predicted that all eligible applicants will secure a place.
The noble Lord, Lord Kakkar, also correctly highlighted the vital role that medical schools will play in preparing medical students for a future where a greater proportion of care will be delivered in the community. However, it is not only in medical schools that the emphasis on community care needs to change, but also in postgraduate medical training. That has been recognised in the priorities of the Government's advisory body, Medical Education England.
The noble Baroness, Lady Finlay, asked what levers would be in the new system to encourage research and innovation. My noble friend Lord Alderdice was absolutely right: it is largely thanks to the noble Lord, Lord Darzi, and to Dame Sally Davies in the department that these levers exist and will continue to operate. I have referred to a number of the ways in which the NIHR is continuing to support the system—not least the BRCs, BRUs and so on—by pulling through ideas from the laboratory into new approaches to healthcare. It is through these and the AHSCs that we will continue to see a drive to research and innovation in the new system.
My noble friend Lord Alderdice referred to the NHS Commissioning Board commissioning research. We expect that the board will promote the conduct of research and patient participation. He also rightly said that we need to encourage excitement among young clinicians. I fully agree: that is one reason why the NIHR is funding so many new clinical academic fellowships every year, which enable young clinicians to get enthused by this career path.
The noble Baroness, Lady Finlay, stressed the need for effective joint working between the Department of Health, the Department for Business, Innovation and Skills and other key partners. She is of course quite right. The Health and Education National Strategic Exchange provides a national forum where senior members of the higher education and health sectors discuss strategic issues and influence cross-government working. However, I of course agree that such links should be strengthened where possible in order to maintain our proud tradition of high-quality medical education and research, the purpose of which is, above all, to benefit patients.
Public Bodies Bill [HL]
(14 years ago)
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Lord Whitty
Lord Whitty
Amendment 18 relates to the Advisory Committee on Hazardous Substances and the Advisory Committee on Pesticides. Essentially, this is a probing amendment, but it raises some rather wider issues. I am very grateful to see the noble Lord, Lord Henley, on the Front Bench. I suspect that the noble Lord, Lord Taylor, is quite pleased to see him on the Front Bench as well, because clearly, these matters are in the Defra area but, as I said, raise wider issues. Those wider issues are: why are those two committees being abolished when many other similar committees are not being touched; and in what way will they be abolished?
I must apologise to the Committee, because I was not here earlier today to speak to an amendment in my name, but my noble friend Lady Henig moved it ably. She pointed out that the list in Schedule 1 includes apples and pears—this is not a horticultural question but because they are not like with like. The Government propose that some of those bodies in Schedule 1 be abolished; that some of them revert to Ministers; and that some have their powers and functions moved to other bodies, public and private. It is not clear what will happen to the independent advisory capacity of the Advisory Committee on Pesticides and the Advisory Committee on Hazardous Substances. If they are to be abolished, full stop, that raises a serious issue.
I declare a current interest as a member of the Environment Agency board, which has relations with both those committees, but, more particularly, because I am a former Minister dealing with much of the Minister's current portfolio, and specifically with the Advisory Committee on Pesticides. It was always important to have independent advice. Pesticides have always been a controversial area. If the powers revert to the Minister, the Minister will be seriously—if he will excuse the expression—exposed in this area. It is very important also that advice is independent and is seen to be independent. Of course, the Minister does not have to accept any advisory committee’s advice. When I was in the noble Lord’s position, there were times when I did not accept the advice of the pesticides committee and indeed referred the issue of bystanders and their vulnerability to pesticide exposure to what I felt was the higher authority of the Royal Society. That is a matter for the Minister to decide.
If we abolish these committees and all assessment reverts to the Minister and his civil servants then you lose that independent advice, or do the Government intend to transfer the responsibilities of these committees elsewhere, to other bodies? For example the Environment Agency and the HSE have some responsibilities in this area. Alternatively, the Minister could, I guess, invent a non-statutory body of experts to advise. That has slightly less of an independent air than these two bodies.
I think it would be somewhat dangerous if Ministers decided they were going to go for a more informal arrangement in relation to the whole array of scientific advisory bodies, which exist right across departments and certainly very substantially in Defra. It is dangerous for Ministers as well. The Committtee on Hazardous Substances advises Ministers on dangerous chemicals in air, water and the soil, and on nanomaterials, which have a significant element of controversy, in relation to policy and science and the effect of some of these substances.
Pesticides are also a crucial area because there is a conflict of interests here. There is conflict between the farmers and the agriculturalists and the horticulturalists on one side and local residents and those pursuing other pursuits, and environmentalists and environmental bodies concerned with air and water quality and food standards, food quality and the effect on biodiversity and so forth.
The Minister has to balance the different interests in this area and it is helpful if he has advice which is independent and statutorily-based as one part of his decision-making process. The Minister also has a significant Civil Service element. The pesticides safety division in Defra is a very effective body. However, it looks at systems and monitoring and what is happening in regulations. Of course regulations in this context are quite often European regulations. Some of the most controversial proposals in the pesticides field are in European regulations that are coming on stream. Some elements of the agricultural industry think they will eliminate pesticides in particular specialist areas, so there is quite a delicate political balance in that respect.
It is not just farmers who are affected by this. Quite a lot of pesticides are used in parks and gardens, so there is a big public sector element that has to follow the advice. It would be better if the Minister, when making the regulations, was basing them on the advice of a publicly defensible independent body. All of us who are occasional gardeners are affected by this as well. In some ways the most dangerous area is in people’s own gardens. While the pesticides advisory committee and the PSD will have a whole list of pesticides you are no longer expected to use, I am pretty confident that at least one of my neighbours has a shed load of pesticides that are probably banned by the Geneva Convention, never mind the pesticide regulations. Enforcing it in these areas is quite an important role, so that the public are informed as well as those who have an interest in horticulture and agriculture.
There is a very good and very specific reason why the pesticides advisory committee should remain independent, should remain statutorily-based and should give protection to the Minister and his colleagues. It is also slightly odd that these two committees are the only advisory committees in the Defra family scheduled for abolition. Yet Defra has, I think, 20-odd committees, including the Food Standards Agency and about another dozen of a similar status to these two committees.
Lord Knight of Weymouth
My Lords, I support my noble friend Lord Whitty. I, too, am a former Minister at Defra, although we did not manage to coincide: I came after my noble friend moved on to other things. The points that he makes in his speech and through his amendments are important. On looking at the Advisory Committee on Hazardous Substances, I see that the intention is for it to become a committee of experts working directly to the department. At one level, the difference between having it as a non-departmental public body or having it internalised within Defra looks fairly finely balanced, if the same people are providing advice on the same sorts of things to the same Ministers. Indeed, I note from the website that the secretariat to the NDPB is within Defra anyway. On all those levels it might not make much difference. I would be interested in the Minister’s response as to how much financial saving might be made in terms of these changes to these two committees so that we can judge whether that is part of the motivation.
In the end when I looked at it and tried to understand why these changes were thought necessary for Defra, like my noble friend I concluded that it must be something to do with the arm’s-length nature and the independence of the scientific advice. In that respect, this is a very important principle around whether or not that scientific advice should be independent of any other interests within the department. My experience from a year within Defra is that there are considerable, highly vocal, well organised interests that exercise Ministers and it is helpful at times to be able to have that independence.
By way of illustrating it, I refer to a story not from this country but from India around what happened to the vulture population, which collapsed by about 95 per cent in a very short period. As a result of having very few vultures to feed off the carcasses of cattle that were left out for the vultures because of the cultural issues in India around cattle, there was a population explosion of feral dogs in India—about 5.5 million more than usual—because they had this free food to sup on. And as a result of more feral dogs, more people were getting bitten. It is estimated that just under 50,000 more people died of rabies in India because of this explosion in the feral dog population. Meanwhile, others suffered from leopards attacking urban areas because the leopards expanded in population in order to pursue the dogs. In the end people were obviously concerned as to why the vultures had died. It came down to the improper use of chemicals—of diclofenac, the anti-inflammatory drug that was being fed to cattle by farmers, perfectly innocently, but which caused instant renal failure within the vulture population. It is the most extraordinary example of how an ecosystem can work and have an impact on a human population as well as on biodiversity, and indeed it is a fantastic example of the importance of biodiversity to us wherever we are in the world. But it is equally an important example of how agricultural vested interests should be kept separate from analysis of chemicals and pesticides.
I am not suggesting we might have that scenario playing out here, but you never know. I put it to the Minister, in using that example, that independent scientific advice at arm’s length is lost at a cost. If he could tell us what the saving is, if that is the motivation, then I am sure we would be very grateful.
Lord Berkeley
My Lords, my noble friends have set out very well the argument against the abolition of the Advisory Committee on Hazardous Substances and the Advisory Committee on Pesticides.
I compare the proposed abolition of the two committees with the recently announced cancellation of the Food Standards Agency. To a non-scientist like me, such abolition can only mean that in future people’s diets in schools and elsewhere will be more controlled by the burger manufacturers. Ours is the second most obese country in the world after the United States of America, but that situation looks like it will only get worse rather than better. If the Government’s intention in abolishing the committees is to have less government and to allow the industry to take its course, there will clearly be a risk that the manufacturers of these products—nasty or otherwise—could populate any committees that the Minister may create with academics who are funded by their companies. There is a great danger that we could end up in a similar situation to the one that both my noble friends have outlined.
The independence of such committees is absolutely fundamental. I hope that the Minister can give us confidence that their scientific independence will be preserved. As I have said, the precedent of the Food Standards Agency is extremely important. People will probably only get fat and die sooner without the FSA, whereas the abolition of these two committees will probably have a much more urgent effect. However, a similar principle is involved. I look forward to his comments.
Baroness Quin
My Lords, I rise to support my noble friend Lord Whitty on Amendment 18 and to use this opportunity to probe the Government’s intentions regarding these two bodies—or, perhaps more accurately, these three bodies, since the Advisory Committee on Pesticides in Northern Ireland is included.
Like my noble friend, I am glad that the Minister who is to reply is from Defra. Given the large number of bodies being modified or abolished by this Bill that are part of Defra’s area of responsibility, it is good that the Minister is responding to the debate on these bodies and, I hope, on the other agricultural bodies listed in the Bill. Given the many bodies that are listed in Schedule 1 that the Government are to have the power to abolish, it is absolutely right that each body should be looked at in turn. In many cases, the bodies in question have existed for a long time, so there certainly needs to be proper consultation about their future and how their work, especially when that is evaluated as having been very valuable, can be taken forward.
First, perhaps I may ask a few questions about the Advisory Committee on Hazardous Substances. The committee not only has a distinguished membership but holds regular meetings and has produced a large number of reports, which I understand have been accessed by many people. The committee has also been very open about its proceedings. I notice that, when Defra first announced the changes to arm’s-length bodies on 22 July, the Secretary of State—the queen of the quango cutters—said that she intended that, as a result of the proposed changes, the subjects covered by such bodies would be dealt with more openly. Having looked at the website for the Advisory Committee on Hazardous Substances, I find it hard to imagine how much more open it could be. Its agendas, minutes and proceedings are made fully available. I understand that it has held a number of public meetings and that it expects—if it is allowed to do so—to hold such meetings in the future. Indeed, I understand that the next public meeting is scheduled for 7 December. Will that be an occasion when the future of the organisation could be aired publicly? Indeed, will the Government be involved in that meeting by giving their view on how a successor organisation might look?
I turn to the Advisory Committee on Pesticides. Given that the committee was set up in 1985 following legislation by the then Conservative Government, it is fair to ask a Conservative Minister why it is no longer felt necessary to have such a committee. As my noble friends have said, there is a great deal of public concern about pesticides, the use of which can give rise to many problems, particularly if they are not properly evaluated and subject to appropriate expertise at every stage. As my noble friend Lord Berkeley mentioned, we need to consider how bodies such as the Advisory Committee on Pesticides overlap with organisations such as the Food Standards Agency. The Advisory Committee on Pesticides is concerned not only with the use of pesticides on food and agricultural products but with the health of creatures and plants. The Government are required to consult the committee in certain circumstances. Could the Minister tell us how useful that process of consultation has been?
Lord Henley
My Lords, I hope I can answer some of the points put by the noble Baroness and her noble friends. I thank her for the point about Defra and the fact that I was going to respond regarding this amendment and a number of others in relation to that department. I appreciate there are quite a number of Defra arm’s-length bodies that are being referred to and I hope I can deal with them in due course as they happen. It may take a day or two before we cover them all but I will try to deal with them as and where appropriate.
The noble Baroness also said that some of these bodies have existed for a very long time indeed. I suppose she was appealing to my nature as a hard-line reactionary Conservative who does not want to see anything change at all. I see the noble Lord nodding in agreement—the arch reactionary here speaks. I am not sure that I am. Things do move on and from time to time we have to change them. For that reason I will not be able to support the noble Baroness in saying that everything should continue as it is just because it always has existed in the past.
The noble Lord, Lord Knight of Weymouth, talked about vultures and leopards. I saw one of his noble colleagues, on the edge of the Chamber, who found some of these remarks faintly comic. He should not have done; I did not find them comic because the points were serious. For some reason, when you hear remarks about vultures in this House late at night—well, I think all noble Lords know what I mean. I will certainly take on board the points the noble Lord was making.
The noble Lord, Lord Berkeley, spoke about the Food Standards Agency and asked if we are going to populate these bodies with the wrong people. That is certainly not going to be the case and I hope to deal with that when I deal with the substance of the amendments.
I am very grateful to the noble Lord, Lord Whitty, for moving these amendments. I appreciate there are four of us who have served in Defra or its former bodies, so we all know what it is like.
The first point I should make is that the bodies are listed in alphabetical order and we are now dealing with the first of the Defra organisations; there will be others later as we work through Schedule 1, as the noble Lord knows. He also knows perfectly well that theirs is not the only advice that Ministers receive—I was grateful that he stressed this—and that when Ministers receive advice from such bodies they are not bound to accept it. I am grateful to the noble Lord, Lord Knight, for nodding his head on this point. In the end, Ministers of whatever persuasion have to make a decision. They take advice from all kinds of experts and then make a decision. I believe one of my colleagues, who is not in this House, wrote a book on the subject called Ministers Decide, or something like that, but we all write books of that kind.
The noble Lord, Lord Whitty, referred to the problems that neighbours might have with the some of the things we use in gardens. At that point one thought, “Gosh, what about North Korea?”. However, I take on board what the noble Lord had to say about the problems that different things can cause in different ways.
The amendment seeks to remove the three committees—it relates also to the Northern Ireland committee—from Schedule 1 so that we would not be able to abolish them. I shall set out why we wish to abolish them and explain how we wish their work to continue. I acknowledge that those committees have provided independent, expert and impartial advice to Governments of all political persuasions on hazardous chemicals and pesticides. That advice continues to be of value and I can assure the Committee and all noble Lords that abolition of these three committees in their current form will enable us to put in place better arrangements for the work to continue through expert scientific committees.
This reflects the work that the Cabinet Office has been doing with Sir John Beddington, the government Chief Scientific Adviser and the head of the Government Office for Science, and departments to identify more accountable and effective ways to deliver independent, high-quality scientific advice to government to meet the objectives of the public bodies reform programme and the principles of scientific advice to government.
We also need to recognise that statutory regimes for hazardous chemicals and pesticides are increasingly driven by EU legislation. Those three expert committees will remain independent and be able to put advice direct to Ministers, where appropriate, and will adhere carefully to the government code of practice for scientific and advisory committees.
The noble Lord, Lord Knight, asked what savings would be available as a result of this. I wish to make it clear to the noble Lord that we are not looking particularly for savings; the savings, in fact, will be negligible. We are reorganising how the department commissions and applies scientific evidence and looking at ways to do this more coherently and efficiently. These bodies are being reconstituted as expert scientific committees to the department rather than as statutory NDPBs. That will allow them to provide better advice to us in an equally independent way without any particular savings. I hope the noble Lord will accept that.
With that explanation, I hope the noble Lord will feel able to withdraw the amendment at this stage. Failing that, we will have to look at it again at a later stage.
Lord Whitty
My Lords, I am grateful to the Minister for explaining some of the background to this. It was intended as a probing amendment and I think that we have probed something out of it. The Minister said in the latter part of his remarks that this was part of a discussion of the best way to deliver scientific advice, in conjunction with the Cabinet Office and the Chief Secretary. My query arose not so much because I want everything to be set in aspic and that no change should take place, but because there should be a rationale for it. After the Minister’s remarks I still do not quite understand why these two committees, both of which are particularly sensitive in a political and media way, do not deserve a clearly statutorily-based form of advice, whereas a significant number of the rest of Defra’s advisory committees are not on this list, and, if you took it across Whitehall, obviously the picture is wider.
This is why I argued that, in order to have this debate on a rational basis, we need some background from the Minister, or the Minister for Science or from BIS saying what our overall approach to advisory committees is. If it is, in general, that we move away from statutorily-based committees to expert panels, there may be an argument for that. The problem is that we have not heard that argument and that this seems to be differentially applied to bodies within the same department, let alone across Whitehall as a whole. There is a much bigger issue behind this that, at some point, the House is going to have to look at before we can easily give our consent to including some of these bodies on one or other of the schedules to the Bill.
I am glad that the Minister has, in a sense, opened that up, because maybe there is a bigger background that we will come back to at a later stage of the Bill. I am certainly not utterly convinced that the expert panel is much different from a statutory body in terms of the quality of its advice or procedures and, clearly, there is no great cost advantage. I still think that Ministers have, themselves, the protection that, if there is a statutory body giving them advice, at least that part of their advice is clear. Where there are other aspects to it and they take a different decision, that is a separate matter.
Clearly, I have opened up something here and I am glad that I have. For tonight, I will withdraw the amendment, but I think that we will probably be returning to this, or a wider debate.