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To be considered on Wednesday 11 July at 4 o’clock.
Canterbury City Council Bill
Motion made,
That so much of the Lords Message [21 May] as relates to the Canterbury City Council Bill be now considered.—(The Chairman of Ways and Means.)
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To be considered on Wednesday 11 July at 4 o’clock.
Leeds City Council Bill
Motion made,
That so much of the Lords Message [21 May] as relates to the Leeds City Council Bill be now considered.—(The Chairman of Ways and Means.)
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To be considered on Wednesday 11 July at 4 o’clock.
Nottingham City Council Bill
Motion made,
That so much of the Lords Message [21 May] as relates to the Nottingham City Council Bill be now considered.—(The Chairman of Ways and Means.)
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Reading Borough Council Bill
Motion made,
That so much of the Lords Message [21 May] as relates to the Reading Borough Council Bill be now considered.—(The Chairman of Ways and Means.)
Hon. Members
Object.
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City of London (Various Powers) Bill [Lords]
Lords message (21 May) relating to the Bill considered.
Resolved,
That this House concurs with the Lords in their Resolution.—(The Chairman of Ways and Means.)
Transport for London Bill [Lords]
Motion made,
That so much of the Lords Message [21 May] as relates to the Transport for London Bill [Lords] be now considered.—(The Chairman of Ways and Means.)
Oral Answers to Questions
(12 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Peter Aldous (Waveney) (Con)
1. What discussions he has had with the Secretary of State for Business, Innovation and Skills on improving training and skills of adult prisoners to improve their employment chances after the end of their sentence and reduce the risk of reoffending.
Paul Maynard (Blackpool North and Cleveleys) (Con)
18. What discussions he has had with the Secretary of State for Business, Innovation and Skills on improving training and skills of adult prisoners to improve their employment chances after the end of their sentence and reduce the risk of reoffending.
The Parliamentary Under-Secretary of State for Justice (Mr Crispin Blunt)
I worked closely with the Minister for Further Education, Skills and Lifelong Learning during the preparation of the new offender learning strategy published last year, and officials from both Departments have worked closely on implementation. I fully recognise the importance of learning and training in making prisoners more employable, and my officials and I are working with the Department for Work and Pensions to provide enhanced employment support via the Work programme.
Peter Aldous
I am grateful to the Minister for that answer. HMP Blundeston in my constituency is doing excellent work to provide prisoners with employment skills. It is seeking to bring in work, but faces a dilemma in that it does not wish to take contracts away from local employers. Will the Minister visit Blundeston to see that work and to discuss with the governor and staff what can be done to meet that particular challenge?
Mr Blunt
I wish to visit Blundeston to see a number of examples of good practice, not just those to do with work in prisons. We have developed a code of practice to demonstrate how we will work fairly to address concerns about unfair competition and protecting local jobs. It is vital that the growth in prison work add to the UK supply chain and increase rather than reduce employment opportunities for law-abiding citizens while aiding the rehabilitation of offenders.
Paul Maynard
Many education providers these days use online platforms and tools to provide education in prison and would like to do so more often using both better internet connections and better wi-fi internet connection. Obviously, there are security concerns about making such connections available. Will the Minister explain a little further what he could do to encourage such provision to enhance rehabilitation opportunities?
Mr Blunt
I am grateful to my hon. Friend because, as he says, it is essential to maintain security while enabling learning and skills to be relevant in prisons. Prisoners’ educational internet access will now be via the virtual campus that is being installed where it is technically possible to do so in all adult prisons in England. It offers very secure access to online tools and resources that have been through thorough quality assurance and rigorous security checks, and has the potential to be developed so that prisoners’ in-cell time as well as their out-of-cell time could be much more productive than it is today.
Lindsay Roy (Glenrothes) (Lab)
Is it not the case that despite good intentions, the Government are no closer to making work in prisons the norm than they were two years ago?
Mr Blunt
That is complete nonsense. There has been a culture change across the whole of the prison system, and prison governors are stepping up to the plate and driving the agenda forward. At the same time, we have taken an enormous amount of trouble to put in place a code of practice and the necessary policy underpinnings so that we can take work in prisons to the maximum level that we can achieve. There is a profound change under way involving substantial and substantive work and I hope that the hon. Gentleman will support us in that endeavour.
Tony Lloyd (Manchester Central) (Lab)
The Minister will also recognise that issues such as drug and alcohol abuse, as well as mental health, have a huge impact on employability. How far is the Ministry of Justice prepared to work with—perhaps I should declare an interest, or at least a potential interest—the future police and crime commissioners to make sure that there is proper co-ordination of all the services necessary to get people back into work?
Mr Blunt
The hon. Gentleman will be aware of the integrated offender management that already happens in the case of prolific offenders, who tend to be drug addicted. Their support or treatment will be related, to a degree, to how they engage with their offender managers and their drug treatment providers in the community, which involves police, probation, health and local authority services all working together. That rather obvious, sensible example of integrated offender management is getting much wider traction across the whole offender management system. The hon. Gentleman is quite right: it is the way forward when all those agencies operate together. That is the purpose of all the work that we are doing with other Government Departments to advance that agenda.
Mr David Ruffley (Bury St Edmunds) (Con)
2. What recent representations he has received on the implementation of decisions of the European Court of Human Rights.
Mr Ruffley
I am very grateful to my right hon. and learned Friend for that detailed reply. He will know that there is concern, certainly on the Government Benches, that the European Court of Human Rights gives insufficient weight to the decisions of national courts, and that in addition, given the backlog of more than 150,000 cases, the Court is not devoting its entire time and attention to truly serious abuses of human rights. In that context, what are the Government doing to ensure that votes of national Parliaments and decisions by national courts are better taken into account by the European Court?
Mr Clarke
I agree entirely with my hon. Friend. We addressed that during our chairmanship of the Council of Europe. We had a conference at Brighton of all 47 member states and produced the Brighton declaration. Our considerable achievement there was not very widely reported because, not surprisingly, the media regarded it as a footnote to the Abu Qatada case which was in the newspapers at the time. Forty-seven countries agreed that we should have a greater margin of appreciation, to use the jargon, and that more regard should be paid to those decisions of the courts of nation states which had obviously addressed their obligations under the convention. That will have a considerable impact on future cases.
Dr William McCrea (South Antrim) (DUP)
Is it not long overdue that the Government move to ensure that the courts of the United Kingdom, rather than the European Court, have supremacy in the area of human rights, including protection of Christian liberties and freedoms?
Mr Clarke
We are taken to the Court much less than other members and we lose only about 2%. Sometimes that 2% includes cases where there is widespread support here for the decision, such as the holding of DNA and other information belonging to people who have never been convicted of a criminal offence, which was a recent judgment. The convention still has a very important role to play across Europe. It is hugely significant in the 47 member states and it enables standards to be applied in places all the way from Russia, Turkey and Azerbaijan across to us and Iceland. We have always been subject to the rule of law. We have always bound ourselves under the convention to accept the judgments. These are the standards that we all agreed upon after the second world war, which were not challenged in this country till 10 or 15 years ago, when some judgments here began to annoy sections of the media.
Mr Christopher Chope (Christchurch) (Con)
Will my right hon. and learned Friend take this opportunity to congratulate Mr Paul Mahoney on his election as the UK judge to the European Court of Human Rights, and does he share my satisfaction that the new judge is committed to ensuring that the principles of subsidiarity are held high in the Court—for example, in relation to the right of individual countries to decide issues relating to national religion?
Mr Clarke
I personally disapprove of a parliamentary vote on the appointment of judges, but that is the system that has prevailed there since 1947. Fortunately, the British put forward three excellently qualified candidates for the judgeship, so I congratulate Mr Mahoney on his election and I am sure he will make a very considerable contribution.
Sadiq Khan (Tooting) (Lab)
I am sure the Justice Secretary will agree that it would be inappropriate for him as a member of the Executive or me as a Member of the legislature to interfere with the appointment of judges in the UK. In the light of that and of his last answer, what are his views not on the vote but on the political interference that appears to have taken place with the appointment of the UK representative to the European Court of Human Rights?
Mr Clarke
The Council of Europe works on the basis that the Parliamentary Assembly votes from a shortlist of three people provided by the member state, and now steps are taken to ensure that all three come up to certain standards, which I am glad to say the British nominees quite easily did. It sounds as though the right hon. Gentleman and I would not start from here, and I agree that normally politicians should not vote on which judge ought to be appointed to any judicial post, but they did and Mr Mahoney, I am sure, will prove an excellent choice.
Rebecca Harris (Castle Point) (Con)
3. What recent assessment he has made of arrangements for handling sensitive information from the intelligence services in court proceedings.
The Lord Chancellor and Secretary of State for Justice (Mr Kenneth Clarke)
The Government have introduced the Justice and Security Bill to introduce a process by which such material may be considered by the courts in civil cases in future. The Bill is currently being considered and scrutinised in the House of Lords.
Rebecca Harris
I thank the Secretary of State for his reply. Does he agree that if we do not make reforms in this area we run the risk of allowing a substantial industry to develop in expensive legal claims, which we are forced to pay out of court because the Government are unable to defend themselves in open court?
Mr Clarke
The Bill stems from our recent experience in the so-called Guantanamo Bay cases, when a very large sum of money was paid out to satisfy claims and legal costs when the security and intelligence services insisted that they had an adequate defence. An increasing number of those cases are coming along, and it is not for me to pre-judge any of them, but I should like the judge to be able to hear all the evidence in the circumstances that are possible—closed material proceedings—so that we as citizens obtain some judgment in the end about the merits or otherwise of the complaint. We certainly must not encourage people to go along for both the political publicity and the potential funds that might flow from bringing a claim that they know cannot be defended.
Paul Goggins (Wythenshawe and Sale East) (Lab)
On what basis has the Justice Secretary decided not to allow closed material proceedings at inquests? Surely if there is a highly sensitive piece of intelligence that would help to explain the cause of someone’s death, the coroner should be able to see that information, albeit on a protected basis.
Mr Clarke
We canvassed that proposal in the consultation, and I have considerable sympathy with the right hon. Gentleman’s view, but we have responded to the consultation, in which there were strong feelings against the procedure being applied to inquests—despite the support that we had from coroners’ associations.
The argument is that the coroner cannot consider such material in closed material proceedings because it means that the family, the press and other interested parties will not be able to hear what the spies have to say, and that is the basis on which we have introduced the Bill—we are a listening Government. But I did canvass the measure that the right hon. Gentleman proposes.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
4. What discussions he has had with the Secretary of State for the Home Department on providing high-quality services for women within the criminal justice system following the election of police and crime commissioners.
The Minister for Policing and Criminal Justice (Nick Herbert)
The Ministry of Justice has been working with the Home Office to ensure that local areas are prepared for the introduction of police and crime commissioners, who will have duties to work with local criminal justice bodies, including in relation to the provision of women’s services.
Bridget Phillipson
I am grateful to the Minister for that answer, but the proposal to devolve some victims’ services to police and crime commissioners is not without risk. What will he do to ensure a minimum standard of provision throughout the country, regardless of the area in which the victim lives?
Nick Herbert
First, it is important to point out that some specialist services, such as the homicide service, rape crisis centres and so on, will continue to be commissioned nationally, but we think it right in principle that elected police and crime commissioners should commission victims’ services locally. It will mean that there is a champion for victims in every single area; it will ensure the greater integration of such services with the police, who have a very important duty in relation to victims; and it will be for elected police and crime commissioners, accountable to the public, to ensure that they provide a high-quality service to victims.
Tom Brake (Carshalton and Wallington) (LD)
In March, in recognition of the specific problems that women experience in prison, the Government committed to deliver a document setting out the strategic priorities for women in the criminal justice system. When will it be published, and how will it link with the work that Louise Casey is doing on troubled families and, of course, the work of elected police and crime commissioners?
Nick Herbert
The stock answer to all such questions is “in due course”, but my right hon. Friend is right that we need to ensure that such services are integrated. There is important work going on in the local criminal justice system in relation to women’s offending. Police and crime commissioners will have a role, in liaison with the local criminal justice agencies. The troubled families work being led by Louise Casey is very important in efforts to prevent crime. I believe that police and crime commissioners will be in a strong position to ensure local coherence in work to divert people from the criminal justice system and from crime.
Jenny Chapman (Darlington) (Lab)
In his answer to my hon. Friend the Member for Houghton and Sunderland South (Bridget Phillipson), who has considerable experience in providing victims services, the Minister confirmed that there will be no minimum standards for victims. To give just one example, two thirds of victims of stalking said that the police and the Crown Prosecution Service did not take their complaint seriously, and offenders are not charged in almost nine in every 10 cases. There is a risk of specialist services falling between the cracks—looking after the detail makes a difference—and such services are not likely to win PCC votes. Will the Minister consider intervening if the loss of specialist services for women continues after the election of PCCs?
Nick Herbert
But the whole point of the change is to ensure that there will be accountability for the provision of victims services, which will lie at local level with people who are already responsible for the police and who will be champions for victims. The cross-party Association of Police and Crime Commissioners has already welcomed the proposal, and the youth charity Catch22 says it believes that police and crime commissioners generally have the potential to bring real coherence at the local level to the planning and commissioning of services designed to reduce and prevent crime and support victims. I am sorry that Opposition Front Benchers do not support what I believe is a very good idea that will strength victims services at the local level.
Mrs Helen Grant (Maidstone and The Weald) (Con)
Does my right hon. Friend agree that community women offender facilities, in which this Government have invested substantially, provide a real alternative to custody for many women in the criminal justice system?
Nick Herbert
I agree with my hon. Friend. The number of women in custody has been declining, in contrast with the number of men. We have been developing intensive treatment-based alternatives to custody for offenders with drug or mental health problems, including four women-only services in Wirral, Bristol, Birmingham and Tyneside. They are an important part of our strategy to ensure that offending by women is dealt with as effectively and appropriately as possible.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
5. What assessment he has made of the potential effect on public safety of the abolition of sentences of imprisonment for public protection.
The Parliamentary Under-Secretary of State for Justice (Mr Crispin Blunt)
As the published impact assessment for the Legal Aid, Sentencing and Punishment of Offenders Act 2012 makes clear, the continuing regime of life sentences and a new mandatory life sentence for a second very serious offence, as well as longer custodial periods and extended licence periods, all supported by compulsory sentence plans and multi-agency public protection arrangements—MAPPA—supervision, will ensure that there are sufficient measures to manage risk and uphold public protection.
Tom Blenkinsop
I thank the Minister for his response, but the Justice Secretary is on record saying that the number of those currently in prison who have served beyond their minimum tariff on an IPP sentence is a scandal. What proposals does the Minister of State intend to make on the release test for those on IPP sentences?
Mr Blunt
There are no immediate proposals to change the release test. In March, there were 3,500 IPP prisoners serving beyond their tariff, a result of the administrative chaos that followed the unwise introduction of the sentence, with wholly unforeseen numbers being given such a sentence. I draw the hon. Gentleman’s attention to the fact that, in addition to the measures I have outlined, violent offender orders and sex offending prevention orders will be available to the courts to use for public protection.
Sir Alan Beith (Berwick-upon-Tweed) (LD)
Does my hon. Friend agree that the use of indeterminate sentences for prisoners who would otherwise have received relatively short sentences, far from enhancing public safety consumes resources in the prison system that are desperately needed for effective rehabilitation and stopping reoffending?
Mr Blunt
My right hon. Friend is absolutely right: such sentences consume substantial resources, not just in the offender management system but in the Parole Board and elsewhere. The prison system was having to manage a potential future disaster in the ever-increasing number of indeterminate sentence prisoners. We have finally got a grip on the problem and are now addressing it.
Mr Andy Slaughter (Hammersmith) (Lab)
In trying to save money, the Minister misses the point. Without indeterminate sentences, some of the most violent and dangerous criminals—rapists, armed robbers and those who prey on the weakest and most vulnerable—will be released from custody against the professional advice of the probation service and others. Will that make the public more or less safe?
Andrew Bridgen (North West Leicestershire) (Con)
In 2010, 1,019 individuals were given indeterminate sentences. Will the Minister assess the rehabilitation strategies for those currently serving indeterminate sentences?
Mr Blunt
My hon. Friend is right. We inherited a serious administrative problem in that the capacity of the offender management system was being overwhelmed by the number of people with indeterminate sentences—[Interruption.] It is absolutely not the judge’s fault; it is the fault of the previous Administration, who failed to put in place the resources to deal with the sentences that they then passed in the House. That is one of the many problems that we are having to address. IPPs are a classic example of the shambles that we have—
Mr Speaker
Order. The Minister should calm himself. The shadow Justice Secretary is a man of very great distinction. He would not behave like that in court; he would probably be turfed out or struck off. I cannot imagine it—very out of character.
Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)
6. What progress he has made on his proposals to reform the probation system.
The Lord Chancellor and Secretary of State for Justice (Mr Kenneth Clarke)
On 27 March, in the consultation document “Punishment and Reform: Effective Probation Services”, the Government published proposals to deliver more effective and efficient probation services. Alongside that, we published proposals to deliver more credible and effective community sentences. We are currently considering the responses to the consultation, which closed on 22 June. We intend to publish the Government response later in the year.
Luciana Berger
I thank the Secretary of State for his response. Under a marketisation of the probation service, how can he assure the House that fragmentation of the service will not put the public at risk? What safeguards are in place to ensure that cherry-picking by private sector providers of individuals on probation does not occur?
Mr Clarke
I am somewhat astonished by the reaction of some Opposition Members. We are following the policy first laid out in the Offender Management Act 2007. The probation trusts have now all been set up and we are introducing principles to bring some competition and diversity of provider. There are very good people who can provide some aspects of the probation service. We believe that that will both enhance the quality of the service and achieve better value for money and better outcomes. Plenty of people in the probation service welcome our proposals; indeed, some are surprised by their modesty.
Philip Davies (Shipley) (Con)
At a recent multi-agency public protection arrangements, or MAPPA, meeting that I sat in on, a probation officer reported that his client was having problems meeting a curfew of 7 o’clock at night. When the officer was asked what he was doing to deal with the curfew’s being breached, he said that he had changed the curfew to 9 o’clock to aid compliance. Will the Secretary of State tell me what he is going to do to stop such outrages, which make a complete mockery of the probation system and the criminal justice system?
Mr Clarke
I cannot comment on an individual case, although I am sure that my hon. Friend did when he had the pleasure of listening to that exchange. We are seeking to make both the probation service and community sentences more effective, by which I mean more punitive when necessary but also more effective in controlling the behaviour of the offender.
We have taken powers to extend the hours of curfew. We intend to make more use of tagging to enforce curfews, among other things. We are testing more effective equipment and consulting on how best to use tags and modern technology effectively.
Mr Speaker
I am now looking for stunning succinctness. I call Mr Elfyn Llwyd.
Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC)
I shall try to stun you, Mr Speaker.
The Secretary of State knows that the relationship between probation officer and offender is crucial to the rehabilitation process. How will he assure the House that opening up to the private sector will not undermine that crucial relationship?
Mr Clarke
In all these things, I take the view that the status of the person involved—whether they are classified as public sector or private sector, or who exactly they work for or which union they belong to—is a slightly subordinate issue. This is a rather sterile debate of a few decades ago about whether there should be private sector or public sector provision. What matters is the quality of what is done, the quality of the person, the relationships they develop, and what is available to them to make a community sentence more effective.
Tristram Hunt (Stoke-on-Trent Central) (Lab)
7. What recent assessment he has made of the effectiveness of the system for recovery of criminal fines.
The Parliamentary Under-Secretary of State for Justice (Mr Jonathan Djanogly)
In the financial year 2011-12, Her Majesty’s Courts and Tribunals Service collected £279 million in respect of criminal fines, further reducing the cost of enforcement and achieving the best ever performance against the payment rate measure. But now we want to do better, so we have developed better-quality performance indicators for publication and are exploring the potential for creating a partnership with a commercial company to build on the improvements we have already made in fines collection.
Tristram Hunt
What the Minister did not reveal is that over £600 million in outstanding fines is owed by criminals, of which £10 million relates to Staffordshire, and a further £5.5 million of unrecovered debts have already been written off. When faced with falling living standards and the effects of ill-planned spending cuts, my constituents want to know why this Government are allowing criminals to think that crime does pay.
Mr Djanogly
The hon. Gentleman mentions the collection backlog, and thereby raises the collection inadequacies of the previous Administration which we are now having to sort out. In 2011-12, the payment rate was 106%, and last year, for the first time since 2003-04, the outstanding balance was reduced by £16 million—that is, 3%.
Mr David Burrowes (Enfield, Southgate) (Con)
Given the new statutory presumption that victims of crime will be compensated, can we ensure that whatever the means of offenders, they will all have to make amends to their victims?
Mr Djanogly
Absolutely, and if that is by way of a fine, we intend to collect it.
Steve Brine (Winchester) (Con)
9. What recent steps he has taken to reduce reoffending by young offenders.
Eric Ollerenshaw (Lancaster and Fleetwood) (Con)
14. What recent steps he has taken to reduce reoffending by young offenders.
Stephen Mosley (City of Chester) (Con)
19. What recent steps he has taken to reduce reoffending by young offenders.
The Parliamentary Under-Secretary of State for Justice (Mr Crispin Blunt)
Reducing reoffending is a key priority for this Government, and the challenge is most acute with young offenders. Recent steps that will specifically apply to under-18s include youth custody pathfinders, the troubled families programme, the programme on gangs and youth violence, restorative justice, new out-of-court disposals, increased curfews, more severe breach penalties, minimum mandatory custodial sentences for aggravated knife crime, and integrated resettlement support. These measures complement the already very substantial number of further measures and programmes that are aimed at dealing with all age groups who reoffend, not least young adults.
Steve Brine
I thank the Minister for his breathless list. He will know of the charity User Voice, which engages those who have experience of the criminal justice system in bringing about reform and reducing reoffending. A group of young people from the organisation recently came to give evidence to the Justice Committee for its youth justice inquiry. It was striking to hear them say that having respect for the status and position of a youth offending team worker is not the same thing as connecting with them and having them make a reasonable difference to their lives. Does the Minister agree that there has to be a much greater role for offenders and ex-offenders in steering young people away from the spiral of offending and constant reoffending?
Mr Blunt
I have met people from User Voice several times, and I agree with my hon. Friend about the value of their work. I also agree that ex-offenders are uniquely placed to offer support to offenders, along with other professional services, and can connect with them in a way that many other agencies cannot. Peer-mentoring services using ex-offenders are being developed at Ashfield and Cookham Wood young offenders institutions, working with the Prince’s Trust.
Eric Ollerenshaw
What particular support will there be for young offenders institutions such as Lancaster Farms in my constituency, particularly in dealing with young offenders on short-term sentences?
Mr Blunt
I am grateful for my hon. Friend’s support for the work of Lancashire Farms, which is a young offenders institute for young adults. There are a range of initiatives. The piloting of drug recovery wings will apply to those with short sentences. We are reforming the way in which education and training are delivered and linking them directly to the demands of the labour market on release. Prisoners who are assessed for jobseeker’s allowance before their release will be mandated to the Work programme on the first day of their release, and that will be an important way of joining up Government and involving the Department for Work and Pensions.
Stephen Mosley (City of Chester) (Con)
The lack of work opportunities is one reason young offenders go on to reoffend. Has my hon. Friend made an assessment of the link between youth unemployment and reoffending, and what steps is he taking to help young offenders find work?
Mr Blunt
We know that it is important to tackle youth unemployment. The £1 billion youth contract will encourage employers to give young jobless people a chance, the Youth Justice Board has developed an employing ex-offenders action plan, and resettlement consortia have achieved success in helping many young people to find employment on release from custody.
John Healey (Wentworth and Dearne) (Lab)
Does the Minister agree that the best efforts to reduce reoffending are often based on local courts with good local knowledge, working closely with local agencies? We have a very good magistrates court in Rotherham for Rotherham, and a very good one in Barnsley for Barnsley. Will he rule out any further magistrates court closures, which might put local justice in jeopardy?
Mr Blunt
The right hon. Gentleman knows perfectly well that I cannot do that. We have to deliver the whole justice system as efficiently as possible. Because of the financial catastrophe that overtook the country under the last Administration, in which he played a prominent part in the Treasury, the provision of all court and prison infrastructure has to be examined so that we can deliver offender management considerably more effectively than the last Administration.
Keith Vaz (Leicester East) (Lab)
I welcome the new drug-free wing at Pentonville prison, which aims to cut reoffending. May I put to the Minister what I put to the Lord Chancellor when he gave evidence to the Home Affairs Committee this morning? The key to ending reoffending is to help prisoners once they leave prison. That support is vital.
Mr Speaker
Order. We are grateful to the Minister. I do not wish to be unkind, but the answers are simply too long. Progress is too slow and it needs to be speeded up.
Bill Esterson (Sefton Central) (Lab)
The double-dip recession created by the Government has made it much harder for young people in general and young offenders in particular to find work. What conversations is the Minister having with his colleagues to encourage growth in the economy and to solve the problem of youth unemployment in general and young offenders in particular?
Mr Blunt
The last time I looked, Spain’s interest rates were about 4% higher than ours. If we had those interest rates, it would cost the country £40 billion a year to borrow the amount of money necessary, which would certainly put paid to all the employment programmes that the hon. Gentleman is suggesting.
Jesse Norman (Hereford and South Herefordshire) (Con)
10. What plans he has to protect and enhance the powers of the magistracy.
The Minister for Policing and Criminal Justice (Nick Herbert)
The Government will shortly publish plans on improving the criminal justice system, including by reinforcing the important role of magistrates.
Jesse Norman
The magistracy is one of the great glories of the English legal system, and Hereford magistrates court is a case in point. Will the Minister give some reassurance that there are no plans to change the services at Hereford magistrates court or to close it?
Nick Herbert
I agree with my hon. Friend about the value of magistrates. They are lay people who give of their time, and the community justice that they dispense is an important feature of our criminal justice system. That is too little acknowledged. As the Under-Secretary of State for Justice, my hon. Friend the Member for Reigate (Mr Blunt) said, we continually review the estate to ensure that it is well utilised, but we have no current plans to close Hereford magistrates court.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
Is the Minister aware that over many years and under many Governments the magistracy has been run down? It has been run down because so many local courts have been closed. Once the link between being a magistrate and the local community is broken, it no longer works. What is he going to do about that?
Nick Herbert
The hon. Gentleman should reflect on the fact that one of the issues that magistrates are most concerned about is the growth of out-of-court disposals, which soared under the last Government in response to the target culture. We continue to have concerns about the inappropriate use of such disposals. He should reflect on the role of the previous Government in undermining the magistracy.
Mr Nick Raynsford (Greenwich and Woolwich) (Lab)
11. What progress he has made with his proposals on regulation of bailiff services.
The Parliamentary Under-Secretary of State for Justice (Mr Jonathan Djanogly)
Following the publication of updated national standards for enforcement agents in January, the Government launched a full public consultation on transforming bailiff action in February. The consultation closed on 14 May, and we are now carefully considering the 250 responses with a view to publishing our response in the autumn.
Mr Raynsford
I am not sure whether any of those responses referred to the Government’s proposed cut of £500 million in council tax benefits next April, which is widely expected to prompt a surge in cases being referred to bailiffs for the recovery of council tax debts. What are the Government doing to prevent an escalation of intrusive, expensive interventions against low-income households?
Mr Djanogly
If there are debts to be collected, bailiffs have to go and collect them; otherwise, the system would break down. However, the Government are clear that aggressive bailiff activity is unacceptable, and we are committed to introducing effective proposals that protect the public and ensure that bailiff action is proportionate.
Duncan Hames (Chippenham) (LD)
I hear the Minister’s answer, but does he not agree that when public bodies such as councils procure bailiff services, they should take some responsibility for the methods they sanction?
Mr Djanogly
They should indeed, and they do. The new guidelines are there to ensure that minimum standards of behaviour are adhered to. We have introduced the guidelines before legislating.
Robert Flello (Stoke-on-Trent South) (Lab)
The Tribunals, Courts and Enforcement Act 2007 contains detailed provisions on the regulation of bailiffs, and in May 2010 the coalition agreement stated that action would be taken. Here we are in summer 2012, and no Government response to the consultation is expected until the end of the year and the Government are hitting households from every side, forcing them into more and more debt every day. With a catalogue of appalling behaviour by bad bailiffs, and even reputable bailiffs saying that they need regulation urgently, when will the Government finally stop delaying and get on with it?
Mr Djanogly
Any delay arises from the non-implementation of part 3 of the 2007 Act, and the cause of our delay is the same reason why the Labour Government delayed—their legislation does not work. We have acted in the interim by putting guidelines in place, and we are now consulting on upgrading legislation in a measured and balanced way. We will consider the many interests that exist and the balance that we have to achieve.
Stephen Timms (East Ham) (Lab)
12. What assessment he has made of the availability of legal advice to people on low incomes who will be affected by the Government’s proposed welfare reforms.
The Parliamentary Under-Secretary of State for Justice (Mr Jonathan Djanogly)
During the development of the legal aid reforms, the Ministry of Justice conducted detailed assessments of the availability of legal advice funded by legal aid or provided by the not-for-profit advice sector. With regard to welfare reform, the Department for Work and Pensions is developing a strategy for working with the voluntary sector, including welfare advice services, to ensure that people on low incomes have access to the support that they need to understand their rights and entitlements following the move to universal credit.
Stephen Timms
During ping-pong on the Legal Aid, Sentencing and Punishment of Offenders Bill, Ministers accepted that legal aid should still be available for an appeal to the first-tier tribunal if a point of law is at stake. How will someone establish whether a point of law is at stake, and when will the provision take effect?
Mr Djanogly
I confirm that we are giving serious thought to the issue and considering the exact scope of the concession, as well as how such work will be delivered in future, because the operational aspects are just as important. Once we have considered that in full, we will make an announcement.
Robert Halfon (Harlow) (Con)
13. What recent assessment he has made of the value for money and effectiveness of the Office of the Information Commissioner.
The Parliamentary Under-Secretary of State for Justice (Mr Jonathan Djanogly)
The Ministry of Justice and the Information Commissioner’s Office meet regularly to ensure that the office operates effectively and secures the best possible value from the resources available to it. The ICO’s next annual report is due out on Thursday.
Robert Halfon
As I told the Minister when I wrote to him a few weeks ago, it took a long campaign in Parliament in 2010 before the Information Commissioner was prepared to admit that Google Street View had broken the Data Protection Act on an industrial scale. It has now taken an investigation by The Sunday Times and action in America for the ICO to actually act and pursue Google further. Surely the ICO should be accountable to Ministers, and therefore to the British people, so that when there are such problems someone can take charge.
Mr Djanogly
The Information Commissioner is of course accountable to the public via Parliament. His annual reports are laid before Parliament, and he could be questioned on his reports by, for instance, the Justice Committee. It would be wrong for me to comment on the ICO’s handling of any particular case. That said, I understand that the ICO has reopened its investigation into Google Street View because it has received some new information about Google’s capture of data from wi-fi networks in the USA. The investigation is ongoing.
Mark Pawsey (Rugby) (Con)
15. What recent assessment he has made of the operation of community payback; and if he will make a statement.
The Parliamentary Under-Secretary of State for Justice (Mr Crispin Blunt)
The Green Paper “Breaking the Cycle” contained proposals relating to community payback that have been confirmed by the Government. Plans are in place to implement these changes, and the results of the first competition to administer community payback in London will be announced shortly. My assessment is that this competition and the preparation for competitions in all other trusts have substantially improved all elements of operational delivery.
Mark Pawsey
In Warwickshire, more than 63,000 hours of community payback are completed each year by offenders on a community sentence. They carry out projects such as litter removal, clearing undergrowth and removing graffiti—labour worth about £360,000. Does the Minister agree that in certain cases this is a worthwhile way for offenders to make a contribution to the society that they have harmed?
Mr Blunt
I agree with my hon. Friend. I understand that 179 organisations in Warwickshire benefited from community payback last year. Not only is there an opportunity to link with members of the public through the ability to nominate community payback schemes, but these nominations are now running at more than 1,000 a month.
Simon Hughes (Bermondsey and Old Southwark) (LD)
16. What steps his Department is taking to implement the recommendations of the final report of the riots communities and victims panel.
The Minister for Policing and Criminal Justice (Nick Herbert)
The Government welcome the final report from the independent riots communities and victims panel and will publish a formal response in due course.
Simon Hughes
This very good report made some very good recommendations to the Ministry of Justice, including for more effective community sentencing—specifically, that communities should choose the projects and that the results, including reoffending rates, should be published. Will Ministers be positive about those recommendations? I am sure it would be appreciated.
Nick Herbert
I think we will be positive about exactly that kind of proposal—we have already published formal consultation proposals to strengthen community sentences, which was one of the recommendations in the report. That is important, because the report itself drew attention to the fact that those who were brought before the courts in relation to the riots had 11 previous convictions, which showed that the justice system had not been effective in dealing with such problem offending.
Mr David Ruffley (Bury St Edmunds) (Con)
T1. If he will make a statement on his departmental responsibilities.
The Lord Chancellor and Secretary of State for Justice (Mr Kenneth Clarke)
Yesterday, the Government published their response to the consultation entitled “Getting it Right for Victims and Witnesses”. For too long, many victims have felt themselves to be an afterthought for the criminal justice system. Our reforms will ensure that victims and witnesses get the support they need when they need it. Our proposals include an aim to raise an additional £50 million from offenders to be spent on victims’ services. Responsibility for commissioning most victims’ services will eventually go to democratically accountable police and crime commissioners, ensuring that decisions about service provision respond to local need. We will reform criminal injuries compensation so that it is focused on victims of serious crime and is sustainable, and there will be a new victims code making it clear what victims can expect from the criminal justice system and ensuring that they are treated with dignity and respect.
Mr Ruffley
A UK prisoner is litigating in the European Court of Human Rights asserting his right to vote. When does the Secretary of State expect that decision to be handed down by the Court, and does he expect the House of Commons to be able to vote on the issue of votes for prisoners?
Mr Clarke
There has been repeated litigation involving several member states that do not allow prisoners to vote, as we have never done. The most recent litigation was Scoppola v. the Italian Government, in which our Attorney-General intervened on behalf of the British Government to argue that Parliament was more responsible for this issue than the Court. The Government will respond to that judgment, which went against a blanket ban, in due course.
Sadiq Khan (Tooting) (Lab)
There are 6,500 prisoners who have been ordered by trial judges to serve indeterminate sentences for public protection. It is important for public safety that they be released only after a proper risk assessment, but more than 3,500 are waiting for appropriate programmes and a risk assessment. Does the Justice Secretary have any plans to increase the number of programmes and assessments to address this issue?
Mr Clarke
This system, which we are getting rid of, as the Under-Secretary of State for Justice, my hon. Friend the Member for Reigate (Mr Blunt) reminded us earlier, has put a tremendous load on the prison service in terms of programme design, availability of suitable places and the Parole Board system. We are addressing that and trying to reduce the delays, but it will take us some time to get through the system. Of course, some will remain indeterminately imprisoned, but we want as many as possible to finish their proper sentence, to get them out and to put behind us this rather shameful chapter in the history of sentencing in this country.
Sadiq Khan
As is normal, the Justice Secretary did not answer the question I asked. Let me try another. His ministerial colleague said that there were no immediate plans to change the release test. Yesterday, Lord McNally said that the Government may use Executive action to release those serving IPPs, and would also change the balance of judgment to be made by the Parole Board to free up prison places. Those two actions could lead to prisoners who are currently serving IPPs being released without due regard to public safety. Which Minister should we believe, and is it really worth taking a risk with public safety to reduce prison numbers?
Mr Clarke
I will check what Lord McNally actually said. We are not contemplating either of those steps at the moment. We are putting extra resources into programmes and into addressing the problems that the Parole Board is faced with. We are quite determined not to take risks with public safety, but indeterminate sentences really were one of the worst ways of trying to do that, as they left a grave sense of injustice and difficulty coping with the proper assessment of people, for open-ended release.
Andrew Jones (Harrogate and Knaresborough) (Con)
T2. My right hon. and learned Friend recently announced extra financial support of £50 million to be provided for victims of crime, with offenders being forced to make the financial contribution. I strongly welcome that, but could see no information on the Department’s website about when the scheme will start. Can he help with that?
The Parliamentary Under-Secretary of State for Justice (Mr Crispin Blunt)
Subject to parliamentary approval of the orders that have been laid before the House, the changes to the victim surcharge should be implemented in October. We would expect to see the revenue starting to come in six months thereafter. The money—up to £50 million—will come from offenders and go to victims, which is a move away from the taxpayer being responsible. The Government’s policies will also mean courts ordering offenders to pay more in compensation to victims—indeed, that will be the first duty on sentencers to consider.
Dan Jarvis (Barnsley Central) (Lab)
T4. According to the Legal Services Consumer Panel, 180,000 wills are written each year by unregulated services. Both the national press and the Barnsley Law Society have reported that thousands of people are being ripped off by unregulated will-writing services. What does the Justice Secretary think is the solution to the problem?
The Parliamentary Under-Secretary of State for Justice (Mr Jonathan Djanogly)
The Government recognise this as a serious issue. We are in discussion with the Legal Services Board, which has just done a consultation, and we will be making an announcement in due course.
Mr Philip Hollobone (Kettering) (Con)
T8. In thanking my right hon. Friend the Minister for Policing and Criminal Justice for visiting a community payback scheme in Kettering on 18 June, may I ask whether he agrees that the work we saw being undertaken was both worth while and sufficiently arduous to prevent future reoffending?
The Minister for Policing and Criminal Justice (Nick Herbert)
Yes. I am grateful to my hon. Friend for inviting me to Kettering to see that scheme. The offenders were wearing fluorescent jackets to identify them as people doing work on behalf of the community. They were working hard constructing a path alongside a river, which will be of huge value to the community and would not have been constructed but for that work. That shows that we can make community payback an effective and meaningful punishment on behalf of the community.
Sheila Gilmore (Edinburgh East) (Lab)
T5. Professor Harrington, the independent reviewer of the work capability assessment, has highlighted the fact that Department for Work and Pensions officials are not routinely given feedback when appellants’ appeals have been successful, which means that they cannot improve practice. Why not?
Mr Djanogly
There are costs involved in feedback, but that does not mean that the DWP cannot ask for feedback if it wants it. The efficiency of the tribunal processes is being looked at carefully, with Ministry of Justice officials and Ministers working closely with DWP equivalents.
Bob Blackman (Harrow East) (Con)
T9. Many countries outside the UK have legal systems that are based on ours, and this is particularly true in the Commonwealth. What has my right hon. and learned Friend done to market the legal services in the UK to those countries?
Mr Kenneth Clarke
We are making a considerable effort to market British legal services, both within the Commonwealth and across the wider world, in many important emerging markets and elsewhere. I am glad to say that we are working closely with the Bar Council and the Law Society in doing so. Legal services in this country are held in the highest regard in the world—our judges are more trusted and our system is more effective than most others—and they contribute 1.3% to the GDP of this country. Legal services are second only to financial services in the City of London, and are something we should promote and support.
Shabana Mahmood (Birmingham, Ladywood) (Lab)
T6. Is the Minister able to put a figure on how much the repeated failure of Applied Language Solutions to provide interpreters in court proceedings has cost the taxpayer through delayed proceedings?
Mr Blunt
We have published assessments of ALS’s performance, and we will continue to do so, but it is impossible to arrive at the numbers the hon. Lady is seeking. Her question seems to imply that the previous system for booking interpreters was a model of exactitude and correctitude; it was not. ALS’s performance is now reaching the required contract level.
David Mowat (Warrington South) (Con)
In this country, we now have 1,200 whiplash claims a day, which is about 30 times more than in France or Germany. The industry costs to the rest of us are £2 billion a year, resulting in many young people being unable to afford to insure their cars. What discussions has the Minister had with the relevant regulatory body of the Law Society that drives this industry?
Mr Djanogly
The Government are committed to reducing the number of whiplash claims, and we have had discussions with all parties involved in these claims. We will consult over the summer on reducing the number of whiplash claims, including through looking at the medical certificates that are handed out, as well as at small claims levels.
Caroline Lucas (Brighton, Pavilion) (Green)
T7. My constituent Sam Taylor has been subjected to, and still lives in fear of, the most terrible harassment from her ex-partner. The new offences relating to stalking represent real progress, but Sam’s case shows that serious work still needs to be done on the ground to ensure that she and her family can be properly protected. Will the Minister meet Sam, along with the chief superintendent of Sussex police and me, to hear why she remains concerned?
Nick Herbert
I would be very happy to meet the hon. Lady to discuss that issue.
Mr David Davis (Haltemprice and Howden) (Con)
On 4 September, the European Court of Human Rights will hear the case of Nadia Eweida v. the United Kingdom Government. I understand that the Government are resisting the case. Miss Eweida is the lady who effectively lost her job with British Airways for wearing a cross, a symbol of her religion, at work. Is it any part of the British Government’s policy to support the denial of people’s religious rights at work? If not, will we reconsider our position on that case?
Mr Kenneth Clarke
I will consult the Attorney-General, who is no doubt preparing the Government’s defence in this case. This is obviously a hugely difficult issue; the case has gone through the courts here and is now going to be heard in Strasbourg. Whatever one’s feelings about the narrow facts of the individual case, there are wider issues about the enforcement of religious rights in employment, and I have no doubt that they will be properly canvassed. I will consult my right hon. and learned Friend the Attorney-General.
Yasmin Qureshi (Bolton South East) (Lab)
Will the Justice Secretary confirm that, despite Ministers’ claims to the contrary, judges will be left with no option under the proposals in the Justice and Security Bill but to grant closed material proceedings?
Mr Clarke
I disagree. It is certainly my intention—this is the way in which the Bill is drafted—that there will be closed material proceedings only when the judge is satisfied that there would be a risk to national security if the evidence were to be given in open court. We are not taking into secrecy or excluding from the court any evidence that is heard in court at the moment. For the first time, we are creating an opportunity for the judge to consider intelligence evidence, but that will happen only in those cases in which the judge is satisfied that national security is involved.
Greg Mulholland (Leeds North West) (LD)
I am sure that Ministers would agree that causing death by dangerous driving is a serious offence, particularly when drivers are under the influence of alcohol or drugs, yet it is not regarded as serious by the Criminal Injuries Compensation Authority. I have had two constituency cases in which the families have suffered not only the appalling loss of a family member but huge financial loss. Unlike the families of manslaughter and murder victims, they are not eligible for any compensation.
Mr Clarke
Compensation is for criminal offences, and it depends on the severity of the injury. We are concentrating on the most severe injuries that can be suffered. It would be very nice to extend it to all road traffic cases, particularly those that cause outrage or particular damage, but it would be impossible to ask the taxpayer to pay compensation in such cases.
Hazel Blears (Salford and Eccles) (Lab)
Last week, I had the opportunity to have an excellent meeting with the courageous and very impressive chief crown prosecutor of Greater Manchester, Mr Nazir Afzal. He has given his full personal backing to the pilot of Clare’s law, which will identify serial perpetrators of domestic violence and is due to be launched in Greater Manchester in the next few weeks. Will the Minister ensure that criminal justice systems across the country support those pilots so that we can protect people from domestic violence?
Mr Robert Buckland (South Swindon) (Con)
The failure to bring criminal prosecutions against those who have wrought such havoc to our banking system continues to cause huge public concern. Has my right hon. and learned Friend had any discussions with ministerial colleagues about how the proposed fresh investigations will be properly supported and resourced?
Mr Kenneth Clarke
On reading what I have of these cases, it seems to me quite plain that possible crimes are involved in what has been described. I am glad to say that the Serious Fraud Office is, I am assured, investigating. It is properly a matter for it and not in the end a matter for Ministers whether anybody is prosecuted for anything. I think we are all reassured to know that this is being inquired into, as anybody guilty of crime must be brought to justice.
Alison Seabeck (Plymouth, Moor View) (Lab)
There is evidence in the south-west of companies setting up internal companies to pursue debt—in effect, two companies pursue the same debt. The Office of Fair Trading describes this as an unfair practice and the direction guidance says that such practice constitutes harassment when two bailiffs chase the same debt. There are clearly Chinese walls in this practice; is it going to be looked at as part of the regulation review?
Mr Djanogly
If bailiffs are involved, it does fall within the terms of the consultation. I will come back to the hon. Lady on the specific point.
Anna Soubry (Broxtowe) (Con)
The Secretary of State could be forgiven for not knowing that 72 years ago yesterday, he was born in the same ward of the same Nottingham hospital as my constituent Mr Roy Plumb. Unfortunately, Mr Plumb had to retire as a magistrate on his 70th birthday. I do not expect the Secretary of State to refer to his own age and I would not want him to retire, but does he agree that the time has come to allow magistrates to serve beyond their 70th birthday?
Mr Kenneth Clarke
I congratulate my hon. Friend’s constituent on his birthday yesterday. The argument for retaining a retirement age of 70 for judges of all kinds—I agree that this is a mere stripling for most occupations—is that, unlike me and most other people in their 70s, they cannot be removed from office: they are there for life, and can be removed only for quite serious bad behaviour. If we let everybody go on until whatever age, we will get into difficulties and politicians or somebody else will have to start appraising their performance, as they cannot be dismissed peremptorily. That is what has made us hold back from raising the compulsory retirement age for magistrates and judges at every level.
Ann Coffey (Stockport) (Lab)
On 15 May, I asked the Minister when he was going to respond to the recommendations of the Justice Select Committee on the presumption of death in guardianship, which were published on 22 February. He responded, “Shortly”. May I please ask the question again?
Tessa Munt (Wells) (LD)
A couple of weeks ago, the Under-Secretary of State for Justice, the hon. Member for Reigate (Mr Blunt) visited the high-performing Shepton Mallet prison in my constituency. It has a great team of staff. Will the Under-Secretary or the Secretary of State comment on the fairness of recognising the high numbers of years of service of prison officers with jubilee medals, but not honouring the support staff, who are equally important in the smooth running of this prison, in the same way? Would it not be churlish not to produce some more medals so that they can be given to the support staff as well?
Mr Speaker
It might be churlish to interrupt the hon. Lady, so on this occasion I did not, but a blue pencil would be of benefit.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)
The Secretary of State will know that his Department will face tribunal costs of almost £50 million, largely arising from appeals to the work capability assessment. Given that 40% of those appeals are successful, is it not now time that his Department and the Tribunal Service discussed with Atos Healthcare how to get some of the money back—otherwise, the public are paying twice for wrong decisions?
Mr Djanogly
The hon. Gentleman makes an important point. Better decisions need to be made by Departments in the first place so that fewer are appealed, and the Ministry of Justice is working with other Departments to that end.
Business of the House
(12 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Leader of the House of Commons (Sir George Young)
Mr Speaker, I should like to make a short business statement. The business for this Thursday will now be proceedings on the Supply and Appropriation (Main Estimates) Bill, followed by a debate on two motions relating to professional standards in the banking industry. I shall make my usual business statement on Thursday.
Ms Angela Eagle (Wallasey) (Lab)
I welcome that statement from the Leader of the House. Can he tell us how long he expects the debates to last?
Sir George Young
I am grateful to the hon. Lady for her welcome for the statement. The plan is to table a business motion today which will appear on the Order Paper tomorrow. The debate will be the main business on Thursday, and we plan to bring it to a conclusion at 5.15 pm to allow time for debate before 6 pm.
Mr Speaker
Order. I remind the House that questions on the statement must relate to the statement itself, and thus only to the implications of the change in business. They must not extend to the arrangement of business more widely, and certainly not to the issues of substance that will be the subject of the debate on Thursday. I hope that that is helpful to the House.
Mr John Redwood (Wokingham) (Con)
Will the Leader of the House ensure that on Thursday it will be in order to debate banking competition and the structure of the state banks, so that we can have a proper debate on banking?
Sir George Young
The question of whether a speech would be in order would be a matter for you in the Chair, Mr Speaker. My right hon. Friend will be able to see the two motions which we hope to table today and which, in that event, will be on the Order Paper tomorrow. I am sure that, if he catches your eye on Thursday, he will be able to couch his speech in such a way as to remain in order.
I said that there will be debates at 5.15 pm; I meant votes.
Hugh Bayley (York Central) (Lab)
As a direct result of the announcement made by the Leader of the House, we will lose the opportunity on Thursday to debate a motion selected by the Backbench Business Committee about VAT and ambulance services. Can the Leader of the House tell me when time will be made available for that debate? Has he a date in mind, and how much time will be provided?
Sir George Young
I very much regret the inconvenience to the House and to Members who were planning to take part in Thursday’s debate on the two motions proposed by the Backbench Business Committee. I intend to find time for one of those two debates between now and the summer recess if possible. I hope to be able to say more on Thursday.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
The other motion tabled for that day is in the name of members of the Public Administration Committee, and invites the House to give its opinion of our recommendation that the adviser on ministerial interests should be able to instigate his own inquiries instead of having to wait for a referral from the Prime Minister. Given that this is a very topical issue and that the Government have yet to respond to our latest report, may I ask my right hon. Friend to find time for that debate, not least because I am sure he would not want the impression to be given that the Government were reluctant to debate the issue?
Sir George Young
The subject that my hon. Friend has raised is indeed important, but my own view—without any disrespect—is that the crisis in the banking industry is even more important, and that it is entirely right for the House to find time to debate it. I can tell my hon. Friend that we plan to honour our commitment to the Backbench Business Committee to find at least 27 days for debate on the Floor of the House in each Session. I hope to say a little more about the time available, but the Committee already has half a day next Wednesday, and I hope that it will also have the last day before the House rises, so it is not the case that it has been totally starved of time.
Natascha Engel (North East Derbyshire) (Lab)
The debate on banking is of course very important, and the House understands that. It is only regrettable that it happens to be a Back-Bench day that it is replacing. Will the Leader of the House not only undertake to look into that, but guarantee that both the important debates that have had to be postponed will be held before the House rises for the summer recess?
Sir George Young
I am grateful to the hon. Lady for her comments. At the meeting of the Backbench Business Committee this morning, representations were made to her for a debate on the banking industry, so there is an appetite for that. In response to her request to make good the two half days, as I have said the Committee already has a half day earmarked for sittings motions next Wednesday, and I hope it will also have the last day before we rise for the recess. I will use my best endeavours to find another half day between now and the time the House rises. I cannot go further than that at this time.
Mr Peter Bone (Wellingborough) (Con)
This is an outrage, Mr Speaker. This is the Executive imposing their will on Back-Bench time. I invite the Leader of the House to change his decision, as there is some irrelevant business on Monday and we could hold this debate in Executive time then.
Sir George Young
Far from there being irrelevant business on Monday, it is business that I think is so important that it warrants two days of debate. The issue we will be debating on Thursday is also very important. It arose since the last business questions, and there is a debate in the country about the banking industry. I think it is important that this House should also be part of that debate, which is why we have rearranged the business.
Chris Bryant (Rhondda) (Lab)
Will the motions on Thursday require that the Joint Committee operate according to the rules of the primary Chamber, namely the House of Commons, as opposed to the House of Lords, and will there be an opportunity for a free vote on who gets to chair the Committee?
Sir George Young
The issue of who will chair a Joint Committee, if it is set up, would be a matter for that Committee. The hon. Gentleman will be able to see the motions when they appear on the Order Paper, and they will include the two alternatives: the inquiry that has been proposed by the Opposition, and the Joint Committee that has been proposed by the Government. They will both be put before the House.
John Healey (Wentworth and Dearne) (Lab)
The Leader of the House’s statement makes it clear that the Government are going to ever greater lengths to avoid a full judge-led inquiry. By the time this House votes at 5.15 pm on Thursday, the Treasury Committee will have held three sessions on the LIBOR scandal, and it is also halfway through an inquiry into governance in the banking industry. If the Leader of the House wants Parliament to do the job, why not let the Select Committee do it, instead of involving the Lords?
Sir George Young
The right hon. Gentleman has begun to engage in a debate that might take place on Thursday, but it goes slightly beyond the scope of the business statement. I hope that in the debate members of the Treasury Committee—including, perhaps, the Chair of the Committee—might express their views on the proposition we will have put before the House.
Kelvin Hopkins (Luton North) (Lab)
I want to add my support to the Chairman of the Public Administration Committee, the hon. Member for Harwich and North Essex (Mr Jenkin), and to emphasise that there is support for his view on both sides of the House and the Select Committee. This issue is about devolving powers from the Prime Minister, which would be a significant constitutional change, and it deserves the House’s full attention.
Sir George Young
It is indeed an important matter, and I think I am right in saying that the Chairs of all the Select Committees have added their names to the proposal, so it does have all-party support. I gently say to the hon. Gentleman, however, that in the 13 years before the last election, the Labour party consistently failed to give the Prime Minister’s adviser the freedom which is now advocated.
John McDonnell (Hayes and Harlington) (Lab)
Presenting just these two options does not necessarily represent the views of all Members. Many will want to have an immediate inquiry by the Treasury Committee, to enable a longer-term inquiry to take place. If that were to happen, we could address the immediate issues and have recommendations about the immediate legislative changes needed to address, in particular, confidence in the City, but then also have a longer-term inquiry that could report back in due course.
Sir George Young
The motions we put down tomorrow for debate on Thursday will be amendable, although whether any amendment is chosen is a matter for the Speaker.
Wayne David (Caerphilly) (Lab)
I am glad the Leader of the House remembered to inform us that there will be votes on Thursday. Will the Government parties be whipping on the issue, given its importance and the need for consensus?
Sir George Young
Issues of whipping are a matter for my right hon. Friend the Patronage Secretary. I do not know whether the hon. Gentleman was in the House yesterday, but the Government made their views on this issue known then.
Mark Durkan (Foyle) (SDLP)
I thank the Leader of the House for his statement. Yesterday, we were promised one motion, but today we are being told that there will be two, which apparently, given what he has just said, will be rival motions. As has been mentioned, many people see a case for a parliamentary inquiry that will inform amendments to the Financial Services Bill and also see the need for a wider judicial inquiry to get to the bottom of this problem. This “strokery” of good key business being made a casualty of today’s announcement and of rival motions will frustrate Parliament in doing the job it needs to do in response to this crisis.
Sir George Young
I say to the hon. Gentleman that there is a disagreement between the two sides of the House as to the best way forward. The right way to resolve that disagreement is to have a debate and then have a vote on the two alternative propositions. That is how this House makes a decision.
Honours (Equality of Titles for Partners)
Oliver Colvile (Plymouth, Sutton and Devonport) (Con)
I beg to move,
That leave be given to bring in a Bill to make provision for husbands and civil partners of those receiving honours to be allowed to use equivalent honorary titles to those available to women; and for connected purposes.
The aim of this Bill is to ensure that husbands and civil partners of dames and baronesses should be allowed to use a title of some sort if they wish to do so. I feel that the position regarding honours should and needs to be reviewed. I became aware of this anomaly in 1992 when, as a Conservative party agent in Mitcham and Morden, I was working for Angela Rumbold. After a long and distinguished ministerial career, and on ceasing to be the Minister of State at the Home Office, Angela became the deputy chairman of the Conservative party, was in charge of candidates and was created a dame by the then Prime Minister and hon. Member for Huntingdon, the right hon. John Major. I remember that being an enormous honour for my friend, whom I had served for nearly 10 years at that time, but I felt some sorrow for her husband John, who received no recognition for his support—and his finance—throughout her time as a councillor in the royal borough of Kingston upon Thames and her 10 years as the Member of Parliament for Mitcham and Morden.
At the time, I felt that that was unjust, and I vowed to try to correct the anomaly should I ever have the opportunity to do so. Just recently, my hon. Friend the Member for Banbury (Sir Tony Baldry) became a knight bachelor in Her Majesty’s birthday honours list, and I am delighted that his work in this House has been recognised. Although his wife is rightly allowed use the term “Lady” as a prefix to her name, the late John Rumbold received no acknowledgment on his wife becoming a dame of the British empire. Similarly, my hon. Friend the Member for Worthing West (Sir Peter Bottomley) was not recognised while his wife sat in the other place as the Baroness Bottomley of Nettlestone, until he was made a knight bachelor.
I am not going to argue that wives of peers or knights should be forced to give up their ladyship titles. I fear to do so would get me into a great deal of hot water, not only with the readers of The Daily Telegraph, but with my dear Aunt Juliet. Although I have concentrated on Members of this House and the other place, this issue is replicated in other walks of life. My solution to sorting out this anomaly is that the husbands of dames and baronesses should be allowed to call themselves “honourables”—this is similar to the arrangements for children of peers—should they want to do so.
The honours system has evolved over the years. Although the Anglo-Saxon monarchs are known to have rewarded their loyal subjects with rings and other symbols of favour, it was the Normans who introduced knighthoods as part of their feudal government. The first English order of chivalry, the Order of the Garter, was created in 1348 by Edward III. Since then, the system has evolved to address the changing need to recognise other forms of service to the United Kingdom. Interestingly, until the l7th century wives of knights were called dames, but that was replaced with the “Lady” prefix, which I suspect was introduced to avoid confusion. Until 2004, the adopted children of peers had no right to any courtesy title. Pursuant to a royal warrant dated 30 April 2004, adopted children are now automatically entitled to the same styles and courtesy titles as their siblings. However, like biological children, they cannot inherit peerages from an adopting parent and so, as they cannot be heirs apparent, adopted sons may only use the styles of younger sons.
I understand that although in the 19th century Scottish judges were allowed to use the honorary title “Lord” and would often take the name of their estates, their wives had to remain “Mrs” and would not be allowed to use the prefix “Lady”. On one occasion, a Scottish judge booked himself and his wife a double room in a Paris hotel and, when he signed in as “Lord and Mrs” whatever, the general manager of the hotel refused to take their booking because he thought that the judge was there with his mistress. He said he did not mind what happened in Britain, but such shenanigans were not going to be allowed in France. Very annoyed, the Scottish judge wrote to Queen Victoria, who pronounced that in future wives of Scottish judges should be allowed to call themselves “Lady”, thereby stopping any confusion.
I ask this: if wives, children and adopted children of knights and peers are allowed to use their titles, why should dames’ and baronesses’ husbands be subject to such overt sexual discrimination? Similarly, surely we need to update the honours system for those who are in a civil partnership. That is why I commend the Bill to the House.
Chris Bryant (Rhondda) (Lab)
The hon. Member for Plymouth, Sutton and Devonport (Oliver Colvile) is such a nice chap that it is awfully difficult to disagree with him on most things—[Interruption.] Unfortunately for the hon. Member for Daventry (Chris Heaton-Harris), who is not quite such a pleasant Member of the House, I do disagree on this point. Are there not too many titles already in this country for us to want to dole out a whole load more? We have more than 800 peers, plus the countless hereditaries—the Scottish hereditaries, the Irish ones who still have rights in this country and the English hereditaries. On top of that, we have all their heirs, as the hon. Member for Plymouth, Sutton and Devonport mentioned, who have subsidiary titles and are referred to as “Lord This that and the next thing”, “Viscount This that and the next thing”, “Earl Something” or whatever else.
I checked this earlier and it is even possible to buy a plot of land that gives a person the right to be called a laird, lord or lady from www.highlandtitles.com. I see the hon. Member for Epping Forest (Mrs Laing) nodding; she has obviously done it already. The website states:
“Many of our customers choose to update their driving licence, credit cards and such like to reflect their new status.”
What a delight! I do not want to praise just one company; there is also www.lordtitles.co.uk. For £18.95, or for an additional £6.95 for a premium title, a person can get their own title. The website effectively guarantees that they will be
“offered the best seats in restaurants”
and get
“airline upgrades and top-notch service.”
We know all that is true because the editor of GQ, Dylan Jones, who wrote an ironic, I hope, biography of the Prime Minister, which I am about to read now, wrote:
“At last my chance to lord it over you. Ladies and gentlemen, please grab your forelocks and give them a good old tug. Because I have just become a Lord of the Manor…the title I have was purchased from a website called lordtitles.co.uk…and I intend to lord it over everyone I know…I look forward to…flashing my credit card at impressionable waiters in New York and Los Angeles.”
This is all, of course, a pile of nonsense. The hon. Gentleman mentioned the fact that in 2004 the Earl Marshal finally caught up with the fact that some peers had adopted children and allowed by warrant that they could use their courtesy titles but not inherit. That seems more scandalously unfair than anything else mentioned by him. It means that Andrew Tottenham, the adopted son of the Marquess of Ely, has to be called Lord Andrew Tottenham, not Viscount Loftus.
I note that Debrett’s, which is where the hon. Gentleman’s speech seems to have come from, states:
“It is very important that anyone corresponding with a member of the peerage is aware of the rank and precedence of the person he or she is in contact with, so that the correct form of address may be used.”
To be honest, it is not important to my constituents in the Rhondda. We have only one person with a title that I am aware of living in the Rhondda, Baroness Gale of Blaenrhondda. She is from Blaenrhondda, and the people of Blaenrhondda love her, but she does not own Blaenrhondda as the titles were originally intended to denote.
There is no need for legislation to change the courtesy titles—no need at all. These courtesy titles are no different from the fact that we call one another Mr, Mrs, Esquire, the Reverend or the Honourable. They are merely courtesy titles, and all we need to do, if we want to, is change our custom and practice. There is no need for legislation. The courtesy titles that have applied to the wives of people who have peerages, knighthoods or baronetcies have made sense only when those wives have chosen to take the name of their husband, so that, for instance, Mrs Prescott becomes Lady Prescott and Mrs Meale becomes Lady Meale.
If I were ever to marry a woman—I know that is unlikely, but I very nearly got there a long, long time ago—I certainly would not be marrying the kind of woman who would want to take my name. Many women today choose to keep their own name. Consequently, there is an additional layer of prejudice that the hon. Gentleman’s Bill would introduce against people who choose not to take their partner’s name. That applies to those who enter into civil partnerships as well.
What the hon. Gentleman is suggesting would devalue those who get honours in their own right. For instance, take Lady Bottomley of Nettlestone. I have no idea why she is “of Nettlestone” because she was born in Dunoon, and Nettlestone is a place in the Isle of Wight, which is nowhere near the place where she was formerly a Member of Parliament. Her husband—the hon. Member for Worthing West (Sir Peter Bottomley)—was knighted in 2011. I am delighted that he is a knight of the realm but I think it is unfair that his knighthood should be eclipsed by his wife’s peerage and, therefore, the title that he would get as a courtesy title under the proposed Bill.
Similarly, I am delighted that my right hon. Friend the Member for Lewisham, Deptford (Dame Joan Ruddock) is now a dame, but I hope very much that her husband, who is the hon. Member for Aberdeen North (Mr Doran), will also at some point get a knighthood in his own right and not have to rely on a courtesy title.
The custom is a relic of a bygone age when women were merely adjuncts. In effect, they were referred to as the chattels, along with the household chattels, of a peer or a knight of the realm. I know that the hon. Member for Plymouth, Sutton and Devonport thinks his Bill will bring greater equality and that, for instance, for lesbian couples and gay couples it will mean that they will suddenly be able to provide a courtesy title for their partner, but think of the complications likely to occur when Lord Alli’s partner is suddenly able to acquire a title which bears no relation to his own title. If the hon. Gentleman were going to do something for the LGBT community that would increase equality, he would be far better off supporting marriage equality than introducing this rather futile piece of legislation.
Finally, if Conservative MPs have to rely on introducing ten-minute rule Bills of this kind, it seems to me that they are a party increasingly out of touch with the modern world.
Question put and agreed to.
Ordered,
That Oliver Colvile, Mrs Eleanor Laing, Sheryll Murray, Dan Byles, Mr Marcus Jones, Mr Lee Scott, Jack Lopresti, Ian Paisley, Caroline Dinenage, Keith Vaz, Sarah Newton and Stephen Gilbert present the Bill.
Oliver Colvile accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 9 November 2012, and to be printed (Bill 55).
Finance Bill
(12 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
19:31 - The House divided: - Ayes: 240 / Noes: 308 - Question accordingly negatived.
19:46 - The House divided: - Ayes: 0 / Noes: 0 - Question accordingly agreed to.
22:57 - The House divided: - Ayes: 308 / Noes: 233 - Question accordingly agreed to.
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 3—Sixth form colleges (exemption from VAT)—
‘In Schedule 9 to the Value Added Tax Act 1994 (Exemptions), in Group 6 (Education), the following shall be added at the end of Note (1) (description of eligible body)—
“(g) a sixth form college”.’.
New clause 10—VAT: review—
‘No new Order shall be made under section 30(4) or 31(2) of the Value Added Tax Act 1994 unless the Chancellor of the Exchequer has fully reviewed the impact of any such Order on jobs, living standards and businesses, making reference to the HMRC Consultation “VAT: Addressing Borderline Anomalies”, and placed a copy of the review in the Library of the House of Commons.’.
New clause 12—Rate of VAT—
‘(1) In section 2(1) of the Value Added Tax Act 1994 (Rate of VAT) for “20 per cent.” substitute “17.5 per cent.”.
(2) Subsection (1) shall have effect from Royal Assent and shall expire at such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.’.
Government amendment 17.
Government new schedule 1—‘Categorisation of supplies.
Government amendments 18 to 20.
Mr Gauke
A number of VAT measures are to be debated today. To help the House, let me outline how I intend to deal with them. I will first address new clause 4, which relates to VAT on face-value vouchers, before turning to Government amendment 17 and new schedule 1, which address VAT anomalies. I am also conscious that a number of new clauses have been tabled by other right hon. and hon. Members, which I will respond to more fully later in the debate. I will also address amendments 18 to 20, which are consequential amendments dealing with VAT anomalies.
New clause 4 is a Government change to protect revenue. It guards against the possibility of widespread VAT avoidance by the use of so-called single-purpose face-value vouchers. Because of the seriousness of the threat, I announced the change by way of a written ministerial statement on 10 May. Following a decision by the European Court of Justice in May, we need to amend our legislation as it relates to single-purpose face-value vouchers, such as phone cards, so that VAT is due when such vouchers are issued.
We need to act with immediate effect to prevent a loophole due to the mismatch between the ECJ decision and current UK legislation. This could occur because individuals could argue that VAT cannot be collected on redemption by virtue of the Court’s decision, and it cannot be collected on issue by virtue of UK legislation. Therefore, the new clause protects around £200 million of revenue a year and guards against avoidance that could otherwise run into hundreds of millions of pounds.
The changes made by new clause 4 will remove single-purpose face-value vouchers from the UK’s VAT regime. For face-value vouchers more generally, normal VAT rules will apply and they will be taxed when they are first sold. There is also a transitional rule to ensure the taxation of vouchers that were issued before 10 May but used to pay for goods and services after that date, other than where that would lead to double taxation.
It might be helpful to hon. Members if I provide a little background to the new clause. As I have said, the issue arose in connection with a recent decision of the European Court of Justice concerning the VAT treatment of cross-border supplies of single-purpose vouchers, in this case phone cards supplied by a business in the UK to customers in other member states. Most member states tax single-purpose vouchers when they are issued, but in the UK the issue is disregarded and VAT becomes due only when the vouchers are used to obtain the underlying goods or services. This treatment is welcomed by UK businesses, because it delays the point at which they have to account for VAT, so creating a cash-flow advantage and an absolute saving on those vouchers that are issued but never redeemed.
However, in the case before the European Court of Justice, the business concerned complained that the difference in treatment between the UK and some other member states caused double taxation, because VAT was due in the member state where the card was sold to the final consumer and again in the UK when it was used to pay for telephone calls. The Court found against the UK’s approach in such a way that, until UK law was changed, suppliers of single-purpose face-value vouchers could have escaped VAT altogether. In the current market, that would have led to a tax loss of £200 million a year. In addition, if UK law had not been changed there would have been the risk of widespread avoidance involving the use of single-purpose vouchers, which could have led to a significant loss of tax.
To give an example, a car manufacturer could have issued a face-value voucher for a new car of £15,000, which the customer could then redeem at his local dealership. UK law said that there was no tax on the issue of the voucher, and the Court of Justice of the European Union said that there was no supply at redemption and, therefore, no tax. That may be an extreme example, but it illustrates the problem that could arise in a variety of retail scenarios.
The changes that new clause 4 make would remove single-purpose face-value vouchers from the UK’s VAT regime. For face-value vouchers more generally, this means that normal VAT rules will apply, and such vouchers will be taxed when first sold. There is also a transitional rule to ensure the taxation of vouchers that were issued before 10 May but used to pay for goods or services after that date, other than when that would lead to double taxation, but the Court’s definition of what constitutes a single-purpose voucher allowed us to retain the UK’s treatment for most vouchers.
The Court took the view that a single-purpose voucher is one that can be used to obtain goods or services of only one type, and which are subject to a single rate. Single-purpose face-value vouchers that are for one type of good or service form only a small proportion of the overall market for face-value vouchers, because most face-value vouchers can be exchanged for a range of goods or services. For example, a cinema voucher may be exchanged for tickets as well as for confectionary. Both the entry to see the film and the confectionary make suppliers liable to standard-rate VAT, but as they cannot be said to be of the same type the voucher is not caught by the judgment. We therefore expect the change to affect a relatively small number of businesses, and I hope that that explanation is helpful to the House.
In conclusion on face-value vouchers, the new clause is a proportionate response to the significant risk of tax loss arising from the use of single-purpose vouchers. It is carefully targeted against the risks and retains the VAT treatment for the great majority of vouchers sold in this country, and I commend it to the House.
Amendment 17 and new schedule 1 relate to the categorisation of suppliers for the purposes of value added tax. New schedule 1 would implement the changes announced at the Budget, which have been refined in the light of consultation, to address anomalies and loopholes in the area of VAT liability. The VAT system contains a number of anomalies along the borderlines of VAT exemptions and VAT zero rates, and addressing some of those anomalies and loopholes is precisely what the Chancellor announced at the Budget.
The Government announced at the Budget that they were introducing a number of measures to address some of those VAT anomalies, reducing uncertainty, costs for business and for HMRC, and raising revenue. On Budget day, we proposed a number of measures and launched a consultation to engage stakeholders and to listen to their ideas. The measures that we announced proposed to clarify the treatment of catering to ensure that all hot takeaway food is taxed, and to clarify the meaning of “premises” in the context of whether food is consumed on or off a supplier’s premises.
We proposed also to tax sports nutrition drinks to ensure that all sports drinks receive the same tax treatment, and to remove self-storage from exemption in order to ensure that all suppliers of storage receive the same tax treatment and to counter avoidance.
Mr Gauke
I certainly will, although at this point I am just setting out what we set out at the Budget. I will turn to each individual measure in more detail in a moment and happily give way to my hon. Friend at that point.
We propose to remove the anomaly whereby approved alterations to certain listed buildings are zero-rated while alterations to other buildings and repairs to and maintenance on all buildings are standard-rated. We included transitional arrangements for alteration works to listed buildings which had been contracted before the Budget, and we wanted to put beyond doubt the fact that VAT applies to the rental of hairdressers’ chairs.
Finally, we proposed to ensure that holiday caravans are taxed consistently at the standard rate of VAT. The proposal, as set out in the consultation document, was that all the changes would take effect from 1 October via secondary legislation, supported by anti-forestalling provisions in this Bill. The consultation was opened on 21 March, and overall HMRC received some 1,500 responses. Owing to the volume of interest in the consultation, we decided to extend it, and since it has closed we have reflected fully on the points made during the process.
As the House will be aware, in two areas—hot food that is cooling down naturally and static holiday caravans—the Budget proposals created a high degree of business uncertainty, so the Government wanted to let people know our preferred course of action as soon as possible; we did that on 28 May. Last Thursday, we published a consultation response document and tabled the new schedule setting out our approach to all the measures on which we consulted. We stand by the rationale for removing anomalies, but have made several refinements, including those we announced on 28 May. They are intended to improve the policy and reflect the practical concerns raised in the consultation.
Diana Johnson (Kingston upon Hull North) (Lab)
HMRC produced a document on the impact of the caravan tax, but can the Minister provide enlightenment on the impact of the 5% VAT imposition? There are no figures now on how many jobs will be lost and by how much demand for static caravans will decrease, and I was hoping that the Treasury had worked that out.
Mr Gauke
Clearly there is a substantial difference between 20% VAT and 5% VAT. We set out our estimates in relation to the 20% rate, and some of the concerns that people took from what HMRC set out were, I think, somewhat greater than the reality warranted, because the impact set out and the assumption regarding the reduction in demand related solely to that element to which the change from zero-rated to standard-rated applied. On many caravans that are sold, the VAT is recovered—VAT already applies to an element of the price of a static caravan: that of the fixtures and fittings.
We do not think the impact of the 5% rate is likely to be substantial. In the usual course of business there are tax changes—national insurance contributions and rates are the subject of regular fluctuations—and in many cases the VAT change may well be absorbed. In addition, we have given industry much more time by deciding not to implement the change until April next year. Caravan manufacturers will have the opportunity to sell more caravans in advance of next year’s summer season—the information we have is that spring tends to be the busiest period. The overall impact on the industry is therefore unlikely to be significant.
Before discussing each of the anomalies and saying more about static caravans, I would like to give the House a little bit of history about the VAT system. As I am sure all hon. Members know, the VAT system was introduced in 1973 and amendments and adjustments were being made as early as 1974. The then Labour Government added confectionary, soft drinks, ice cream, potato crisps and certain other savoury snacks—
Mr Speaker
Order. My ears pricked up when the Minister suggested he might furnish the House with what he gently described as “a little bit” of information about VAT. In offering to the House—in a public-spirited fashion, I am sure—a potted history of the value added tax system, I am sure that he will have regard to the new clause that he is presenting.
Mr Gauke
I certainly will, Mr Speaker. I did say I would give a little history and, following your guidance, I will focus on the little.
I hope it helps the House if I explain that, in the almost 40 years in which we have had VAT, there have been changes from time to time. There were changes in the VAT on building alterations in 1982 and 1984, on hot takeaway food in 1984 and on newspaper and magazine advertising in 1985—I could go on, Mr Speaker, but let me move on.
Nigel Mills
My hon. Friend refers to the marketing of such things as sold hot. Will he confirm that a baker who markets something as freshly baked would not fall foul of this provision, given that presumably when something is freshly baked it is hot? I think that the intention is that, say, a freshly baked sausage roll that is cooling down would not be subject to VAT, but if that marketing term were used it could perhaps be caught by the provision.
Mr Gauke
The final details as to what exactly will or will not constitute marketing something as hot will be set out in the HMRC guidance. However, I take on board my hon. Friend’s perfectly reasonable point that something that is presented essentially as fresh, but cooling, is different from something that is clearly presented as hot at the point at which one purchases it.
Stephen Gilbert (St Austell and Newquay) (LD)
I am tempted to ask my hon. Friend whether he knows how many different chocolate eyes a gingerbread man must have to go from being zero-rated to standard-rated. The answer is on HMRC’s website.
On packaging, new schedule 1 uses the wording:
“whether or not the packaging was primarily designed for that purpose”.
There is some ambiguity as to whether a simple paper bag might be caught by that definition. Can the Minister assure us that people will be able to get their pies and pasties in a paper bag from the bakery without their being standard-rated?
Mr Gauke
The purpose of that wording relates to packaging that is specifically designed for the retention of heat. For example, hon. Members will all have experience of a paper bag with a foil interior that is used for such purposes. I do not think that a simple paper bag would fall into that category. In most people’s experience, pasties and suchlike are generally left on shelves rather than contained within bags while in the shop. I hope that that provides some clarification.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
We have arrived at this change after 20-odd years in which, through various legal challenges, we have come to our current conclusions on this aspect of VAT. Can the Minister assure us that we are not facing another 20 years of litigation in order to get these finer details clarified?
Mr Gauke
One can never rule out the fact that some people will be litigious and try to take a creative view of any particular guidance. However, we believe that we have reached the right position after much consultation and discussion with the industry and with hon. Members, many of whom have been very engaged in the matter. I look around the House and see at least two Members who have been in my office to make representations on this point. We believe that we have reached a position that is sustainable and fair, and that is what we are putting to the House in the new schedule. The additional criteria will ensure that hot food will generally be taxed at the standard rate of VAT, but if food that would be zero-rated when cold is bought when it happens to be cooling down, but is not yet cold, it will still be zero-rated provided that it does not meet any of the criteria that I set out. These changes will add further tests to make the relief less open to abuse and provide a level playing field for all businesses supplying their customers with hot food.
Turning to the issue of holiday caravans, which we have touched on briefly, the VAT zero rate was originally intended to apply to the sale of caravans used only for residential purposes. To achieve that objective, the rules drawn up in the 1970s applied tax only to the sale of smaller caravans that could legally be towed on UK roads by a typical family car. However, over the years, an increasing number of large caravans have been used for holiday purposes. Those caravans inadvertently benefit from the VAT zero rate that was intended for residential caravans. That has led to widespread inconsistency in the VAT treatment of the sale of holiday caravans.
Under the current legislation, any caravan wider than 2.55 metres or longer than 7 metres is zero-rated as a residential caravan. The Government propose to replace the definition of a zero-rated caravan based on size with a new definition based on whether the caravan has been designed for residential use. To achieve that, we propose a new test that links the zero-rating with British Standard 3632, which indicates that the caravan has been designed and manufactured for continuous, all-year-round occupation and is therefore suitable for residential accommodation.
We consulted on whether the additional criteria should be added to ensure that the zero rate applies only to caravans intended for residential use. Given the reaction to the proposal, we decided that rather than having a single dividing line between a zero rate of VAT on residential caravans and a rate of 20% on static holiday caravans, static holiday caravans should be subject to VAT at the reduced rate of 5%. Static residential caravans—those that meet BS 3632, or early equivalents in the case of second-hand sales of older caravans—will remain zero-rated, as per the Budget proposal. We do not intend to restrict the zero rate further by adding additional criteria.
Diana Johnson
I wonder whether it is sensible to make decisions on tax policy based on manufacturing standards. Manufacturing standards will change and no doubt get better, so is that a sensible way of operating tax policy?
Mr Gauke
In this particular circumstance, the manufacturing standard provides a better definition or borderline than the size criteria that I set out. It was put to us in the consultation that it would be very easy for manufacturers to do a bit more here and there, and that a static caravan that was once not BS 3632-compliant suddenly would be. When we investigated that, we concluded that it was quite expensive and difficult to meet BS 3632. Genuine residential caravans meet that standard, but non-residential, holiday vans do not. It seems to be an effective borderline. Of course these matters will be kept under review, but we think that this is a sensible conclusion and one that the industry recognises. The evidence that the industry has put to us is that BS 3632 adequately distinguishes between residential caravans and static caravans.
It is worth pointing out that BS 3632 caravans tend to be more expensive and are built to a higher specification. For those reasons, they tend to be used more in the residential market than in the holiday market. It is worth coming back to the intention of the 1970s definition for zero-rated caravans.
We recognise that static holiday caravans fall in a grey area between residential property and temporary holiday accommodation, which have different tax regimes. We have therefore produced the fair compromise of a 5% VAT rate. The argument was sometimes made to us that static holiday caravans should be treated like a second home, on which VAT is not paid. However, council tax is paid on a second home, which is not the case with static holiday caravans. Imposing the council tax regime on static caravan homes would have placed a significant burden on their owners and holiday parks, so we believe that we have made a fair compromise. As I said earlier, to give the industry more time to adjust, the measure will be delayed until 6 April 2013. All the other measures that we are discussing today will proceed as planned on 1 October this year.
Catherine McKinnell
My hon. Friend the Member for Kingston upon Hull North (Diana Johnson) asked about the impact that the current proposals will have on the industry. Will the Minister confirm that the Treasury has not yet calculated that impact?
Mr Gauke
We assessed what the impact would be if VAT was at 20%, and obviously 5% is a quarter of that, so one can draw correlations. Most industries supply VAT-inclusive durable goods at a profit, so it is reasonable to apply VAT in this case. The impact that we originally set out in the tax information and impact note at the time of the Budget will be significantly lessened by the change to the 5% rate, particularly bearing in mind that there is already a full 20% rate on a fair proportion of static caravans because of the durable goods contained within them.
Andrew Percy (Brigg and Goole) (Con)
We can partly assess what the impact will be from what manufacturers themselves have said, which is that they do not expect the 5% rate to have an impact of any great severity on them. However, it is important to recognise that there needs to be stability, so an assurance that the Government will not raise the rate in future would be welcome, as would an undertaking that there will be an assessment of the rate after a year or two to see whether it has had any impact. Generally, the industry has welcomed it.
Mr Gauke
My hon. Friend is right to say that the industry has welcomed the change to our policy. As we would expect, it does not anticipate the 5% rate to have a significant impact on it. As far as the stability of the rate is concerned, the standard wording is to say that all decisions are for the Chancellor and all taxes are kept under review, but I do not anticipate that the Government will return to this issue in any great hurry. I am sure my hon. Friend will be pleased about that. Were we to do so, I have no doubt that he would make strong representations once again. I hope he will take some comfort from that.
Diana Johnson
The National Caravan Council has said that the caravan industry is fragile after the problems that it experienced in 2008. Based on the figures in the KPMG report, there would have been 6,000 job losses if the imposition of the 20% rate had gone ahead. Am I right to assume that with the 5% rate, the Treasury is working on the assumption that the impact will be a quarter of that number, which means 1,500 job losses?
Mr Gauke
Perhaps it will help the hon. Lady if I run through the situation. We have to raise a certain number of taxes, and VAT probably does less harm to the economy than almost any other tax that one could mention, whether it be employers’ national insurance contributions, which reduce the number of jobs, or corporation tax, which reduces investment. There is an issue with any tax.
On this particular policy, however, we are talking about a 5% rate on 80% of the price of a caravan, the other 20% being standard rated already, and on 85% of sales, the other 15% being standard rated already—or rather the purchaser being able to recover input taxes on it. There is then an elasticity of demand, and the 5% rate might result in a 5% reduction in demand, but of course that involves various assumptions and some uncertainty. As my hon. Friend the Member for Brigg and Goole (Andrew Percy) said, however, much of the industry does not think it will have a significant impact.
Simon Hart (Carmarthen West and South Pembrokeshire) (Con)
I wish to reinforce that point. The site operators, of which, as the Exchequer Secretary knows, there are many in south and west Wales, would also come to the same view—although not ideal, they thoroughly understand the situation and recognise it as one they can manage for the foreseeable future. They much welcome the news that it will not be revisited in the foreseeable future.
Mr Gauke
My hon. Friend is absolutely right. Tax is but one of the various factors that will have an impact on demand, and VAT is but one tax. I shall not dwell on it, Mr Speaker, but I should mention that the Government are putting in place a much more competitive corporation tax regime, which will be to the advantage of caravan manufacturers and many others.
I shall touch briefly on alterations to listed buildings. The reaction to our announced changes to VAT on approved alterations to listed buildings demonstrated the need for the measure on the grounds of simplification alone. The consultation and media coverage have highlighted the huge uncertainty over whether an item of building work is an alteration or a repair. The purpose of the measure is to avoid the need for such discussions by applying the same VAT liability to all alterations, repairs and maintenance. Repairs and maintenance to all buildings, including listed buildings, have always been liable to VAT, and alterations to non-listed buildings have been since 1984. The Budget announcement changes none of that, although a zero rate currently applies to alterations to protected buildings—mostly listed dwellings but also scheduled monuments and listed buildings used for charitable and other residential purposes.
For listed buildings, the borderline between alteration and repair or maintenance is a major source of confusion. The Budget announcement has no impact on the repair and maintenance of listed buildings, which have always been liable to VAT, so there will be no change to the VAT treatment of repairs to thatched roofs or steeples, contrary to what has been reported in the press. The Budget decision also reflects our view that grants can provide a more flexible mechanism than VAT for providing specific financial support for the heritage sector. We have increased the funding for the listed places of worship scheme and broadened its scope so that churches and other listed places of worship can claim grants to offset the impact of VAT on their alterations, repairs and maintenance.
The Budget proposal for alterations to listed buildings includes transitional arrangements, and, following the consultation, we have decided to make these more generous. As with the Budget proposal, the transitional arrangements will cover cases where written contracts had been entered into before Budget day 2012 or, in the case of the first grant of buildings that have been substantially reconstructed, where 10% of the work had been completed before Budget day. We have now agreed that they should also apply where listed building consent had been applied for before the Budget, and the transitional arrangements will be extended so that, where a project qualifies, zero rating can apply until 30 September 2015. These extensions will mean that the zero rate will continue to apply for most alteration projects where work was close to starting at the time of the Budget announcement.
Let me turn to the Budget proposal for self-storage.
Catherine McKinnell
I apologise for interrupting the Minister’s flow, but I want to take him back to listed buildings. He spoke about grants being available to churches for alterations and repairs. However, my understanding is that there is concern that what is proposed is more of a rebate or reclaim of tax spent, rather than a grant that would be available before the alterations and repairs are undertaken. Will he clarify what the position will be?
Mr Gauke
The first point to make is that the increased funding for the listed places of worship scheme was entered into after consultation with the Church of England, which led for other religious groups in this matter, and I understand that they are satisfied with the arrangements that have been reached. The listed places of worship scheme, which the previous Government set up, has been extended to allow recovery costs relating to VAT for both repairs and alterations. It offers church groups, for example, an opportunity to recover the costs they would otherwise incur, but is now much more generously funded, and a much greater proportion of VAT costs will be able to be reclaimed. Indeed, VAT costs should be able to be reclaimed in full for the time being, such is the scale of the support we have made available for the listed places of worship scheme.
It is perhaps worth pointing out that we always made it clear that we would increase the listed places of worship scheme, because of the increased costs that were going to be placed on churches, but after further discussions, with the Church of England in particular, we realised that the amount we had initially said would be adequate was not adequate, and we increased it. However, to deal with the hon. Lady’s specific question, what is proposed is indeed a reclaim arrangement. That is how it will work, and that is how it worked in the last Parliament as well.
Catherine McKinnell
Will the Minister clarify, therefore, whether he has received any expressions of concern about churches, which often rely on fundraising to undertake works, having to raise additional money, which they will then have to reclaim from Her Majesty’s Revenue and Customs, or about the additional burden that this will place on what are already quite stretched resources?
Mr Gauke
I understand the point the hon. Lady raises. The Church is satisfied with the arrangements. She is suggesting that in order to fund a project, a church group would need to fund the cost, plus 20%. That is not how it should work, because the scheme will be sufficiently flexible to ensure that a church group will have the funding in time, so that it does not have to raise an additional 20% or so. I have had considerable conversations with Church representatives on this issue, and I am not getting representations that they are concerned about that point.
Catherine McKinnell
I have just one last question about this issue. Has HMRC undertaken any assessment of the additional bureaucracy and administrative costs that will result from all churches having to engage in the process?
Mr Gauke
The advantage of the way in which we have introduced this measure—through the listed places of worship scheme—is that there is already a mechanism in place for providing grants for repairs. That is something we inherited, and although I cannot say this about everything we inherited, it is quite helpful. We anticipate that there will be a monthly repayment process through the listed places of worship scheme. With regard to the hon. Lady’s concern about cash flow, the main point to make is that the Church is content with the arrangements.
Jim Shannon (Strangford) (DUP)
I thank the Minister for his clarification on that matter. I understand that if churches want to reclaim VAT in such circumstances, such a claim will have to apply to work on the footprint of the original construction. When work is done not only to the old part of the church but also to the new, will it be possible to differentiate a claim so that the work done on the old part and that carried out on the new extension can be treated differently?
Mr Gauke
The arrangements that will be in place following the legislation will mean that repairs and alterations will be chargeable for VAT. However, the listed places of worship scheme will apply to both types of work. It has been the case for some time that repairs involved the payment of VAT. The listed places of worship scheme will enable people to reclaim the VAT costs relating to those repairs. An extension—which is an alteration, rather than a repair—will now have VAT charged to it, but it will be possible to reclaim it through that same scheme. The scheme is now more generously funded than it was before the Budget, which means that a higher proportion of the costs that the churches would have incurred will now be able to be reclaimed. We have taken steps that the churches have widely welcomed.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
I am sorry to have missed the beginning of the Minister’s remarks on this subject. I was actually checking up on certain aspects of a similar issue in my constituency. He said that the Church of England was content with the arrangements, but I hope that he will accept that it is not just the Church of England that is involved. I have a lot of churches, places of worship and listed buildings in my constituency, and I have been contacted by a church that was in the advanced stages of preparing to carry out work that could be seriously affected by the proposals. Will the Minister guarantee that, if the funding for the scheme does not meet the requirements, he will look again at the level of funding provided? Will he also monitor the scheme closely to ensure that no extra bureaucracy is introduced that could delay projects that would otherwise go ahead?
Mr Gauke
The hon. Gentleman is absolutely right to say that not just the Church of England is involved. I said earlier, however, that the Church of England had led on behalf of all the churches on this matter. On his second point, we have made the transitional rules more generous for churches that were close to commencing work at the time of the Budget. I obviously cannot comment on the specific case in his constituency without knowing all the details, but I think that he will find that many cases in which plans had reached an advanced stage will benefit from the transitional rules. He mentioned the funding for the scheme. We believe that this is a generous settlement, but we will of course keep such matters under review. He also mentioned bureaucracy. The scheme is organised by the Department for Culture, Media and Sport, but the Treasury will also take a close interest in it. The two Departments have worked together very effectively on this matter, and we are keen to ensure that the scheme works in an adequate way. I would underline the point that the representations that we have received from the churches suggest that they are happy with the arrangements.
Mr Frank Field (Birkenhead) (Lab)
The Minister says that the two Departments are now working closely together on the scheme. Was there a similarly close working relationship when the Treasury was thinking up the proposal? Did the DCMS know about the proposal and approve it—before it was modified, of course?
Mr Gauke
The right hon. Gentleman is attempting to draw me into dangerous, and perhaps more interesting, territory. All I would say to him is that all decisions are for the Chancellor, although of course the Department for Culture, Media and Sport was involved at an appropriate level.
The Budget proposal for self-storage changed the liability of supplies of facilities for self-storage from exempt to taxable. Following consultation, we planned to avoid creating a competitive advantage for those larger operators with more expensive facilities. These businesses can partially mitigate the impact of the change by using the capital goods scheme to claim back some of the VAT they had previously paid on the purchase of these facilities, whereas smaller businesses with less expensive facilities cannot. We will therefore make a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure whose individual capital items are worth less than a £250,000 threshold for the scheme can opt into it and have the same input tax recovery benefits as larger providers with capital items that would already qualify for the scheme.
We also propose to ensure that the storage of live animals will remain exempt, as the original proposal might inadvertently have applied VAT to stabling, and we propose to introduce an anti-avoidance provision so that if the storage is used by a third party with the permission of the person who contracts for the storage, it is taxed in the same way as if it were self-storage. This will prevent someone from avoiding taxation by getting a third party to contract with the supplier. We have revised the exclusion for storage facilities provided to persons connected with the supplier so that it is more directly targeted on facilities that are subject to the capital goods scheme. This fine-tuning reflects the benefit of consulting and listening to what respondents say, but it does not undermine the rationale for the measure.
For hairdressers’ chairs, the schedule provides a clearer description of the services typically provided under a chair rental agreement and excludes services that could legitimately be provided with a simple supply of a right over land. The schedule also reflects a change to make it clear that the supply of a whole building to a hairdresser will not become taxable unless it is supplied along with other goods or services.
Finally, regarding the measure to apply VAT to all sports drinks and to clarify the definition of premises for the purposes of determining whether food is consumed on or off the suppliers’ premises, we are proceeding as planned in the Budget.
Nigel Mills
I am grateful to the Minister for giving way to me again. On the sports drink issue, I am sure he will remember the old milk advert suggesting that if children did not drink their milk, they would end up playing for Accrington Stanley rather than Liverpool. The gap between those two teams might be a bit less nowadays, but the idea was that milk improves physical performance. Will my hon. Friend confirm that an ordinary pint of milk will not be caught within these provisions?
Mr Gauke
I confirm that I remember the adverts and that milk will not be standard rated for these purposes. I refer my hon. Friend to the remarks the Chancellor made in respect, I think, of the 2010 Budget—that everyday essentials will not become standard rated. However great the advance of Accrington Stanley and the decline of Liverpool, that will remain the case.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Will the Minister provide a bit more clarity, as I believe the industry has been extremely concerned about the definition of a sports drink as opposed to sports nutrition products? I understand that some drinks would not be caught within the definition, but that some products legitimately used by athletes—by weight-lifting participants, for example—would be. Given the concern about it, further clarification from the Minister would help.
Mr Gauke
The broad point is that sports drinks—such as Lucozade and others—are standard rated and have been for some time, and that sports nutrition drinks marketed as such will now become standard rated. We believe that that is fair. These products can be distinguished from a pint of milk or a milk drink not designed or marketed for sports nutrition purposes. Nothing in the consultation responses calls us to query the rationale for the measures or to amend the draft legislation other than through a minor amendment to tidy up the wording.
Catherine McKinnell
Can the Minister reassure me that his proposal will not lead to the same riddles and illogicalities that arose from the original pasty tax proposal, meaning that the same product marketed or packaged in a different way could end up attracting a different rate of VAT? Will he also tell us what consultations he has had with the industry?
Mr Gauke
We have completed a period of consultation and received a number of representations. In recent days, I have met representatives of GlaxoSmithKline and listened to their concerns. As for the hon. Lady’s first question, when products are aimed at different markets but clearly targeted at particular consumer groups, I think it reasonable to view them in the light of some of the competing products that are aimed at exactly the same market. Our research suggests that most sports drinks are clearly targeted at particular markets, and their VAT treatment will follow from that.
Catherine McKinnell
The Minister has not really explained why the Government should want to target a sports industry or sports-related products for tax purposes when much more unhealthy products might remain tax-free. Will he clarify that?
Mr Gauke
If the Opposition are setting out the principle that whether or not VAT applies should depend on the healthiness or otherwise of the products involved—which brings us back to hot food—we may have to engage in a slightly different debate, and I am not sure that either of us wants to go in that direction.
Catherine McKinnell
I am happy to clarify the fact that I am not setting out any particular policy position on whether sports goods or health products should be targeted for tax. However, the Minister appears to be saying that although the milk that is marketed for general consumption is VAT-free, if it is marketed for sports-related consumption it will be subject to VAT. Will he explain that policy?
Mr Gauke
VAT is charged on all beverages. Typical sports drinks which are consumed primarily to rehydrate or quench thirst are already taxed accordingly at the standard rate, but some sports drinks companies have won court rulings that their products are not beverages because of their nutritional content and because they are not designed to quench thirst. The changes that we are introducing will ensure that all sports drinks are subject to the same VAT treatment whether they are consumed for rehydration or for nutritional purposes, because they are targeted at much the same group, and we think it only right to apply the same approach to consumers. The argument for the zero-rating of food is that it should apply to everyday essentials, but it is difficult to apply that argument to sports and nutritional drinks.
Julie Hilling (Bolton West) (Lab)
I am desperately trying to understand what the Minister is saying will happen to sports and nutrition products. Is he saying that all drinks will now be subject to 20% VAT? What about other nutritional products that are not sold in liquid form?
Mr Gauke
Let me try to be helpful to the hon. Lady—not for the first time during our deliberations, I hope. We propose that drinks aimed at the sports nutrition market will be standard rated. We are not applying the same approach to meal-replacement drinks. There is a clear distinction between them, as one is more closely aligned to food than to sports drinks.
Mr Speaker
I am sure we are all indebted to the Minister for the informative character of his contribution —and, of course, for his oratory.
Catherine McKinnell
I will speak to new clauses 10 and 12, as well as the Government amendments that the Minister has already set out for us in quite some detail today.
The Opposition’s new clause 10 seeks to put a stop to the chaotic farce of ill-thought-through VAT changes being slapped on items from the pasty to the caravan, from haircuts to church alterations—imposed, defended, downgraded and then, in some cases, eventually quietly removed by Ministers during the parliamentary recess, once they realised quite how ridiculous the changes were to begin with, particularly given the current economic climate. We simply ask the Government not to meddle with VAT exemptions until they have carried out a proper assessment and worked out exactly what the impact of any change would be on jobs, living standards and businesses.
We assume that, before imposing a 20% tax, the Government will do their sums, work out who would be affected, consult them and think long and hard about whether such a change was a good idea. Our new clause 12 seeks to reverse the VAT bombshell, which, as I am sure many Members will recall, the Liberal Democrats shouted so loudly about before the election, and before they all subsequently discovered that they actually supported raising the 20% rate after all. That was a surprise all around, even to themselves, I think. In fact, everyone’s surprise about that was surpassed only by the discovery that the Liberal Democrats had also been in favour of £9,000 tuition fees all along.
Labour is clear that higher VAT hits the poor harder than the rich. It drives up the cost of living at a time when people are already feeling the squeeze, and it takes money out of people’s pockets and off the high street at a time when businesses are crying out for spending to drive growth. Our five-point plan for jobs and growth calls for VAT to return to 17.5% on a temporary basis until the economy is strong enough to cope with a rise. That would give £450 a year back to couples with children, to give the economy a boost and to drive growth.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The hon. Lady will of course recall that we had this exact same debate during last year’s Finance Bill, and when the House divided on a Plaid Cymru-Scottish National party motion her party abstained. Can she explain her party’s damascene conversion in tabling the same amendment to this year’s Finance Bill?
Catherine McKinnell
Can the hon. Gentleman clarify whether he is talking about the debate that we had on raising VAT from 17.5 to 20%, because that is what we are addressing today?
Jonathan Edwards
An amendment last year sought to do exactly what the measure she is arguing in favour of would do. That was presented to the House by Plaid Cymru and the SNP, and the Labour party abstained.
Catherine McKinnell
I thank the hon. Gentleman for that clarification. I do not have the full details of the intricacies of that particular debate, but I know that what I am proposing is our policy and we support it. We are going to vote today for this measure to reduce VAT to 17.5%.
Catherine McKinnell
That is an interesting question, coming from a Minister who has just justified a temporary delay of the rise in fuel tax that is apparently to be paid for by underspends that are not quantified by the Government, who are in a much better position to provide detailed costings to the House but cannot for their own tax reductions. We have said all along that the Government’s current policies are costing the taxpayer more. Borrowing is increasing, not reducing—the Government are borrowing £150 billion more over the spending period—and the benefits bill is sending the economy backwards, not forwards.
Catherine McKinnell
I have just answered it. I would be grateful if the Minister could similarly provide detailed costings as to where the Government’s tax reduction for the fuel relief is going to come from. If he were able to do that, we could certainly provide detailed costings of our tax proposal. The point is that the reduction to 17.5% will put money back into people’s pockets, get the economy moving and get growth back into the economy. That will help to bring down borrowing, which is increasing at the moment.
Gavin Williamson (South Staffordshire) (Con)
Can the hon. Lady quantify, for the benefit of those in the Chamber, how much that 2.5% reduction would cost?
Catherine McKinnell
I repeat what I said before: the Government’s current policy of increasing VAT to 20% is taking money out of people’s pockets and is causing a slump in demand. It is very strange that these questions are coming from a Government who are borrowing more than they intended over the spending period, not less.
Stephen Gilbert
The hon. Lady mentioned a figure of about £400 a year. What I missed, and what I am hoping she will be able to clarify, is whether that is per person or per family. If we knew that, we might all be able to do the maths as to how much this measure would cost the Exchequer.
Catherine McKinnell
The figure that the hon. Gentleman is looking for is £450 for a couple with children. It would put money back into their pockets, boost the economy and drive growth. Let us not forget that the Institute for Fiscal Studies has predicted that the Government’s tax credit changes will mean that families will be £511 worse off this year and £1,250 a year worse off by 2015.
Andrew Percy
Who would benefit more from a VAT cut, a family earning just above the minimum wage or a millionaire?
Catherine McKinnell
Clearly, a family would gain more from a VAT cut because they spend much more on VAT as a proportion of their household income. The hon. Gentleman’s indignation at that response demonstrates just how much the Government are out of touch with the reality of the effect of their spending plans on households and household incomes. That would explain why this economy is going backwards rather than forwards under the Government’s plans.
Julie Hilling
Does my hon. Friend find the interventions of Government Members bizarre? The Government inherited a growing economy and we now have a double-dip recession created totally in Downing street by their efforts to have no other aim than driving down the deficit. They are stifling growth and making ordinary families pay the cost of their economic failure.
Catherine McKinnell
I thank my hon. Friend for that intervention and think that the response from Government Members is deeply worrying, as it shows worrying complacency about the direction in which they are taking this country and about the decisions they are making on the economy, which are making things worse, not better.
Our new clause 12 would reverse the VAT rise immediately and prevent it from rising again—I emphasise this point—until the Government can show that our economy is growing strongly again. That is the right move to get our economy back into growth and out of this double-dip recession. I also want to put on the record that we will oppose the Government’s new schedule 1, which would bring in ill-thought-through and unwelcome VAT changes that, despite the concessions, are still wholly unsatisfactory.
Diana Johnson
Does my hon. Friend share my concern that the proposals in schedule 1, especially those on the caravan tax, seem to have taken no account of job losses or of the effect on demand when we are in a double-dip recession and will cost the Exchequer more than it would gain in revenue?
Catherine McKinnell
I thank my hon. Friend for that intervention and her focus on the subject of the debate—that is, these deeply worrying and shambolic VAT changes. We have discussed at some length the new proposals that followed the Government’s concessions and we have had the opportunity to question the Minister on them. I share my hon. Friend’s concern at the failure to provide costings for some of the changes and the lack of consideration of the concern about jobs and growth that our new clauses aim to deal with. Those factors need to be given proper consideration and the Government do not appear to have done their homework.
Nigel Mills
New clause 12 would delay the rise to 20% in VAT until there was strong growth in the economy. Can she help us by defining what strong growth would be? What percentage growth might it be? Or would it be growth based on a properly balanced economy rather than a financial services-led boom?
Catherine McKinnell
I could probably answer the hon. Gentleman’s question with just four words: “out of double-dip recession.”
The Government’s economic credibility, not to mention any reputation for competence they might have had, has taken a massive hit over the VAT changes. They put VAT on pasties and took it away. They put VAT on caravans, then they reduced it to 5%. They put VAT on churches and kept it. Then they invited payment of the charge up front. Churches could claim it back by submitting forms to the Treasury for access to a special fund, which essentially is a big pot of all the money that they paid up front in the first place. What a shambles. Do the Government even know what they are doing any more? They say that their U-turns show that they are listening. When they got it so horrendously wrong, it is good that campaigners were able to get through to them.
I know that hon. Members on both sides of the House have worked hard to get the Government to listen on the subject of the VAT changes, but is it not all too serious to be left to second chances? Do not the people of this country deserve a Government who can get it right first time? People saw in the Budget a true reflection of a Chancellor who tried to sneak through thoughtless changes and got found out.
Let us look at some of the Government’s tax changes. The selection speaks volumes about this Government. They gave a tax cut to banks and to millionaires, but showed no mercy to people who eat pasties. The pasty tax will go down in history as one of the most incompetent Government debacles ever. The attempt to raise the price of pasties and sausage rolls by 20% was claimed to be necessary to close an anomaly, but was universally seen as evidence of an out-of-touch Government trying their luck and grabbing tax on a food that Ministers never eat. The Save Our Savouries campaign run by The Sun pointed out that caviar is still VAT-exempt. Perhaps we can learn something from that. Perhaps the Minister will comment on that in his concluding remarks.
The Prime Minister told us:
“I’m a pasty eater myself. . . I love a hot pasty”,
but he gave himself away when he said that his last pasty was from a shop that turned out not to exist. It was just one gaffe after another. The Chancellor ended up giving evidence to the Treasury Committee on how to tell whether a pasty was hot or cold. Members pointed out that because products would be subject to VAT if they were above ambient temperature when bought, pasties could cost different amounts on summer and winter days.
Stephen Gilbert
Notwithstanding some of the flaky accusations the hon. Lady is making against the Government, can she explain why Labour Members will not join in supporting the Government on new schedule 1, which addresses the concerns that were expressed during the consultation process?
Catherine McKinnell
Our position is that we would like none of the VAT changes to be introduced so by voting against new schedule 1 today, as I have already explained, we vote against all the VAT changes.
As was pointed out, if the pasty counter was near the oven, the ambient temperature would be higher. If it was near the chiller, the ambient temperature may be lower. Greggs’ official consultation document asked whether servers would ultimately have to take the temperature of both the pasty and the surrounding air to determine whether a 20% surcharge should be applied. The proposal was universally and rightly rounded on as ridiculous. Ken McMeikan, the chief executive of Greggs the bakers, which I am proud to say is based in my part of the world, Tyne and Wear, deserves a mention for his excellent campaign against the pasty tax. A massive £30 million was wiped off the value of the company in the week after the Budget as orders were threatened and jobs put at risk. Along with several hundred other bakers, Mr McMeikan delivered a petition to 10 Downing street. He told Ministers:
“we are the voice of half a million people. We embody their resentment at what this Government is trying to impose against the people’s will. . . ordinary hard working people simply do not want this pasty tax.”
I visited a local school breakfast club with Mr McMeikan and I know just how committed Greggs is to local schools and community projects. It did not deserve to have its business torpedoed by Ministers who are too out of touch ever to have eaten one of its products. Eventually the Government backed down on the pasty tax—they had to because that was the only move they could make—but they left behind them a legacy of arrogant disregard for ordinary people that will not quickly be forgotten. My only hope now is that the U-turn that has been made will be made properly. Representatives of Greggs are still raising concerns that the new wording of the regulations on hot food now state that VAT should be charged if it
“is provided…in packaging that retains heat (whether or not the packaging was primarily designed for that purpose)”.
The hon. Member for St Austell and Newquay (Stephen Gilbert) raised the matter with the Minister, but his answer did not provide certainty, so I would be grateful if he would clarify in his reply exactly how the Government will ensure certainty for this slightly battered production market.
Any sort of paper bag or wrapping could inadvertently help to retain heat, so there is a danger that pasties could still be caught in the regulations and that this whole incompetent mess of U-turns and retractions will all have been for nothing. I hope that the Government will take the opportunity to clarify that point and reassure Greggs and other bakers up and down the country that supplying customers with paper napkins, for example, which could inadvertently slow down the cooling process, will not result in an extra 20% charge for their customers.
Greggs would like confirmation, as I am sure would other bakers across the country, on whether taking trays of baked products from the oven and stacking them in counters that have no other means of heating or heat retention would be considered to be slowing down the cooling process. The practice is used by bakers to minimise food handling and the number of trays in use, but there are genuine concerns in the industry that it could constitute slowing down the cooling process and so incur a VAT charge.
The Government’s second U-turn was on their attempt to charge 20% VAT on static caravans—[Interruption.] I am asked from a sedentary position “Are you only on the second U-turn?” Yes, I am. I venture to guess that caravan holidays, like pasties, are not familiar to most members of the Cabinet. They saw an opportunity to take some extra tax and went ahead without considering the impact on individuals, jobs, growth or tourism. Because of the huge campaign mounted against the policy—I pay tribute to Members on both sides of the House for that, particularly hon. Members who represent the Hull constituencies, who are particularly concerned about the impact on jobs in their area—the Government backed down, but they are still trying to impose the 5% charge, as the Minister set out in more detail earlier.
The Treasury’s own figures show that 20% VAT on static caravans would result in a 30% fall in demand. The industry estimates that it would result in 1,000 job losses in manufacturing, excluding the supply chain. We know that at least one factory in the supply chain, Willerby Holiday Homes, put all 700 of its staff on a 90-day consultation as a direct result of the Government’s announcement that it would levy 20% VAT on its product. The National Caravan Council states that 4,300 jobs might be lost in holiday parks, plus another 1,500 jobs from associated suppliers.
I appreciate that the Minister has sought to give some reassurances on the change and indicated that the Government are listening, to the extent of reducing the VAT rate to 5%. However, he has made it clear today that no actual calculation has been made on the potential impact of the 5% charge, which is of great concern. Even the reduced charge of 5% will mean either that caravan holidays will become more expensive for holidaymakers or that holiday parks will be forced to absorb losses and job cuts. At a time when consumers are already severely squeezed, many people will simply have to go elsewhere. In turn, the whole economy of holiday towns would be hit, with shops, pubs and attractions losing their main business. Is that really what the Government intended?
Catherine McKinnell
I would be delighted if the hon. Gentleman would answer.
Mr Stuart
I am grateful to the hon. Lady, who is being most generous in giving way. I ask her to note that the National Caravan Council, the industry body, and the British Holiday and Home Parks Association have welcomed the 5% rate. They feel that the Government did listen and that the industry can take on that burden as part of the whole national effort to tackle the vast deficit her party left behind when it left government.
Catherine McKinnell
I am pleased that the industry is “delighted” with a 5% increase in VAT on its products. That is surprising in the circumstances.
Catherine McKinnell
I give way to my hon. Friend the Member for Kingston upon Hull North (Diana Johnson), who wanted to intervene earlier.
Diana Johnson
I would not say that the industry is “delighted.” I think that it accepts the measure, on the basis that it was very concerned about the 20% figure. My concern as a constituency MP, with 90% of static caravans being built in Hull and the surrounding area, is that there are 43.6 people chasing every vacancy in my constituency. That is the highest figure in the UK, and any job losses are going to be very difficult for my constituents, so that is why I am pressing the Minister to be very clear about the number of job losses that the 5% imposition will bring about. Will the shadow Minister comment on my concerns?
Catherine McKinnell
I thank my hon. Friend for that rational and considered intervention and appreciate that the industry is willing to accept the change, as it is much easier to bear than the original suggestion of 20%, but that is the point I seek to make. The Minister in his opening remarks confirmed that no assessment has been made of the impact of the 5% increase on the industry, and that is gravely concerning, because, as the hon. Member for Brigg and Goole (Andrew Percy) suggested, the industry needs certainty, security and stability to create the jobs that my hon. Friend is so concerned about.
The fact that the proposal is being put in place without a proper assessment of what is a lesser impact but still one of 5% is deeply concerning, because the last thing the industry needs is for the measure to be reviewed 12 months down the line, be seen to have had a detrimental impact, and for it to have to go through the whole process all over again.
Brandon Lewis
I thank the hon. Lady for her generosity in giving way. In Great Yarmouth, I represent a £500-million-a-year tourism industry, with about 50% of our bed space in static caravans. Our industry was concerned, but its message to me is that it thinks the 5% rate is not only fair, but better than it had hoped for.
The industry understands the arguments that everyone has to do their bit and that there has been an anomaly for a long time, and feels that the measure is manageable, will not have an impact on its business and is fair. We are very pleased, in fact, that we finally have a Government who say that they will consult and listen, do so and come back with exactly what the industry wants.
Catherine McKinnell
The only point I can make is that the industry suffered the serious blow of having a 20% tax announced. That has been reduced to 5%, which it will obviously welcome, but we propose to remove the VAT changes altogether, because at this particular time the last thing that any industry needs, but particularly the holiday, static caravan and manufacturing industries, is a VAT hike. We need to invest in jobs and growth to get the economy moving, to get out of the double-dip recession that we are in and to get back into growth.
Sheila Gilmore (Edinburgh East) (Lab)
Does my hon. Friend share my astonishment at the previous intervention? If the proposal to impose that VAT rate had never been made, there would have been no need for consultation or listening—and it would have been far better to have consulted first. What happened to the notion of a proper pre-Budget report, where suggestions could have been made in general terms and then we could have had a consultation? We all sat here listening to a very strong defence of the original proposals only a few months ago.
Catherine McKinnell
My hon. Friend speaks a lot of sense and makes her point very forcefully. The Government seem to have tax-grabbed first and consulted later. They have sneaked through changes—the ones they have got away with, they have pocketed and the ones they have been seriously challenged on, particularly by their own Back Benchers, they have had to relent on. But that is no way to conduct tax policy or business.
Julie Hilling
Is my hon. Friend as confused as I am by Government Members saying that their local manufacturers were asking for a 5% increase and demanding to be charged VAT? That is what it sounds like.
Catherine McKinnell
I made that very point when I expressed surprise at the impression being given that the static caravan industry warmly embraces and welcomes the change. A more rational description is that the industry accepts it as a much better deal than the one they were originally given by the Government—a slapped-on VAT increase to 20%, which would certainly have had an impact on jobs and compounded the lack of growth in the economy.
Once again, the change was announced during a parliamentary recess, the same day as the U-turn on the dreaded pasty tax. As Parliament was not sitting, there was no opportunity for the House to scrutinise the details of the Government’s plan—details such as where the money to pay for the change of heart would come from. The Government have yet to provide an answer to that question. We know the money will come from “underspends” in unidentified Departments, but we do not know where those underspends have occurred, whether they were planned, or why the coalition’s No. 1 priority of deficit reduction is no longer the default destination. The two measures—pasties and caravans—were supposed to raise £70 million, which is now unaccounted for. I hope that someone somewhere knows how to make up those sums. Many ordinary people consider £70 million quite a big hole to fill. How do Government plan to deal with it?
The third U-turn is the Government’s partial reversal on the so-called church tax. Ministers claimed that, in future, VAT would be payable on alterations to listed buildings, which are currently exempt. Of course, as the Government acknowledged today, half the listed buildings in this country are owned by the Church of England, which pointed out immediately that the change would cost it at least £20 million. Many churches collect donations from their congregation to pay for necessary alterations—often basic alterations, such as to provide a toilet and to ensure that the whole community can access the building. Without greater reassurances, the Church told the Government, the extra 20% payable would result in projects already scheduled having to be cancelled, and many of those projects were part of initiatives that churches had been encouraged to undertake through the big society.
The Government did not agree to a U-turn as such. I imagine they felt a bit embarrassed by that point, although that did not stop them performing another U-turn just days later—again, when Parliament was not sitting—on the charity tax. Instead, when they realised how hard churches would be hit, they agreed to give an extra £30 million to the listed places of worship scheme, so that churches could claim the money back in grants.
It is welcome that churches will no longer be hit with the huge extra cost of VAT, but my understanding of the Exchequer Secretary’s comments today is that churches will be asked to pay the VAT up front, then claim it back. They will have to raise the money to pay for the work they need to carry out, then wait for months to—hopefully—get it back. The hon. Gentleman says that measures have been put in place to make sure that churches do not suffer cash-flow problems, but I am not clear how much reassurance that provides. If he gives more detail when he winds up the debate, I am sure the House will be grateful. For a Government who say that they are waging war against red tape, it seems a bureaucratic process to put in place. My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) raised concerns not just about the bureaucracy for HMRC and the Treasury in processing the payments and rebates, but the bureaucracy for the churches, which could well do without it.
I also understand that, contrary to what the Minister said about the Church of England’s being entirely happy with the proposal, many churches have expressed concern that the uncertainty would put them off accessing the scheme and relying on the VAT rebate. Churches could be deterred from undertaking necessary alterations and repairs. The other concern is that the measure does not help non-religious listed buildings, which still have to pay the 20% tax. Many people will choose not to go ahead with their projects. Among other things, that will hit jobs in the construction industry, and we all know how hard that has been hit by the downturn and the double-dip recession. It is an extra setback for that industry that listed building projects will not go ahead because of the 20% increase in cost.
We have seen at least partial U-turns on the pasty, the caravan and the church, but the Government have refused to budge on two issues. Sports nutrition drinks are still being subjected to a 20% price hike while sugary milkshakes will still be VAT exempt. The Government want to put VAT on sports drinks that are advertised or marketed
“as products designed to enhance physical performance”
or “accelerate recovery after exercise”.
The Minister sought to provide clarification for the Opposition, but I, for one, am none the wiser about the rationale behind the policy. No rationale has been offered for why a sports drink designed to provide and facilitate exercise and fitness should be targeted for VAT while drinks laden with refined sugars and fats are still exempt. Moreover, as my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) said earlier, the industry has raised serious concerns about whether milk and milk products will unintentionally be caught up in the ruling. From the Minister’s comments today, I wonder whether that is unintentional at all.
We all remember the “Make mine milk” ads in which well known sportspeople such as Denise Lewis promoted the benefits of milk for sport. If milk has been marketed as something that enhances physical performance and sporting prowess, will the Government levy VAT on it? My understanding from the Government’s comments today is that they would. There is no indication about how the anomaly would be resolved by the Government or whether they even have an issue. For that reason, we will vote against this shambolic VAT reform.
The final issue on which we have concerns is the VAT levied on hairdressers’ chairs. The Chancellor wants self-employed hairdressers to pay 20% VAT on hiring a chair in a salon. With the cost of chair hire up, hairdressers will have to choose between passing the cost on to their customers or absorbing it themselves. Industry data show that that will disproportionately hit small businesses and their customers, especially women between 16 and 44 years old. Why do the Government think that a good idea?
If the measure is just another routine closing of an anomaly, have the Government considered who they are hitting with it and why? I am truly concerned that the measure looks as if it was worked out on the back of an envelope, without any consideration of how many jobs it might cost. Our amendment would force the Government to consider carefully the impact on jobs and growth before imposing VAT on any previously exempt products. It is not clear that they have given any thought to the change that I have mentioned.
Steve Rotheram (Liverpool, Walton) (Lab)
On haircuts, I wonder whether the increase in VAT in the case of hairdressers will precipitate a return to hairstyles such as the one that I currently sport.
Catherine McKinnell
My hon. Friend read my mind as I gazed across the Chamber.
Giving a tax cut to millionaires and the banks but making it harder for self-employed women and their customers reveals a Government who are, once again, truly out of touch with ordinary people’s lives. New clause 12 seeks to go further on VAT and create a temporary reduction in the rate from 20% to 17.5%. The Liberal Democrats ran for election on a manifesto that warned of the dangers of a VAT rise with their pledge to protect constituents from the “VAT bombshell” threatened by the Conservatives. The Deputy Prime Minister pledged:
“We will not have to raise VAT to deliver our promises…Let me repeat that: Our plans do not require a rise in VAT.”
Why were they so against VAT? Perhaps it is because the evidence clearly shows that people on lower incomes are hit proportionately much harder than the rich by VAT because they tend to spend more of their income rather than save and invest it. Government Members will claim that, looking at different measures, more VAT is paid by the rich—the hon. Member for Brigg and Goole (Andrew Percy) fell into that trap—but there is absolutely no doubt about the fact that VAT is regressive and that those on lower incomes spend a higher proportion of their income on it than those on higher incomes. Even the Prime Minister agrees. In 2001, he said:
“If you look at the effect...as compared with people’s income then, yes, it’s regressive”.
Jake Berry (Rossendale and Darwen) (Con)
Does the hon. Lady concur that those on lower incomes pay a higher proportion of their income on fuel, and will she therefore welcome the postponement of the 3p increase in fuel duty?
Catherine McKinnell
I not only welcome it but point out that we proposed it, and the Chancellor shortly followed us on the same day. Our proposal to bring about an immediate reduction in VAT to 17.5% would deliver that 3p fuel duty reduction for drivers and put money in their pockets not only in respect of fuel but right across the board. It is a measure that is absolutely required to turn our economy round from the double-dip recession we are in.
Stephen Gilbert
Is not the real VAT bombshell the fact that the hon. Lady does not know how much this policy would cost Her Majesty’s Treasury? In the hour or so for which she has been talking, has she had any inspiration from colleagues?
Catherine McKinnell
As I said, it is the Government’s job to work out the cost of any tax changes or spending commitments, and they have not even been able to provide answers as regards their own fuel duty reduction.
Mr Gauke
As the hon. Lady says that it is the Government’s job, let me tell her—I do not want to keep her in suspense —that her policy of reducing VAT to 17.5% would cost £12 billion to £13 billion a year. Does she dispute that number, and can she explain how she is going to pay for it?
Catherine McKinnell
If our policy turns the trajectory of the economy around from one of recession to one of growth, then clearly it will pay for itself and bring down the benefits bill, which is currently going up.
John Mann (Bassetlaw) (Lab)
I would like clarity on what the Opposition’s policy is. [Interruption.] I can hardly hear myself think. Is it our policy that VAT will be permanently reduced to 17.5% or that the reduction will last for 12 months and then it will go back up to 20%?
Catherine McKinnell
We are suggesting—we hope that the Government will jump on our way of thinking, as they did with the delay in the rise in fuel duty—an immediate reduction to 17.5% until we get the economy back into growth.
Catherine McKinnell
It all depends on how long the Government take to get the economy back into growth. The reaction of Government Members seems strange, when they are driving the economy into recession rather than into growth.
Andrew Percy
The hon. Lady will be aware that the temporary reduction under the last Government had a significant cost impact on a number of businesses. If the economy suddenly went into growth in the quarter following the reduction, would she expect businesses to take the burden of the costs of implementing the reduction and then unimplementing it in two successive quarters?
Catherine McKinnell
The hon. Gentleman is getting ahead of himself, given that we are in a double-dip recession, that growth has stalled, that all the predictions of the Office for Budget Responsibility are being revised down day on day, and that borrowing is going up. Everybody agrees that we need demand in the economy. The way of generating demand in the economy is to put money back into people’s pockets. I remind hon. Members that before the increase in VAT, the economy was on a trajectory of growth. That was before this Government took over and brought in their disastrous austerity policies.
Sheila Gilmore
Does my hon. Friend agree that the Minister’s figures assume that when VAT rises or falls, it has no impact on people’s expenditure? The thrust of what we have been saying, not just in response to the Budget, but for several months, is that the rise in VAT has dampened demand. The tax-take in May, for example, was down by 7%. Far from a static amount of money being drawn in, a VAT reduction would increase demand and, ultimately, increase the tax-take.
Catherine McKinnell
I thank my hon. Friend for her characteristically rational contribution. I would add that the recent Institute for Fiscal Studies report estimated that the Government’s tax and benefit reforms will make a couple with children £511 worse off in this financial year and £1,250 a year worse off by 2015. It does not take an economic genius to work out what that does to demand in the economy.
The Prime Minister admits that a 2.5% increase in VAT hits the poorest hardest, so what happened to, “We’re all in this together”? I would like to hear an answer on that. As well as hitting poor people the hardest, higher VAT is hitting the economy at a time when we can least afford it. As we have discussed, the Chancellor unveiled a fuel duty cut last week, using mystery funding sources. Dropping VAT could have taken 3p a litre off petrol immediately. Across the board, a temporary cut in VAT would stimulate growth and get the economy moving again. Putting money back into people’s pockets is the only way to support businesses and create jobs—the very things that the Chancellor left out of his mangled Budget. That is why a temporary return to 17.5% is part of Labour’s five-point plan for jobs and growth.
John Mann
Is not another way to stimulate the economy to spend the money on employing the police officers who have been sacked and on reversing the ambulance cuts, the fire service cuts, the Army cuts and other cuts? We could use the £50 billion that a VAT cut would equate to over a Parliament to employ public servants, rather than to cut taxes.
Catherine McKinnell
My hon. Friend makes a valid point. Since June 2011 we have lost more than 100,000 public sector jobs, which means that there have been redundancies at a rate of one a minute since the Government took office. Yet the private sector, which the Prime Minister anticipated would flood in to create jobs, has simply not delivered. It has created only half that number of jobs, leaving the other half of those people on the dole and claiming benefits. That is pushing Government borrowing up, not down.
The measures that we suggest would boost the economy and people’s spending power and ensure that we are not saddled with taxes that no one can afford. We want to see the economy moving into growth again.
Sarah Newton (Truro and Falmouth) (Con)
When I came into the Chamber to listen to the opening part of this debate, I did not anticipate speaking. However, I am very pleased to have caught your eye, Mr Deputy Speaker, because I felt utterly compelled to join in, notwithstanding my current incapacity. It has been an illuminating debate.
I listened to the shadow Minister’s speech and the interventions of her colleagues, and I find it staggering that they are not going to listen to the submissions of my constituents on the pasty tax, caravans or fundraising for places of worship, on which many people work so hard. Oh no—their opinions do not count for anything to the Opposition. They are not going to listen to all the representations that have led to the Government’s sensible proposals. The listening exercise to improve and amend the Budget has led to proposals that respond directly to all the concerns expressed by my constituents, and I dare say by the constituents of a great number of colleagues.
Julie Hilling
I am really very confused. My constituents have been saying exactly the same thing, which is why Labour Members have been arguing against this dreadful Budget in the Chamber, the Public Bill Committee and wherever we can. We have said that the Government should not put VAT on pasties, caravans, hairdressers’ chairs and so on. I agree with the hon. Lady about that. Thank heavens, the Government listened to us a bit in the end, but sadly not enough.
Sarah Newton
It is surprising to me that, as far as we are aware from the comments of the shadow Minister, the Opposition will be voting against the very improvements that the hon. Lady says they have been working so hard to achieve. I do not doubt her good intentions or that she has been working very hard to represent her constituents, but if she was truly doing so, she would walk through the Lobby with the Government this evening, because they have listened thoroughly.
Let us take the pasty tax, for example. It will not surprise Members that I am keen to talk about pasties, because not only am I a big fan and regular consumer of them, but I represent Cornwall, where they are an incredibly important industry. When I listened to the Budget some months ago, it was clear to me that the Government were doing exactly the right thing. They had seen some dreadful anomalies in VAT on food that had led to huge unfairness. Independent owners of fish and chip shops in my constituency had to pay VAT, but other outlets selling hot takeaway foods did not. The Government’s attempt to sort out VAT struck me as perfectly reasonable.
We all know that what is really holding back growth in our economy is that for too long, small businesses have been massively overburdened by a dreadfully confused and muddled-up tax code. Under the last Government, the tax code multiplied and multiplied. We would probably have to use a wheelbarrow to carry all its volumes into the Chamber. The current Government are making a very reasonable effort to simplify some of the taxes that are such a burden on businesses in my constituency. They have listened carefully to the representations that have been made and are now going to create a level playing field for all people producing and selling takeaway food. That will benefit independent bakers in small businesses throughout Cornwall who bake pasties.
Mr Graham Stuart
As my hon. Friend is aware, the Government inherited the largest overspend and deficit in the developed world, so it was right for them to probe every possible area of tax revenue. It was also right for them to listen to people when representations were made and to respect parliamentary democracy. Does she agree that if the Labour party had listened to Back Benchers when it was in power, we would not have got into the mess that we are in and we would not have the vast deficit that the Government are having so valiantly to fight to reduce?
Sarah Newton
My hon. Friend makes his point as passionately and persuasively as always, and he is absolutely right.
To return to pasties—one of my favourite subjects—when I listened to the Budget, it was clear to me that there was a problem with the proposals as they stood. Some of the architects of those proposals clearly did not understand how pasties are baked in Cornwall. Within hours I spoke to my hon. Friend the Exchequer Secretary, who clearly understood the problem that I described to him. He said the Government realised that there could be some complications and unforeseen consequences, hence the reason for their consultation. Colleagues from around the country responded positively to that consultation, and their concerns have now been met.
I am staggered by what the Opposition wish to inflict on our country by not supporting the Government tonight. In the nightmarish scenario that they won the Division, we would return to the situation in which the Treasury wastes hundreds of thousands of pounds of taxpayers’ money every year having to fight litigation cases against multi-million-pound companies that are trying to avoid paying VAT. The extremely complicated tax code that was developed under Labour over its 13 years was a lawyers charter. I have nothing against lawyers—I am married to a very good lawyer—but that ever-increasing and complicated tax code means that, not unreasonably, companies try to avoid paying tax. That causes Her Majesty’s Revenue and Customs to be tied up in court, spending hundreds of thousands of pounds on lawyers fees that it could be spending in a far better way.
It beggars belief, but what the Labour party is saying tonight is, “We are on the side of companies trying to avoid tax. We are on the side of lawyers who are constantly taking HMRC to court.” What a dreadful waste of taxpayers’ money. The Government are trying to have a fair and simple tax system that everybody in the country can understand, so that we are not caught out by those who avoid taxation.
Sheila Gilmore
I wonder whether the hon. Lady has noticed the size of the Bill. It is apparently one of the biggest Finance Bills ever, which suggests that the tax code is being added to all the time. Would it not have been easier for the Government never to have made their VAT proposal in the first place?
Sarah Newton
No. As I have said—very clearly, I hope—the Government’s change will bring about a lot of clarity and be beneficial. For example, new schedule 1 clarifies what constitutes takeaway food and hot food. I accept the point that my hon. Friend the Exchequer Secretary made that we can never be 100% certain that companies will not litigate to try to wriggle their way out of paying their taxes, but the added clarity will be welcome to pasty makers. They will understand the situation that applies to pasties that are made and consumed in the way that they are in Cornwall.
For the benefit of Opposition Members who do not seem to understand what master bakers do in pasty shops in Cornwall, I will explain that each day they get up very early to make high-quality bread, cakes and buns as well as pasties. They cook them on their premises so that they are beautiful and freshly made. Throughout the course of the day, anybody can buy freshly made bread, cakes, buns, scones or pasties. Thanks to the clarification in the new schedule, we can continue doing that in the certain knowledge that we will not pay VAT. Labour Members, however, who, feeling peckish on their way home tonight, decide to pop into the West Cornwall Pasty store, perhaps at the station, will, as in every other takeaway food outlet at the station, quite rightly pay VAT, because those pasties are deliberately kept warm all day long alongside other takeaway food. It is only right and proper, therefore, that they pay VAT.
Jake Berry
Of course, it was not just a pasty tax; it would also have affected the fantastic Cissy Greens pie shop in Haslingden. We are dancing from the River Ogden to the River Irwell in celebration of the fact that we can enjoy our Cissy Greens pies without VAT.
Sarah Newton
My hon. Friend makes a good point. This affects master bakers, whether of pork pies, sausage rolls, steak pies or chicken pies, the length and breadth of the country. Those self-employed, highly skilled master craftsmen can carry on producing their much-loved regional foods, which we enjoy all over the country and which make our country so distinct, as we celebrate our rich and varied food heritage. I hope that that addresses any misapprehensions among Labour Members about the benefits of the pasty tax.
Much has been made of the Government’s U-turns. I welcome having a Government who, when they launch a consultation, as they did after the Budget, actually listen to representations on a range of measures, and I am pleased that the Chancellor is driving our economy in the right direction. We have to reduce our deficit and get our expenditure under control. The hard-working families and small businesses in my constituency understand that, and frankly will feel let down by this retread idea of a 2.5% reduction in VAT—the only proposal we hear from Opposition Members. But, of course, we do not know whether that will be their proposal tomorrow, next week or next month, because the shadow Minister could only say that it was the proposal today. If that is their only proposal and if it is only for today, how can families in my constituency have any confidence that they would drive the economy in a better direction? I am confident that the Chancellor is on the right road, and I am certain that focusing on the Budget, making sensible changes along the way, is the right way to go.
John Mann
Does the hon. Lady agree that it is good news that the Chancellor listened to me on pasties, on caravans—after I invited him on holiday with the Prime Minister and me in a caravan—and on petrol? Does she also agree that it would be even better news if he also listened to me on churches and VAT on listed buildings?
Sarah Newton
I am glad that the hon. Gentleman makes that intervention, because I was going to talk about that issue. First, however, I would like to make a little more progress on the analogy I was drawing to the House’s attention. We all get behind the wheel of a car from time to time—sadly, at the moment, I cannot, but I hope to be back there before too long—and when on a journey we are often certain of our destination, but sometimes we are not as good navigators as we would like and have to put on our sat-nav to help us, and sometimes we get an instruction from that irritating person on the sat-nav saying, “As soon as the road ahead is safe and permits, please do a U-turn.” At that point, do we throw up our hands in horror and say, “Oh, it’s just appalling to have to make a U-turn”, or do we think, sensibly, that to reach our destination in a safe and timely way it is appropriate to make the occasional U-turn? I have no problem with the Government making U-turns if it gets us to our destination in a timely and safe way.
The hon. Gentleman asked me about the changes to listed buildings. Having the beautiful Truro cathedral in my constituency, I was concerned about the proposals and immediately consulted the diocese and a wide range of churches in my constituency about their implications. I brought all that information to the Chancellor’s attention, as, I am sure, did Members across the House, and I was satisfied with his response. The Second Church Estates Commissioner, my hon. Friend the hon. Member for Banbury (Sir Tony Baldry), is to be congratulated on how he co-ordinated all our efforts and on the work he has done with the Church Commissioners and the Treasury. Their solution is both practical and actionable, and has met with the perfect satisfaction of churches in my constituency.
I know that many Members wish to join in the debate, so I shall conclude. It is immensely important that we have a Government who listen, who consult on proposals and who then act on them. Whether on fuel duty, pasty taxes, caravan taxes or fuel taxes, my constituents are immensely pleased and relieved that the Government have listened and helped hard-working people and small businesses during these difficult times.
Mr Frank Field
I want to speak to new clause 3, although it might first be appropriate to pick up on one theme from the speech by the hon. Member for Truro and Falmouth (Sarah Newton). She said she was pleased that the Chancellor was creating a level playing field. Well, if there is any area of the country where it would be difficult to create level playing fields, it would be in Truro. But anyway, I am pleased that she is satisfied.
I wish to make a plea for a level playing field for young people in my constituency and other constituencies who go to sixth-form colleges, and I wish to compare their tax position with that of young people undertaking sixth-form studies in school. In a recent Westminster Hall debate, led by my right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett), we discussed how poorer young people in sixth-form colleges or similar establishments were discriminated against in respect of free school dinners compared with young people in school. Here is yet another example of discrimination against young people, depending on the institution they attend.
I plead again with the Government, in respect of VAT, to treat sixth-form colleges as we treat schools with sixth forms. In Birkenhead, most pupils have no option but to attend sixth-form college if they want to undertake post-16 studies because the sixth forms of most of the schools were pooled together in that one enterprise. The VAT on services that the college purchases, but which schools do not pay, adds £300,000 to the college budget—a reduction of 4% in that budget.
My plea to the Chancellor will be brief and simple;I will not go up and down the country lanes, visiting various constituents, bakers and so on. He hoped to create a level playing field for taxation for sixth-form colleges and sixth forms in schools by the end of the Parliament. That was a noble objective, but the 2015 election, as it draws ever nearer, will certainly concentrate Government Members’ minds not only on small U-turns but perhaps on more major ones.
The Institute for Fiscal Studies undertook an analysis of the Government’s public expenditure changes which showed that the part of the education system that will be most handicapped and suffer the largest cuts by 2015 will be colleges of further education. Indeed, they will experience a 20% real-terms cut in their budgets by 2015. I know that it would not be in order to ask the Minister to respond to that, but given that the Government’s policies are making the playing field even more unequal for sixth-form colleges, compared with the treatment of sixth forms in schools, let me make a plea for him to concede that point and exempt sixth-form colleges, whose students are of an age that if they were not at college, they would be in school.
Bob Stewart (Beckenham) (Con)
I do not understand why this has ever occurred. How come a sixth-form college is not treated exactly the same as a sixth form in a normal school? They may be in different areas, but they are essentially the same kids. I do not understand it, so perhaps the right hon. Gentleman—my friend, because I have known him a very long time—can tell me the answer.
Andrew Percy
It is a pleasure to follow the right hon. Member for Birkenhead (Mr Field), who made an interesting contribution, on an issue that I was not planning to speak about, but which I hope will be pursued if his new clause is not accepted this evening.
This has been an interesting debate. I am only sorry that the Minister’s attempt to take us through every VAT change since 1973 was cut somewhat short. We got to about 1983, which was probably as far as most of us needed to get, but it was interesting none the less. The debate has also been interesting because of the number of food products that have been mentioned. At one point, when we were talking about rotisserie chickens, pasties and sausage rolls, I thought it was lunchtime at the Percy house, but apparently not. I am proud to say that I eat pasties: I ate my last one from Fuller’s bakery on the precinct in Goole just the other day. I cannot say that I partake of sports drinks, so I will not take much of an interest in that part of the debate, but I am certainly pleased that the Government have seen sense on pasties. I am not sure that I necessarily share the full analysis offered by my hon. Friend the Member for Truro and Falmouth (Sarah Newton) about the seamless transition of policy. I do not think it has necessarily been the Government’s finest hour, but at least at the end of the process we have a system with which we can all live.
I want to make a few brief comments about the caravan tax. It is a pleasure to see my hon. Friend the Member for Beverley and Holderness (Mr Stuart), who assisted with—[Interruption]—sorry, who led the campaign. I chide him with an in-joke. He led the campaign very ably and got us all together. He deserves credit for that, and I am pleased to see him here for this debate. The impact that the measure would have had is well documented in the various debates we have had. The Minister knows from the meetings we had with him that we were very concerned, particularly in our part of the world, where the vast majority of the relevant manufacturing is and where a lot of the supply chain is based, including, in my constituency in Brigg, a number of companies that were affected. I also have some of the parks that would have been affected in my constituency. I am pleased to see my hon. Friend the Member for Cleethorpes (Martin Vickers), who would have similarly been greatly affected, from the point of view of the park owners, had the measure gone forward. It is therefore incredibly important that we have reached the position we have.
Some genuine points have been made about the consultation. One needs only to do a Google search to find headline after headline, in both local and national papers, about the state in which the industry has found itself in recent years. Indeed, it had to go to the previous Government looking for support, although I am not sure that a great deal was forthcoming. We are talking about an industry that has struggled considerably over the past few years, so quite who came up with the idea of slapping on 20% VAT, thereby affecting sales by up to 30%, I do not know, and I hope that some lessons will be learned. I prefer to see what the Government have done not as a U-turn, however. There was a US politician who used to describe a U-turn as a recalibration of policy, so I welcome this recalibration of policy. It is a shame that the previous Government did not do that on more occasions, as my hon. Friend the Member for Beverley and Holderness mentioned.
Mr Stuart
I am grateful to my hon. Friend. Now that a 5% VAT rate has been introduced, does he agree that any Government, whether the coalition or a future Labour Government, would be ill-advised to return to this issue with any form of increase? The level of 5% can be accepted. People do not pay council tax on these caravans. We are talking about a compromise, but one that can last, that the industry can live with and that the political establishment should live with. Indeed, no Government should ever think of returning to the issue at any time while even someone as young as my hon. Friend is in this House.
Andrew Percy
I am being abolished at the next election anyway, so there are only three years in which the Government might have to worry about me. However, they would frankly be stupid—if that is not unparliamentary language—to look at the issue again. I think any Government will take note of the campaign.
The final assurance I seek from the Minister is that we will continue to be conscious that there will still be a potential impact, as was mentioned in interventions by the hon. Member for Kingston upon Hull North (Diana Johnson), who also fought valiantly. I hope that the Treasury will continue to monitor that.
In the final minute, I want quickly to say something about the Opposition’s VAT cut for millionaires, which I think is what they are proposing. Whereas we on this side of the House have decided to target tax changes at those struggling the most—for example, by raising the personal allowance and taking some of the poorest out of tax altogether—the Opposition policy is to issue a massive VAT cut for high earners and millionaires, and just to pepper money around. The Opposition are not quite sure how much—they have not told us, although we think the figure might be £12 billion—and they do not know for how long the measure would be in place. What a policy! The interesting thing we have learnt is that we now know that the Opposition’s official policy is to support, ultimately, VAT at 20%, because they have said that the measure would be temporary, meaning that they have therefore definitely agreed the 20% rate.
Andrew Percy
No, I am not going to give way, because other people want to speak.
The shadow Minister talked a lot about VAT consultation and the Government’s failure, she said, to consult on the changes. I just wonder whether she has consulted very widely on her proposal to reduce the rate temporarily to 17.5%, because I suspect not.
Diana Johnson
It is a real pleasure to follow the hon. Member for Brigg and Goole (Andrew Percy), who, with characteristic humility, accepted that bringing forward these VAT proposals was not the Government’s finest hour, unlike the hon. Member for Truro and Falmouth (Sarah Newton), who unfortunately is no longer in her place. She has a rose-tinted view of the shambles of this Budget and the proposals that have been put forward, which caused consternation, upset and distress to many individuals and businesses around the country. However, she now seems to think that we should be celebrating the fact that the Government have had to cobble together this compromise.
I shall be supporting new clause 10, which was tabled by those on our Front Bench, and I want to speak against the Government’s new schedule 1. Our opposition to new schedule 1 underlines Labour’s commitment to having low taxes, because it would implement a tax increase, including the 5% VAT on caravans, which I want to address.
Diana Johnson
This section of the debate is about VAT. When we are in a double-dip recession, the imposition of VAT on items such as caravans is not going to help us to grow out of that economic position. That is what I will concentrate on.
The proposal for 20% VAT to be levied on static caravans came out of the blue in the Budget. There had been no consultation with the industry, and no warning that the Government were planning that measure. The impact assessment published alongside the Budget stated that the 20% VAT would result in a 30% reduction in the market for static caravans. The Government’s U-turn involved a 75% reduction in the amount of VAT involved, and 5% will now be levied from April 2103, as opposed to 20% from October 2012.
I can go some way towards welcoming the fact that the Government have listened and put forward a response to the widespread view that the imposition of 20% VAT would have been a disaster. There was cross-party work on the issue, with a number of debates, early-day motions and petitions. I will give the Minister his due; he did take the time to listen to what people had to say, especially those from my part of the world. However, serious concerns remain about the effect that the 5% VAT will have, and I want to run through them tonight.
I want to talk first about jobs and demand, which are at the heart of the issue. As I said, the Treasury’s own figures showed that the imposition of 20% VAT would have resulted in a 30% reduction in demand for static caravans. It worries me that the Treasury seems incapable of using figures appropriately. When I looked at the impact assessment, I realised that it had got the figures for businesses and manufacturers in the caravan industry wrong. It worries me that it cannot even get such basic information correct when it sets out to consult on a proposal. I want to see much better research into the impact of the 5% VAT on caravan manufacturers.
I have not been reassured by what the Minister has told me today, even though I have pressed him to tell me what will happen to manufacturers in the caravan industry. I did not feel that he really had a grasp of what the numbers might be. It worries me that there has been no proper assessment of this policy. Does he think that levying 5% VAT will put at risk roughly a quarter of the demand that the 20% VAT would have put at risk? Does he also think that the number of job losses in the caravan manufacturing industry will be reduced from the 6,000 mentioned in KPMG’s report to about 1,500 as a result of the change in VAT? Will he also comment on the knock-on effects for the wider UK tourism and domestic holiday industry?
I want to draw the Minister’s attention to the HMRC document, “VAT: Taxing Holiday Caravans”, which was published at the end of last week. On the economic impact of the 5%, it states:
“This measure is likely to lead to an increase in the price of static and larger touring caravans which could lead to a fall in demand.”
I take the view that the Treasury civil servants are among the brightest and best that the civil service has to offer, and it seems odd that they have been able to come up with nothing more definitive than that the measure “could” lead to a fall in demand. The document goes on to state:
“Although the overall impact on the macro economy is expected to be negligible, the measure will impact local manufacturing in Yorkshire and the Humber where the bulk of static holiday caravans are manufactured.”
Most people in Hull and East Yorkshire would agree with that, but surely the Treasury can come up with something better. The section of the document entitled “Impact on businesses including civil society organisations” states:
“The vast majority of static holiday caravans are manufactured in Yorkshire and the Humber and a small number of manufacturers account for the vast majority of all UK sales. Although some manufacturers produce other types of caravans, static caravans are the main source of income for most of these manufacturers.”
Again, it worries me that the document uses such general terms. Where is the meat in all this? Where are the figures? Where does it tell us what the actual economic impact of the policy will be?
Let us bear in mind that we are in a double-dip recession and we are all desperate to get growth back into the economy. I mentioned in an intervention that 46.3 people in my constituency chase every job vacancy going, so any loss of jobs in the caravan manufacturing industry is a disaster for my constituents. I think that the hon. Member for Brigg and Goole mentioned that the caravan industry suffered very badly in 2008-09, and it is only just getting back on its feet. If the Treasury thinks that the imposition of 5% VAT will be fine for an industry that is struggling in a double-dip recession when people are not spending, it really needs to look again at its figures and ensure that they all add up.
The Minister said that the goods within a caravan were already taxed, in that VAT had already been levied on such items. My understanding is that the figure involved is about 5%. Will he tell us whether the 5% proposed in the Bill will be an additional 5%, making a total of about 10% VAT payable? I am confused by that, and the Minister has not made it clear.
One of the strongest arguments against the initial proposal for 20% VAT was that it would raise very little revenue for the Treasury. When taking that into account, we also need to consider the welfare costs that would be incurred from people in the industry losing their jobs. Has the Minister looked at the figures involved? Does he think that the sums add up?
HMRC now estimates that the 5% VAT will first raise revenue in 2013-14, when it will bring in £5 million a year, rising to £10 million a year from 2013-14. That is a relatively small amount of money, given the Government’s overall spending, especially in the light of the millions that they have found in the Budget for tax cuts for millionaires. Let us put this into perspective: £10 million is perhaps a third or half of what Mr Diamond’s severance payment might be.
This measure will have an impact from next year onwards, while raising £5 million to £10 million. When we take into account the fall in demand in the industry and the resulting job losses, I do not think that the Treasury will end up in credit. Introducing the measure could result in more money being spent, through welfare benefits. Will the Minister set out for me the sums that he is using to ensure that the measure will bring a net benefit to the Treasury? In my view, this is an ill thought-through policy, and these are crazy economics.
The Minister referred to the manufacturing standard, BS 3632. As I said in my intervention, using a manufacturing standard to dictate tax policy is silly.
Mr Graham Stuart
I want to return to the hon. Lady’s point about the overall costs. A significant percentage of the cost of a new caravan is found in the chattels inside, which already have VAT on them. So the additional overall cost will not be higher than 5%; it will be more like 3% or 4% on the overall average retail cost of a caravan. The manufacturers are telling me that they think that that can broadly be absorbed within their business model. It will have some negative impact, but a fairly minimal one. We are certainly not talking about 10% costs, but about rather less than 5%.
Diana Johnson
I am grateful for that intervention, and I pay tribute to the hon. Gentleman for the work he did on this matter. However, I would really like to hear from the Minister what the VAT level is going to be, because my understanding is that it is 5% plus the additional VAT already levied. The hon. Gentleman says that it is 3% or 4% and not 5%, but is that 3% or 4% on top of the 5%, which would mean it was 8% or 9%, not 5%?
Mr Stuart
Basically, VAT has already been paid on those chattels, so if 25% of the cost of the caravan were for the chattels, that already includes VAT, so we are looking at 5% on 75% of the overall cost of the caravan. That is why it is significantly less than 5% as an addition to the actual cost when someone goes to a park to try to buy a caravan. The additional costs as a result of this change will be significantly less than 5%—I say that clearly and categorically.
Diana Johnson
I am grateful to the hon. Gentleman again, but I would still like to hear from the Minister exactly what the figure will be. My understanding—I was at the same meeting with the caravan manufacturers in Beverley as the hon. Member for Beverley and Holderness (Mr Stuart)—was that a figure was levied across the whole price of the caravan, including the chattels in the caravan at around 3% or 4% of the overall cost. Will the Minister clarify that? Are there two figures that we need to be aware of, or is it just 5% overall of the total amount of the purchase? I have to tell the Government that if this were intended to make things clearer, the truth is that it is making things even more complicated and less transparent.
Let me return to the BS 3632 specification. I was saying that I thought that that was not a sensible way to make tax policy. I know that the distinction between static caravans and those used for residential purposes 365 days of the year is based on the reference to BS 3632. If we look at the responses to HMRC’s consultation, we see that while many respondents felt it would be relatively straightforward to upgrade static caravans to meet the BS 3632 standard so that they could benefit from zero-rated standing, many others said that the costs of doing so would be prohibitive. There is a confusion there, which is why I would like the Minister to be very clear about it.
With certified British standards changing all the time because manufacturing gets better and better, how often does the Minister think he would need to return to this tax provision to update it? I doubt whether it will be set in stone for years to come; it will have to be looked at and changed in the future. I heard the Minister’s reassurance that we would not see changes to the standard in the future, but he is opening the door to potential changes. The system that the Minister has devised, based on the British standard and keeping the distinction between static, residential and touring caravans, does not make things clearer and more transparent; rather, I think it extends the anomalies in the tax system.
An even bigger issue for me is the lack of clear evidence of what the change to VAT policy will do for my constituents and for jobs in my city. That is what really concerns and worries me. I know that the Minister has listened carefully to my pleas about employment and jobs. I hope he will think again and will instruct his officials to do a proper piece of work, so that when MPs scrutinise Government policy, they will have accurate figures to look at in order to assess whether the Government’s policies will result in what they say they are trying to achieve. In this case, I do not think the Government will see additional revenue in the Exchequer. If they bring forward this ill thought-through proposal, which will disproportionately affect my constituents, there will be a loss to the Government.
Stephen Gilbert
I feel as if I have fallen into a parallel universe in this debate. It is interesting, is it not, that although Labour crashed the economy so totally, Labour Members today want to provide a £12 billion giveaway by reducing VAT—something that would presumably have to be paid for by further cuts in the public services that they say they want to protect, or indeed by an increase in borrowing. It seems inconceivable to me that this measure is on the amendment paper in the name of Labour Members. I recall that when I was growing up there was television programme called “Jamie and the Magic Torch”. I used to enjoy it considerably, but it seems that we have a show on the other side of the Chamber tonight called “Ed and the Magic Money Tree”, with the Opposition unable to be clear or consistent about their VAT policy.
Another bizarre aspect of the debate is that when the Government are forced into what my hon. Friend the Member for Brigg and Goole (Andrew Percy) refers to as a “recalibration” on a number of issues, which my constituents certainly welcome, the Opposition oppose the measures that the Government are taking to address the problems that they initially highlighted. It strikes me as utterly bizarre that, a few months ago, the hon. Member for Newcastle upon Tyne North (Catherine McKinnell)and her hon. Friends raised concerns, as did I and other hon. Members, about the pasty tax, the caravan tax, the problems affecting static caravans and other issues, yet tonight the same hon. Lady and her colleagues are going to vote against the U-turn that the Government have made. It may well be the case that the Government have made a U-turn, but it is clear from the positioning going on tonight that Labour has taken a wrong turn.
Labour Members cannot have it both ways. They cannot criticise a Government for being cavalier when they do not listen, and then criticise them as chaotic when they do listen. As they well know, the reality is that on all these issues, particularly on tackling anomalies in the VAT system, the problems were set out in the consultation that my right hon. Friend the Chancellor rightly announced. That consultation was widely subscribed to by many interested parties, and the Government took the responses to it into account and changed their view on the back of the evidence they received. I for one recognise that none of us has a monopoly of wisdom. It is surely in the finest traditions of good government that the people likely to be affected by these rules are listened to and that a Government take advice if a deleterious effect is pointed out.
Labour Members talk about the need to consult, but when they abolished the 10p tax rate, plunging millions of the lowest paid into further tax, I do not think they consulted on that measure. That is why, as I say, the last few moments of the debate have been somewhat eye-opening, highlighting the sheer opportunism of the Opposition in opposing a U-turn. They call for consultation, then, in the very debate that shows that the Government are listening, they choose to ignore it. Frankly, as I said at the outset, that is bizarre.
My constituents would want me to welcome new schedule 1 and Government amendment 17. Those provisions will protect jobs in Cornwall, protect the Cornish high street and high streets across the country, protect the secondary spend in the wider economy and will ensure that Cornwall, which is already a disadvantaged part of the our United Kingdom, is not further disadvantaged by proposals that the Government have, thankfully, amended.
I would also like to thank the Minister. In all the discussions between him, me and my hon. Friends, he has always been entirely professional, courteous and constructive in his engagement. I would like to thank others, too. As the hon. Member for Newcastle upon Tyne North knows, Greggs is based in her constituency. Its effort to mobilise more than 500,000 signatures across the country for a petition that my hon. Friends in Cornwall and I were able to deliver to Downing street showed the level of grass-roots concern about proposals that could have been very damaging.
I thank the National Association of Master Bakers; that is not a sentence that one wants to rush through! Its engagement with this issue has been constructive and professional, and it has represented the views of its industry to the Government very effectively. For what will probably be the only time in my life, I also thank and pay tribute to The Sun, which ensured that the issue touched the popular zeitgeist and was able, ultimately, to deliver change. More locally, the Western Morning News, the voice of the south-west, played a useful role in keeping the issue in the public eye.
I can tell the Minister that people in Cornwall are relieved that this coalition Government took soundings, listened and, at the end of the day, delivered a result that will protect an iconic and important Cornish industry. It is estimated that the measure will safeguard about 13,000 jobs in Cornwall, put hundreds of millions of pounds into the local economy, and guarantee the production of the 180 million Cornish pasties that are made in the county every year.
Bob Stewart
Everyone has been saying how great it is that VAT will no longer be charged on pasties, but I should point out those who own fish and chip shops are at a slight disadvantage by comparison. I just want to balance the equation a bit, and that is one of the things that we were trying to put right.
Stephen Gilbert
I entirely agree with my hon. Friend. He will be pleased to know that new schedule 1 will deliver the level playing field to which he and my right hon. Friend the Prime Minister have referred, and on the subject of which I have received representations from fish and chip shops in my constituency.
If a product in a fish and chip shop is being kept artificially warm it is standard-rated, and new schedule 1 will ensure that the same applies in a pasty or pie shop. The simplicity for which the Government aimed has been delivered, as has the level playing field for suppliers of hot food. I hope that my hon. Friend will convey to the fish and chip shop proprietors in his constituency with some enthusiasm the message that, as a result of the constructive process of consultation and engagement undertaken by the Government, the special status of baked goods which are hot only as a product of their baking process has been recognised. The fact that a freshly baked hot pasty which is simply cooling down will remain VAT-free should be welcomed by one and all.
Sheila Gilmore
The hon. Member for St Austell and Newquay (Stephen Gilbert) seemed to think that he was living in a parallel universe, and, indeed, most of we Opposition Members thought that we were living in one as well. The process that has taken place is rather like the process that takes place when someone says “I want £10 from you”, and then, after a great deal of argument, says “I will make it just £2, so you should be happy”, and we find ourselves saying “Thank you so much for listening.”
Yes, it was good that the Government listened. I do not think that any Opposition Member has said otherwise, although we might have preferred them to listen from the outset. They had an opportunity to do so on Second Reading. One or two Conservative and Liberal Democrat Back Benchers voted against the Government even then in order to make their views known, but many others who had heard the Government say that the measures were necessary voted for them. Yes, it is good that the Government have listened, but it might have been better had they never embarked on this road. We must ask whether it was sensible for the Treasury—which, one assumes, is in charge of our economy to some extent—to spend the last four months dealing with matters which it had, after all, generated in the first place.
Roberta Blackman-Woods (City of Durham) (Lab)
Does my hon. Friend agree that the Government listened only partially, especially when it came to the imposition of VAT on listed buildings? Churches will still have to undergo a bureaucratic process in order to claim it back, and other listed buildings will still be subject to VAT for repairs. That could really affect the country’s heritage.
Sheila Gilmore
I shall say something about precisely that issue later.
The time and effort of officials and politicians was largely wasted by a process that, in some but not all instances, led us back to where we started at a time when the economy was tanking. Could not much of that energy have been expended on something far more worth while? It was said on Second Reading that this was not a Budget for jobs and growth but a Budget that tinkered at the edges of various issues, and the Government have themselves conceded that all that tinkering was probably a bad idea.
Diana Johnson
Does my hon. Friend agree that the VAT measures in the Budget had a major effect on business confidence in certain industries? For instance, when the caravan industry was threatened with the imposition of a 20% rate, some companies issued their work forces with 90-day potential redundancy notices.
Sheila Gilmore
Of course the stress and anxiety affected confidence and well-being. Indeed, it may have led to a further plunge in demand as people anticipated the impending redundancy which, thankfully, did not come about in many cases. That is an important consideration at a time when the economy is struggling so much.
I think that a great deal of time was wasted because the Government included measures in the Budget rather than dealing with the position earlier. If they believed that there were anomalies in the VAT system, why did they not consult? As I have suggested before, they could have said “We are minded to look at these things” at the time of the autumn statement, rather than at a time when they were putting together a Budget that, apparently, they wanted to balance. We heard a lot about that at the time.
Why did the Government not say “We want to look at these anomalies and review them in a general context”? One of our amendments proposes that that should happen in future. If there is to be consultation, it should be proper consultation. Saying, as the Chancellor did in March, “This is what we have to do and this is why we have to do it, but we will have a bit of consultation afterwards” is putting the cart before the horse. I hope that that lesson will be learned for the future.
Julie Hilling
One theory being put about is that the Chancellor was hijacked by civil servants whose pet projects had been turned down by the Labour Government, who had said “Don’t be silly”, and the Treasury was suckered into proposing a load of nonsensical changes.
Sheila Gilmore
That may indeed may be the case. I recall that in 2007 a new council took charge in Edinburgh—it was a Liberal Democrat-SNP coalition—and it announced that it was planning to close some 22 schools. There was a very interesting cartoon in the local paper. It showed officials coming out of a meeting with the new administration and turning to each other and saying, “We never expected them to accept all that. That was a starter for 10, and we thought we’d get beaten back.” The officials had put forward this proposal and the new and inexperienced administration had said, “Yeah, we’ll go for that.” It did them some reputational damage. They proposed closing 22 schools, but then had to roll back very substantially because of the public outcry. The officials had expected to be told, “Actually, that’s not what we want to do. That’s not sensible. Let’s see the proper workings before we ever go public on this.” Perhaps the suggestion that this Budget measure was a consequence of our having a very inexperienced Government and Chancellor was right, therefore.
Roberta Blackman-Woods
Does my hon. Friend not agree that that view is much too kind to the Chancellor and the Government parties, as they clearly dreamt up these mad ideas themselves?
Sheila Gilmore
I will resist the temptation to take up my hon. Friend’s invitation to agree with that view, because we have to be tolerant, to a degree, of inexperience. There is currently a strong cult of youth and inexperience in our politics, but that might change, and it might at some point in the future be acknowledged that there is merit in looking to those who have had experience of life and living before entering politics, rather than to those who become as exalted as the Chancellor of the Exchequer before they have lived and experienced a great deal of ordinary life.
I shall spare Members having to listen to me list all the listed buildings in my constituency that are not churches. Those who want to know what those buildings are can read the relevant Committee report in Hansard. There is an important point, however. It has been assumed that because the Government made a concession—albeit not a full one, perhaps—to churches, the problem has been solved. There are other listed buildings that are not churches, however, which will now face the 20% rate with no financial assistance or concession made to them. These buildings are equally important. Churches are extremely important as historical monuments, even if some of them are no longer used as churches. In Edinburgh, there are examples of churches that have been converted to other uses, but there are other buildings that are at risk, too, and imaginative alterations might be made to some of them in order to put them into community use. This extra cost will put some such community projects at risk, however, and will put some buildings at risk, too. If those buildings cannot be put into community use, it is likely that they will deteriorate and end up having to be demolished on safety grounds.
Roberta Blackman-Woods
Does my hon. Friend agree that it is thoroughly irresponsible to bring in the increase on repairs on listed buildings without conducting a proper impact assessment, and that the Government should review this policy?
Sheila Gilmore
I agree. The Government have pointed out that VAT falls on repairs but it did not previously fall on alterations, and they say we should equalise the situation. That misses the point. Alterations often enable buildings to have a different use from their previous one. They are made to be able to function again for business, residential or community-use purposes. Such alterations are generally bigger projects than simply repairing the roof and ensuring that the rain does not come in. The costs involved can be great, and this 20% addition to the cost will therefore be very considerable and will put many such projects at risk. Many people have made that point, and do not feel the Government concession in respect of churches goes nearly far enough. We must bear that in mind. We will find out in the future whether these concerns were right.
In respect of VAT at least, this Budget has been shambolic. It is not good enough for people to say, “Well, because there has been a change, the whole process is now a good one.” It has not been a good one reputationally for the Government—and perhaps we, as Opposition Members, should be pleased about that. We cannot be pleased, however, when we see the effects that a declining economy has on so many of our constituents, who feel they are faced with a Government who truly are not caring.
Let us think about the arguments made in defence of some of these changes. On listed buildings, we have heard all sorts of arguments, such as, “The previous situation allowed rich people to build swimming pools.” There was no particular evidence of that, but the Chancellor obviously thought it was a good argument to put up because he liked the idea of presenting himself as being on the side of the small person rather than the rich—despite the overall effect of his Budget policies.
Roberta Blackman-Woods
Does my hon. Friend agree that if the Government were indeed concerned that alterations were going to be made to create swimming pools, the measure could simply have exempted such alterations?
Sheila Gilmore
That is indeed the case. Conducting research and finding good evidence before making and changing policy is of paramount importance. We have seen that in respect of many aspects of this Budget. We saw it in the debate yesterday in respect of the 50p tax rate. There were a lot of hypotheticals—a lot of “maybes” and “perhapses”—but there was not a lot of solid evidence.
This has been a poor piece of policy making. I congratulate the Government on turning, but if they had thought things through first, they would never have had to turn.
Nigel Mills
It is a pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore). We have heard each other speak quite a lot over the last eight weeks or so. It is also a pleasure to have a chance to talk on VAT measures.
I will start by addressing the Opposition’s new clause 12. If we are talking about ill-thought-through measures that should not have been brought forward, this is a prime example. It would cost £12 billion if it were in place for a year, not that the Opposition know how much it would cost or how they would pay for it. It is intriguing to ponder how they can tick off the Government for announcing a U-turn that costs a few million pounds a year and accuse us of not having a balanced Budget because of it, while they have a proposal for a £12 billion hole in the Budget that would do untold damage to the public finances, probably completely wreck our country’s reputation for trying to sort out its deficit and lead us into a situation none of us would even want to dream about.
Charlie Elphicke (Dover) (Con)
Does my hon. Friend agree that this £12 billion spending commitment is astonishing and irresponsible and proves how unfit Labour is for government?
Nigel Mills
My hon. Friend may be that cruel, but I probably would not go that far.
New clause 12 is not a highly principled statement that VAT should be 17.5% rather than 20%, as it would apparently be just a temporary reduction. Moreover, when Labour was in government, it had plans to raise VAT. These are the stances Labour has taken recently: before the election, it had a plan to raise VAT; later, when there was a proposal for a VAT rise, Labour abstained; and now it proposes a temporary cut, back down to 17.5%. The country can be forgiven for not knowing what on earth Labour’s view is. If Labour ever got back into power, would it reduce VAT from this 20% rate that it seems to so loathe?
This Labour new clause proposes a temporary cut that would apply from Royal Assent to the Bill until the UK economy returns to strong growth. No definition of “strong growth” has been provided. When I asked for one, we were not told that it was 2% or 3% a year. We did not get a sensible approach about it being when the economy is growing based on balanced growth and sustainable industries such as manufacturing, rather than on inflating a massive debt-filled boom. We were told that “strong growth” meant not being in a double-dip recession any more. We could end up in a bizarre situation whereby we reduce VAT on Royal Assent and then, when we get the last quarter’s financial data, which I am sure we all hope show the economy growing again, we have to reverse the temporary cut. It could be in place for only a matter of days, which would result in a huge administrative cost; the move would be utterly pointless. [Interruption.] I hear someone saying from a sedentary position that that is ridiculous, but that is what the new clause would mean. We are doing a serious thing here. We are legislating, not engaging in sixth-form school debate. If we were to pass this new clause tonight, it would be in the Finance Bill, it would become law and it would have to come into effect. This is not a little proposal that we can idly dismiss but an actual idea that the Opposition want us to legislate for. It is clearly nonsensical on all levels, and we need discuss it no further.
Diana Johnson
Does the hon. Gentleman feel that better decision making might come through consulting before putting a proposal to Parliament, and getting all the ducks lined up before coming before the House?
Nigel Mills
I agree with the hon. Lady, and I said yesterday that it would be better to consult before trying to legislate, but we did have a detailed consultation document that looked at this idea. I do not think that the legislation to implement this proposal was in the original draft of the Finance Bill, but it would have been brought forward by a statutory instrument later on; although it was announced as an idea, it was not in a legislative form at that point, so strictly speaking the Government have done what she calls for.
I wish to make one comment on the pasty tax, as an aside. It is clear that when making tax policy we have to avoid things that have a handy popular nickname. We have had big campaigns on the “pasty tax” and the “caravan tax”. It has been a bit harder to get the public behind a “sports drinks nutritional drink tax.” If it had been called a “Lucozade tax”, there might have been more publicity. The Government should be careful in making future tax policy to look out for what nicknames might be used. However, those who favour tax being understandable may feel that all taxes should have a simple nickname so that the public understand what they are for.
On the new “pasty tax” definitions, I am concerned that we might end up with some things that are unclear, such as the definitions of what is being “marketed” as “hot” and of what wrapping is allowed. We are told, “Don’t worry, it will be clear in HMRC guidance what is allowed.” However, we should be trying to legislate clearly: Parliament should be clear in what it says. I hope the Minister can put it on the record that bakeries on the high street that are trying to sell freshly baked products will not find those things subject to VAT unless they are kept hot or are wrapped in a heat-retaining bag, and that using ordinary, simple packaging or marketing those products as “freshly baked” will not be caught. That is absolutely the intention that Parliament has, and we should make it clear.
On sports drinks, I am concerned about going down the road of having a principle of deciding a tax treatment on the basis of how something is advertised or marketed, rather than on the fundamental underlying nature of the product. We can see that strange ways of how someone chooses to market something might change the tax treatment. I think I understand the aim of this proposal, which is to provide for high-sugar drinks sold as sports drinks when they are not much different from Coca-Cola or other fizzy products that we are trying to equalise the VAT treatment on. The wording in new schedule 1 leaves where the line is open to question.
We exchanged comments earlier about whether milk could strictly drift into being covered by the wording if it was marketed as something that aids physical performance and whether we risk a court, at some point, taking an utterly perverse and stupid view that milk is caught by the provision, given that we clearly do not intend it to be. We need to be careful what we mean. That line will be tested and people will ask, “What is a sports drink that is largely based on milk or some milk-derived product, and what is an ordinary pint of milk?” Where will we draw the line about what is VAT-able? A Mars drink is advertised with the slogan, “Unlike other sports drinks, this milk product actually tastes nice.” It is hard to understand why a Mars milk-flavoured drink is not going to attract VAT but a sports drink will. We need to be careful to avoid people not knowing what we actually mean.
If I market a whey-based product that is made up into a drink as a sports product, VAT will apply, but if I market it as a diet product or a nutritional supplement, perhaps for the elderly who are struggling to get enough calories in their diet, that will presumably not be VAT-able. All I have to do if I want to buy the thing to use it for sports purposes is choose the one marketed for an old person’s supplement, and although I would be able to use it in exactly the same way as the sports drink on the next shelf, I would be buying it for 20% less. I am not entirely sure that that is what we intend. Although I understand what is going on, we have to be careful if we start defining tax policy based on how something is sold and not on the underlying product.
With those few remarks, may I finally commend the Government on the position they have got these things into? It is vastly better than where we started, and I will certainly vote for new schedule 1.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. May I inform hon. Members that I want to bring the Minister in at twenty-past?
Julie Hilling
I took my car for a service last week at my local garage, which is a one-man band. He said, “For heaven’s sake, will you get rid of that lot? They are ruining my business.” When I asked him what he meant and what the Government were doing that was ruining his business, his reply was, “VAT—the 20% rate is destroying my business, and all the other small business owners I know think exactly the same.” Sadly, a reduction in VAT from 20% is not an option in this debate, but putting VAT on to so many other things just increases the problem for hard-pressed businesses and struggling people.
Bob Stewart
The hon. Lady tells us that she went to her garage and the man said, “Get rid of that lot”, but what would her lot do instead to give him much more business? That is what I would be delighted to hear, and I hope that she can give me an answer.
Julie Hilling
What Labour would have had is jobs and growth. We would not have been in a double-dip recession and we would not be in this stupid position of cutting too fast and too deep, which is ruining the British economy. Unfortunately, we are not in government.
It has been incredibly difficult to prepare this speech, because it is hard to work out, in this omnishambles of a Budget, what this disorganised Government have done a U-turn on. Perhaps I should not call them U-turns, because in many cases the Government have done them only partially; I am not sure whether these are L-turns or C-turns. I thought that they had done a full U-turn on the caravan tax, but I discovered this afternoon that they have not done a full U-turn at all, and the pasty tax is as clear as mud. I was having a discussion with colleagues before this debate as to what food is now VAT-able and what is not. It seems that a rotisserie chicken that will be cold when someone eats it is VAT-able, whereas a pasty that comes out of the oven will not be, unless it is put on a hot plate. But what happens if the oven is put on low so that the pasty is just kept warm? Will that pasty be VAT-able or not? The Minister needs to explain to me and the nation how this proposal is different from his first proposal, and how it is to be policed. Will taxmen regularly visit all the sandwich shops in the country to check on their ovens? That needs further explanation.
What about the mess of heritage tax? Again, we saw panic among Government Members and a little U-turn, perhaps to silence the bishops and return some money to places of worship for their alterations. However, £30 million will not go far, and the tax has been a huge blow to many communities.
Jim Shannon
Some 30,000 listed building consents were given last year, with some £120 million being spent on alterations. Does the hon. Lady feel that that £30 million will be adequate compensation ?
Julie Hilling
I thank the hon. Gentleman for that intervention. Clearly, I do not believe that £30 million is anywhere near the sum needed to compensate. Of course, the Government have also said that those people will get lottery and Government grants, but hang on a minute: is that not just taking with one hand and paying back with another? The change has been a huge blow to many communities that have been working for years and years to raise enough money to rescue old buildings and convert them for use by the whole community, only to now have to find another 20%.
The Government have tried to say that we should not worry too much about the heritage tax as it is really about charging millionaires who live in listed buildings and who get their indoor swimming pool tax-free, but there is no evidence for that. They conclude on the basis of a review of 105 applications that the majority of the work covered by the relief is
“not necessary for heritage purposes”,
but as nearly 30,000 listed building applications are made a year, that does not seem to me to be good evidence. From a sample of 12,049 applications, only 34 were for swimming pools. Perhaps we could deal with the problem in a slightly different way rather than imposing the heritage tax on all buildings. Indeed, 50% of those who live in listed buildings are in socio-economic groups C1, C2, D and E—supervisory, clerical, junior management, administrative, skilled workers, semi-skilled workers and unskilled workers. People in those groups are not usually millionaires.
That implementation of VAT will not raise a great deal of money in the scheme of things, but will be another blow to the construction industry and run the risk of more of our heritage buildings going to rack and ruin. Of course, once VAT is put on something it can never be returned to zero.
Skip taxes seem to have been introduced and then withdrawn. I think they probably have been withdrawn—who would know? The Government seem to be introducing a self-storage tax, however. Self-storage is often used by people in transition, such as those who are selling or buying houses or those whose homes are undergoing renovation. It is also used by people who have downgraded or moved to a different community and therefore have to live in much smaller accommodation. It is usually in a prime location so that customers can come and go as they choose, changing their winter wardrobe for their summer wardrobe or taking goods in or out of storage. Removals and storage providers have storage facilities as an ancillary part of the business and are therefore frequently in more remote places, as the location of the property does not need to attract customers. One reason for putting VAT on self-storage was to level the playing field for removal companies, even though they have different purposes. The effect will be that ordinary people will be hit again. Businesses that use self-storage to store documents and so on will be able to reclaim the VAT, but the ordinary person will not.
I think we still have a hairdressers tax. That will mean that self-employed hairdressers who rent a chair in a small salon will have no choice other than to register for VAT and decide whether to charge their customers VAT at 20% or to absorb the cost themselves. Of course, that will particularly hit females aged between 16 and 46—the very people whom the Government say they want to encourage to be entrepreneurs, start up their own businesses and pay into society.
The situation with sports nutrition is another unholy mess. If I have got this right—I hope that the Minister will correct me if I have not—sports drinks will become VAT-able, but sports nutrition products will not. If the Minister wants to intervene, I am happy for him to do so.
Julie Hilling
Does that mean that it will be exempt if a liquid product is made into a solid and people are just advised to drink water with it? What about weight-management products? More than 20% of the products in the sports nutrition category are for weight management. If they are slimming products, they are zero-rated, but they could also be considered to be sports nutrition products. We could have a bizarre situation in which men and women who exercise hard, follow a balanced diet and use sports nutrition products to help them get into shape would pay VAT, whereas those who skip meals, sit on the sofa and take magic slimming products would not.
It seems odd that we are making that tax change in Olympic year, when we are encouraging people to get fit, but it is typical of this Budget. It is a shambles that will create more anomalies than it will resolve. With all the U-turns—even though we welcome some of them—it is still totally confusing. Even after listening to the Minister this afternoon and spending many weeks on the Bill Committee, I am still not clear what the Budget says.
Secondly, the Budget rewards millionaires and punishes ordinary people. It punishes the squeezed middle and the battered base, which my hon. Friend the Member for Gateshead (Ian Mearns) frequently mentions. The VAT changes all hurt people who lead ordinary lives. They all hit hard-pressed businesses and do absolutely nothing for jobs and growth. The millionaires still get their tax cut, but they are not paying the tax that is due. If the rest of us decided not to pay our taxes, could we have a tax cut too? Or does that apply only to the very rich, who can also avoid their tax by paying accountants a great deal of money?
Charlie Elphicke
I want to speak briefly about new schedule 1. In my constituency is A and S Self Storage, run by Diana and George Pelly, which is a small family-run storage business. My concern is about how the new measure will work and I hope that Ministers will take on board some of my points.
The mischief that the new schedule seeks to attack is the business whereby big companies exercise the option to tax on a piece of land, build a storage facility and later disapply the option to tax, giving themselves a tax advantage. The Treasury have applied VAT on all self-storage and my concern is that some 250,000 people in the UK use self-storage and will find from September onwards that their bills will suddenly go up by 20%. I hope that the Government will consider this a little further and think whether there is a better way to deal with the real mischief, which is the abuse of the option to tax.
My other concern is that the revenue raised will disproportionately benefit larger businesses that can claim back costs under the capital goods scheme, rather than the smaller businesses, which cannot. Effectively, it will disproportionately benefit the four big players in the self-storage industry at the expense of smaller businesses such as A and S Self Storage. I hope that Ministers will consider that point.
The Exchequer impact is also in question. The Exchequer says that the measure will raise money, but the Self Storage Association’s brief states:
“In its calculations the Government has not taken into account the significant reclaim of VAT under the CGS rules, which Deloitte have calculated to be £43m based on the detailed results of their survey…According to Deloitte many operators, particularly the largest ones, could accelerate CGS recovery under existing VAT law.”
I want to plead for caution on the part of Ministers and ask them to consider carefully the question of tackling the underlying abuse, which is the business of disapplying the option to tax. I appreciate that many Members will find that exceptionally dull, as it involves highly technical VAT law, but my principal concern is that it is a hard thing to raise VAT across the board for 250,000 people when one really wants to target the few people who are playing the system to get more tax money for their businesses at the expense of everyone else and of the UK Treasury.
Mr Gauke
It is a great pleasure to respond to the debate. I thank my hon. Friends the Members for Truro and Falmouth (Sarah Newton), for Brigg and Goole (Andrew Percy), for St Austell and Newquay (Stephen Gilbert), for Amber Valley (Nigel Mills) and for Dover (Charlie Elphicke) for their remarks. In many cases it has been a pleasure to work closely with them on some of the Budget measures that we have discussed. I thank my hon. Friend the Member for St Austell and Newquay for his kind remarks. I am grateful for the courteous and constructive way in which he engaged with us, and I am grateful also to my hon. Friend the Member for Truro and Falmouth and, although he is not here, to my hon. Friend the Member for Camborne and Redruth (George Eustice), who were very involved in these matters. [Hon. Members: “He is here.”] I am delighted to see that he has joined us. Even if I did not know he was here, I would have said something nice about him. He can assess my sincerity on that basis.
My hon. Friend the Member for Dover made a point about the capital goods scheme. I think he was otherwise engaged earlier today, but I confirm to the House that we are making a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure and whose individual capital items are worth less than the £250,000 threshold for the scheme can opt in to the scheme and have the same input tax recovery benefits as larger providers with capital items that would already qualify for it. My hon. Friend can note that within two minutes of his making a request, the Government have acceded to it. I hope he is pleased with that.
I want to pick up on some of the points made and say a word or two about some of the new clauses. I think the point that the right hon. Member for Birkenhead (Mr Field) is addressing in new clause 3 is the funding of sixth-form colleges, as opposed to whether they are charged for VAT. Sixth-form and further education colleges are under the control of local authorities and have always been funded differently from schools or academy schools. I think he has in mind a refund scheme along the lines of that for academies.
Sixth-form colleges have never been able to receive VAT refunds against expenditure on their non-business activities, but the basic funding principle for sixth-form colleges is that their VAT costs are taken into account within their up-front funding allocation. Thus funding for sixth-form colleges includes cover for various costs, including VAT, on top of the direct costs of teaching. The right hon. Gentleman has put his argument on the record. Essentially, he argues for additional funding for sixth-form colleges. That must be assessed in light of the current fiscal situation.
New clause 10, which requires an assessment of the impact of the VAT borderline changes, is virtually identical to new clause 3, which was debated and defeated in the Committee of the whole House on 18 April, and to amendment 200, which was withdrawn in the Public Bill Committee on 21 June. Given that the amendment was debated and defeated the first time and withdrawn the second time, I suggest that the Opposition withdraw new clause 10 on this occasion.
On new clause 12, the Opposition have tabled an amendment to return the rate of VAT to 17.5% until
“such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.”
This would be very costly. I know that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) was keen not to provide a cost to the House, but the proposal would cost £12 billion to £13 billion. That would substantially erode our fiscal credibility, and if credibility is lost and interest rates rise, the impact on the fiscal position would be severe. We would expect this to have a negative effect on the UK economy. If the Opposition believe that the answer to our current problems is more borrowing, they should stand up and say so. If the solution that the economy needs is a bigger gap between what we raise in tax and what we spend, let me give the hon. Lady the opportunity to say that now.
Catherine McKinnell
Is the Minister aware that the overall borrowing that the Government are engaged in is £9 billion higher now than was planned in October 2010, so the Government’s own economic strategy is resulting in higher, not lower, borrowing?
Mr Gauke
I am not sure whether the hon. Lady welcomes that. Does she support more borrowing or not? The Institute for Fiscal Studies has made its position clear on what would happen if we pursued the policies that the Opposition advocate or have advocated—that moves around a bit. It stretches the Opposition’s credibility if they think that their approach means that borrowing now would be lower. I think the sincere position of the Opposition is that we should have a bigger fiscal stimulus—we should be borrowing more now in order to pump money into the economy. Is that their position?
Catherine McKinnell
The Opposition’s point is that the Government’s own plans are resulting in more borrowing. The alternative is to give a 2.5% VAT cut to households to stimulate demand in the economy and get the economy out of the double-dip recession that it is in and back into growth, which will ultimately bring borrowing down.
Mr Gauke
So when borrowing is higher than we plan it to be, it is a disaster, but when borrowing is higher because the Opposition would bring that about through a deliberate policy, that would be a fiscal stimulus. I am not entirely clear where they are trying to go with this. We know why the public finances are more difficult than we had anticipated. It is to do with the eurozone, the increase in commodity prices and the fact that the economy took a bigger hit than anyone had previously realised, but a discretionary fiscal loosening of £12 billion or £13 billion, which is what the Opposition are about to vote on, would be taking a huge risk with our credibility.
It is worth making the point that if we do that, we lose our fiscal credibility and we are likely to see long-term interest rates rise. That will result in our paying out more in debt interest. A one-point rise in interest rates would mean £7.5 billion in additional debt interest payments by 2016-17, and an increase for the average mortgage borrower of £1,000 per year. Is that what the Opposition want? Do they think that would help?
Sheila Gilmore
The Minister should accept that he has given a partial quotation from his own Office for Budget Responsibility. He is fond of saying that the recession has been deeper than previously thought. Yes, the OBR did say that, but it also said at exactly the same time that the climb out of that recession had been faster than had previously been thought. That was a result of the economic stimulus measures that the previous Government put in place.
Mr Gauke
The OBR was very clear about the reasons why the economy did not grow as quickly as it had predicted. That was not because of the measures that we had taken to clamp down on borrowing. It was because of the factors that it set out. Now, at a time when we see other countries without fiscal credibility facing enormous difficulties, the Opposition want a discretional fiscal loosening of £12 billion or £13 billion a year. That is not responsible opposition. That is not a responsible policy and it is not a policy that this Government will pursue. I urge the Opposition not to press new clause 10.
I note that the Opposition are also opposing the VAT measures in total. That would be an additional cost of £210 million. These are measures that will remove anomalies. We have listened to the concerns raised by hon. Members and others to improve what we initially set out.
Catherine McKinnell
Can the Minister clarify how much the U-turns that the Government are legislating for today will cost and whether the £210 million has been factored into them?
Mr Gauke
After the changes we have announced, the Budget remains fiscally neutral. The reality is that the £70 million we are talking about has to be compared with the policy of cutting VAT, which would cost between £12 billion and £13 billion, and the £210 million for refusing to go ahead with the VAT changes we have announced. I am afraid that that simply underlines the fact that, once again, the Labour party has no fiscal credibility, will not face up to the challenges in the public finances and remains unfit for office.
“Caravans | Group 12” |
Catherine McKinnell
I beg to move, That the clause be read a Second time.
In this new clause we call on the Government to consider repeating the bank bonus tax, which raised £3.5 billion in 2010-11, and to use the revenue to create 100,000 jobs for young people. It is an understatement that this has not been a good few weeks for the banks. First, there were the disgraceful mistakes at Royal Bank of Scotland that left thousands of people unable to access their own money for up to a week. I am sure that top bankers there managed to get by for a few days, but for people on low incomes it is no laughing matter to be left without a week’s wages.
Gavin Williamson
Does the hon. Lady think that those who set up the regulatory system that governed the banks, such as the shadow Chancellor, should come to the House to apologise?
Catherine McKinnell
Then came the shocking revelations at Barclays—[Hon. Members: “Oh!”]—of traders fiddling the markets, cheating with mortgage and lending rates.
The Financial Secretary to the Treasury (Mr Mark Hoban)
Will the hon. Lady not have the courtesy to answer my hon. Friend’s question?
Catherine McKinnell
I will answer the question, but it was rather an insult to the people who have suffered from the situation at RBS, which was caused by administrative failures and poor management. The question put by the hon. Member for South Staffordshire (Gavin Williamson) does not address the severity of the matters that I am laying before the House.
Then came the shocking revelations at Barclays: of traders fiddling the markets, cheating with mortgage and lending rates—
Catherine McKinnell
It would be more appropriate for the hon. Gentleman to make his intervention now, but I will complete my sentence. Those traders then paid each other for the favours with bottles of Bollinger.
Gavin Williamson
The point that I was trying to ask the hon. Lady to explore was that the regulatory system put in place under the last Labour Government has led to market failure and the recent LIBOR problems. Does she not think that the shadow Chancellor should come to the House to explain why he took no action when he was City Minister? Yes or no?
Catherine McKinnell
I was talking about the situation at RBS, which was caused by a total administrative meltdown and computer failure; it had nothing to do with regulation. On the subject of regulation, Conservative Members called for less regulation. Politicians on both sides of the House need to consider where we go from here.
Mark Lazarowicz
Whatever people say about the banks’ responsibility for things that happened in the past, there can be no doubt that what has happened at RBS in the past few days is the responsibility of people running the bank now and of those responsible for the financial sector now, who include the Government.
It is not just those on low incomes who suffer from the damage caused by the difficulties at RBS, which obviously is trying its best to resolve them. Businesses in my constituency have contacted me saying that if the problem is not resolved immediately, they face closure. The Government need to take that issue seriously, but clearly they are not.
Catherine McKinnell
I absolutely agree with those sentiments. When discussing the impact that the total administrative failure at RBS had had, particularly on those on low wages but also, as my hon. Friend has just said, on small businesses, I was shocked and taken aback at the political opportunism involved in jumping up and raising a question about regulation, which is entirely irrelevant to the matter that I was discussing.
Charlie Elphicke
The issue had an enormous impact on the amount of taxes paid in this country. Why were interest rates being rigged by the previous Government, according to the memo?
Madam Deputy Speaker (Dawn Primarolo)
Order. The subject before us is what we will be debating, Mr Elphicke; we do not need to be sidetracked at this stage. I call Catherine McKinnell.
Catherine McKinnell
I am sure that my hon. Friend will raise a much more relevant matter in his intervention.
Grahame M. Morris
I am grateful for my hon. Friend’s patience and tolerance in the face of such provocation. Does she agree that part of the problem that we are trying to address through new clause 13 is the culture of excessive bonuses? Opposition Members recognise that that is part of the problem and we are trying to address it with the bank bonus tax.
Catherine McKinnell
I thank my hon. Friend. I have not made much progress yet, but the point that I was trying to make is that a whole series of actions by the banks have let ordinary people and businesses down. It is time that the banks played their part in putting some of that right.
Bill Esterson (Sefton Central) (Lab)
I apologise if I am preventing my hon. Friend from making progress. She need take no lessons from Conservative Members about regulation. They wanted less regulation, not more, and the point that they are trying to make now is disgraceful.
The issue is fairness. People are crying out for a repeat of the bank bonus tax in these tough times. Those with the broadest shoulders should make the biggest contribution in dealing with our problems. Many problems, particularly those faced by young people, could be resolved by the new clause.
Catherine McKinnell
My hon. Friend sums up in a nutshell why I am speaking in favour of the new clause.
The shocking revelations from Barclays this week are nothing short of a scandal. Barclays—along with we do not know how many other banks now under investigation —broke the rules to make a profit and put global economic stability at risk. It played fast and loose with rates that affect people’s mortgages and credit cards and, it would appear, gave little thought to how people could be affected.
In another shocking scandal, we found out that thousands of small businesses had been sold expensive insurance products that they did not need and could not use, spending money, which could have been used to protect jobs, to pay for products that never should have been offered to them in the first place. How many businesses have lost out as a result? All those actions on the part of the banks were totally unacceptable. The banks have been taking without giving back. The Government can take action now to put the situation right.
Gavin Williamson
I thank the hon. Lady for being so generous in giving way. I agree that the Government should take action to address some of the issues that have been raised. She mentioned a number of scandals. Will she name, for the record, the years when they occurred and which Government were in power when they occurred?
Catherine McKinnell
Members of the public will find this distasteful. We all share concern about the situation with the banks and the terrible events that have come to light in the past week or so. Government Members should be taking the lead on putting the situation right, but all they are interested in is scoring party political points. They need to be careful if they are not to lose all the public’s trust in their ability to start putting things right.
The Government can take action today. Stephen Hester, chief executive of RBS, has rightly said that he will decline his bonus this year in recognition of the serious damage that his bank has caused. Bob Diamond, chief executive of Barclays, resigned this morning over the currently developing scandal. It is right that those in charge take responsibility.
However, the banking industry as a whole is still benefiting from a tax cut this year—a tax cut, when their incompetence has cost thousands of people days of frustration, inconvenience and hardship. They have a tax cut when champagne swaps and dodgy dealing have been used to fiddle internal lending rates and when small businesses have been ripped off in yet another mis-selling scandal.
Our bank bonus tax would set that right, making the banks pay their fair share in tax instead of letting them get away with it. We want the money to be used to create 100,000 jobs for young people who are at risk of becoming the next victims of this double-dip recession made in Downing street. Labour’s bank payroll tax raised £3.5 billion in 2010-11 but this Government replaced it in 2011-12 with a levy raising just £1.8 million—barely more than half. Those are the Office for Budget Responsibility’s own figures, set out on page 101 of its economic and fiscal outlook paper in March this year.
The autumn statement in November last year had forecast a higher first take, but that turned out to be over-optimistic. That could be the case with future forecasts. The levy is supposed to raise £2.8 billion in 2014-15, but we cannot be sure of getting that. The OBR has had to keep revising all forecasts down and down, apart from those for Government borrowing, which keep going up and up. It is clearly inadequate to introduce a levy on banks with only half the yield of the previous tax. Along with the richest 1% of the country who have benefited from the scrapping of the 50p tax rate, this is one of the only parts of the Budget where the Government have given handouts. What does that tell us about their priorities? It tells us that they are not on the side of working people hit by the banks’ recent malpractice, but on the side of banks and millionaires. That shows just how out of touch this Government are.
We want to take tough measures to make the banks pay their way, and bringing back the bonus tax on top of the new levy is the fairest way to do that. It is clear where that extra money needs to go. We would use our double bank tax to plug the gaping hole in jobs and growth left by the Chancellor’s omnishambles of a Budget, which contained not one mention of the word “jobs”.
Bob Stewart
The hon. Lady envisages producing 100,000 jobs. What sort of jobs would they be, and how would they contribute to the economy?
Catherine McKinnell
It is nice to receive a considered intervention from a Conservative Member. The 100,000 jobs would be created through support from the future jobs fund. They would be guaranteed jobs paid at the national minimum wage for six months to give young people a real chance of getting on to the employment ladder.
This is about not only providing those jobs but creating economic growth and putting money into people’s pockets to create those opportunities. That aspect was absent from the Chancellor’s Budget speech, which is all the more shocking because of the seriousness of the problem. At Christmas, the number of young unemployed people reached 1 million for the first time since comparable records began, and long-term youth unemployment is rocketing too. Across the UK, the number of people aged 24 and under who are claiming out-of-work benefits for more than six months has increased by 60% since May 2010, while the number claiming for more than 12 months has more than doubled by over 125%. In this double-dip recession, young people cannot find work because between five and 10 people are chasing every vacancy. Depending on which part of the country they are in, it could be, and often is, a lot worse. The jobs are simply not there for young people to go into.
Yet the Government recklessly cancelled the very programme that was designed to create youth jobs. We want to use money raised from banks to put that right. In opposition, the Government supported Labour’s future jobs fund, which got young people into real, paid jobs. The Prime Minister called it “a good scheme”, and the Conservatives said that they had
“no plans to change existing Future Jobs Fund commitments”.
I apologise to the hon. Member for Beckenham (Bob Stewart) for my response to his intervention; in fact, it is through the real jobs guarantee that we would look to invest in new job opportunities for 100,000 young people. The future jobs fund was the successful scheme that the Prime Minister heralded as “a good scheme” but it was scrapped as soon as this Government took power.
I see that no Liberal Democrats are here for this debate. That is a crying shame and a shocking indictment of their commitment to young people and to making sure that bankers pay their way. The Liberal Democrats also pledged their support to the future jobs fund but swiftly supported the Government in scrapping it as soon as they got into power. In April 2010, in a letter to the Association of Chief Executives of Voluntary Organisations, their then work and pensions spokesperson —now the Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb)—said:
“We have no plans to change or reduce existing government commitments to the Future Jobs Fund. We believe that more help is needed for young people, not less”.
The future jobs fund was scrapped just one month after that letter was sent.
Let us remind ourselves of what that scheme achieved. It offered every young person up to the age of 25 a job if they had been out of work for six months, with penalties for anyone who refused the opportunity. The jobs were real jobs, paid at the minimum wage, that lasted for six months—and that was guaranteed.
Alison McGovern (Wirral South) (Lab)
Has my hon. Friend read, as I have, the research from the DWP that tells of the impact on young people not only in terms of numbers but in terms of their confidence, dignity and self-worth?
Catherine McKinnell
I absolutely agree. It is not just about giving opportunities to young people where so few exist, but about this desperately concerning period in which we risk creating an entire lost generation, because young people are coming out of school, higher education and college and finding no opportunities at the other end. Once they fail to get on to the ladder of work and opportunities, the consequences can be long term and cause a lifetime of damage. The Government need to factor that in and grasp it now before it is too late to make sure that these opportunities are provided and that too many young people do not miss out. That is why it is so important that we use this opportunity to make sure that the bankers who caused much of the global economic and financial meltdown take responsibility for that and pay their way, giving young people real chances and opportunities.
Bill Esterson
My hon. Friend is making a powerful case for repeating the bank bonus tax. Does she agree that the Government should be considering the evidence from the 1980s about the effect that long spells of youth unemployment had on young people and how hard it was for many of them ever to find decent jobs and catch up? As a result of the Government’s delay and refusal to adopt this policy, they are in grave danger of repeating exactly the same mistakes, with all the misery that that will cause.
Catherine McKinnell
My hon. Friend makes a powerful intervention and reminds me particularly of my own region, the north-east, where too many people lost out on opportunities in the 1980s and never quite recovered from the experience. When I talk to young people today, I find that some of the brightest are coming out of school and choosing not to go to university or college but instead to try desperately to find whatever work opportunities might be available to them because, apart from the fact that they are put off by the tuition fees, they are so worried that if they did step on the ladder and go to university they would come out at the end to find there were still no opportunities. There is a deep sense of anxiety among young people that the Government need to be seriously aware of.
That is what is so concerning about the scrapping of the future jobs fund, which was not only providing real opportunities for young people and breaking the cycles of lack of opportunity, but helping businesses to open up and take on young people in particular. The Government replaced it with the work experience scheme, which they eventually rolled out last year and which offers only eight-week, unpaid placements. There is nothing to say that that is not valuable in itself, but it is simply not doing enough for enough young people. It is also available only for people under 21, so it does not cover unemployed people who have left further or higher education. Again, that compounds some of the anxieties that young people are expressing to me when they say that if they go on to college or university they will be no better offer at the end and they will instead be saddled with a lifetime of debt.
Mark Lazarowicz
It is worth remembering, is it not, that this younger age group, who will no longer be getting jobs under the future jobs fund, but only its successor, will also be one of the main targets of the Government’s cuts in welfare benefits?
Catherine McKinnell
Yes. I think that we all shuddered when we heard the proposals put forward by the Prime Minister which will mean that under 25-year-olds must either live at home or become homeless.
The youth contract, which was introduced only in April this year—too little, too late—offers very little extra, with no guarantee of a job, no guarantee of the minimum wage, but what the Government call “personalised support”, which we know from leaks could be little more than a weekly text message.
I am surprised that Government Members are not jumping up to proclaim the Government’s success with apprenticeships. Even with apprenticeships, it is difficult to believe the figures on the tin, particularly after McDonald’s recently revealed that it had spent £10 million of Government funding but had not created a single new job. The money was used to fund career progression for existing staff. That may be a worthy aim, but this is not the dawn of the apprenticeship revolution that the Government would have us believe.
Charlie Elphicke
Would the bank bonus tax proposed in the new clause be in addition to or replace the Government’s bank levy?
Catherine McKinnell
I am happy to confirm that it would be in addition to the levy. We raised £3.5 billion from the bank bonus tax in 2010-11 and would like the same amount to be raised again.
Catherine McKinnell
I am going by the OBR’s figures. I suggest that the Government do the same if they want to take advantage of this opportunity.
It is clear that we need action on jobs for young people. The bank bonus tax would bring in the money that is needed to create the real, paid jobs that will give under-25s the start that they need to get into the job market. That money could put £100,000 young people into jobs. Austerity on its own clearly cannot do that. The cuts are going too far and too fast, are choking off the recovery and are making it harder for people to get into work. We need an extra stimulus.
Rather than give the banks a tax cut this year, we want to make them pay their fair share of tax. We would use that money to give young people the start that the Government’s hotch-potch of schemes is failing to provide. That is what the new clause would achieve and I urge hon. Members to support it.
Charlie Elphicke
I am extremely grateful to have the opportunity to speak in this debate.
It is important to distinguish between the policies of the previous Government and those of the current Government. The bank bonus tax and the bank levy have a different ethos or philosophy. The original bonus tax—Members will correct me if I am wrong—was intended to be a one-off measure. In the March 2010 Budget, the Labour Government confirmed that the tax would not be extended, even though the gross yield proved to be higher than had been forecast.
Grahame M. Morris
Does the hon. Gentleman agree that part of the problem with the banking crisis is the excessive bonus culture? Perhaps shareholders and Governments should have dealt with that, but we will discuss that on Thursday. Is this proposal not an attempt to address that issue and to ensure that those with the broadest shoulders, who have done so well over the past 10 years with their huge bonus payments, make a contribution now that times are tough?
Charlie Elphicke
The hon. Gentleman makes an interesting point, but there are two problems with his argument. First, the tax would fall not on the greedy employees and bankers whom he wants to whip, but on the bank. Secondly, during his Government’s period of office—he will correct me if I am wrong—Fred Goodwin received some £15 million in bonuses, which he paid tax on at the old tax rate. The hon. Gentleman is therefore seeking to close the door after the horse has bolted.
Grahame M. Morris
The hon. Gentleman is being very generous and accommodating, as always. Does he know what the bonus figure has been for Bob Diamond over the past two years, while the hon. Gentleman’s Government have been in office?
Charlie Elphicke
For me, the issue is the size of the bonuses not in the private banks, but in the taxpayer-owned banks. That is the real concern that we ought to be focusing on. That is why the Government’s bank levy is the right way forward.
Charlie Elphicke
Let me develop my point and I will then take further interventions.
The Government’s bank levy is the right way forward because if we take too much money out of the banking system, we will be pulling out capital. If we pull out too much capital through taxation—or, indeed, through dividends—we will constrain the ability of the banks to lend. We have a crisis in which banks are not lending because they are hoarding capital. If we pull more capital out of the banking system, it will constrain the granting of mortgages and loans to small businesses. In my constituency, that is an important issue, because many small businesses are having great difficulty in getting the lending that they need.
Catherine McKinnell
I appreciate the argument that the hon. Gentleman is making, but is he not aware that long-term youth unemployment in his constituency has risen by 100% since this time last year? Does he not think that desperate action is required to bring that figure back down to zero?
Charlie Elphicke
I am all too aware that my constituency has had a difficult time and that youth unemployment has been rising. It rose significantly in the last Parliament under the previous Government, who completely mismanaged the economy. I welcome the fact that the jobseeker’s allowance count in my constituency has fallen in the latest figures. That is really positive. All of us are, of course, concerned about unemployment and want to see more jobs and money. That is why we need to get the banks lending again. That will help businesses to expand and to create the jobs, money and prosperity that we want to see.
Mark Lazarowicz
I am a little unclear about the logic of the hon. Gentleman’s position. He is against taking money out of the banks in the form of a bank bonus tax because it would affect the capital that they can lend to businesses. I think that is a fair assessment of his position. However, that criticism also applies to the bank levy that his Government are in favour of. How is it that he is in favour of a bank levy that takes capital out of banks, but against a bank bonus tax that is paid for by the people who get the bonuses?
Charlie Elphicke
My position is that the bank levy strikes the right balance. That is why I asked the shadow Minister whether her proposal would be in addition to, or an alternative to, the bank levy. That is significant. She is arguing, on the gross figures, for more than £3 billion more to be pulled out of the banking system. That would have an immediate effect on the capital that banks can lend to small businesses and hard-pressed home owners.
Bill Esterson
The hon. Gentleman says that his solution is to get the banks lending again. This Government have categorically failed at that. What we are coming forward with is a concrete set of proposals. He has acknowledged that youth unemployment in his constituency is a problem and that it has doubled since his Government came to power. Why will he not accept concrete proposals that would deal with the blight that faces many young people in his constituency?
Charlie Elphicke
The hon. Gentleman is simply suggesting that we give with one hand and take away with the other. He might think that he can throw lots of money at dealing with the problem of youth unemployment, but he would meanwhile be constraining businesses in getting the capital that they need to create new jobs and maintain their existing jobs. That is the central flaw in the Opposition’s argument. They want to take more money out of the banking system when capital and lending are already constrained.
The issue that we need to deal with is bonuses. The Government have taken action on bonuses in the taxpayer-owned banks. They have said that there will be no cash bonuses of more than £2,000 at the taxpayer-owned banks. It is right to have longer-term share incentivisation schemes, which align people’s interests with the success of the banks over the longer term.
Grahame M. Morris
The hon. Gentleman is developing an interesting argument. Does he agree that bonuses have been too high not just in the state-owned banks but in the privately owned banks, and that shareholders should do their duty and exercise some control over bonus pots? Bonuses have been paid in banks, such as Barclays, where performance has clearly not justified them.
Charlie Elphicke
Shareholders have been exercising control. Under this Government we have seen the shareholder spring and real action by institutional investors to restrain pay in the boardroom, which grew so much under the previous Government. Under the current Government, there has been action to ensure that shareholders have far greater power over remuneration reports and can push down the excessive rewards that have been given for not enough success.
It is right that an honest day’s work means an honest day’s pay and really good work deserves really good pay, but it is fundamentally wrong to say that the Government have not taken action. They have encouraged shareholders to do their bit as business owners to ensure that we do not have the excessive pay of yesteryear. A responsible Opposition would say, “We congratulate the Government on ensuring that excessive pay is stopped, and we take responsibility for the fact that when we were in government, we allowed a something-for-nothing culture in which everyone knew the price of everything and the value of nothing.” We need an understanding of the value of things once again. The Government have got it right by saying that there will not be excessive bonuses in the taxpayer-owned banks. Although the Project Merlin agreement was not perfect, it was a move in the right direction, as is the permanent bank levy that the Government have introduced, which raises £2.5 billion a year.
Bill Esterson
The hon. Gentleman keeps saying that the amount raised by Labour’s levy was lower than £3.5 billion, but the Office for Budget Responsibility has given only one figure. Can he confirm what it was?
Charlie Elphicke
The OBR has given so many different figures that I do not know exactly which one the hon. Gentleman is referring to. I will read him what Lord Sassoon said:
“The net yield raised by the bank payroll tax is estimated to be £2.3 billion, while gross receipts were £3.45 billion. An explanation of the methodology underlying the estimate of net yield can be found in”
a previous written answer. He continued:
“In line with guidance from the Office for National Statistics, the yield from the bank payroll tax was allocated to the 2010-11 tax year, as this is the point at which the tax was passed into legislation.”—[Official Report, House of Lords, 20 January 2011; Vol. 724, c. WA57.]
The current Government’s levy on banks therefore raised more than the previous Government’s levy.
The previous Government said that their levy was meant to be a one-off, but now Labour is in opposition it is saying, “Let’s make it permanent.” It also wants to make it additional to the permanent bank levy, and it is using the recent scandal, of which Barclays is the first bank to be found guilty publicly, as an excuse to do that. It should be more responsible in opposition than that.
Bill Esterson
As the hon. Gentleman will not admit to the figure that the OBR gave for Labour’s levy, I will tell him that it was £3.5 billon. The Government set up the OBR as an independent organisation to give such figures, so I am absolutely amazed that he will not rely on it. That is nearly double the amount raised by the current bank levy in its first year, and significantly more than is predicted for coming years. As we have heard from the shadow Minister, the predicted figure is falling because of the recession that has been created in Downing street.
Charlie Elphicke
I believe that the OBR’s figure was for gross receipts, which were not £3.5 billion but £3.45 billion. We need to examine the net yield raised, which was £2.3 billion. That is a lower figure than the £2.5 billion raised under the current Government’s system. I appreciate that the difference between net and gross can be confusing, because not all of us are accountants—I certainly am not. Nevertheless, more cash is coming through the door under the current Government’s arrangements.
The hon. Gentleman’s argument misses a central point, which is that the Opposition want their bank bonus levy to be an additional impost on the banks. My concern is that that would pull more capital out of the banking system. Right now, we need to lend to business and kick-start the economy.
Grahame M. Morris
The hon. Gentleman says that accountants know the cost of everything and the value of nothing, but how does he weigh the cost to the banks against the cost to this lost generation—the 100,000 people in Dover, Easington and the constituencies we represent—consigned to a life on the dole?
Charlie Elphicke
If we get lending going again, the economy growing again and decent private sector jobs creating more wealth as a nation, we will do better over the longer term. Having short-term measures to create jobs out of thin air—the 100,000 jobs that the Opposition talk about, for example, which would broadly be public sector-type and make-work-type jobs—is not the way to create a sustainable economy. We need to expand the private sector, expand business and expand jobs, so that they are sustainable over the longer term, not just for a year or two.
Catherine McKinnell
I appreciate the theory that the hon. Gentleman is putting before the House, but is he aware that the Welfare Reform Act 2012 is projected to cost £25 billion more than was predicted in 2010? So his theory is just not working.
Charlie Elphicke
The hon. Lady knows that the economic recovery is being held up by the chilling effect of the eurozone and because the previous Government made an even bigger mess of the economy than was previously thought. So of course it has taken us longer to recover. None of us wants our economic difficulties to continue; we want the economy to improve, but this can be done, in part, by getting banks lending again and ensuring they have the capital needed to do that safely.
Charlie Elphicke
I have taken enough interventions. I have been generous in giving way and in dealing in detail with the hon. Gentleman’s points in particular.
The Opposition are saying, it seems, that we should take more money out of the banking system, but that would be irresponsible because it would constrain banks’ ability to lend. The Opposition use Barclays as an excuse to blame everything on greedy traders manipulating the LIBOR interest rate. I would urge caution, however, because I have looked through some of the internal documents floating around, particularly the note of a conversation involving Paul Tucker of the Bank of England. If I may, Madam Deputy Speaker, I shall briefly read it to the House by way of scene setting and to demonstrate the Opposition’s mischievousness in seeking to impose this tax.
Madam Deputy Speaker (Dawn Primarolo)
Order. I am sure that the hon. Gentleman is about to make a fascinating point, but he will of course assure me that it is relevant to the new clause.
Charlie Elphicke
It is indeed, Madam Deputy Speaker, because a key part of the Opposition’s rationale for the new clause is that what happened at Barclays was so disgraceful that we need to punish the bankers. A large part of the shadow Minister’s argument is that these bankers are outrageous and we need to impose a tax. My point, however, is that we need to consider the wider picture. I am particularly concerned about the comments concerning what the previous Government did on regulation as well as tax. It says here:
“Mr Tucker stated the levels of calls he was receiving from Whitehall were senior and that, while he was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”
It seems it was not only greedy bankers manipulating the interest rates and putting pressure on the LIBOR interest recording; it seems more clearly to have gone to the heart of government and to have been sanctioned by Downing street, according to some comments on the internet. When we talk about how to tax the banks, we need to consider how to get more lending and ensure responsible banking with incentives for the long term. We also need to ensure that members of the previous Government accept their responsibility for the Barclays scandal, the LIBOR situation and their own behaviour.
Catherine McKinnell
The information that the hon. Gentleman is laying out is very interesting, but I would like to make it clear that the Labour party has been calling for an additional levy on banks’ payrolls this year for months, if not a year—I do not have the exact date. The scandal that has unfolded this week has highlighted the contribution that the banks made to the financial collapse and the collapse of the banks, which led to the economic recession that we have suffered. For that reason—
Madam Deputy Speaker
No, not okay. All interventions are supposed to be brief, and that includes Front-Bench interventions. I think we have got the gist of it now.
Charlie Elphicke
What I have set out also highlights the previous Government’s role in failing to regulate and, it seems, in indulging in a bit of market manipulation pressure of their own. I do not think that is acceptable. In her scene setting, the shadow Minister was basically saying, “What happened at Barclays is outrageous; therefore we need to do this.” What I am saying is that we should be careful what we wish for, because banks need enough capital to lend to small businesses, to create the jobs and money that we need to expand the economy and make this country a great success in the next 10 years, building Britain back up to the sort of success that we saw in the ’80s.
Ian Lavery (Wansbeck) (Lab)
New clause 13 is extremely important and deals with the bank bonus tax for youth jobs. It is an admirable new clause.
It is indisputable that the financial services industry is an essential part of our economy, but equally, there must be an acceptance that the industry—the banks and the financial institutions—needs to pay its way. The June 2010 Budget announced that a levy based on banks’ balance sheets would be introduced from 1 January 2011. Labour supports the bank levy, but we want to go further. We want to repeat the bankers’ bonus tax, which brought in an estimated £3.5 billion. We can argue about net and gross, as the hon. Member for Dover (Charlie Elphicke) explained; however, as far as we on this side of the House are concerned, the bankers’ bonus tax brought in £3.5 billion. Despite slight increases in the rate of the levy, the Government’s failure to repeat Labour’s bank bonus tax—and, in the meantime, create more than 100,000 jobs for young people—means that the banks simply received tax cuts last year and will do so in future years. It is wholly unacceptable, when we have a double-dip recession, for us to allow banks off with fortunes and tax cuts year on year.
In the last financial year, the amount raised by the bank levy was just over half the amount raised by Labour’s bank bonus tax—£1.8 billion, compared with £3.5 billion. The Chancellor’s spending review plans have simply failed. The Government’s austerity measures have led to the flatlining of growth in the economy, resulting in long-term youth unemployment spiralling to record levels. In the last year it has gone up by 112%, while the number of young people out of work for over a year has gone up even more, by around 156%. That is the result of the Government scrapping the future jobs fund, immediately after they came to power, without putting a viable alternative in place. They had no idea what would replace the fund or how on earth they would be able to create any employment, for young people in particular. The Work programme started only a year later, in June 2011, and we all know now, from people coming to our surgeries, about the difficulties that the workfare and other programmes have created.
That is why we are calling for Labour’s youth jobs guarantee, which would redress the Government’s scrapping of the future jobs fund. On a cautious estimate, we believe that the bank bonus tax could raise at least £2 billion this year, which the Government could use to build thousands of affordable homes and introduce the real jobs guarantee for young people who are long-term unemployed.
As part of Labour’s five-point plan for jobs and growth, the real jobs guarantee would cost £600 million, and would provide a six-month job for every 18 to 24-year-old who had been on jobseeker’s allowance for 12 months or more. We estimate that it could assist up to 110,000 people in that category. The Government would pay full wages directly to the business, which would cover 25 hours of work per week at the minimum wage. That would equate to about £4,000 per job. In return, the employer would be expected to cover the young person’s training and development for a minimum of 10 hours a week. The ultimate objective would be the opportunity of a permanent job at the end of the six months. New clause 13 would tackle the issue of youth unemployment, and make the banks pay their way.
Graeme Morrice (Livingston) (Lab)
It is a great pleasure to follow my hon. Friend the Member for Wansbeck (Ian Lavery), although I noticed that my hon. Friend the Member for Easington (Grahame M. Morris) also rose when you called me, Madam Deputy Speaker.
Madam Deputy Speaker (Dawn Primarolo)
Order. I hope this does not mean that I will get a speech in stereo; I hope his hon. Friend will wait until I call him before he speaks.
Graeme Morrice
A good point, Madam Deputy Speaker. I suspect that my hon. Friend might repeat some of my points, as we Labour Members have robust arguments in support of the bank bonus tax in new clause 13, to which I am delighted to lend my support this evening.
Given the dramatic events at Barclays over the past few days, it is particularly apposite to be discussing the contribution of the banks to the well-being of our economy and how to deal with the excessive bonus culture in the financial services sector. Our position on this issue has been clear and consistent: bonuses should be exceptional payments paid for exceptional performance. Far too many highly paid bankers, however, continue to be paid astronomical bonuses, often seemingly with little or no connection to meeting their performance targets. While such excessive and unjustifiable bonuses remain, the case for a tax on bank bonuses is strong and undoubtedly popular with the public. The LIBOR scandal at Barclays will cause the banks’ reputation to plummet to a new low. Few would have believed that the public’s opinion of them could get any worse, but they manage to keep coming up with inventive new ways of further undermining the trust of their customers and the wider population.
Bill Esterson
My hon. Friend has made an important point about the popularity of a tax on bank bonuses with the public, but the tax should not just be popular; it should also work. Nothing that Government have done has remotely worked, and those failures—including their failure in regard to bank lending—are the real reason why this is the right thing to do.
Graeme Morrice
I agree, and I shall deal with that aspect of bank lending in due course. It is vital for people’s trust in British banks to be restored as quickly as possible.
Mark Lazarowicz
Is not one of the tragedies the fact that the hundreds of thousands of people who work in the financial services sector—many thousands of them in my constituency and that of my hon. Friend—are being let down by those who are receiving the big bonuses? I was shocked and horrified by what is being done in their name, because they are often the victims of the criticism and the policies in the banks which have led to today’s debate.
Graeme Morrice
I agree. Many of my constituents who work in the banking and financial services sector contact me regularly to express concern about what their employers are doing.
Bob Stewart
The problem with the banks seems to be that they will not lend because they are frightened, and they are frightened because they must have money themselves. Perhaps we should think about the connection between bonuses and the way in which banks lend to small businesses, and perhaps a decent bonus could then be given to a bank that is run by someone who helps the economy by lending.
Graeme Morrice
That is a valid point, with which I shall deal shortly.
The strength of the balance sheets and the corporate reputation of our banks are crucial building blocks enabling us to restore confidence in the economy and return to growth. However, I am afraid that the Prime Minister’s limited parliamentary inquiry into what happened at Barclays will not command the confidence of the public, or be regarded as an adequate response to the catalogue of failings and scandals that have befallen our banks in recent years.
The full public inquiry into banking standards that has been called for by my right hon. Friend the Leader of the Opposition would be the most effective way of demonstrating to the public that both politicians and those in the industry are serious about ending unacceptable practices and taking steps to restore faith in our banking system. A repeat of the bank bonus tax would help to reassure the public that bankers are making amends for their part in our current economic woes by helping young people to return to work and enabling new homes to be built.
I know that many Government Members believe that the bankers have been let off lightly in regard to bonuses and paying their fair share towards recovery. Senior Government figures have talked tough on bank bonuses, but have stopped short of taking meaningful action. Indeed, rather than ensuring that bankers made a bigger contribution, the Chancellor gave them a massive tax cut in the Budget, as a result of which the richest bankers will pay millions less in tax from next April. As Deborah Hargreaves, chair of the High Pay Commission, said when the new 45p rate was announced:
“This tax cut for bankers will be galling for the millions of pensioners who will see their bills go up because of this Budget.”
As well as the reduction in the personal tax paid by bankers, the Chancellor’s cuts in corporation tax mean the banks received a tax cut last year and will do so again in future years. Despite the Chancellor’s slight increase in the rate of the bank levy in January this year and 2013, the Government’s failure to repeat the bank bonus tax leaves the banks considerably better off, while our constituents face cuts in tax credits, higher living costs and a squeeze on millions of pensions.
At the same time, small businesses across the UK continue to struggle to access the lending they desperately need to grow and create jobs, with lending to SMEs having fallen by more than £9.5 billion last year.
Charlie Elphicke
Why then make it harder for banks to lend by taking more money out of them through the Opposition’s proposal?
Graeme Morrice
That may be the hon. Gentleman’s opinion, but I reiterate the point that, because of the Government’s policies of the past two years, the official figures show that banks lent £9.5 billion less to SMEs last year than in the previous year, so there is a problem now.
Bill Esterson
My hon. Friend is right about the poor state of bank lending, but the reality is that the banks are not lending because they have no confidence; they have no confidence in this Government because they have pushed us back into a double-dip recession. That is the reality, and that is why action is needed. That is why this Labour proposal is the right way forward to kick-start the economy and start to solve the problem of youth unemployment.
Graeme Morrice
I agree. I am sure that many Members have been contacted by SMEs based in their constituencies who are desperate because they cannot attract as much lending from the banks and other financial institutions as they enjoyed a number of years ago. While many are critical of the lending banks, they are also critical of Government policy. Members on the Government Benches may not agree with that, but it is the reality, and that is why people are approaching us with these complaints and concerns.
The continued failure on lending is making a mockery of the Chancellor’s promise to link the pay of the chief executives of each bank with performance against SME lending targets, but there is now another chance for Members on the Government Benches to demonstrate to their constituents that they are genuine about making bankers pay their fair share. Labour’s bank bonus tax raised about £3.5 billion, as confirmed by the independent Office for Budget Responsibility. As my hon. Friend the Member for Wansbeck (Ian Lavery) said, even on a cautious estimate, we believe that this year alone it could raise at least £2 billion, over and above what is already in place. The Government could use those funds to introduce the real jobs guarantee for young people who are long-term unemployed, potentially helping 100,000 into work. It could also be used to build thousands of much-needed new affordable homes.
In conclusion, by supporting the new clause hon. Members can show that we are serious about holding bankers to account and ensuring that they pay their fair share, while also raising additional funds to address the people’s priorities—youth jobs and affordable homes—and make a real contribution to turning around our ailing economy.
Rushanara Ali (Bethnal Green and Bow) (Lab)
I support the new clause because today more than 1 million of our young people—one in five of them—have no job. That is not because they are not trying to find work and it is not because they are not working hard to get experience and skills; it is because in this flagging economy—in this double-dip recession created by this Government’s failed economic policies—the jobs just are not there. Yet, at the same time, we see the banks paying out huge bonuses to some of those responsible for the economic mess we are in. Britain is now bottom of the pile for social mobility, and that is due to this Government’s failures. The top 1% of our society now control a greater share of the national income than at any time since the 1930s. Despite these crippling inequalities, this Government’s priority has been to give tax breaks to millionaires while building their austerity programme on the backs of some of the poorest in this country.
The current labour market is a bleak place. The hardest hit by unemployment remain women and older people, who face discrimination in the labour market, and of course young people. Long-term unemployment is at its highest since 1996. As my hon. Friends have already said, youth unemployment has increased by more than 100% in the past year. That is a travesty, because it means that we have failed to help young people live up to their ambitions and find the jobs they want—or, indeed, find any jobs at all. It also means that a great wealth of talent and productivity is being lost. That is a travesty, too, and one this Government should be ashamed of. According to a recent Association of Chief Executives of Voluntary Organisations report, that will cost the Treasury £4.8 billion this year and it will cost the economy £10.7 billion in lost output. I support the new clause because the Government’s plans are driving a wedge through our society, leaving too many people behind.
Social mobility in this country has ground to a halt, and as I represent one of the most deprived areas of London, I see that all too clearly; it has always been hard, but now we are moving backwards. Every week, I meet young people in my constituency who are losing out. My area has one of the highest rates of youth unemployment, at more than 8%. The loss of the education maintenance allowance is making it harder for these young people to stay on in school. The lack of jobs makes it seem like the rising cost of university or education is just not worth it. Georgia Rowe, a student at one of the colleges in Tower Hamlets, recently said to me:
“I thought about university but it doesn’t guarantee a better job. You might as well not be in debt.”
This is the generation of young people who are being left behind.
That is why Labour has proposed the real jobs guarantee to help give our young people a chance, as we know the scarring effects that long periods of unemployment can have. People need work experience, training and to learn the skills that make them more employable in today’s difficult labour market. I know what a massive difference it can make to a young person’s chances if they get a little experience. Programmes such as Job Ready, which is hosted by Futureversity in my constituency, and Skillsmatch, and those of the Adab Trust and City Gateway, along with access to a job, can help people overcome the psychological barriers to economic opportunity, and build ambition and confidence. They connect business and young people, opening up new opportunities and partnerships, but those programmes are all struggling without adequate support.
The Work Foundation has rightly called the Government’s approach to youth unemployment “piecemeal” and “fragmented”. The Government’s headline plan to get young people back into work through the Work programme and youth contract is failing. They have managed to get only about a third of those on the programme into jobs, and in this age of austerity that is not good enough. Recent figures in my constituency showed that at least 15 people were chasing every job vacancy. The Government should be looking for real ways to help solve these problems and not continuing to kill off jobs and growth prospects through their draconian austerity measures.
Young people in my constituency can see the opportunities a short distance away in Canary Wharf and the City of London. They want to know how to get jobs there. They see bankers in the city getting tens of thousands of pounds in bonuses while unemployment soars. This is what happens when social mobility grinds to a halt. Those kids in my constituency, who are as talented and aspirational as any others, simply do not have the same opportunities, so it does not seem like such a bad idea to ask those who have so much to pay a little more.
When I consider the behaviour of the banks and some of their employees, I do not always see shining examples of socially responsible companies. The finance sector is a vital part of our economy and many companies and their staff behave responsibly, but too many of the highest paid behave the worst, as we have seen with the Barclays bank scandal. Such behaviour is at best reprehensible and at worst criminal and requires inquiries and investigations as soon as possible, yet those people are some of the highest paid in the country. Bob Diamond earned 600 times more than the average income in my constituency, so a tax on the excessive bonuses received by people such as him is only too fair. But instead the Government are reducing the tax paid by banks, with the bank levy raising just over half as much in 2011-12 as Labour’s bank bonus tax would have raised this year.
Mark Lazarowicz
I was interested to hear my hon. Friend say that Bob Diamond’s bonus and salary were 600 times the average wage in her constituency and want to highlight that point. Most of us understand that top bankers will probably be paid a lot more than most people in the country under any system, but such a discrepancy is obscene. That is what people find so disgusting and what they want to see tackled.
Rushanara Ali
I thank my hon. Friend for his intervention and hope that the Government are listening. They must understand how serious the matter is and the deep resentment and anger that are felt in constituencies such as mine. The borough that contains my constituency is also the borough in which Canary Wharf is based and the injustice of some of the behaviour and the worst abuses in the banking sector must be addressed. The Government must take responsibility.
Bob Stewart
It is very decent of the hon. Lady to give way. When she refers to figures that are 600 times a normal wage or to huge bonuses, at least there is compensation. If those sums are declared, quite a lot—perhaps 40%—will come back to HMRC, which we could then redistribute. It is better that way than if it is hidden offshore.
Rushanara Ali
The hon. Gentleman should perhaps look at the tax records of Barclays bank, as he will find that it has not paid the taxation that it should have paid. His Government should do more to ensure that the taxes that should be paid are paid. I also think that his Government has a poverty of ambition in not accepting our amendment to make a massive difference to unemployment in constituencies such as mine. I urge the Government to think hard about the impact on the 1 million young people—a sizable number of whom are in my constituency—and consider what could be done to address the problem rather than trying to defend bankers’ bonuses.
Mel Stride (Central Devon) (Con)
The hon. Lady is being very generous in giving way. The notion of very high bankers’ bonuses is nothing new, of course, as it has been going on for an awfully long time. Her party was in office for 13 years. Could she explain exactly what it did about that?
Rushanara Ali
After the financial crisis, as part of the deal, my party introduced the bankers’ bonus tax and we raised £3.5 billion that went towards the attempt to get people back into work that was so successful in constituencies such as mine. I urge the hon. Gentleman’s party to consider what works, and that did work. Instead of being partisan and ideological, his party should look at what works and enforce it. The people of this country will not forgive his Government for not acting, for creating a double-dip recession and for leaving so many people out of work. It is a disgrace and he should apologise, with his party, for presiding over two years of being in government in which they have caused a double-dip recession and much more unemployment. That is what his party should be focused on and addressing, not trying to score party political points. You are in government. Do something.
Madam Deputy Speaker (Dawn Primarolo)
Order. Has the hon. Lady given way or has she concluded?
Madam Deputy Speaker
Good. May I remind everybody that I am not in government?
Mel Stride
It is a great shame that you are not, Madam Deputy Speaker.
Will the hon. Member for Bethnal Green and Bow (Rushanara Ali), by the same token, apologise for the doubling of unemployment under the previous Government?
Rushanara Ali
When my party was in government, we cut unemployment. We got a million young people into work. After the financial crisis, when unemployment started to increase, we did something about it. I urge the hon. Gentleman’s Government to do something about unemployment, instead of looking backwards. Do something about the unemployment rate which is causing so much damage to our country, instead of doing what his party did when it was in power in the 1980s, which was to go around telling people that unemployment was a price worth paying.
The hon. Gentleman’s party is demonstrating that the nasty party is back with a vengeance. That is devastating for people in constituencies such as mine. They do not want to see the nastiness of the party. They want jobs. I suggest that his party focuses on creating jobs and growth. That is what people want.
Rushanara Ali
I should like to conclude my speech. I have given way enough, but if the hon. Gentleman wants to hear more about the issues affecting our country and my constituents—[Interruption.] I give way.
Gordon Birtwistle
I am very grateful to the hon. Lady. Would she concur with the noble Lord Mandelson when he said that the Labour party was intensely relaxed about people being filthy rich?
Rushanara Ali
The noble Lord Mandelson said that those people should pay taxes, and when my party was in power we brought unemployment down. That is what I urge the hon. Gentleman’s party to act on. I urge the Government, instead of defending bankers’ bonuses, to think about the 3 million people who are out of work. That is the responsibility of his party and his Government. He should talk to them about solving the current problems, instead of looking backwards.
Mark Durkan (Foyle) (SDLP)
When we are talking about banksters—to use a term that was coined as far back as 1932 by an Irish-American radio priest—we are talking not just about people who are filthy rich, but about people who are filthy rich by foul means. They have engaged in rackets, they get paid in packets. Why do they deserve a cut in their taxes?
Rushanara Ali
They do not deserve a cut in taxes. I hope the Government will take serious action, otherwise the public, who already feel this way, will rightly believe that this Government are not for them but for the vested interests and the millionaires who make so much money and are not willing to pay their dues or to make the appropriate contribution. I am sure the Government do not want to be on the side of people who are milking the system and making so much money and not making the appropriate contribution.
I call on the Government to pay attention, to listen not just to my party, but to the millions of young people who want a job and an opportunity to make a contribution to this country. We have a plan that could help get them get into real work and would reward those who work hard—a plan that is costed and paid for by asking some of the wealthiest in our society to contribute just a little more. With the economy back in a double-dip recession and economic confidence so low that investment growth has virtually ground to a halt, job opportunities for these young people desperate to find work will not appear without help. I hope the Government will see sense and give young people in Britain the much-needed support that they deserve, by supporting the new clause.
Alison McGovern
I would like to begin my remarks on new clause 13 by agreeing with much of what has been said today by Opposition colleagues. I want briefly to take the House back a couple of years to 2010, when I was lucky enough to secure an Adjournment debate on young people and unemployment, the first such debate I led in the House. For me, it could not have been on a more important subject than the position of young people in the labour market in my constituency. I do not wish to put myself forward as some kind of Cassandra or some awful foreseer of what has come about, but I warned the Minister then that the swift withdrawal of some of the more successful things the Labour Government had been doing to tackle young people’s unemployment would lead to more young people being on the dole. Sadly, that is what has happened. In fact, two years later the ONS tells us that an extra 65,000 16 to 24-year-olds are now without work. That is not just a waste of talent and funds, but a moral shame.
I want to say a few words on that subject and why new clause 13 is so important to young people facing that difficult situation. The Government have had two years to tackle the problem, yet all of us here have to admit that the problem is getting worse, not better, and that action is needed more today than it was in 2010. The Government would not listen then; I beg them to listen now.
Bill Esterson
My hon. Friend has a proud record, before and since reaching this place, of advocating for young people and employment. She is quite right to draw attention to the Government’s record. We should remember that we saw the same thing happen in the ’90s. The Government are going back to exactly the same failed policies of the ’90s. The difference between Government and Opposition Members is that when we were in government we looked after unemployment. We kept unemployment, repossessions and business failures low. Under this lot they have gone up and we are seeing the problems for young people, which is why we need the action we are debating right now.
Alison McGovern
I thank my hon. Friend and neighbour in Merseyside for his intervention. He is quite right. The return to things such as the youth training scheme has been one of the most unfortunate aspects of the Government’s work in this area.
Mel Stride
The hon. Lady makes the important point that youth unemployment is deeply regrettable and has been rising recently, but she skips over the fact that youth unemployment has been rising since 2004, so most of the period of that rise actually occurred on her watch when the kinds of policies she is advocating were clearly not working.
Alison McGovern
The hon. Gentleman needs to be careful about apportioning blame, because although we have seen an extreme rise in youth unemployment over the past couple of years because of the recession—I will move on to the problem of demand in the economy later—under the Labour Government there was successful action to prevent levels of youth unemployment from rising to those we saw in the ’90s. If he wishes to, we can talk at length in the Chamber on another occasion about some of the structural reasons for young people’s unemployment, such as how skills are transferred in different ways, how small businesses recruit differently, which hits younger people more than it does those with experience in the economy, and why those patterns were starting to emerge from 2005. However, in new clause 13 we are trying to establish the urgency of getting money from a particular source and prioritising the needs of young people in my constituency and in his.
The Association of Chief Executives of Voluntary Organisations has done an important piece of work to calculate the cost to the Exchequer of young people being out of work, and, although I hope that Treasury Ministers will have already heard the figures that my hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) cited, I want to alight on this one. If youth unemployment continues at current rates, by 2022 the cost to the Exchequer and to the economy in lost output is estimated to be £28 billion—on top of the human and social costs. That is a huge figure, and we as a country cannot afford to see this crisis continue.
I shall take a few moments, however, to consider not only the financial cost, huge and important though that is, but the impact of the crisis on individuals, on their pride and on their self-worth. I mentioned earlier the Government’s own research, carried out by the Department for Work and Pensions, into the future jobs fund, and if Ministers have not read it they would do well to do so. The research, first, considered the impact on young people who took part in the future jobs fund programme, and it is a shame that the hon. Member for Dover (Charlie Elphicke) has left his place, because I wanted to ask him—I tried to intervene on him to do so—whether he had met, spoken to or asked the opinion of any young person who took part in the future jobs fund.
Just in case hon. Members have not had the opportunity to read the research, however, I shall quote a young person and how they were feeling prior to the introduction of the future jobs fund. They said that they were
“feeling a bit low. I was about four and half, five months, unemployed and I thought ‘oh no, this isn’t good’. Most employers I spoke to, it was like if you’ve been unemployed for more than 2 months, it really puts people off. I knew how to do a job; it’s just the fact that I’d been unemployed for nearly 5 months. Almost half a year, which was quite embarrassing really. I know there was nothing out there, but it was still kind of embarrassing.”
Despite this person realising that aggregate demand and low job vacancy numbers had caused their problem, they blamed themselves, so I ask hon. Members to consider the impact of low self-esteem and poor mental health on the extra 65,000 young people who have become unemployed since 2010.
The research, secondly, asked young people how they felt about their work once they had taken part in a future jobs fund employment placement, and to me the following quotation says it all. On the question of what the most important gain was, one person said:
“Trust in my determination. Self belief, the belief from my employer that I am able to succeed”.
What more important thing could anybody have for success in life than self-belief? When people are left to languish on the dole, such self-esteem is undermined every single day.
Mr James Gray (North Wiltshire) (Con)
I strongly admire the sincerity of the hon. Lady’s compassion for those people, but I am not sure that reading out two or three vox pops necessarily adds to the intellectual coherence and probity of the argument. She admitted a moment ago that youth unemployment was dangerously high during the Labour years. It remains very high, and we are very worried about that, but what does she actually propose we should do about it?
Alison McGovern
I am not sure I know where to start. I am reading out the testimony of young people who have been unemployed. That is not some kind of media vox pop; it is an example of real people who have been affected by the phenomena that we have been talking about, and we should listen to them. If the hon. Gentleman does not want to listen to what I have to say, let him listen to young people in my constituency and in his own, and to how they feel about being thrown on the scrapheap.
I shall briefly discuss bankers’ bonuses, and why the measure before us is an entirely appropriate one to take in order to fund for young people employment that will stand them in good stead for the rest of their careers. Profit-making banks have had a reduction in corporation tax, but I shall not go over the reasons why the tax in question is an appropriate one to levy on their payroll. We have to face the fact that in the City of London we have seen behaviour that cannot be tolerated. For the sake of the future of our young people, what is needed now is some sort of restorative justice to rebalance people’s ability to make a good life for themselves. Young people in this country are facing a more difficult labour market than they have for many years. I beg the Government to listen and take some action now.
Grahame M. Morris
Thank you for the differentiation, Madam Deputy Speaker. It is a pleasure to be in such august company as that of my hon. and good Friend the Member for Livingston (Graeme Morrice)—
Madam Deputy Speaker
Perhaps the hon. Gentlemen are trying to confuse me, because now they are sitting next to each other—but only one has the Floor.
Grahame M. Morris
I am grateful to you, Madam Deputy Speaker, for the opportunity to speak in this debate and to follow my hon. Friends the Members for Wansbeck (Ian Lavery) and for Livingston, and indeed the hon. Member for Dover (Charlie Elphicke), who served on the Public Bill Committee. He is not in his place at the moment, but I found his contribution interesting, as always.
I support new clause 13, tabled by the Opposition Front-Bench team, which would introduce a bankers bonus tax to fund a job guarantee for every young person who has been out of work for more than 12 months. History will judge this Budget as chaotic. It has been a Budget of U-turns—on pasties, on caravans, on skips and on charities. It should be remembered as a Budget for “millionaires row”—admittedly, that is a little sparse at the moment—but I hope it will not be remembered as the Budget that let the greedy bankers off the hook. Tonight, I want to put on the record the impact on the north-east.
The north-east requires an alternative vision for economic confidence, growth and jobs. The proposals in new clause 13 of a guaranteed paid job for people who have been out of work for 12 months, as suggested by the Institute of Public Policy Research North, would boost the process of regeneration that is so badly needed in my region. According to economists at IPPR North, coalition spending cuts have worsened the impact on our region’s economy and added to unemployment—especially youth unemployment—in the north-east. Well over 32,000 public sector jobs have been cut. I remind the House that unemployment in my region stands at 11.3%; 145,000 people are out of work. The private sector-led recovery that was promised has clearly not materialised in my region, at least, and a recent report from Northern TUC shows declining employment in the private sector.
In the Public Bill Committee, I gave some examples of the private sector haemorrhaging jobs in my constituency, and I do not propose to repeat that tonight. The problem we face—the hon. Member for Beckenham (Bob Stewart), who is no longer in his place, raised this point—is that money is being sucked out of the region through public spending cuts, benefit cuts and the slashing of regeneration and infrastructure projects, worsening the economic problems. The Government, through their policies, are squeezing out demand from the regional and national economies. That is counter-productive, as it pushes up both the benefits bill and Government borrowing.
The Prime Minister and the Chancellor pretend that there is no alternative, but the Opposition recognise that politics is about priorities and making choices. Sadly, the Chancellor has chosen to give a £40,000 tax cut to 14,000 millionaires, while more and more people in my area are losing their jobs and young people in particular have little prospect of finding paid employment. He has also chosen to keep VAT, a deeply regressive tax that hurts the poor, at 20%.
IPPR North has said that business confidence is failing. The lack of confidence among employers has created a hire freeze across the north that looks likely to get worse. The unwillingness of employers to take on permanent staff only increases economic insecurity for ordinary households. Where vacancies do exist, they are often for low paid and insecure work. Given that more than 1 million young people are out of work, we need real action from the Government to stop the next generation from wasting away on unemployment benefits. That is where the real jobs guarantee comes in. We need to offer a jobs guarantee, especially to young people, to stimulate the economy and offer personal hope to each individual.
Richard Fuller (Bedford) (Con)
General Government expenditure accounts for 50% of the economy, our debts are at record levels and we have the highest deficits. Does the hon. Gentleman think that the answer to debt, deficit and the Government’s massive share of the economy is for the Government to do more or to do less?
Grahame M. Morris
I would have more respect for the hon. Gentleman’s intervention if he had sat through the whole debate, because those points have been raised. It behoves the Government to do more, not less; we have to learn from the lessons of history. I urge hon. Members to support new clause 13.
Mark Lazarowicz
I want to say a few words in support of a bank bonus tax. I emphasise that I am supporting that not to bash the bankers, but to end the unacceptable face of banking in the form of an excessive bonus culture that is still far too widespread.
As I said earlier, the vast majority of people who work in financial services certainly do not get vast bonuses; many thousands of people in my constituency work hard behind bank counters or in bank offices serving customers, and they are often on modest incomes. Many have paid with changes in working conditions, while others have paid with their jobs, when redundancies flowed from the financial crisis caused by the irresponsibility of senior executives. We are not targeting those people; we want to do something about the small minority who are still getting excessive rewards.
A study published at the end of June showed that average pay for chief executives at 15 leading banks in the US and Europe increased by 12% over the last financial year. That may be less than the 36% increase in the previous year, but whatever the increase—it is about 50% when we add both increases—it is wildly out of line with falls in profits and share prices that have frequently characterised the sector. That is not performance-related pay in any sense that most people would understand and it is certainly not a performance that would justify what is effectively a further tax cut on top of a tax cut for the highest paid.
A tax targeted on bank bonuses is necessary because the existing attempts to curb the bonus culture have so obviously failed. That is the key point. The issue is not about saying that people should not be very well paid at the top of banks and financial institutions, but we want to get away from a position in which sums wildly in excess of anything that could be said to be deserved are paid as a matter of course. None of the steps taken so far has changed that culture, even in an era of financial crisis among the banks and beyond.
The second reason why we want a bank bonus tax is that it would raise money for some valuable purposes. The issue of jobs for young people affects all our constituencies. My constituency normally comes in the middle range of unemployment across the UK, and we have seen a substantial increase in youth unemployment. I certainly want that issue to be tackled in my constituency.
We are also saying that the bank bonus tax would be used to provide affordable housing. That, of course, would bring two benefits. First, it would bring more housing into the sector. Constituencies such as mine have to some extent, although on a lesser scale, experienced the same phenomenon as happened in London, where high rates of pay in certain sectors such as financial services have pushed up house prices and made it harder for people on lower incomes to get affordable housing, so this proposal would be important for those people as well. Of course, building affordable housing and new homes also gives a boost to the economy through providing new jobs in the construction sector and helps people who have been out of work because of the collapse of that sector in many parts of the country.
Our proposal of a bank bonus tax would not only tackle the excessive bonus culture but provide jobs for our young people and affordable homes, giving a boost to the construction sector. I therefore hope that the House will support it.
Mr Hoban
We have heard a series of slightly strange speeches by Labour Members. We have become accustomed to their belief that they left us a golden economic legacy, but the reality is that when they left office unemployment was higher than when they came into office. They seem to believe that the problems of youth unemployment started under this Government. At least the right hon. Member for South Shields (David Miliband) has the good sense to recognise that it is a long-standing and deep-seated issue and that its growth started under the previous Government.
Labour Members seem to forget that when they left office the deficit was out of control. We have tackled that and reduced the structural deficit by a quarter.
Bill Esterson
Youth unemployment is higher than when Labour left office, unemployment generally is higher than when Labour left office, and the economy was growing when Labour left office whereas now we are back in recession. Will the Minister confirm all three of those facts?
Mr Hoban
The challenge that we face is dealing with the economic legacy left by Labour, with the huge boom in financial services and the huge bust that followed.
We have heard Labour Members’ story that they presided over a golden age in the financial services sector. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) could not bring herself to admit that the scandal over LIBOR fixing took place between 2005 and 2008 or that the interest rate mis-selling that affected so many small businesses took place in the same period leading up to the financial crisis.
Labour Members deplore the bonus culture, but let us not forget that when they were in government, bonuses were paid out in the year that they were earned and paid out in cash. That was the hallmark of the age of irresponsibility that characterised their time in office. This Government are taking action to tackle the bonus culture. This Government have introduced rules to ensure that bonuses are not paid out in the year they are earned but spread over a three-year period, that they are not paid out in cash but in shares, and, crucially, that they can be clawed back where there have been problems in the business or where there has been wrongdoing. This Government have tackled the bonus culture in the UK whereas the previous Government let it run riot, and we have seen the financial consequences of their so doing.
Mark Lazarowicz
The bank bonus tax was first introduced by the previous Government. In fact, I think that our Government should have done much more about the bonus culture in the banks in the past and was wrong not to do so. However, will the Minister at least accept that at no stage did his Government suggest any action whatsoever to tackle the bonus culture? He should not suggest that the responsibility lies only with Labour but accept his share of the responsibility as well.
Mr Hoban
We have taken action to tackle the bonus culture by ensuring that the interests of shareholders and management are aligned and that where there is wrongdoing bonuses can be clawed back. That is a significant change that has happened since this Government came to office. In the same way that we are remedying the regulatory failures left behind by the previous Government, particularly by the shadow Chancellor, the inquiry set up into the fixing of LIBOR will ensure that in future LIBOR is regulated to fill the hole in the Financial Services and Markets Act 2000 and ensure that there are criminal penalties for manipulating LIBOR—again, filling the hole left by the shadow Chancellor when he designed the regulatory system.
Mark Durkan
The Minister refers to what the Government have done since coming to office. What did the then Opposition suggest in the previous two Parliaments by way of concrete proposals on regulation or bonus culture or amendments to any of the flawed measures that the previous Government introduced?
Mr Hoban
When the previous Government brought forward the Financial Services and Markets Act 2000, we voted against the decision to transfer the supervision of the banks from the Bank of England to the FSA. We are putting right that failure by the previous Government. We criticised the financial services reforms brought forward by the previous Government in the aftermath of the financial crisis. We said that they were tinkering around the edges and did not address the fundamental problems at the heart of regulation. The work that we did in opposition laid the foundations for a much tougher, more intrusive and more interventionist regulatory regime to tackle the problems left by the previous Government.
Mr Campbell
When the Minister talks about the economic mess, does he mean the £600 billion that the Labour Government had to give to the banks to bail them out and keep them afloat?
Mr Hoban
The UK economy has suffered hugely as a consequence of the financial crisis. It has lost £140 billion in growth. We have to tackle the causes of that failure, as well as tackling the deficit that the previous Government left behind. That is what we are doing through the Financial Services Bill, which is passing through Parliament at the moment.
John Hemming
In December 2008, the then Chancellor said:
“The measures that I announced in October have stabilised the banking system, and inter-bank lending rates have fallen. The three-month LIBOR rate halved to just over 3 per cent. this week.”—[Official Report, 18 December 2008; Vol. 485, c. 1213.]
Does the Minister think that that was a fantasy, like much of what the Opposition propose?
Mr Hoban
The last Prime Minister had a problem recognising his responsibility for the problems that befell the economy.
One way in which we have sought to get the balance right in the taxation of businesses is by introducing the bank levy. We took that decision in opposition. We thought that it was right to ensure that banks paid their fair share towards dealing with the risks that they pose to the economy. The measure was opposed by the previous Government. They did not want to introduce a bank levy on a unilateral basis. We had the courage to make that decision and to ensure that banks pay their fair share.
The bank levy is a tax on the balance sheets of banking groups and building societies. It complements the wider regulatory reforms that are aimed at improving financial stability, such as the higher capital and liquidity standards. It thereby ensures that the banking sector makes a fair and substantial contribution that reflects the risks that it poses to the financial system and the wider economy. The levy is also intended to encourage banks to move away from risky funding models.
From the outset, the Government have been clear that we intend the levy to raise at least £2.5 billion each year. The Opposition should get their facts right. They have trotted out the gross figure that was raised by the bank payroll tax. They must bear in mind that the tax also reduced pay-as-you-earn and national insurance receipts. That is why the actual yield of the bank payroll tax was only £2.3 billion. Our levy will therefore raise more, year after year, than was raised by their one-off bank payroll tax.
The target yield for the levy was set out in the Government’s first Budget. We also announced our intention to make significant cuts to the main rate of corporation tax. Let me deal with another red herring from the Opposition. We were clear at that time, as we are now, that the bank levy yield will far outweigh the benefits that banks will receive from the corporation tax changes. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but banks will not benefit because of the bank levy. In the 2011 and 2012 Budgets, the Chancellor has gone further and announced two more cuts in the main rate of corporation tax. It now stands at 24%. The increase in the bank levy announced in the Budget offsets the benefit of those additional cuts to maintain the incentives on banks to move towards less risky funding.
New clause 13, tabled by the shadow Chancellor, is, in the words of Yogi Berra, the great American baseball coach,
“déjà vu all over again”.
This is at least the fifth time in this Parliament and the second time in the passage of the Finance Bill that we have debated the bank payroll tax. We have heard no new arguments from the Opposition and nothing to persuade us to vote for it.
Yet again, we have to point out to the Labour party that such a tax would be counter-productive and unnecessary. The bank payroll tax was introduced as a one-off interim measure in the last Parliament ahead of regulatory reforms and changes to remuneration practice and corporate governance. The previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling)—somebody the hon. Member for Newcastle upon Tyne North should listen to and learn from—said that it could not be repeated. He pointed out that it was a temporary measure until bank remuneration practices were changed, and we have changed those practices.
The new clause calls for the proceeds of the tax to be used to help employment, but I should take some time to remind the House of the measures that we are already taking to do that. We have introduced the youth contract and are investing £1 billion over the next three years in supporting half a million young people into employment and educational opportunities. We will provide 160,000 wage incentives worth up to £2,275 each to employers who recruit an 18 to 24-year-old through the Work programme. There will be an extra quarter of a million voluntary work experience or sector work academy places over the next three years and a further 20,000 incentive payments to encourage employers to take on young apprentices, taking the total to 40,000.
We are also providing additional support through Jobcentre Plus and the opportunity for people to be referred for a careers interview with the national careers service. We are already providing more apprenticeship places than any previous Government, with a record 457,000 apprenticeships delivered in 2010-11 and a commitment to delivering 1.2 million over the entire spending review period. That is a quarter of a million more than the previous Government’s commitment.
The hon. Member for Newcastle upon Tyne North says that the bank payroll tax should be used to help youth employment, but let us consider the number of ways the Labour party has already announced it would be used. The Leader of the Opposition was asked where the money would come from to reverse the increase in VAT, and he said:
“I said for example we should have a higher bank levy.”
It was also suggested that it be used to pay for higher capital spending of about £7.5 billion in 2010, which would have required £6 billion from the bank levy. The Leader of the Opposition said that reversing child benefit changes could be afforded by using the bank payroll tax—yet another use for it.
The bank payroll tax is the tax that continues to give, the tax that the Opposition always turn to when they want to find a way of plugging the black hole in their figures. They used it to explain how they would reverse tax credit savings, spend more money on the regional growth fund, cut the deficit and turn empty shops into community centres. We have heard a remarkable number of ways in which something that the previous Government said was a one-off would be used to fill the black hole in Labour’s economic thinking.
Charlie Elphicke
How many times over have the Opposition spent that money so far?
Mr Hoban
My hon. Friend is right to ask me that question. About 15 times. Every time there is a tricky question, what is the answer? Let us reintroduce the one-off bank payroll tax. That demonstrates the emptiness at the heart of Labour’s economic policy. It has no concrete ideas to tackle what happened in the financial crisis or the economic problems that it left behind. The Opposition are reduced to trotting out the same stale arguments for the fifth time running, and I urge the House to reject them once again.
Catherine McKinnell
We have heard some passionate speeches from Labour Members, but I am concerned about the lack of contributions from Government Members. Only one, the hon. Member for Dover (Charlie Elphicke), contributed in the entire debate. He put forward some interesting views and theories, and I commend him for engaging in the debate, because there is little of more importance right now than youth unemployment.
The hon. Gentleman concluded his speech, however, by hailing a return to the 1980s. I do not know about other Opposition Members, but it sent a shudder of fear through me, because although some people had the time of their lives in the 1980s—we have fond images of the City, the champagne flowing, the pinstripe suits and the brick-sized mobile phones—for many the 1980s were not pleasant or a time of growth but devastating, particularly for youth unemployment. Parts of the UK, including my region of the north-east, other English regions, Scotland and Wales, suffered dreadful decimation of their traditional manufacturing industries, and in many ways are still paying the price. We risk repeating that fate today, which is why we are proposing to impose a bank payroll tax on the very institutions that played a large part in causing the international financial crisis that led first to the recession and then to today’s double-dip recession.
Catherine McKinnell
I give way to the only Conservative Member to contribute to today’s debate.
Charlie Elphicke
How do the Opposition justify spending this money 15 times over?
Catherine McKinnell
No, we have clear plans: we would like to spend the bank payroll tax on creating youth jobs. I would have thought that Government Members would grasp that opportunity, given that short-term unemployment is up 112% and long-term unemployment is up 156%. I would have thought that Conservative Members would be shouting out for any solution to bring those figures down.
Or are Government Members happy to see another generation of young people thrown on to the scrap heap with no opportunities and no way out? The future jobs fund gave opportunities to young people. It was heralded by the Prime Minister as a good scheme and promises were made not to scrap it, but as soon as the Government took office it was put in the bin. And we have seen little put in its place: the work experience scheme, for which we waited a whole year, is producing very few results.
For that reason, we are proposing a solution. On a cautious estimate, we believe that this year the bank bonus tax could raise at least £2 billion, which the Government could use to create thousands of affordable homes and introduce a real jobs guarantee for long-term unemployed young people. As part of Labour’s five-point plan for jobs and growth, the real jobs guarantee would cost £600 million—a small price to pay for tackling the chronic youth unemployment about which Labour Members have spoken passionately this evening.
Under the real jobs guarantee, the Government would pay full wages directly to businesses—again something I would have thought Government Members would support—and support businesses taking on new members of staff. It would cover 25 hours of work at the minimum wage—£4,000 per job—and in return the employer would cover the training requirements and the young people would be required to take the jobs made available. It would be a genuine contract and a real jobs guarantee.
We cannot stand by and watch another generation of young people left to suffer the effects of this double-dip recession, which is why we propose this bank bonus tax as a real solution and why I urge hon. Members to vote for the new clause.
Question put, That the clause be a read a Second time.
Mr Gauke
I beg to move, That the Bill be now read the Third time.
The Bill proposes wide-ranging reforms of the tax system to reward work and promote growth. It supports business and growth, creates a fairer, more efficient and simpler tax system, and builds on our commitment to improving the tax policy-making approach. However, it should be seen against the fiscal backdrop that we inherited.
Before I discuss the Bill in more detail, let me remind Members of the challenges that we face. When we came to power, we were confronted by the largest peacetime deficit that the country had ever seen. One pound in every four was borrowed. Members will recall—[Interruption.]
Mr Deputy Speaker (Mr Nigel Evans)
Order. I am finding it rather difficult to hear the Minister.
Mr Gauke
Members will recall that the independent Office for Budget Responsibility revealed that the underlying damage to the economy and our challenge in repairing it was much greater than anyone had thought. It was therefore vital for us to take decisive action to restore the economic stability that was needed for recovery, and the Bill is part of that. In order to address the enormous debts that we inherited, confront Britain’s problems and get the economy moving, the Government have undertaken a sustained programme of deficit reduction.
As I said earlier, the Bill supports business and growth. It implements milestones for the corporation tax roadmap, overhauls the controlled foreign companies regime, and introduces the patent box.
Mr Alan Reid (Argyll and Bute) (LD)
My hon. Friend mentioned the controlled foreign companies regime. I support the Government’s efforts to ensure that all the tax that must be paid in the UK is paid in the UK, but, as he knows, concern has been expressed about the possibility that by introducing these rules the Government will inadvertently harm small developing countries which may lose tax revenue. I hope that they will ensure that there is no such side effect.
Mr Gauke
We debated that in the Committee of the whole House. The purpose of the CFC rules is to protect the UK tax base, as has always been the case, but the Government have a proud record of supporting developing countries, and we have a firm commitment to meeting our international obligations on that front. This country also has a proud record of building capacity in developing countries and improving their ability to collect taxes. In many developing countries, the UK has already made a substantial contribution, and we will continue to do so.
Both the patent box and the CFC changes form part of the Government’s wider plans, which will help UK businesses to operate in an increasingly globalised world. I am sure all Members agree that those measures are essential to restore medium and long-term growth.
Despite the challenging economic backdrop that the Government inherited, we have made significant progress. We have already introduced a further cut in the rate of corporation tax that will give us the lowest rate in the G7, the fourth lowest rate in the G20, and the lowest rate that this country has ever known. By next year, the Government will have cut corporation tax by 6%, helping to make the UK the most competitive country in the G20. According to the OBR’s assessment of the Budget, the reduction will increase the level of business investment by about 1% by the end of the forecast period. That is equivalent to an increase in the total amount of business investment of £3.4 billion between now and 2016.
Many businesses have seen that we are, as promised, open for business. WPP and others have recently announced that they are considering returning to the UK, or that they wish to set up business here. I am delighted to say that Rowan and Lancashire have already come here, and once the CFC rules are in place in 2013, we shall be looking for more businesses to follow them. Following the Bill’s publication in March, one of the big four advisory firms announced that it was engaged in discussions with between 10 and 15 multinational companies that were considering locating substantial operations in Britain as a result of corporate tax reforms. The CBI has commented that these much-needed changes
“will help make the UK a more attractive place for companies to invest, do business and create jobs.”
The Government aim to create a tax system that is easy to understand and with which it is easy to comply, and the Bill contributes to that. It provides real help for families and business. It raises the personal allowance to £8,105—which, curiously, was not mentioned very frequently in Committee—and, combined with the further increase of £1,100 next year, will mean a tax cut for 24 million people and 2 million people being taken out of income tax altogether.
Sheila Gilmore
The Minister was waxing lyrical about simplification, and I was wondering whether he has reconsidered his view as to whether the proposed child benefit reform creates simplification or complication.
Mr Gauke
If we do not want people earning £20,000, £25,000 or £30,000 a year to be paying for benefits to go to much wealthier households, the alternative would be an extension of the tax credit system. That would have placed a much greater burden both on households and the Government. Of the available alternatives, we have gone for the simpler option.
We are deferring the 3p per litre duty increase that was planned for August to January next year. Action by this Government to reduce the deficit and rebuild the economy is already benefiting businesses and families and keeping mortgage rates low. As hon. Members know, this Government have also had to make difficult decisions so we can tackle the deficit left to us by the previous Administration. They include withdrawing child benefit from households earning more than £50,000. That is a fair way to make savings, so we can meet our targets to cut the deficit.
We are also taking steps to ensure that the wealthy pay their fair share too. The Budget package ensures that the wealthiest will pay five times more than the cost of reducing the additional rate of income tax. The introduction of a new higher rate of stamp duty land tax of 7% on properties sold for more than £2 million will raise over £1 billion in the next five years. At the same time, this Government are also tackling avoidance, as demonstrated in the Bill. The new SDLT enveloping entry charge rate of 15% will deter those seeking to put their high-value property into corporate structures to avoid tax. Also, debt buy-back measures will raise over £500 million from banks that try to avoid paying the tax due, and the introduction of the UK-Switzerland agreement will ensure we can address the tax loss from those who put their money into Swiss banks to evade tax.
There has been extensive scrutiny of this Bill, including about 44 hours in Public Bill Committee. From looking at some of the new clauses tabled for today, I am happy to see that the Opposition continue to stick to their same theme on this Bill, which is to ask for reports, rather than focusing on policies. We have seen 34 Opposition-requested reports over the last 10 weeks, but no real policy alternatives. Yesterday, we were discussing Groucho Marx, and I wonder if the Opposition ever needed to be reminded of the quote:
“The problem with doing nothing is that you never know when you are finished.”
In order to make progress with Government business in good time, we agreed with the Opposition, through the usual channels, to programme parts of this Bill.
It is a delight to see my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) once again in his usual place. As he rightly said yesterday, this legislation is the body, soul and guts of this Budget.
I thank all who participated in Committee and on Report.
Fiona O'Donnell
It is very generous of the Minister to give way. Would he also like to reflect on the comment made by the hon. Member for North East Somerset (Jacob Rees-Mogg) that a good government is one that take tough decisions and stick to them? Does the Minister think that could be said in respect of their handling of this Bill?
Mr Gauke
This Government have taken tough decisions to bring the deficit down, and we are sticking to that plan even though some Opposition Members would rather give up on deficit reduction and continue to borrow in the same unsustainable way that we borrowed up until 2010. This Government remain determined to stick to that plan. I thank the hon. Lady for giving me the opportunity to underline that point.
I thank all those who have been involved in every stage of this Bill, including both Front Benchers and Back Benchers engaged in this matter, not to mention various others. I wish briefly to mention a couple of Treasury officials. First, I congratulate Mr Edward Troup, who, as announced earlier this week, has accepted the post of tax assurance commissioner and second permanent secretary at Her Majesty’s Revenue and Customs. His wealth of experience and enthusiasm will be a great asset for HMRC, but a sad loss to the Treasury. I also thank Jamie Miller, who has been the Bill manager for this Bill, and indeed has served on the past six Bills over the past four years. Despite that, he has remained remarkably cheerful, notwithstanding the provocation that all of us have given on that front.
In conclusion, this is a good Bill that builds a stronger and more balanced economy. It will strengthen the UK, making us more competitive and more ready to face the challenges ahead, and I commend it to the House.
Rachel Reeves (Leeds West) (Lab)
I thank my hon. Friends the Members for Pontypridd (Owen Smith), for Newcastle upon Tyne North (Catherine McKinnell) and for Kilmarnock and Loudoun (Cathy Jamieson) and others for serving on the Public Bill Committee with me over the past several weeks. I also thank our able Chairs for supervising us during that process and the Commons Clerks for their advice and assistance throughout the process in Committee and in the House.
The Bill has been on quite a journey since it was first presented to the House just a few months ago. I fear that the Exchequer Secretary spoke too soon last December when he announced that
“the Government’s more open, predictable and simple approach to tax policy making is working well.”
He said that by publishing tax legislation in draft form first,
“we are giving greater certainty and stability to taxpayers and businesses”.
I do not think that taxpayers and businesses, or indeed Members of this House, realised that the Finance Bill itself was still only a draft when it was published in March. This Finance Bill has been through so many stages of crossing out and rewriting that it would have been easier for the Government to have scrapped it and started again, perhaps with some measures that would have supported jobs and growth.
As we have heard throughout the Committee and Report stages, the Budget has been a total and utter shambles. When we first saw this Bill back in March, it contained provisions to raise VAT on hot food, on static caravans and on improvements to listed buildings.
Mr Reid
What was in the Budget back in March was a consultation exercise on VAT on static caravans and so on. I am glad that after that exercise the Government listened and amended their proposals, but it was a consultation. This Government, unlike the previous one, listen to what people say in consultations.
Rachel Reeves
That is the first time I have heard a Finance Bill being called a consultation—I do not even know where to start.
The Budget in March also included a 3p rise in fuel duty in August and limits on charitable donations. All this was necessary, we were told, to deal with the deficit. Yet the Bill before us, as we reach Third Reading, contains none of those measures. We have had a series of abrupt reversals that, according to one estimate, will cost the Exchequer nearly £700 million.
Opposition Members argued that these measures were misconceived from the start, and that adding to the costs faced by families and small business at this time would make it even harder for our economy to climb out of the recession that this Government have dug us into. But it must be a matter of regret that so much uncertainty and confusion has been created for those affected, doing real damage to businesses, charities, pensioners and families, and that at a time of tight public finances the Government’s financial and fiscal planning seems to be in such disarray, with no one at all clear what the Government’s priorities actually are.
Despite the Government’s belated change of heart on those matters, the Bill remains a deeply flawed, unfair and utterly inadequate response to the problems facing our country today and that is why the Opposition will vote against it this evening. The Bill still offends against the most basic principles of fairness by giving priority to a reckless and irresponsible tax cut worth tens of thousands of pounds for a few thousand millionaires while at the same time asking millions of ordinary people who are already under pressure from rising prices, falling wages and cuts to tax credits and benefits to make further sacrifices and endure further hardship.
The Bill breaks a promise that the Chancellor made in the Budget last year to Britain’s pensioners that their age-related allowance would rise in line with inflation for the rest of this Parliament and instead imposes a stealth tax that will hit 4.5 million people over the age of 65, all of whom live on modest pension savings. The Bill is breaking the principle of universal child benefit and still means that one-earner families will lose thousands of pounds a year while a two-earner family on almost twice as much will keep all their benefit. It is a botched, half-baked measure dreamt up for a party conference speech but the measures are described by the Institute of Chartered Accountants in England and Wales as a “policy disaster” that are
“in danger of becoming a practical disaster when they come into effect”.
We have raised a number of other concerns about the Bill, such as the controlled foreign companies changes and the impact that they will have on developing countries. What is most wrong with the Bill, however, is that it represents a massive missed opportunity to end the recession and get our economy working for ordinary working families, pensioners, businesses and young people. It could have been a Bill that took the tough decisions necessary to ensure that those who could make a fair contribution to deficit reduction did so, so that those hit hardest by the current crisis were not put under even more pressure.
It could have been a Bill that cut VAT, giving immediate relief to hard-pressed families and giving our economy the stimulus it needs to get growth under way again and to make unemployment fall. It could have been a Bill that redirected money wasted on excessive bank bonuses and put those resources to better use, helping young people get back to work and constructing new affordable homes.
Rachel Reeves
The Government are borrowing £150 billion more. That is the cost of the Government’s failed economic policies. The reality is that with more people out of work claiming benefits and fewer people in work paying taxes, Government borrowing is higher and not lower.
Jacob Rees-Mogg (North East Somerset) (Con)
I am grateful to the hon. Lady for giving way, but there is a little problem with her maths. She is accusing Her Majesty’s Government of spending £150 billion more and then wants to spend umpteen billions on top of that on a VAT cut. There is absolutely no sense in that.
Rachel Reeves
We have seen that this Government’s plan has failed, as unemployment remains far too high, with a million young people out of work. It has failed, and the economy is back in recession—we are one of only two countries in the G20 that are in recession—and the Government are borrowing more. In fact, in the first two quarters of this financial year, the Government are borrowing £4 billion more than they were last year. Their plan has failed and it is time to try an alternative that gets the economy moving again and that gets people back to work and paying taxes so that the economy can grow and the deficit can be brought down sustainably.
We have proposed a bank bonus tax because we think that it is right that those people with the broadest shoulders should pay a little more. On the day that Bob Diamond has resigned after taking £100 million of bonuses in just a few years, would it not have been far better tonight if we had supported the bank bonus tax and used that money to fund a programme of youth jobs to get our economy working again?
We could have used the Budget and the Government could have used the Finance Bill properly to accelerate infrastructure investment to help the struggling construction industry and to create much needed jobs in our economy. Instead, we have a Bill that will go down in history as a monument to this Government’s incompetence, complacency and inability to grasp that what the current economic situation demands is a Government who stand up for ordinary working people. The Bill fails on fairness and asks millions to pay more so that millionaires can pay less. It fails to address the real challenges that this country faces—a recession made in Downing street and a Government with no plan to get us out of it.
Stephen Williams (Bristol West) (LD)
Before I turn to the broad sweep of the Bill, I want to mention again clause 180, to which the Minister referred in his winding-up speech in response to my hon. Friend the Member for Argyll and Bute (Mr Reid). Many of us will have been written to by a coalition of charities such as Christian Aid and ActionAid, with which I have been working closely on the effects of the clause. The reason for that concern is felt internationally. The OECD has estimated that developing countries lose three times the amount of aid that they receive from developed countries through tax avoidance in their own countries.
In 2011, the United Nations, the International Monetary Fund, the World Bank and the OECD came together and said that the G20 countries have an obligation to ensure the smooth running of the international tax system. It was therefore appropriate for G20 countries to undertake spill-over analyses of proposed changes to their own tax systems and the possible impact of those changes on the fiscal circumstances of developing countries.
Fiona O'Donnell
Will the hon. Gentleman take this opportunity to explain to the House why, if he is so passionate about the issue, he withdrew his amendment in Committee and failed to vote for ours?
Stephen Williams
If the hon. Lady was so interested, she could have studied the Hansard record of the debate. The purpose of my amendment at that stage of the Bill was to probe the intentions of the Government and to get on the record statements from my hon. Friend the Minister that the Treasury and the Department for International Development were going to work more closely together. The hon. Lady’s party made it clear that it would not support my amendment in order not to hold up that controlled foreign companies change going through. I suggest that she has a word with her Front-Bench team.
I move on to new clause 6, which I tabled. Because of the length of time spent once again discussing the bank bonus levy and Labour’s five-point plan, we did not get to it this evening. Perhaps the hon. Lady might like to think about why that was the case. New clause 6 called for joined-up working between the Treasury and the Department for International Development. You, Mr Deputy Speaker, I and many other hon. Members and Members of the House of Lords were in Committee Room 14 this morning to listen to President Carter, Archbishop Desmond Tutu and former Irish President Mary Robinson, three of the Elders, who were talking about human rights and in particular developing nations. They specifically praised the record of this Government as the first major Government in the world to reach the 0.7% target for overseas aid. I urge my colleagues in Government again to build upon that achievement by making sure that our aid is well spent and raises the capacity of overseas Governments to develop their own tax collection capability so that they are not so dependent on us in the future.
As others wish to speak, I turn to the wider measures in the Bill. For those of us who have been on the entire journey, it has been a long trip from the Budget to Second Reading, to Committee of the whole House, to 18 sittings of the Committee, and to the past two days. Some of the things that were there at the start did not make it all the way through to the end. Maybe somewhere in Cornwall there is someone sitting in a caravan, eating a pasty washed down by sports drinks, filling in a gift aid form, perhaps to a church restoration fund. Such a person ought to be happy that this Government listen.
Some things, to be fair, were consistent all the way through that process. We heard them again this evening from the hon. Member for Leeds West (Rachel Reeves)—Labour’s five-point plan. As a boy, I was brought up to go to Sunday school, so I cannot help but be reminded of the parable of the feeding of the 5,000; they start off with such a small amount and expect it to achieve so many things, but without the benefit of miraculous intervention.
When all these measures are long forgotten, having simply been about tens of millions or hundreds of millions of pounds, it is the really significant measures in the Budget, which involve billions of pounds, that will be remembered in the sweep of history. The most significant of those is the progress towards raising the income tax threshold towards £10,000. My party, the Liberal Democrats, can take particular pleasure in the fact that the Budget and the Finance Act, as the Bill is soon to become, set us off towards another milestone on the route to achieving the £10,000 tax-free threshold. It will already lift 800,000 people out of income tax, and it will do so for 1.1 million people over the coming year and 2 million next year, allowing more people to retain the benefits of their work. We also saw in the Budget the introduction of effective wealth taxes, new rates of stamp duty, a new clampdown on stamp duty avoidance, something the previous Government shirked on many occasions, and new restrictions on reliefs against tax.
When the history of this Government and this Budget is written, it is the rise in the threshold to £10,000 that will be long remembered when all the ephemera we have been dealing with, and which Opposition Members have been so keen to raise over the past 12 weeks, are long forgotten. The raising of the threshold, which will lift people out of taxation, is the big issue that will be remembered for many years to come.
Jim Shannon
I know that on Third Reading we cannot debate the issues again, but I want to ask a quick question on a commitment the Government gave last year during a debate in which recognition of marriage in the tax system was discussed. They gave a commitment to bring in the necessary changes to introduce transferable allowances, the need for which is urgent. I would like to remind the Government of their commitment to recognise marriage in the tax system and press the Minister to respond on the matter. The Prime Minister said:
“I have always supported the idea of supporting marriage through the tax system, specifically supporting the idea of a transferable tax allowance. The idea of a transferable tax allowance is in the coalition agreement.”
I am sure that the Minister will be able to reaffirm that. The Prime Minister continued:
“It’s something we would like to do in this parliament”.
As he is the Prime Minister of the coalition, I am sure we can look forward to a commitment on that at some time in the future.
The Government have made a number of U-turns, or J-turns, as some Members called them—or, as the hon. Member for Brigg and Goole (Andrew Percy) called them, recalibrations. It does not matter what we call them, so long as they are done for the right reasons, and the Government’s U-turns so far have been for the right reasons and we welcome them.
However, perhaps it is now time to have a commitment from the Government on transferable allowances. If the Minister is unable to tell us exactly when the Government will introduce legislation to recognise marriage in the tax system, will he provide clarity on a different but related point? Recognition of marriage in the tax system will require HMRC to make various operational changes, particularly in the IT systems. Can he reassure us that this preparatory work is already under way so that when the Government bring forward legislation to recognise marriage in the tax system there is no further delay? If he cannot do so tonight, will he make it an urgent priority to make a statement to the House setting out the time that will be required to change the IT systems and announce that he has instructed that work to begin in readiness for the introduction of the transferable allowance legislation?
Bill Esterson
When listening to the hon. Member for Bristol West (Stephen Williams), I was reminded of the rather depressing speeches and interventions from some of his Tory colleagues in our previous debates on youth unemployment and the bank bonus tax, who showed very clearly that they do not live in the real world. They have no idea of the impact on young people of the chronic levels of unemployment they now face or the depressing reality that this is a repeat of what happened under the Tories in the ’80s and ’90s.
The shadow Chief Secretary to the Treasury mentioned Bob Diamond’s £100 million in bonuses, which, under the real jobs guarantee scheme, would create 25,000 jobs for young people. I wonder whether Government Members consider that a better use of £100 million in bankers’ bonuses, because I certainly do.
We have already seen new schemes from the Government which are depressingly familiar; they remind me of the youth opportunities programme and its successor, the youth training scheme, in the early ’80s, and of how benefits were withdrawn from young people during those years when there were no jobs. There are no jobs for young people in my constituency or in many parts of the country.
Bill Esterson
I will always give way to a fellow member of the Communities and Local Government Committee.
Heather Wheeler
Why is it that in South Derbyshire the number of apprentices has gone up by 80%, when the hon. Gentleman says that there are no jobs for young people? What is going on in his constituency that is not happening in South Derbyshire?
Bill Esterson
People in the hon. Lady’s part of the world must be incredibly lucky, because it must be the only place in the country where that is the case.
In reality, every Member knows that the youth unemployment figure has gone over the 1 million mark; that is a fact which everyone here accepts.
Bill Esterson
I ask the hon. Gentleman, when he intervenes, to explain why one of this Government’s first acts was to scrap the successful future jobs fund, which the previous Government introduced and Members who are now on the Treasury Bench said they would keep.
Richard Graham
I am very grateful to the hon. Gentleman for giving way, after some careful thought. In answer to his question, in my constituency the biggest difficulty with the future jobs fund was that, first, the placements were not real jobs but national service, because they were from the Government or charities; and, secondly, they had no future. They did not, therefore, meet even the definition of their own title: future jobs fund.
The hon. Gentleman has heard about the situation in South Derbyshire. The situation in Gloucestershire is that the number of apprenticeships has risen massively over the past three years and has continued to go up by 20% over the past year, and that youth unemployment has fallen by 150 every month for the past three months. It is not perfect, but things are getting better.
Bill Esterson
I cannot decide which of those 14 questions to answer, but as a former banker the hon. Gentleman is in a good position to comment on the financial crisis, which was caused by some of his former colleagues. What he says gives no comfort. He mentions national service, and I went back to the ’80s and ’90s, but he has gone back far further than that, to something that really did not solve any problems for young people.
Richard Graham
I shall be very brief, I promise. I have a specific suggestion for the hon. Gentleman—in two questions. First, how many jobs fairs has he organised in his constituency? Secondly, how many apprenticeships have been started in his constituency?
Bill Esterson
I speak to people in my constituency all the time, and they tell me just how hard it is to find jobs. I have employed somebody who was on the future jobs fund, and they have been extremely successful, but people who have been out of work for more than six months, whether they have left school, college or graduated from university, find it almost impossible to get jobs.
The reality is that, in this situation, just as in previous decades under previous Conservative Governments, employers are already turning to people who have just left school or college or just graduated; they are not looking at people who have been out of work for a long period. The depressing reality is that we will see another generation of young people consigned to the scrapheap unless this Government take the action that the Labour party proposes in repeating the bankers’ bonus tax.
Julie Hilling
I wonder whether my hon. Friend, like me, sees a constant stream of young and older people coming to his constituency surgeries desperate for work. Does he agree that the future jobs fund provided something better than having to work in a supermarket for nothing?
Bill Esterson
My hon. Friend gained vast experience of dealing with young people before coming to Parliament, and she has been a strong advocate for them ever since. Her experience is very similar to mine. It is absolutely disgraceful that we have Ministers sitting there laughing at what is happening to young people up and down this country, who cannot get jobs because we have a Government who entered office when the economy was growing strongly—[Hon. Members: “Oh!”]—despite a global economic downturn and a global economic and financial crisis caused by the friends of people like the hon. Member for Gloucester (Richard Graham).
Gordon Birtwistle
Would the hon. Gentleman like to comment on the large number of young people who have come from abroad and now have jobs in the UK?
Bill Esterson
I am not sure what that has to do with what I was talking about. Perhaps the hon. Gentleman can agree with me that what we need is action from this Government—action to help young people find jobs.
The hon. Member for Dover (Charlie Elphicke), who is no longer here, mentioned several times the fact that the banks are not lending and said that that is the problem, but he forgot to say that the reason the banks are not lending is that they have no confidence in this Government—the Government who have pushed us back into a double-dip recession so that we are now one of only two countries in Europe in that position, the other being Italy. That lack of confidence is why banks would rather shore up their own position—and, of course, pay exorbitant bonuses to their top executives. The banks are not lending to the small businesses that need the money to create the jobs and drive the growth that is needed. Unless the banks start to do that, the Government need to step in.
That is why the proposal from Labour is so important. It is why repeating the bankers’ bonus tax would make so much difference to young people and to this country as a whole. But what did we get from this Government? The cut in the 50p tax rate. Three hundred thousand of the wealthiest people in the country will benefit from a tax cut paid for by the rest of us, particularly the poorest and pensioners through the granny tax. That is the reality of the Government’s proposal, which they are pushing through tonight. That is why we should oppose the Bill.
What I expected was an end to the sort of heckling we have heard from Ministers, who clearly enjoy the prospect of young people being out of work. I would like to think that that is not what they really think. I had hoped for a degree of fairness from the Government—perhaps I was being unreasonably optimistic. There is nothing fair in 300,000 of the wealthiest—
Bill Esterson
The hon. Gentleman keeps coming back for more—I am intrigued.
Bill Esterson
If it were true that it helps the poorest people in our society, perhaps the hon. Gentleman would have a point, but it does not help many of the very poorest and it does not help those young people I was talking about who cannot find a job because the Government will not take action and because they cut the future jobs fund when they first came into office.
What we really needed from this Government was a Budget of fairness. Instead, we got that tax cut. What they should be doing is repeating Labour’s bankers’ bonus tax, which raised £3.5 billion—[Interruption.] Government Members do not have to take my word for it; they can take the word of the independent Office for Budget Responsibility, which they themselves set up. They are even questioning their own organisation’s figures. That £3.5 billion was nearly twice as much as the £1.8 billion raised by the bank levy. The bank levy is a start, but the Government could repeat the bank bonus tax and use the money to get young people back to work and the housing industry going. The temporary VAT cut would help small businesses that cannot get loans from the banks.
I know that people want to get home. [Hon. Members: “Hurrah!”] Always happy to oblige. We have had a Budget for the wealthiest in our society. The Bill gives help to the top 300,000 earners, but does nothing for young people or those out of work.
Sheila Gilmore
During the various debates on the Bill, there have been references to the 1980s and the 1970s. Does my hon. Friend agree that there were probably comments like the ones we heard tonight in the 1930s, when people in the south of England said that there was no depression?
Bill Esterson
I thank my hon. Friend for her comments —[Interruption.] If the right hon. Member for New Forest West (Mr Swayne) would like to make an intervention, I will happily take it.
My hon. Friend is absolutely right that we are seeing a repeat of what happened in the ’30s, and we have none of the policies necessary to get us out of this situation.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
Will the hon. Gentleman give way?
Bill Esterson
No, I am not going to take any more interventions; the hon. Gentleman can sit down.
We should be seeing the investment from the bank bonus tax and a temporary cut in VAT. The Bill—[Interruption.]
Mr Deputy Speaker (Mr Nigel Evans)
Order. Please—I cannot hear Mr Esterson speak.
Bill Esterson
The Bill does nothing to help grow the economy or get us out of the problems we face. The House should vote against it.
Question put, That the Bill be now read the Third time.
Business without Debate
Mr Deputy Speaker (Mr Nigel Evans)
With the leave of the House, we shall take motions 3 to 6 together.
Motion made, and Question put forthwith (Standing Order No. 118(6)),
Prevention and Suppression of Terrorism
That the draft Terrorism Act 2000 (Video Recording with Sound of Interviews and Associated Code of Practice) Order 2012, which was laid before this House on 10 May, be approved.
That the draft Counter-Terrorism Act 2008 (Code of Practice for the Video Recording with Sound of Post-Charge Questioning) Order 2012, which was laid before this House on 10 May, be approved.
That the draft Terrorism Act 2000 (Codes of Practice for the Exercise of Stop and Search Powers) Order 2012, which was laid before this House on 10 May, be approved.
Police
That the draft Police and Criminal Evidence Act 1984 (Codes of Practice) (Revision of Codes C, G and H) Order 2012, which was laid before this House on 10 May, be approved.—(James Duddridge.)
Question agreed to.
Motion made, and Question put forthwith (Standing Order No. 118(6)),
Education
That the draft Education (Amendment of the Curriculum Requirements for Fourth Key Stage) (England) Order 2012, which was laid before this House on 11 June, be approved.—(James Duddridge.)
The Deputy Speaker’s opinion as to the decision of the Question being challenged, the Division was deferred until tomorrow (Standing Order No. 41A).
Mr Deputy Speaker
With the leave of the House, we will take motions 8 to 12 together.
Motion made, and Question put forthwith (Standing Order No. 118(6)),
Energy
That the draft Renewable Heat Incentive Scheme (Amendment) Regulations 2012, which were laid before this House on 11 June, be approved.
Energy Conservation
That the draft Green Deal (Energy Efficiency Improvements) Order 2012, which was laid before this House on 11 June, be approved.
That the draft Green Deal Framework (Disclosure, Acknowledgment, Redress etc.) Regulations 2012, which were laid before this House on 11 June, be approved.
That the draft Green Deal (Qualifying Energy Improvements) Order 2012, which was laid before this House on 11 June, be approved.
Electricity
That the draft Electricity and Gas (Energy Company Obligation) Order 2012, which was laid before this House on 13 June, be approved.—(James Duddridge.)
Question agreed to.
European Union Documents
Motion made, and Question put forthwith (Standing Order No. 119(11)),
Financial Management: Annual Audit
That this House takes note of European Union Document No. 14879/11 and Addenda 1 to 3, relating to the Commission Report on the Protection of the European Union’s financial interests: Fight against fraud - Annual Report 2010, together with two unnumbered Reports from the European Court of Auditors dated 10 November 2011, relating to the Annual Report on the Activities Funded by the Eighth, Ninth and Tenth European Development Funds in the financial year 2010, and the Annual Report on the implementation of the budget concerning the financial year 2010; regrets that the EU budget has been given a qualified audit by the EU oversight body the Court of Auditors every year for the past 17 years; agrees that, in these challenging economic times, the same high standards applied to national budgets should be applied to the EU budget, especially as national taxpayers fund the EU budget; supports the Government’s decision to, for the first time, oppose signing off the EU budget earlier this year; and encourages the Government to continue to call for important and urgent improvements to the quality of EU financial management.—(James Duddridge.)
Question agreed to.
Violence against Health Workers
(12 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Nic Dakin (Scunthorpe) (Lab)
Our national health service employs more than 1.7 million people. Of those, just under half are clinically qualified, including 120,000 hospital doctors, 40,000 general practitioners, 400,000 nurses and 25,000 ambulance staff, as well as an army of other health care workers. Only the Wal-Mart supermarket chain, Indian Railways and the Chinese People’s Liberation Army directly employ more people.
On average, our health service deals with 1 million patients every 36 hours. That is about 500 people a minute or eight people a second. As those figures suggest, the size and volume of the NHS means that literally millions of interactions between patients and staff occur every single day. In the vast majority of cases, these interactions are positive and result in successful outcomes for patients and staff alike, which is why, simply put, the NHS is one of the best health care models on the planet. But sadly, things sometimes go wrong for patients and badly wrong for staff. The superb staff who provide such sterling service to the public can find themselves the victims of violence while working on our behalf to provide those very services. The purpose of this debate is to highlight this wrong and seek support from the Government for righting it.
The NHS management service’s latest statistics reveal more than 150 reported physical assaults on health care staff per day—and that is before verbal assault is taken into consideration. According to the latest 2010-11 NHS survey, 7% of NHS staff had been victims of assault in the previous 12 months. The Royal College of Nursing’s research reveals further troubling statistics, with almost 11% of those surveyed having been assaulted at work in the previous two years and more than 60% of all respondents having suffered verbal abuse at work. Indeed, one respondent commented that
“verbal abuse seems to just be accepted as part of our work”.
That is totally indefensible.
In Northern Lincolnshire and Goole hospital trust, which serves the Scunthorpe area, there were 13.1 assaults per 1,000 members of staff in 2009-10. Although that figure is below the national yearly average of 16.8 per 1,000, it is still far too high. One assault against any person simply trying to do their job in any profession, never mind people who routinely save lives every day, is completely unacceptable.
Two weeks ago, I joined a local ambulance crew for five hours of their 12-hour shift, and I was hugely impressed by the professionalism of the paramedic team and the staff at Scunthorpe general’s accident and emergency department. Patients were treated with great skill, care and dignity, which is exactly as it should be, but I was shocked to learn that the fantastic paramedic I was with had gone to a house call about a year ago and was seriously assaulted by the man he had gone to help. He was chased around the house by the man, who violently and persistently assaulted him. The assault was so bad that it resulted in his being off work for six months.
I received today this e-mail from a staff nurse at Scunthorpe general hospital:
“I understand that you are taking part in an adjournment debate tonight on the above subject. I was assaulted by a patient in January this year. With colleagues I went to clean up a patient that…had attacked a nurse earlier in the day and no one felt able to approach him since. I was subjected to a violent attack which meant I was on sick leave for three months. I have had intensive physiotherapy and still attend physio regularly. I suffered a needlestick injury while trying to sedate the patient and will be tested for blood borne viruses in the next few weeks. During the time I was off work and, for some time since, I have been in constant pain, I had limited use of my right arm and restricted movement of my neck. I could not hold a pen to write or brush my teeth. Everyday tasks took hours and I became depressed and withdrawn. Even now I am unable to perform all my duties as a nurse. Yet, mine was not a serious injury. I have made considerable improvement but will always have some level of pain and restriction of movement.”
She goes on to thank us for raising this issue in Parliament.
Jim Shannon (Strangford) (DUP)
I congratulate the hon. Gentleman on bringing this issue to the Chamber, and I wish to associate myself with his comments. In Northern Ireland, including in my constituency and in particular the Ulster hospital, there have been several attacks on accident and emergency personnel and ambulances. It is not specific to Scunthorpe but happens across the UK. Would better co-ordination between the hospital authorities, ambulance and emergency personnel and the police be a way of addressing some of these issues?
Nic Dakin
I thank the hon. Gentleman for his comments. He reminds us that, sadly, the problem affects people across the nations of the United Kingdom. I will come to the issue he raises later, but I want now to quote the final comments of the nurse who wrote to me:
“You can have no idea what it means to have this problem recognised and debated. I do not expect to be compensated in monetary terms for the pain I have suffered or the possibility that I may not be able to work to retirement age but I do want to see measures put in place to effectively protect staff who are expected to deal with difficult and violent patients.”
The costs of such assaults are multi-fold. There is the cost to the NHS of care for the victim, the cost to the NHS of the health worker’s absence from work and the possible loss of an employee if recovery is not complete. Added to that is the potentially devastating impact on the health worker’s own health and well-being, with further strain on family, friends and the wider community. I would like to pay tribute to all the fantastic people working in the NHS, including the people and organisations working hard to prevent such violence from taking place against health workers. Northern Lincolnshire and Goole Hospitals NHS Trust has launched an e-petition to heighten public awareness of the issue. The fact that the trust has recognised it in this way is to be applauded, but there is much more to be done. That is why the trust’s partnership approach, working with Unison and others to find ways of practically addressing the issue, is to be welcomed.
NHS Employers—part of the partnership for occupational safety and health in health care—is also actively involved in raising the issue of violence and aggression against staff, and is looking at how it can be managed, working hard to help create healthy and productive workplaces. Work is also under way—led by NHS Protect, with input from the Royal College of Nursing and others—to look at preventing and managing physical assaults on staff which result from a patient’s underlying medical condition, such as dementia. Many physical assaults result from a patient’s underlying clinical condition, but rather than ignoring this, steps can be taken to reduce the risks. Work to take these positive initiatives forward needs to be systematically supported and funded if it is to bring real change and reduce the risk to health workers from such patients.
All these initiatives are positive and to be welcomed. However, I want to highlight a number of concerns raised with me by the Royal College of Nursing, Unison and others. I am keen for the Minister—who I know is committed to ensuring that the Government do their best in this area—to say in his response what practical steps the Government are taking to address those concerns. The Government have funded work by the Design Council with a limited number of A and E units to reduce violence through design solutions. That is to be welcomed. How will the work be evaluated, and how will any improvements to the safety of staff and patients in such units be shared and implemented more widely? With the end of Secretary of State directions, which required NHS trusts to have measures in place to protect staff, how will it be possible to ensure that all provider services meet standards similar to those currently set under Secretary of State directions? They include access to a local security management specialist, training on conflict resolution, central reporting of physical assaults and a requirement to follow policies and guidance—for example, lone working guidance—published by NHS Protect.
Lone working nurses and health care workers absolutely need protection. They often form an invisible work force. Many health workers already work alone with limited, if any, back-up or support. The quite proper policy direction of providing more services in the community means that more health workers are likely to find themselves in potentially vulnerable situations as sole workers. How will Government ensure that there are systems in place to minimise risk and protect the work force?
Full consideration needs to be given to the possible impact of changes in health care delivery combined with efficiency savings on the likelihood of risk of violence against staff. In particular, a risk assessment of the impact of closing units, lengthening A and E waiting times and staff shortages needs to be undertaken and the effects mitigated. That needs to be recognised. In this climate of cost-cutting and austerity, how can we be certain that such measures will be put in place to reduce the risks to staff? Staff who report incidents need more support from their employers and the police. They need feedback after they have reported incidents, and they need to know what action is being taken to prevent any reoccurrence. Lack of feedback and support can lead to under-reporting of incidents and reduced morale.
I welcome the fact that pressure from Unison has resulted in a change to the code for Crown prosecutors to increase the number of prosecutions for assaults on public servants. The closer working relationship between NHS local security management specialists and trade union safety representatives has been a positive development. NHS Protect has also agreed protocols with the police and the Crown Prosecution Service. Under the memorandum of understanding with the Association of Chief Police Officers, the police are committed to progressing all cases of violence and abuse against NHS staff as a priority. The Crown Prosecution Service has also made a commitment to
“work with the police to ensure that these cases are treated with the seriousness that they deserve and encourage a robust charging policy”.
It is crucial that that should lead to a more consistent approach by police forces to following up the perpetrators of either physical or verbal abuse. RCN research suggests that police follow-ups are sometimes inconsistent around the country. Some forces follow up complaints robustly and work closely with local hospitals, but others appear reluctant to get involved in procedures, especially when the incident involves a patient with an underlying mental health condition. Such incidents in particular need more close examination, as a significant number of physical assaults on health workers are by patients with underlying mental health problems. How can the Government ensure that the memorandum of understanding between ACPO, the CPS and NHS Protect will be consistently and effectively implemented?
The reporting and investigation of assaults also need to be properly addressed. According to the RCN survey, although only about 11% had suffered physical abuse at work, 74% of the incidents they recalled were never reported to the police. Staff need to be confident that they will be supported by their employers and the police. They need to be given the confidence always to report assaults. There needs to be a culture of trust that, when reported, such assaults will be taken seriously and fully investigated, with proper support given to the victims. Proper feedback and support in the reporting process will help to keep up morale in the NHS work force and reassure staff that they should not expect to be put in danger while carrying out their duties on behalf of all of us.
In this age of austerity, budgets are being squeezed, and organisations that protect workers are being asked to do important jobs with a lot less funding. For example, the Health and Safety Executive, which plays an important role in keeping people safe at work, has had its work force reduced by a third in the last 10 years, with the number of inspections that it carries out falling from 75,000 to 23,000 a year. That could lead to the real danger of worker safety being jeopardised, which makes it even more important for NHS employers to take completely seriously the need to protect their work force and minimise the risk of attack from patients. Health and safety is not red tape; health and safety saves lives.
Worryingly, the cuts in NHS and local authority budgets and in the Health and Safety Executive are in danger of combining with the confusion caused by the NHS reforms to cause local security management specialists to become increasingly reliant on safety representatives to help them to identify those work areas in which NHS staff will be most at risk. Many local security management specialists used to work with primary care trusts. With the abolition of PCTs, there is a possible danger of confusion and uncertainty about their role in the workplaces that they cover. How will the Government ensure that the risk inherent in the changes does not lead to more health care workers finding themselves in situations in which their personal safety is put at risk?
Every single person should be able to go to work without the fear of physical harm. I strongly back Unison’s calls for a zero-tolerance approach to safeguarding NHS staff. Everyone needs to work together with a clear and persistent focus to make sure that all staff can carry out their work free from the fear and the threat of physical or verbal assault. When individuals are found guilty of attacks on health care workers, that should inform the sentencing and be treated with the utmost seriousness.
As Julian Corlett, Unison branch secretary for Scunthorpe general hospital, wrote to me:
“Violence directed at health workers is never acceptable and is not part of the contract of employment. We must dispel the myth that violence in the NHS is inevitable, or unpredictable and therefore uncontrollable. It therefore remains our key objective to see a significant and sustained reduction in the number of violent incidents directed at NHS staffs across the country, with more prosecutions and severe sanctions for those perpetrating such violence. There has to be the presumption that those committing these offences are more likely to face prosecution than not if we are to see sustained reductions in the figures anytime soon.”
Julian speaks from experience with great passion and clarity; his words will echo round this Chamber and in the world outside it. We should be vigilant and proactive in ensuring the safety of those who work within the NHS. In the words of the children’s laureate, Michael Rosen, on the 60th anniversary of the NHS, we must do all we can to protect the
“hands that touch us first...and the hands that touch us last”.
The Minister of State, Department of Health (Mr Simon Burns)
I begin by congratulating the hon. Member for Scunthorpe (Nic Dakin) on securing this debate on violence against health care staff. It is an issue that every Member of this House can agree is totally and utterly unacceptable in every instance. I would like to praise the reasoned and measured way in which the hon. Gentleman made his points. I also share with him the disgust about what has happened to some of his constituents who work—day in, day out—on behalf of patients in his constituency. Sadly, this problem is not restricted solely to his constituency, as it applies to all constituencies where, regrettably, acts of violence are directed against NHS staff. I can assure him that this Government have zero tolerance of that sort of treatment —physical or verbal—against people who work in our NHS on behalf of patients.
Violence against health care workers can never be tolerated. Nobody should expect to suffer violence at work. This is especially the case for those who are committed to caring for others. Clearly, the human cost alone makes it unacceptable; although the physical effects may be transient, the deeper emotional scars can often last a lifetime. Beyond the effect on the individual, too, there are other factors: the disruption to services caused by the incident and its aftermath; the impact on staff welfare, sickness absence, recruitment and retention and the cost of additional security, all of which divert resources, human and financial, away from providing health care.
In short, the cost to the NHS of violence is huge and it affects us all. I am determined that we should do all we can to prevent violence against health care staff and to take the toughest possible action when violence does occur to ensure that those responsible are held accountable for their actions. From the outset, the Government have been committed to taking action to tackle the problem of violence. We have encouraged NHS organisations to work more closely with their local police forces to clamp down on anyone who is aggressive or abusive to staff—and while we may have made progress, there is still a long way to go.
In 2010-11, the latest year for which figures are available, there were almost 58,000 reported physical assaults on members of NHS staff. Hon. Members are able to consult the reported figures for each health body, as these are placed in the Library each year. In the majority of those assaults—some 40,000—the patient’s medical condition was a factor. This means the culpability of the assailant may have been in question or that a legal sanction may not have been appropriate. However, that still leaves some 18,000 cases in which the assailant’s medical condition was not a factor. While this number is smaller than for the previous year, it is nowhere near small enough: 18,000 is 18,000 too many. We are committed to taking whatever further action is required. The hon. Gentleman expressed concern about sanctions and convictions. I can tell him that sanctions against offenders, ranging from cautions to fines to imprisonment, have increased—there was a 24% increase in 2010-11—but the number is still not high enough.
We are taking action in a number of ways. Some are new, while others have succeeded in the past and we have therefore continued to support them. Of course, the main priority is to prevent violence by protecting staff and managing high-risk situations before they escalate. NHS Protect, which the hon. Gentleman mentioned, is the body that leads the work to tackle crime throughout the health service. It has identified violence against staff as one of its key priorities for 2012-13, and has developed a work programme aimed primarily at preventing assaults.
There are trained security management specialists at more than 90% of NHS trusts in England. They are responsible for investigating security breaches, along with the police, and for implementing new systems to protect NHS staff more effectively. NHS Protect supports NHS organisations by providing advice, assistance and best-practice guidance.
The Criminal Justice and Immigration Act 2008 introduced powers to deal with antisocial behaviour on NHS hospital premises, which enable an authorised person to remove those who are suspected of creating a nuisance or disturbance. A three-year training programme funded by the Department of Health and managed by NHS Protect, which will end in April 2012, has enabled more than 600 staff at over 80 hospitals to be trained in the implementation of the Act. They have been empowered to respond to disruption such as foul language and verbal abuse, intimidating gestures, excessive noise in waiting areas or wards, and the obstruction of thoroughfares. Feedback from staff trained by NHS Protect in the use of the Act’s provisions indicates that the powers are working well in practice on the front line, helping to provide a safer environment for NHS patients, staff and visitors.
The hon. Gentleman raised the important issue of design, particularly but not solely in accident and emergency departments. In November last year, I was pleased to be able to speak at the launch of a project organised jointly by the Department of Health and the Design Council involving the use of design to reduce violence in A and E departments. Leading experts developed and tested potential solutions and identified areas for action. We are currently in the implementation phase of that project. Early indications are positive, but in order for the impact of the solutions to be fully evaluated, a detailed framework has been generated by the design team to record both quantitative and qualitative data. Those data will generate the evidence base that will formally endorse the concepts, proving their efficiency and their impact on the costs of violence and aggression in A and E departments. The evaluation has not yet finished, but we hope to communicate the results later in the year.
The Government intend to change the legal framework in respect of antisocial behaviour. One of those changes is designed specifically to tackle antisocial behaviour affecting the NHS. As Members may have noted from the Home Office White Paper that was issued in May this year, we propose that NHS Protect be named as a relevant authority to apply for crime prevention injunctions. That is intended to enable a quicker response to the problem of antisocial behaviour, and to avoid the need for the police or local authorities to apply for injunctions on behalf of an NHS body.
While much of the work will focus on assaults for which the person committing the act can be held responsible, we will not ignore cases in which a person’s medical condition is a factor in violence, especially as such cases represent the majority of reported physical assaults against NHS staff. NHS Protect is working with a clinically led expert group to develop guidance on the prevention and management of violence in circumstances in which the medical condition of a patient puts staff at greater risk of assault.
When necessary, we need to challenge the idea that the existence of a particular medical condition is a bar to prosecution. Whenever an assault occurs, an assessment of the assailant's culpability must be made. When assailants cannot be considered legally culpable for their actions, prosecutions cannot be appropriate, but when assessments reveal that people were in control of their actions and knew what they were doing, there should be a presumption that sanctions will be sought. Indeed, there is some clinical opinion that such action can assist in making a person understand the impact of their behaviour, and so affect it in a way that discourages repeated incidents. For action to be taken against offenders, we first need staff to report when they have been subject to violence, either verbal or physical. That staff have confidence in the action that will be taken is paramount in encouraging them to do so, and the role of the local security management specialists is key to that.
All the initiatives I have mentioned are designed to prevent violence from occurring. We must, however, remain prepared for the times this prevention activity is not as effective as we would like it to be. When violence does occur, we need to ensure that those responsible are held to account.
To pick up on the valid point the hon. Gentleman made about joint collaboration, NHS Protect has signed a three-way agreement with the Association of Chief Police Officers and the Crown Prosecution Service, with the stated intention of curbing violence and antisocial behaviour in the NHS. This agreement recognises that the police and the CPS are bound by guidance and codes of practice on communications with victims and witnesses, and that employers have a duty to support in every way they can staff who have been victims. This joint-working agreement supports the Government’s commitment to act. NHS Protect will this year be working to translate this national agreement into local protocols for more effective collaboration between the police, the CPS and health bodies in seeking appropriate sanctions for acts of violence. NHS Protect is currently identifying best practice in the management of physical assaults in mental health settings, with a view to issuing specific guidance for that sector. This will include working with the police to take forward prosecutions where it is appropriate to do so.
The hon. Gentleman also raised the important issue of how to protect the lone worker. To better protect lone workers, NHS Protect led the delivery of a lone worker alarm service for the NHS. Over 40,000 staff, and more than half of NHS trusts across England, now use this service, which enables a lone worker to signal covertly for help from the emergency services if they find themselves in a dangerous situation. The service also provides a system control centre, which enables listening to, and recording of, incidents in case evidence is later needed as part of a prosecution.
I wholeheartedly share the hon. Gentleman’s concern about violence against health care staff. We should always do everything we can to prevent it, and when we cannot prevent it, we should seek the strongest sanctions against those responsible.
I hope that the hon. Gentleman and the House are reassured by my account of the work we are undertaking, and by the Government’s and my own personal commitment to tackling this completely unacceptable problem.
I thank the hon. Gentleman. He rightly holds this subject very close to his heart. The Government share his concern, and we are determined to do all we can to minimise the cowardly, dastardly and disgusting attacks on people who do so much to help the frail, the vulnerable and the sick in this country.
Question put and agreed to.
Ministerial Correction
(12 years, 4 months ago)
Ministerial CorrectionsRead Full debate Read Hansard Text
Deputy Prime Minister
(12 years, 4 months ago)
Ministerial CorrectionsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Deputy Prime Minister (Mr Nick Clegg)
In summary, although Rio+20 did not go as far as we would have liked, it revived a global commitment to an agenda that has come gravely under threat. Progress was made in the areas where progress needed to be made. The declaration agreed by all 196 countries should not be seen as the upper end of our ambition; it should be our baseline and we should all strive to surpass its expectation. We must build on the steps that were taken to reinvigorate the drive for sustainable development and lasting growth.
[Official Report, 26 June 2012, Vol. 547, c. 162.]
Letter of correction from Nick Clegg:
An error has been identified in the oral statement given on 26 June 2012. The statement should have read:
The Deputy Prime Minister (Mr Nick Clegg)
In summary, although Rio+20 did not go as far as we would have liked, it revived a global commitment to an agenda that has come gravely under threat. Progress was made in the areas where progress needed to be made. The declaration agreed by over 190 countries should not be seen as the upper end of our ambition; it should be our baseline and we should all strive to surpass its expectation. We must build on the steps that were taken to reinvigorate the drive for sustainable development and lasting growth.
Petition
Value Added Tax on Savoury Products
Westminster Hall
Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Elections (National Assembly for Wales)
(12 years, 4 months ago)
Westminster HallRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Paul Murphy (Torfaen) (Lab)
I am grateful for the opportunity to raise this important issue in Westminster Hall. This debate was intended to occur two weeks ago, but as that clashed with the Welsh Grand Committee, the usual channels and I agreed to postpone it for the convenience of Members who represent Welsh constituencies, and one who does not—the Secretary of State for Wales. There has been a bit of fuss about another Welsh Grand Committee that was planned for yesterday, but for which only half a week’s notice was given. The whole thing amounts to something of a fiasco, in terms of debating the exceedingly important issue of the electoral arrangements for our Assembly in Wales. The subject has been debated at length and with great expertise and skill by those in the House of Lords, and in my view, this debate should have been held not in Westminster Hall but on the Floor of the House.
Chris Ruane (Vale of Clwyd) (Lab)
Did the Secretary of State give any reason why only half a week’s notice was given of such an important Committee?
Paul Murphy
Not to me, although I am sure that my hon. Friend the Member for Pontypridd (Owen Smith), who will wind up for the Opposition, will touch on that. I am sorry that the Secretary of State is not here. I have a great deal of time and respect for the Minister, but on this occasion the Secretary of State should be present. Secretaries of State sometimes think that they are too grand to come to debates in this Chamber, but when I was Secretary of State I certainly took part in Adjournment debates. I think that she should be in this Chamber, but she is not, and we will hear what the Minister has to say.
Susan Elan Jones (Clwyd South) (Lab)
My right hon. Friend is a distinguished Member of this House and a former Secretary of State for Wales. Does he agree that the fact that the Secretary of State is not here is totally disrespectful to Welsh Members? I venture to suggest that if we had been a group of community campaigners from Buckinghamshire who were opposed to High Speed 2, she would have been present, even if it was 6 o’clock in the morning. Is it not time for her to turn on her alarm clock and show Wales a bit more respect?
Paul Murphy
None of this is a surprise to me, because it follows the pattern of what happened when we discussed parliamentary constituencies during the progress of the Parliamentary Voting System and Constituencies Bill. There was no adequate debate on the Floor of the House; the guillotine fell, and we did not really have the chance to discuss the issues for Wales. Furthermore, the Secretary of State refused point blank to hold a Welsh Grand Committee on the issue. But enough of that; I am sure that the Minister will be able to explain the Secretary of State’s absence in his concluding remarks.
I wish to come to the essence of the debate, which is the Government’s Green Paper concerning electoral arrangements for our National Assembly in Wales. I will not touch on some of the more peripheral issues, but will rather focus on the central matter of how boundaries are configured and how constituencies are worked out in Cardiff. The Green Paper is flawed for two reasons. First, it is almost exclusively based on partisan grounds, and follows the pattern of the gerrymandering that we saw in the case of parliamentary constituencies. Secondly, that is backed up by the fact that there are only two options in the Green Paper, which is deeply wrong.
If we want a proper debate on how Welsh Assembly Members are elected, to say simply that the status quo is one option and the other is a 30-30 match—30 directly elected Members and 30 top-up Members—is not the end of the story, and other possibilities should have been included in the paper for consideration. I may disagree with most of them, but that is not the point—the option should be there. There is a genuine argument, with which I know the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd) and his party—and, I suspect, the Liberal Democrats—agree, regarding the single transferable vote. I do not particularly believe in that, but it should have been an option in the Green Paper.
The option that I favour should also have been considered: retaining the 60 Assembly Members and having two Assembly Members per new parliamentary constituency. I would favour the election of those two Members by first past the post, but they could be elected under the alternative vote system.
Jonathan Evans (Cardiff North) (Con)
The right hon. Gentleman spent a good deal of time talking about the Secretary of State, but I am rather sad that he did not mention the full turnout of Conservative MPs from Wales. He is touching on electoral arrangements, and proposing, in essence, that we move away from the system of proportional representation. As he will know, I debated these issues with Ron Davies, then Secretary for State for Wales, during the course of the referendum campaign. Ron Davies promised the people of Wales that there would be a proportional system. Does the right hon. Gentleman think that before a change is made to any electoral arrangements, the matter should be put to the people in a referendum?
Paul Murphy
The answer to that is yes; I believe that to be the case for major electoral changes, and I will come on to that point, because it is an important part of today’s debate. I am not necessarily saying that we should move away from the proportional system. I would favour a first-past-the-post arrangement and, after the referendum that was held on the alternative vote, I think that the people of Wales would, too, but I would argue that the options should be in the Green Paper, so that the people of Wales have the opportunity to debate and discuss them, and eventually to decide on the method by which their Assembly will be elected.
Ian Lucas (Wrexham) (Lab)
We have all gone through the process of the Boundary Commission inquiry into parliamentary boundaries. Does my right hon. Friend find it extraordinary that this proposal was made after all those hearings had ended, and that the Assembly boundaries were not part of that process? Would it have been better for the issue to have been put forward for consideration at that initial stage?
Paul Murphy
Of course it would. The reason why it was not is that the system is entirely partisan.
Chris Ruane
My right hon. Friend is generous in giving way. To go back one step, it is my understanding that the Prime Minister told the First Minister that no constitutional issues would be sprung on him or on the National Assembly. That involved an element of trust. There is no mandate for the changes that we are discussing in the Tory manifesto. A promise was made to the First Minister that the changes would not go ahead, yet they were sprung on him. What does that do for the trust between Britain and Wales?
Paul Murphy
It seriously damages it, and I will come on to that issue in a second.
Alun Cairns (Vale of Glamorgan) (Con)
Does the right hon. Gentleman think that the grandstanding from Opposition Members, and even some of the so-called logical arguments that he presents, are undermined by a former Secretary of State, and a former Labour Government, who went against guidance from the Electoral Commission when they changed the electoral system?
Paul Murphy
No, because I think those issues were different at the time. The other option that is not in the Green Paper is the question of whether top-up Members of the National Assembly should be elected on an all-Wales basis, as opposed to a regional basis. Personally, I think that would be more logical, and that there should be a list system for Members elected by proportional representation. My point, however, is that these debatable options should have been put to the people of Wales but were not, and that is why the Green Paper is flawed.
My hon. Friend the Member for Vale of Clwyd (Chris Ruane) touched on the assurances that were given to the First Minister of Wales concerning electoral arrangements for the National Assembly. I understand that the Secretary of State said last week that no such assurances were given, but I want to provide the Chamber with two quotations from what was said when the National Assembly debated the issue some weeks ago. The first comes from the former Presiding Officer of the National Assembly, Lord Elis-Thomas:
“Would it surprise the First Minister to know that, when I was Presiding Officer…I received assurances from the Prime Minister…and the…Secretary of State that there would be no change in our boundaries to coincide with Westminster boundaries?”
The First Minister, Carwyn Jones, answered:
“I received an assurance on two occasions from the Prime Minister that there would be no change without the consent of the Assembly, and I am on record as saying that. I took that assurance in good faith and I expect it to be adhered to. However, the reality is that Scotland will continue to have different boundaries for Scottish Parliament and UK Parliament constituencies. If it works in Scotland, what evidence is there that it could not work in Wales? None is offered.”
The point is that there is obviously a huge difference of opinion between the First Minister and the former Presiding Officer on one hand, and the Secretary of State on the other. Whom are we to believe in this instance? The First Minister has made it absolutely clear to me and to others that such an assurance was given.
The Parliamentary Under-Secretary of State for Wales (Mr David Jones)
The right hon. Gentleman has mentioned the First Minister’s recollection of what my right hon. Friend the Prime Minister said to him. It is important at this juncture to make it absolutely clear that that is not a recollection that is shared by the Prime Minister.
Paul Murphy
In which case someone is telling untruths. The reality is that the former Presiding Officer, Lord Elis-Thomas, confirms that he was told exactly the same thing as the First Minister. Whom are we to believe? If there are such vast differences of opinion on this matter, the Government should rethink their whole strategy on the Green Paper.
Ian Lucas
The intervention from the Minister is very significant, because when I put this question specifically to the Secretary of State last week, she said that she was not aware of the conversation between the Prime Minister and the First Minister. She was very careful in the wording that she used with me. When the Minister winds up the debate, I would like him to be very clear that the Prime Minister is denying that he said to the First Minister that the assurance was given. Will the Minister confirm that, because if that is the case, someone is not telling the truth?
Paul Murphy
Of course they are not, and the point about this whole business is that it undermines the trust between the two Governments and the two Parliaments. It cannot be the case that the First Minister did not discuss such an important issue with the Prime Minister when the Prime Minister visited Cardiff—or, indeed, with the Secretary of State. It is so fundamental to the future of the National Assembly and the way in which it is elected that it seems impossible that the issue would not have been discussed, and that assurances would not have been given. I cannot go any further, because on the one hand the Minister says that the assurance was not given, and on the other Lord Elis-Thomas and Carwyn Jones say that it was.
Mr David Jones
I am grateful to the right hon. Gentleman for giving way to me again, because clearly this is a matter on which Opposition Members would like further clarification. The position is clear so far as the Prime Minister is concerned: he agrees that the electoral arrangements for the Assembly are not within the Assembly’s devolved competence. That is a point on which the First Minister appears to agree. When they had their discussion, the Prime Minister said that the Assembly should be fully engaged in the process. He does not recall, as the First Minister seems to recall, saying that the matter was to be decided by the Assembly itself and, indeed, the notes of the discussion do not reflect the First Minister’s recollection of the conversation.
Paul Murphy
Whoever said what to whom, the reality is that we are now in a fine old mess over it. It seems to me that the Government should go back and rethink their whole approach, not just on the Green Paper, but on how they handle relations with the National Assembly, the Welsh Government and the First Minister.
Alun Michael (Cardiff South and Penarth) (Lab/Co-op)
It is inconceivable that the First Minister would not recall precisely what he was told, and what he understood he was being told, on a matter of this importance. However, I am sure that the matter is of lower importance to the Prime Minister. The point is that the integrity of discussions between Government and Ministers in the Welsh Government is in question as a result of the withdrawal from an assurance that was heard, so we understand, on more than one occasion by both the First Minister and the former Presiding Officer.
Paul Murphy
One wonders how much the Prime Minister knows about the details of these things. Sometimes confusion arises because of that. However, my right hon. Friend the Member for Cardiff South and Penarth (Alun Michael) is right to say that this opens up a serious chasm between the Government in Wales and the Government here in London, which is highly regrettable, because that is in no one’s interest.
The point that is so important and that came through very clearly in the debate in the National Assembly is that the Government and Parliament here have the legal right to take the decision with regard to the electoral arrangements for Wales, just as they have the legal right to abolish the Welsh Assembly, but they ain’t going to do that. They have no moral right to do those things without the consent of the Welsh people, or those who represent the Welsh people.
The point has constantly been made—those of us who were about in those days will reinforce this—that, as everyone knows, the decision to establish devolution in Wales was based on a very narrow majority. Nevertheless, it was a majority. The people of Wales took part in a highly charged referendum campaign. In that campaign, what was put to the people of Wales was the electoral arrangement that now stands. They voted on it on the basis that it was part of the package. That means, in my view, that we cannot unravel such a basic platform of devolution without either asking the people of Wales about it in a referendum, as the hon. Member for Cardiff North (Jonathan Evans) said, or getting the absolute agreement, by consensus, of all the political parties in the National Assembly. That is the moral thing that should happen. It is not necessarily the legal thing that should happen, but in moral terms, it seems absolutely the case that before anything goes ahead, it should have either the approval of the people in a referendum, or the approval of the directly elected representatives in the Welsh Assembly, once they have reached consensus, on the basis that no political party, and particularly not the Conservatives, went into the election—either the general election or the election for the National Assembly—with a mandate for this change.
Jessica Morden (Newport East) (Lab)
My right hon. Friend makes a very powerful point. I can honestly say that no one has come to me recently in my constituency clamouring for change in the electoral system or the make-up of the Welsh Assembly. Does he think it bizarre that the Secretary of State is expending energy on the Green Paper at a time when she should be concentrating on jobs and growth?
Paul Murphy
Absolutely. The Secretary of State should also be trying to ensure that she has reasonably good relations, despite the political differences, with the Government in Cardiff. It seems to me that there is almost a permanent state of civil war between the United Kingdom Government and the Welsh Government on various issues. That has come to a head on this point about the electoral arrangements.
Susan Elan Jones
My right hon. Friend has been very generous with his time. Does he, like me, think it is significant that Conservative Members in the National Assembly for Wales have concerns about the matter? Take, for example, the statement of opinion signed by the Minister’s counterpart in Clwyd West, Mr Millar, and by Mr Paul Davies and Mr Russell George. It says:
“This Assembly recognises that there is absolutely no mandate to change the current electoral system in Wales and that any future change should be put to the people of Wales.”
I am sure that, like me, my right hon. Friend the Member for Torfaen (Paul Murphy) will be very interested to hear the Minister tell us who he thinks speaks for the people in Ruthin market on this issue—him or Mr Millar.
Paul Murphy
Indeed. My hon. Friend has pre-empted me; I intended to give a similar quote from the very same Member of the Assembly. Darren Millar said to the Western Mail some time ago that the Welsh Assembly Conservative group
“has made its position very clear. We have said we want the status quo to continue. We don’t want any change. That’s our position. We think the 40:20 position we have with the existing boundaries is perfectly adequate.”
Not even the Conservatives—the Secretary of State’s friends in the Assembly in Cardiff—agree with the Green Paper, so what is she doing this for? What is the point of it? Unless she gets consensus and agreement, this will be a running sore between the two Governments and the two Parliaments.
Jonathan Evans
Will the right hon. Gentleman clarify a point? I thought that the option to which he refers is option 1 in the Green Paper.
Paul Murphy
Reading the Green Paper, it is clear to me that the Secretary of State’s preferred option is option 2. That is rather different, particularly bearing in mind that she has been telling everyone that she has the right to do this and the right to do that, because she is the Secretary of State for Wales. So was I, but one can have a legal right to do something, but not a moral right. There certainly is no moral right to do this from Chesham and Amersham.
Dr Hywel Francis (Aberavon) (Lab)
A moment ago my right hon. Friend asked the rhetorical question: what is the point of all this? I suggest that the point—I hope that this is not true—is that, cynically, the Secretary of State wishes to undermine devolution. She has eloquently pointed out the background to devolution, the struggle to achieve it and the very narrow majority for it. On my right hon. Friend’s watch, and that of previous Labour Secretaries of State, we developed the strategy of partnership, and now we see it unravelled.
Chris Ruane
I thank my right hon. Friend for giving way a third time. My hon. Friend the Member for Aberavon (Dr Francis) says that a reason why the Tories propose the change is to undermine devolution. I suggest a reason on top of that: it fits in with a raft of legislation. There is the equalisation of seats, for party political advantage; the bringing forward of individual electoral registration by one year, with consensus smashed, for party political advantage; and this new proposal, put forward for party political advantage. If one party acts without consensus, another party—it might be us next time, in 2015—could adopt a similar position.
Paul Murphy
In the past, issues as important as these constitutional questions have been the basis of consensus among political parties, whether in Westminster or in Cardiff. We had no consensus whatever on the Parliamentary Voting System and Constituencies Act 2011. That legislation was entirely for party advantage, although the boundary review in Wales turned the tables on those who thought that they would get an advantage out of it. The Prime Minister wants consensus now. On the reform of the House of Lords, for example, he wants all the parties to come together and agree on something. That is different, is it not? In that case, he wants something to happen, but there is no consensus here.
I will conclude, because many other Members want to take part in the debate. The Scotland Act 2012 was passed by this Parliament. It gave extensive new powers to the Scottish Parliament, but was also based on the consent of Members of the Scottish Parliament. Why not have that in Wales? Why not base suggestions—in the Green Paper, or elsewhere by the Secretary of State—on the consent of the National Assembly for Wales and the political parties there, or, if that does not work, the consent of the people of Wales in a referendum?
Guto Bebb (Aberconwy) (Con)
It is a pleasure to serve under your chairmanship, Mr Hollobone.
I listened to the opening remarks of the right hon. Member for Torfaen (Paul Murphy) with a degree of interest, but also with surprise. The implication in the comments is that the Labour party in Wales is not partisan, but anybody who lives in Wales is very aware that if there is one party in Wales that is partisan, it is Labour. The changes in 2006 were made with no consultation and the offered guidance was rejected for party political purposes, but we have already heard this morning that that was different.
Chris Ruane
I thank the hon. Gentleman for giving way. In 1997 we came in with a majority of 180, so if the Labour party was simply seeking party political advantage, we would have steamrollered the legislation through. We could have had first-past-the-post and controlled Wales for ever, but we did not do that. We introduced proportional representation, and we did the same in Scotland and for European elections. All the constitutional steps we took over 13 years were taken with consensus, but these arrangements are steamroller government on important constitutional issues.
Guto Bebb
Once again, the hon. Gentleman has not responded to the point about 2006. As a result of the changes, we lost very good Assembly Members, not least my hon. Friend the Member for Montgomeryshire (Glyn Davies), who would have stayed with the Assembly were it not for the fact that changes were made to the rules specifically to damage the opposition parties. [Interruption.] I hear Labour Members talk about democracy, fairness and party advantage, but I will take no lessons from them whatsoever.
Another key point is that a Green Paper is all about consultation. It is part of a consultation process. Why is the Labour party so scared of consultation? Because it does not do it in a Welsh context.
Paul Murphy
The hon. Gentleman will recall that the change in the Government of Wales Act 2006 with regard to Members not being able to stand as an Assembly top-up or an Assembly first-past-the-post Member was based on a Labour election pledge. There was an electoral pledge and it had a mandate.
Jonathan Evans
On the point that the hon. Member for Vale of Clwyd (Chris Ruane) raised, at the time of the referendum on creating the Assembly, was it not the case that Labour pledged that there would be a referendum? Furthermore, Plaid Cymru and the Liberal Democrats certainly would not have supported the creation of an Assembly without ensuring that there was an appropriate proportional system of election. Bearing in mind that the outcome was 4,000 votes in 1 million, is it not likely that we might not have had an Assembly at all?
Alun Michael
Let us remind the hon. Gentleman of two things: first, as other hon. Members have pointed out, Labour created a system that deliberately went against its political interest in order to have balance and give an opportunity to smaller parties; and, secondly, in the 2005 general election Labour committed to dealing with some problems that had arisen in the Assembly, particularly the separation of government from the Assembly as the body to which the Welsh Government are accountable. That was an election issue, which was dealt with in advance of those changes being made in legislation.
Guto Bebb
I am sorry to say that the right hon. Gentleman shows the arrogance of Labour. The Labour party did not create the Assembly. The people of Wales created the Assembly. I accept the comments made by my hon. Friend the Member for Cardiff North (Jonathan Evans); the decision of the people of Wales to say yes to the Assembly was based on the offer made. It was not a gift from the Labour party. It was a decision taken by the Welsh people, and the Welsh people are not the same as Welsh Labour. Some Opposition Members should remember that.
To return to the key issue, we are discussing a Green Paper. What surprises me is the fact that the Opposition do not seem to understand the word “consultation”. They do not accept that the document is for consultation. The hon. Member for Clwyd South (Susan Elan Jones), for example, highlights the possible difference of opinion between the Assembly Member for Clwyd West and the Minister, my hon. Friend the Member for Clwyd West (Mr Jones). I have not heard the Minister state his opinion on the issue, but I have seen him present the Green Paper.
I am proud to stand here on behalf of the party that has democratic debate among its members. We are willing to debate the issue and contribute to the Green Paper and consultation, because the issue is of concern to the people of Wales. We are asking whether we want a system similar to that in Scotland, with boundaries for the Scottish Parliament that are not the same as the Westminster boundaries. That question is worthy of discussion. I am the MP for Aberconwy, a constituency that, under the proposals for changes to the Westminster boundaries, will probably disappear into a seat called “North Wales Coast.” We shall see whether that is the ultimate resolution.
There is no doubt but that there was a manifesto commitment to change the Westminster boundaries, and as a result of that commitment, there is an issue as to whether constituency boundaries need to be coterminous. I need to be persuaded that the change is needed, but I am not running away from the debate, because there is a debate to be had. What is disappointing about the discussion so far today is that there seems to be unwillingness even to grasp the need to have that debate.
A key problem is the growing disconnect between the people who elect us and the democratic process. We need to think about that issue carefully. Do people want to elect a Member for Anglesey and Bangor for Westminster and for Anglesey alone for the Assembly? That discussion is worthy of this House and the wider polity in Wales.
Wayne David (Caerphilly) (Lab)
How does the hon. Gentleman explain the fact that the Government have already brought forward a standing order for the delegated legislation procedure that has been agreed by the House, allowing the next Assembly elections to be fought on the existing boundaries?
Guto Bebb
I am happy for that issue to be clarified by the Minister in due course.
The key thing, in my view, is that there is a debate to be had. There are disagreements within the parties. I believe that some members of the Labour party would be fairly happy with a change. We have heard a lot from the former Secretary of State for Wales, the right hon. Member for Torfaen, about the need for two Members to be elected from a single constituency. That view has been talked about this morning. I find it incredible that the Labour party can talk about political advantage and put forward a plan for two Members for one constituency, which would also be a partisan change.
The other thing that I am surprised by this morning is the fact that the right hon. Gentleman mentioned the fact that there were two options in the Green Paper: the status quo and the change to 30:30. In my reading of the Green Paper the status quo is not an option, because option No. 1 is to keep 40 constituencies but to have them equalised. I have some concern about that proposal: one of my key concerns about any changes to the Welsh Assembly is the need to ensure a buy-in to the concept of the Welsh Assembly in all parts of Wales. I represent a constituency in north Wales, including parts of the north Wales coast, and there is often a feeling that Cardiff does not concern itself, or take as much interest in, the affairs of north Wales as those of south Wales and Cardiff in particular. That may or may not be fair. Some past Assembly proposals have led to that perception. However, it is important to point out that equalisation, for example, would probably result in fewer Members from north Wales and west Wales.
Guto Bebb
And possibly fewer from mid-Wales as well. That would be a matter of concern to me, but, again, it would not make me oppose a discussion of the issue. It would lead me to contribute to the debate and make my views known.
I welcome the debate. It is important not only to engage parliamentarians in Westminster and Cardiff bay in the debate, but to try also to engage the people of Wales. The issue is not whether the decision can be implemented without the consent of the Welsh Assembly. It would be a mistake to implement any change without its consent. A far more important matter is that no change should be implemented without the consent of the people of Wales. We are talking about the electoral arrangements for the Welsh Assembly. The issue should be debated and discussed, and we should be willing to consider the options; but the decision should rest with them—not for any reasons of party political advantage, but because any change, if change were necessary, would be for the benefit of Welsh democracy and the further development of the Welsh Assembly.
Albert Owen (Ynys Môn) (Lab)
I congratulate my right hon. Friend the Member for Torfaen (Paul Murphy) on securing the debate. The issue is important, but as my hon. Friend the Member for Newport East (Jessica Morden) said, it is not a priority, certainly not for constituents in Ynys Môn or, indeed, north Wales.
I want to reiterate some of the points that my right hon. Friend made, but also to take up some of the comments of the hon. Member for Aberconwy (Guto Bebb), with whom I agree on many constitutional issues. I used to agree with him on some constitutional issues when he was a member of another party; but I have been firm in my belief that changes to the electoral system should be brought about by referendum of the people of Wales. That must be the principle we stand for in this place. Only recently, the people of Wales were given a referendum on relatively small extra powers, yet when it comes to making significant changes to the boundaries on which they will elect Assembly Members, there is no question of the Conservative party offering a referendum.
The priorities for my constituents are the cuts, policing and the armed forces—all those issues—but not electoral arrangements. Yet in the short time for which they have been in office the Government have already pushed through changes to the boundaries in which Members of Parliament are elected. That must be a huge priority for them—but not, it seems, when it comes to the House of Lords. There is a possibility that changing the second Chamber could be dealt with by a referendum; but when it comes to National Assembly arrangements, then, with no mandate, the change should go through—and with little consultation too.
I want to address the Minister’s remarks about whether the Prime Minister said one thing or the First Minister said another. I assure him and the House that when I asked the Prime Minister a question in the Chamber, about the respect agenda, his response was very firm: he respected the National Assembly and the other bodies, and would listen to what they said. The First Minister has made it very clear in the National Assembly that he feels the proposal should not go ahead in the way in question. If the Prime Minister is to be taken at his word—he gave me a cast iron guarantee, as he did his Back Benchers on the European referendum—he should respect the views of the Assembly and the First Minister and withdraw the Green Paper and engage in a proper debate.
The hon. Member for Aberconwy said consultation was important. In a parliamentary democracy we have the relevant debates before a general election. We put our policies into a document called the manifesto and allow the people of Wales to judge the parties on it. That is what democracy, the voice of the people, is about. We have changed from a position where parliamentary parties seeking election put policy in their manifestos to one where they do not have a policy, but invent one when they are in office.
I do not know why the proposal has become a priority for the Minister and the Wales Office. Perhaps they have little to do, and are looking for issues to run with. No one I represent—or, indeed, who is represented by other Members of Parliament in the Chamber—has come forward to say “We need to do this.” Yes, there is an issue of coterminosity, because of the changes in the parliamentary boundaries. The hon. Member for Aberconwy said that his seat would disappear as a consequence of the proposals, and the Parliamentary Voting System and Constituencies Act 2011. I can guarantee what would happen if he said to his electorate before the election, “The seat that I am standing for will be done away with, because my party will push through electoral changes.” Yes, the manifesto quite correctly said there would be a change of boundaries, but nowhere did it say that a quarter of the seats in Wales were to disappear. I challenge the hon. Gentleman to intervene, if he feels it necessary, because that is what he voted for.
Guto Bebb
The manifesto commitment was for an equalisation of the seats in the United Kingdom. I fail to see how anyone would not have seen that as a change that would result in a proportionately larger fall in the number of seats in Wales, because Wales has traditionally been over-represented in comparison with the population. That over-representation was justified in historical terms, but with the existence of a law-making Welsh Assembly I fail to see how the issue could have been a surprise to anyone in my constituency.
Albert Owen
The hon. Gentleman might feel that that is a good academic argument, but it was not the outcome of the Act of Parliament. When it came to the Isle of Wight or the Western Isles, or many parts of the United Kingdom with strong Liberal representation, there was consensus. There was no equal representation across the United Kingdom.
Albert Owen
I give way to my right hon. Friend the Member for Cardiff South and Penarth (Alun Michael) and then to the hon. Member for Carmarthen West and South Pembrokeshire (Simon Hart).
Alun Michael
The hon. Member for Aberconwy (Guto Bebb) would be well advised to read the Westminster Hall debate initiated by the hon. Member for Monmouth (David T. C. Davies), who castigated the Government for the way in which the size of constituencies in Wales had been downgraded because of the relationship between Wales and England. Reading that speech might be an education for the hon. Gentleman.
Albert Owen
I often agree with the Chairman of the Welsh Affairs Committee. In his most recent pronouncement he criticises Defence Ministers—I am sure that the Minister wants to hear this because he always criticises Assembly Members for not coming before the Welsh Affairs Committee—for not coming forward when radical changes are being made to regiments in Wales. There is inconsistency in the Government’s stance.
Simon Hart (Carmarthen West and South Pembrokeshire) (Con)
Does the hon. Gentleman at least accept that there is a distinction between the Government and the Boundary Commission? The Government passed legislation that a constituency should be 75,000, or 5% either way, but it was the independent Boundary Commission that actually drew the lines.
Albert Owen
I do not believe that the hon. Gentleman is really apportioning blame to the Boundary Commission. He and his party voted on strict criteria, which were then imposed on the Boundary Commission. First, they allowed exemptions in some areas, which means that the argument that the hon. Member for Aberconwy made about equalisation across the entire United Kingdom is a false one. Secondly, the Boundary Commission was given no room for manoeuvre, which is why we will end up with this Government doing away with a quarter of the seats in Wales.
Susan Elan Jones
Does my hon. Friend agree that there is a degree of nonsense in what certain Conservative Members are saying? It seems that they want fewer Conservative Members of Parliament in Wales as long as it does not affect their own seats. In his role as Parliamentary Private Secretary, the hon. Member for Montgomeryshire (Glyn Davies) has to sit silently, but he has described the changes as the death of parliamentary democracy in mid-Wales. Although he is not allowed to speak, he can nod—he is not even nodding this morning. Does my hon. Friend not agree that there is real inconsistency in what the Conservatives are arguing on this point?
Albert Owen
I have highlighted the inconsistencies of the Conservative party on these issues, but I now want to move to some of the important points that my right hon. Friend the Member for Torfaen made in his opening remarks. I have dealt with the first point: there was no mandate for the change. There is no respect for the National Assembly as a body and for the First Minister as a leader of that body. That is absolutely clear from what has come out of this debate and from the way in which the matter is moving forward. As for the idea that there is dialogue among people through a Green Paper—the hon. Member for Aberconwy gave me the ammunition to go after this one—I have to say that not many people concentrate on a Green Paper. Many people concentrate on manifestos. That is the difference.
Albert Owen
The hon. Gentleman may shake his head, but that is what parliamentary democracy is based on. I am disappointed that the Secretary of State is not here this morning. She was the one who said at Welsh questions that she wanted to lead this debate. This was the opportunity for her to do so. Perhaps 9.30 is a little too early in the morning for her to turn up to lead a debate, but at 11.30 on Monday she wanted to do so. I am glad that my right hon. Friend the Member for Torfaen has given us this opportunity at 9.30 on Tuesday.
Mr David Jones
Let me correct the hon. Gentleman. This is not the debate that the Secretary of State wanted to lead. She wanted to lead the debate in the Grand Committee that Opposition Front Bench Members refused to have.
Albert Owen
I do not take notice of what my Front Bench colleagues say on every occasion, but they were absolutely right about this. What they said—if the Minister is going to quote them, he should do so correctly—was that they wanted a debate on the Floor of the House, in the main Chamber. Changing the way in which people are elected and the numbers who can be elected to the National Assembly are important issues. I welcome a debate, but not after the event.
The hon. Member for Aberconwy said that the status quo is not an option, so the only option left is 30:30. Those are the only two options presented by the Government. We stay with the status quo, which will not be an option, or we go for 30:30. I have concerns about equal weighting between regional Members and constituency Members. Members of the Assembly and Members of Parliament serve a community. There is a link with the individual who is elected. He or she represents the views of the people and they can be voted out. When we increase the regional lists—this is another inconsistency among some Government Members—we make things less representative. The power goes not to the people but to the party managers, which is something I disagree with, whether for the European elections, the Assembly elections or any other election. In this Chamber today, there are three Members who were regional Assembly Members, and I have respect for all of them as individuals, but they have all chosen to come here and to be elected on a constituency basis. I take from that that they favour that form of election.
Glyn Davies
I realise that there is a convention that Parliamentary Private Secretaries do not speak in a debate, but I do not want the hon. Gentleman’s point to pass unchallenged. As an individual Member, I certainly did not decide to move from the Assembly to Westminster; it was the election result that decided that.
Albert Owen
I did not single out the hon. Gentleman, but I am glad that he has intervened, because we miss his contributions. The fact that he is a PPS and is unable to contribute to debate is a sorry thing for this Parliament and this Chamber.
There is an important point about the lack of democracy when there are list Members. If we go to 30 seats in the parliamentary boundaries and they are coterminous, we should have dual membership. I disagree that it will give an advantage to the Labour party, because the electorate are sophisticated in Wales and they will make their choices. They have limited choices as to who their regional Members are. That is decided by party managers, which is what this Government want; they want to strengthen their grip over who gets elected to the Welsh Assembly.
Chris Evans (Islwyn) (Lab/Co-op)
In my own region and in the region of my hon. Friend the Member for Blaenau Gwent (Nick Smith), in south-east Wales, Labour consistently tops the poll on the regional list yet we do not have a single Labour regional AM. Is that democratic? Is that not ignoring the democratic will of the people?
Albert Owen
No, it is not democratic, but it was accepted by the electorate in Wales when we had a referendum. I accept that members of the public in Wales knew what they were voting for, but I do not accept having radical changes without going back to the people of Wales and having another referendum so that they can endorse or disagree with the principles. That would be real democracy.
Jonathan Evans
I wonder whether the hon. Gentleman could calm his colleague, the hon. Member for Islwyn (Chris Evans), who has such a sense of injustice, by reminding him that in the Assembly elections last year, Labour got 43% of the constituency vote and 70% of the constituency Members. I say that in case he feels hard done by.
Albert Owen
I thank the hon. Gentleman for pointing that out, and for once again putting on his record his disagreement with the Conservative party on the way we elect Members. He has been honest and consistent that he wants greater representation through proportional representation, and I give him credit for that. Indeed, I am at one with him. We should elect all our Assembly Members on the basis that they serve their constituencies and that the constituents have the right, every four or five years, to turf them out if they think that they are not doing a good job, or re-elect them if they think that they are doing a good job. We should strive for having a named person and a named party, which is open democracy, not for increasing the list proportion, which does away with that and gives party managers a greater responsibility that they do not deserve.
Why is the issue a priority? It was not in the Conservative manifesto. I do not believe—I will take an intervention if it is not the case—that it was in the Liberal Democrat manifesto. We had a referendum on the alternative vote, which I support and would do so in the future if we had a proper Green Paper to advance it. Why did we have a referendum on the alternative vote but not on changing the boundaries for the Assembly? Why are we pushing this forward? The reason why we pushed AV up the parliamentary timetable was because it was the cement that kept the coalition together. Perhaps, this is cement, too. I will take an intervention from the Liberal Democrats, although I know the hon. Member for Brecon and Radnorshire (Roger Williams) is going to speak in a minute, to hear whether they have been pushing for the measure. I have not seen any political party pushing it in this place.
Going back to the respect agenda, there needs to be real respect for elected bodies, whether they are in Wales, Scotland or Northern Ireland. The Prime Minister should check his notes and look for what he actually said in the meeting, because two against one is a democratic vote in my thinking, and two people remember one thing and one does not. I rather suspect that the Prime Minister’s memory is failing him or that he has done another U-turn. He is very good at doing U-turns; he has done dozens of U-turns. I remember him telling the electorate in Wales that he would not, in any circumstances, put VAT up, yet he did so as a priority when he came into office. I say to him, “Check your notes, certainly show respect for the First Minister and the people of Wales and let’s have a proper debate on this before we move forward.”
I believe that there is no consensus to be built around this narrow Green Paper. What we need is a proper debate in both institutions; indeed, we have had an excellent one in the House of Lords. I hope the Minister will reflect on what has been said by far more independent-minded people in the House of Lords on the issue. We need a proper debate in which we have the choices in front of us: whether we really want to be radical and move forward, or just to edge forward, giving more power to party managers rather than to the people of Wales.
Can the Minister clarify some points in his winding-up speech? What mandate does he have for the changes? I think I know the answer to that question. What are the views of the Assembly and does he respect them? Indeed, does he respect the views of the Welsh Conservative group within the Assembly, who have made it quite clear that they do not want these changes? How did the Government build the consensus that they put into the Green Paper and how do they hope to move forward?
I suggest that the only way forward is to scrap the proposed changes; to get the parliamentary boundaries firmed up, with Parliament’s will; and to look at the issue properly and give the people of Wales the chance either to endorse it or kick it out.
Mr Philip Hollobone (in the Chair)
Order. I shall call the shadow Minister at 10.30 am. Before then, we have Roger Williams and Wayne David. Gentlemen, it is up to you, but I should think that five minutes each would be a fair allocation of time.
Roger Williams (Brecon and Radnorshire) (LD)
Thank you, Mr Hollobone, for giving me this opportunity to speak. I believe that this is the first time that I have served under your chairmanship.
Once again, the hon. Member for Ynys Môn (Albert Owen) has shown his splendid independence, which has won him so much popularity and support in his constituency. He is right to say that there is very little appetite among the population of Wales—certainly among my constituents—for further constitutional change. Indeed, there would be even less appetite for it if they saw us trying to debate whether we should debate, or when we should debate, constitutional issues. We are a relatively small congregation in Wales of 40 MPs. There must be more consultation in future about when and how we can discuss these important issues, because it does us no good to be seen to be rowing about things that are viewed by the people we serve as of little importance.
The right hon. Member for Torfaen (Paul Murphy) secured the debate and I congratulate him on doing so. He introduced it in a very statesmanlike way. Unfortunately, however, there were some rather partisan interventions, which sometimes forced him to divert from his decided path. Nevertheless, the debate has thrown up some sharing of views; I would not say that we have gone so far as consensus, but debates such as this one help to firm up ideas, and the pros and cons of particular proposals.
From my point of view, it is a very happy occasion when we can debate these things against a background of acceptance in Wales of the Assembly. At one time, a lot of people thought that the Assembly would not play a constructive part in the governance of Wales, yet the evidence of the recent referendum, when a considerable majority of people voted for extra powers, demonstrates the support that the Assembly receives from the Welsh people.
As far as that support is concerned, one of the key issues—yes, we would all like a better health service and better education for our young people—that attracts the people of Wales to the Assembly is the way Assembly Members are elected and that the Assembly is a body that reflects opinion within Wales. I have been given a little quote by my hon. Friend the Member for Cardiff North (Jonathan Evans); I think that it was Ron Davies who said that he did not want the Assembly to be
“Mid Glamorgan council on stilts”,
so that it was completely dominated by Labour. It was on that basis that Plaid Cymru and the Liberal Democrats were attracted to the cause of the Assembly for Wales.
In considering these issues, we must understand that the people of Wales accept the Assembly and they like the electoral system that we have. Yes, the Liberal Democrats would like to have the single transferable vote and we share that view with Plaid Cymru. However, we made the concession and reached agreement on that issue, so that the referendum on the Assembly could be carried; we think that is a good thing. Over time, we will again put forward the case for STV, but we will look at the proposals in the Green Paper and decide whether any of them are helpful to us and helpful to the people of Wales.
We would support the 30:30 option. We would perhaps look at the election of regional Members on a whole-Wales basis. We believe that there could be dual candidacy, so that people can stand in both the regional and the constituency part of the elections. Indeed, we believe that these issues should be debated in Wales and should have an airing. This debate has been the start of that process, as far as the House of Commons is concerned; we have already had the debate in the House of Lords. I look forward to continuing the debate, particularly with the people of Wales as well as among ourselves in Westminster.
Wayne David (Caerphilly) (Lab)
Thank you, Mr Hollobone, for calling me to speak. I will keep my comments brief. I just want to make one essential point: that the whole consultation on this issue is partisan. It is skewed to the benefit of the Conservative party, and the sooner the Liberal Democrats wake up to that reality, the better. I will quote a few passages from the Green Paper to support that contention. The first relates to preventing an individual from standing for the list and for a constituency. The Green Paper says that the proposal to end that prohibition
“should help smaller parties in particular”.
It goes on to say:
“It may also have a positive effect on representation in the Assembly; currently high quality candidates who stand as a constituency candidate…are lost to the Assembly”.
Well, that is democracy. People lose elections; that is not something that we should be against, although the Green Paper is against it. We should say, “Fair enough, that’s the democratic process.” Why on earth do we want to prevent that from happening by having this skewed approach towards democracy?
My second point is on the all-important issue of the Assembly boundaries. We all know that the Parliamentary Voting System and Constituencies Act 2011 was a partisan document. It reduced the number of MPs across the UK by 50, but the largest reduction was in Wales; it was a reduction of 25%. It is likely that the Labour party will suffer most from that reduction. According to that Act, geography is now a minor consideration in determining parliamentary boundaries, as are topography, history, community and sense of identity; it is all down to a rough equality of numbers.
If anyone has any doubt at all about whether that Act is a partisan piece of legislation, they should compare the Isle of Wight and the Isle of Anglesey. Under the Act, the Isle of Wight is to have two MPs. Why? To keep Conservative English Back Benchers happy. Yet Anglesey will not even have one. That is crudely partisan. The Government are even distorting their own legislation to keep the Conservative party happy, and that is no way to enhance democracy or introduce constitutional change. As my right hon. Friend the Member for Torfaen (Paul Murphy) says, change must be on the basis of consensus. That is how it always has been done, and how it should be done.
Regarding the boundaries, the Green Paper states:
“These developments mean that we need to change the present arrangements for Assembly constituencies”,
because of the 2011 Act. That is wrong. They do not need to be changed. In fact, the 2011 legislation contained a decoupling clause, which made it absolutely clear that the Assembly boundaries would not depend on parliamentary boundaries, so the Government want to revise their own legislation. To complicate things even more, bizarrely, the Government introduced a statutory instrument confirming the existing Assembly boundaries for the 2016 elections. They intend to rescind their own statutory instrument and contradict their 2011 legislation, and that is extremely confused, to say the least.
Option 1 of the two options outlined states that continuing with 40 Assembly constituencies
“would require a new system of boundary reviews”,
but a boundary review system is already in place, and the Government have confirmed the boundaries for the next Assembly elections. That statement might be referring to a system for the future but, on the basis of what we have had already, the changes are likely to be minor if we stick with the status quo. The Government’s arguments are false and superficial, and what is really behind the changes is a partisan approach to constitutional change.
The Government believe that this is about consultation, but I suggest that it is all about gerrymandering. To take up a point made by a number of Members, the approach taken shows an unbelievable—I will be kind—misunderstanding between the Secretary of State for Wales and the First Minister of Wales. That is no way in which to approach an issue as important as representation and democracy, and I urge the Government to recognise that they have been ham-fisted. They need to recognise that there are fundamental flaws in the Green Paper, say that it is a mistake, and recognise that the way forward is on the existing boundaries.
Owen Smith (Pontypridd) (Lab)
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my right hon. Friend the Member for Torfaen (Paul Murphy) on securing this useful and important debate. It is a profound matter of regret to me, and to my right hon. Friend, that the Secretary of State is not here to listen to the arguments on both sides, not least because the Minister’s comments, and their further underlining of the clear disagreement between the Prime Minister and the First Minister, are a matter of the utmost seriousness. The word of either the Prime Minister or the First Minister is being called into question, and as the Secretary of State is at the heart of that unfortunate disagreement, it ill behoves her not to engage in the debate today.
It is no surprise, however, that the Secretary of State is not here, because that is in keeping with the ham-fisted, high-handed manner in which she has dealt with the matter over recent weeks. She has accused me of playing games. I put it to her that we are not playing games but merely articulating the views of Opposition Members and, I suggest, the National Assembly, which are already on record. This is a matter of profound significance to the National Assembly and the people of Wales. I ask whether there is any other Welsh issue of this significance being debated in the House this morning. I did not see anything on the Order Paper that should be detaining the Secretary of State. I certainly felt that my attendance here was important enough to warrant my sending my apologies to the shadow Cabinet, which meets as we speak.
I want to make something clear about the debate that we did not have this week. I wrote to the Secretary of State several weeks ago, telling her that I thought this such an important issue that it ought to be debated on the Floor of the House. She did not have the courtesy to write back with her opinion but merely tabled, through the usual channels, a debate in the Welsh Grand Committee. That was why we objected to the debate; it was nothing to do with the timing, but because we felt it ill-considered and ill-judged to debate something of this significance in Committee, and not to expose a constitutional matter to wider discussion.
This is a high-handed and ham-fisted way of going about things. As my right hon. Friend the Member for Torfaen made clear in his eloquent remarks, the Green Paper is highly partisan. It represents a barely veiled political agenda of increasing representation for minority parties in Wales. As my hon. Friend the Member for Caerphilly (Wayne David) said, that agenda is, incredibly enough, there in black and white in the Green Paper. I include among those minority parties the Welsh Tory party and Plaid Cymru, a party that, extraordinarily, is not represented in this debate about the National Assembly for Wales.
Jonathan Evans
Does the fact that the Labour party got 43% of the vote in the Assembly elections not make it a minority party?
Owen Smith
No, it very clearly does not. The Labour party is here today speaking for Wales, and it is a shame that the hon. Gentleman sought earlier to misrepresent the options in the Green Paper. He suggested that on the table was one option of keeping the status quo, and he knows that that is not straightforwardly true. The option is to keep 40-20, but to shift to a more equalised block of constituencies by changing all the constituencies across Wales, with none of the benefits of retaining coterminosity with the parliamentary boundaries. Even that minor change is so significant that the consent of the National Assembly for Wales, as proxy for the people of Wales, ought to be sought.
The Green Paper is partisan, and also arrogant, in that it completely eschews the tradition of seeking consensus on issues such as constitutional change. When in office, the Labour party sought change through cross-party consensus, including when we proposed changes to the National Assembly for Wales in election manifestos. Amusingly enough, even the Tory party is split on this issue, with the party in Westminster taking one position in documents, and the party in Wales, which is perhaps more in touch with the people of Wales, taking an alternative one.
This is essentially an anti-devolution Green Paper, at odds with the spirit, if not the law, of devolution, as my right hon. Friend the Member for Torfaen said. How else can we describe a proposal from a Westminster-based, Tory-led Government for changes to both constituencies and elections to the National Assembly for Wales—a proposal that does not require the consent of the Assembly or the people of Wales? The proposal lacks even a modicum of a mandate, and thus lacks legitimacy, and it should be called out for what it is.
The two options are clear. One is to keep the 40-20 split but change the nature of the boundaries. That has all the disbenefits of reorganisation and none of the benefits of retaining coterminosity. That is why, of course, the Secretary of State is not minded to take the option forward. It is a red herring, designed to deceive. The second option is to shift to 30 on a list and 30 first past the post, increasing the number of Members elected via proportional representation, and decreasing the number directly elected by 10.
No one is suggesting that the nature of the National Assembly should be set in stone or fixed in aspic. Nobody is suggesting that no changes should be proposed and no reforms undertaken. Many people in Wales have lots of ideas—we have heard some suggestions today—about how the National Assembly could be reformed, but few of those people would have the temerity to propose imposing those changes on the National Assembly and the people of Wales without seeking their consent in any meaningful fashion. Fewer still would have the nerve to propose changes without any real evidence or impact assessment of how they will affect voting patterns or election turnout in Wales.
However, our absent Secretary of State proposes to do just that, giving effectively one option, the justification for which is cut and pasted from the Parliamentary Voting System and Constituencies Act 2011, with nothing to back up either that or the alternative except the threat that if the option she favours is not adopted, the other even more destructive and disruptive option will be adopted. So much for the respect agenda.
That is happening despite the fact that in the Select Committee on Welsh Affairs last year, when I suggested that the Secretary of State had precisely such a plan in the back of her mind and warned her not to try to gerrymander the map in Wales, she told me that
“before anything goes forward to do with boundaries there would be a loud, long and large period of consultation”.
Consulting on a flimsy Green Paper for a few months over the summer, and treating the National Assembly as a consultee like any other individual or institutional consultee in Wales, while the Secretary of State for Wales refuses to submit to any meaningful scrutiny, does not constitute a loud, long or large consultation to my mind. It is certainly not appropriate to the changes proposed.
As my right hon. Friend the Member for Torfaen said, consider the contrast between that and the attitude taken by this Tory Government when they sought to introduce changes to the nature of the voting arrangements for Parliament in Westminster. We had a three-month, significantly contested and well-resourced campaign, followed by a national referendum. I am not necessarily suggesting that that is comparable to the changes proposed in the Green Paper, nor am I necessarily suggesting, as some have done, that the changes necessitate a referendum. However, I put it to Members that at the very least, the consent of the National Assembly must be obtained as a proxy for that of the people of Wales if there is to be no referendum on the changes.
Consider, too, the changes mentioned in this debate in respect of the passage of the Scotland Act 2012. This Government explicitly accepted that the Scottish Parliament should have to consent to the views included in the Bill before it could become law in Scotland. Why does this Welsh Secretary, parachuted into Wales, not feel that a similar job should be done for Wales? Why does she treat the National Assembly for Wales with such disdain when her counterpart in Scotland treated the Scottish Parliament with such respect?
All that prompts the question: why these changes, and why now? Like others here, I cannot but conclude that it is about narrow party self-interest for smaller parties that will benefit from an increased proportion of Members in the National Assembly being elected by proportional representation. To proffer a piece of evidence in support of that contention, think back to 1999, when the Labour party was well supported by the people of Wales and did well at the elections, with the Tories winning just one seat by first past the post. What was the impact for them on the list? Eight seats were delivered. I suggest that a similar position might well come about, with similarly happy benefit for Conservative Members, if the proposals are adopted.
One cannot help thinking that the reason why Plaid Cymru is so quiet on the issue is that the party has cooked up a deal with the Conservative Secretary of State to accept the proposals, because it knows that they will benefit Plaid Cymru, too. The people of Wales will note Plaid Cymru Members’ absence from this debate and understand precisely what they are about.
Owen Smith
I find it absolutely amazing that Members from the so-called party of Wales should be absent from a debate on electoral arrangements for the people of Wales alone. It is an absolute dereliction of duty for them not to be here engaging in this debate.
Suspicions only harden when we consider the fact that No. 10 has now been dragged into the debate about Wales. That too strikes me as extraordinary. No. 10 is now reduced to the kind of weasel words that we read in the newspaper this morning and heard repeated by the Minister earlier today:
“the Assembly should be fully engaged in the process of deciding its future electoral arrangements”.
What does “fully engaged” mean? Does it mean consulted with, like any Tom, Dick and Harry in Wales, any public body or any MP? I suggest that that is not full engagement. Equally weaselly is the Prime Minister’s letter to the First Minister. He did not say that the changes in Wales should be decided by the people of Wales, but he certainly said, in the words of the First Minister, that the people of Wales should agree with the changes through the National Assembly. That is a bone of contention to which we will need to return later.
In conclusion, I have some questions for the Minister sent here today by his extremely busy Secretary of State to represent the Wales Office. First, what exactly does No. 10 mean by “fully engaging” with the National Assembly? Does it mean anything more than consulting with it, as with others in Wales?
What weight will the consultation accord the views of the National Assembly? To quote the motion passed there by the Tories, Plaid Cymru and Labour, it has already voted to:
“This Assembly recognises that there is absolutely no mandate to change the current electoral system in Wales and that any future change should be put to the people of Wales.”
Given this Government’s complexion, what notice will be paid in particular to the views of the leader of the Welsh Tories, Andrew R.T. Davies? He said:
“I think the Assembly should determine its own boundaries”.
In another interview, he said:
“I am in favour of the status quo”.
Ultimately, what will this Government do if, as seems likely, the National Assembly holds to its course and continues to submit evidence to the consultation saying that it does not believe that there is a mandate for the changes and does not support them? Will the Secretary of State for Wales continue to drive through the changes in the teeth of clear opposition from the National Assembly? If so, something has gone badly awry in the arrangements between Wales and Westminster. The Minister and his Secretary of State would do extremely well to consider the damage that will be done to that relationship if they press ahead. Devolution was intended not to diminish the voice of Wales within the UK, but to amplify it. It was intended to grant greater control over national affairs to the people of Wales via the National Assembly, within the framework of the UK. That framework is delicate, as events in Scotland are displaying only too clearly. All of us who believe that we in the UK are better together should reflect on that, and on the impact on that delicate framework.
Imposing ill-considered and ill-judged changes from Westminster on the National Assembly will only damage it. I am not playing games; I am simply stating the facts. I hope that the Minister has some answers on behalf of his Secretary of State.
The Parliamentary Under-Secretary of State for Wales (Mr David Jones)
Mr Hollobone, it is a pleasure to serve under your chairmanship. In the brief time available to me—some 11 minutes—I will do my best to answer many of the questions posed in this debate. I congratulate the right hon. Member for Torfaen (Paul Murphy) on initiating this debate. He was kind enough to say during his remarks that he had considerable respect for me. I must tell him that as a lawyer, I am always suspicious when told that people have respect for me, because the expression “with great respect” is the greatest insult in the legal profession. I believe that the right hon. Gentleman’s compliment was, in fact, meant as a back-handed insult to the Secretary of State for Wales, and that insult was echoed by many Opposition Members. Frankly, the personal nature of their criticism does them little credit.
It is important that the facts are set out clearly on the record. As the right hon. Gentleman will know, although we have had the benefit of a one-and-a-half-hour debate today, the Secretary of State had offered to hold a Grand Committee on the issue. The right hon. Gentleman is an important supporter of the Grand Committee system and, had that offer been accepted, we would have had a three-and-a-half-hour debate yesterday morning. For the life of me, I cannot understand why his party’s Front-Bench representatives refused that offer. The right hon. Gentleman said that it was made on short notice, but as he will know there is little time left in this parliamentary term to hold such a debate. I hope that I am not being unfair to the shadow Secretary of State, the hon. Member for Pontypridd (Owen Smith), but I think that, had the right hon. Member for Torfaen been in his position, that offer would have been accepted and we would have had a Grand Committee debate yesterday, led by the Secretary of State, and not the attenuated process that we have gone through today.
Susan Elan Jones
Why is the Minister waffling so much? Where is the Secretary of State for Wales?
Mr Jones
The hon. Lady’s personal animosity towards the Secretary of State is well known, so I will not grace her comments with any further response.
This debate is about the Government’s Green Paper on the future electoral arrangements for the National Assembly for Wales, but the Labour party appears to spend most of its time agonising about process. Having hacked through that undergrowth of process, its principal complaint seems to be that it is the Assembly, not Parliament, that should be responsible for determining those electoral arrangements. The position, however, is absolutely clear: this Government can only work within the devolution settlement that was put in place by the Government of Wales Act 2006. That Act was implemented by the Labour party, so it is rather rich that its Members are now complaining about the arrangements that they thought perfectly adequate back in 2006. I witnessed the passage of the Bill through Parliament, and I cannot recall any of those Members suggesting at the time that the arrangements should be anything other than those that we are pursuing.
Mr Jones
No, I will not, because I have been left very little time by the hon. Member for Pontypridd.
Under the settlement, the Assembly’s electoral arrangements are not a devolved issue, so constitutionally it is entirely proper for Parliament to consider the question. The issue of the First Minister’s conversation with the Prime Minister has been raised. Let me make the position clear for the record: the Prime Minister’s recollection is that, when he met the First Minister at the Broughton aircraft factory, he told him that the Assembly should be fully engaged in the process. He did not say that the matter was to be decided by the Assembly itself. Frankly, it would have been extraordinary if he had done so, because that is not an option under the devolution settlement. As I have said, the notes from the meeting do not reflect the First Minister’s recollection of what was said.
I repeat that this debate is about a Green Paper, in which the Government are asking important questions about the future conduct of Assembly elections and the make-up of the Assembly itself. It is, as my hon. Friend the Member for Aberconwy (Guto Bebb) has pointed out, a consultative document, and the Assembly, the Assembly Government, Opposition Members—in fact, everybody—are not only free but positively encouraged to play into that process. I have no doubt that the right hon. Member for Torfaen will himself play into it and make submissions to the consultation, which will continue until 13 August.
The Government are seeking to establish whether people think that the Assembly constituency boundaries should reflect the 30 proposed new parliamentary boundaries in Wales, or whether there should remain 40 constituencies, which would have to be of equal, or nearly equal, size. I find it extraordinary when Opposition Members criticise the principle of equality of vote, because it was my understanding that the Labour party—we have been reminded of this by several Opposition Members, most notably the hon. Member for Ynys Môn (Albert Owen)—considers democracy to be important. It is wrong, according to the values of any democracy, that a vote in the constituency of Cardiff South and Penarth should be worth almost twice the value of a vote in Arfon. What is sauce for the parliamentary goose is sauce for the Assembly gander, and that is precisely what we seek to achieve—fairness and equality within the voting system.
We have made it clear, as the hon. Member for Caerphilly (Wayne David) has pointed out, that we favour a move to 30 constituencies that are coterminous with parliamentary constituencies, because that would be cleaner and clearer for the people of Wales. Under such a system, they would know which constituency they were casting their vote in, whether it was at a Westminster or an Assembly election. I do not believe that there is anything controversial about that.
This has been an extraordinary debate, because it should have taken place yesterday in Grand Committee, and it should have lasted for three and a half hours, rather than an hour and a half. I must say that it is because of the ineptitude of the shadow Secretary of State in opposing the motion for a Grand Committee when it was made on the Floor of the House that we did not have the debate yesterday. I do not believe that his party’s Back Benchers are idle or cowardly, but that the hon. Gentleman has completely mishandled the process.
It is also extraordinary that Opposition Members appear to be clamouring for a debate on the Floor of the House about a consultation paper. When the Parliamentary Voting System and Constituencies Bill was progressing through the House, they clamoured for a Grand Committee on the issue, yet when they were offered a Grand Committee on the Green Paper, they refused it because they wanted a debate on the Floor of the House. This is a question of utter, shambolic inconsistency on the part of Opposition Members in general and the hon. Member for Pontypridd specifically. I realise that he is very new to the job and that he is inexperienced, but it would have been more beneficial to him if he had sought the counsel of the right hon. Members for Torfaen and for Neath (Mr Hain) before he decided, in such a cack-handed manner, to refuse the offer of a debate in Grand Committee.
The Green Paper is an important document. I hope that Opposition Members will play into the process and that the hon. Member for Pontypridd will learn from this experience and exercise a little more caution before shouting, “Object”, on the Floor of the House.
Mr Philip Hollobone (in the Chair)
Order. As Members who have just arrived to take part in the next debate will note, we have had a very interesting and lively debate on the electoral arrangements for the National Assembly for Wales. We are now going to have an equally interesting and fascinating debate about East Anglia rail. It gives me great pleasure to call the hon. Member for Suffolk Coastal (Dr Coffey).
Rail (East Anglia)
(12 years, 4 months ago)
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Dr Thérèse Coffey (Suffolk Coastal) (Con)
Mr Hollobone, it is a great pleasure to serve under your chairmanship. I am delighted that many colleagues from our counties are here today. I extend a warm welcome to the hon. Member for Nottingham South (Lilian Greenwood), who will be alone on her side of the Chamber because East Anglia has not a single Labour Member of Parliament. However, she will be pleased to know that Labour councillors have worked through their district and other councils, local enterprise partnerships, rail passenger groups and MPs to put together a vision, so she should not feel completely alone. I was delighted to be able to send both her and the Minister a copy of the prospectus before today’s debate.
Investing in East Anglia’s rail will benefit local residents and the national economy. Connecting our economic hubs, moving freight on to rail and improving our branch line services, alongside smarter ticketing, new and refurbished trains and better stations, will make a huge difference to people in Suffolk, Norfolk, Essex and Cambridgeshire. That is why we are all united with the people I mentioned earlier to try to deliver a document, “Once in a generation—A rail prospectus for East Anglia”, which was launched yesterday. I am delighted that many MPs were able to put their name to our proposals.
I know that some colleagues are planning to speak and some are planning to intervene. I will indicate the appropriate point, if that is okay, because I will be referring to some colleagues who are not able to be here today. That will be clearly signalled, and I hope that the signalling is better than that which we experience on the great eastern main line.
In putting the matter into context, if I paint a negative picture, I am afraid that it is, sadly, a true one—poor reliability, cramped commuters, old stock, unsmart ticketing and a poor deal for East Anglian rail passengers, who, with the premium in the last franchise, are net contributors to rail services in the rest of the country. However, I am delighted that we have come together to say that we can have a better service. It is possible and feasible, and there is a genuine commitment to try to ensure that the infrastructure for East Anglia is among the best, so that we can harness the economic benefits and a better quality of life for people.
I have just dashed from a meeting of my Select Committee, in which we were interrogating Broadband Delivery UK and the Under-Secretary of State for Culture, Olympics, Media and Sport, my hon. Friend the Member for Wantage (Mr Vaizey), who has responsibility for broadband. Broadband is another key asset, but better broadband for our counties will not replace the need for people to travel to work and for investors to come out to our communities.
I have mentioned the prospectus already, and I am not planning to regurgitate every single priority in the document. I will try to give an overview and focus on Suffolk.
Some colleagues are not able to attend today—some are ministerial colleagues who approached me to say that unfortunately they have meetings and cannot attend. They include my hon. Friend the Member for Norwich North (Miss Smith), whom I think should be given great credit for trying to pull together, on a long journey—even longer than from my local station at Darsham—the different interests into one compelling vision for our counties and for growth. She has led the way, and she should be thanked for trying to ensure that her constituents will get a better service out of the vision.
Unfortunately, my right hon. Friend the Member for South East Cambridgeshire (Mr Paice) is also unable to be here today. He wanted me to stress the importance of the Ely North junction. I am sure the Minister will hear the words “Ely North” many times in today’s debate, as it is a key interchange, not only for residents in Ely and north Cambridgeshire, but for unlocking our freight corridor and services to Cambridge and the other hubs of Norwich and Ipswich. It is also important to an east-west link so that, instead of going via London, commuters can go from Oxford to Cambridge to Norwich, linking three great universities of knowledge and investment.
My right hon. Friend the Member for Chelmsford (Mr Burns) cannot be here, sadly, because he is trying to run the national health service, but he has been pressing for greater capacity, a new station in his constituency and the track improvements that are required on the great eastern main line to make a difference for passengers.
My hon. Friends the Members for Great Yarmouth (Brandon Lewis) and for Waveney (Peter Aldous) wanted to remind us that we need green transport, enabling green growth in the green enterprise zone shared between Norfolk and Suffolk. The hon. Member for Cambridge (Dr Huppert) wanted to remind us about increasing connectivity in the key east-west interchange. My hon. Friend the Member for Ipswich (Ben Gummer), who is in a Select Committee meeting, has been pivotal in trying to improve investment into Ipswich and surrounding constituencies, including mine and that of my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter), who is present. My hon. Friends the Members for South Suffolk (Mr Yeo) and for Harwich and North Essex (Mr Jenkin), who are also in Select Committee meetings, continued to stress, quite rightly, the importance of Manningtree as a commuter station and key attributes such as the investment in the station, but also the important need for accessible platforms.
I will happily welcome interventions from colleagues now.
Jim Shannon (Strangford) (DUP)
The hon. Lady is probably thinking, “What is a Northern Ireland Member going to say about East Anglia rail?”, but I would like her to take on board my point. A great number of Army camps are stationed in Norfolk, and service personnel use trains to get from base to camp—one of them reported to me last week that it took an hour and a half extra to get from A to Z. Does the hon. Lady feel that the usage of trains by Army personnel puts a greater onus on rail improvement in the area?
Dr Coffey
The hon. Gentleman makes an important point. I have not considered military travel, although there is an Army regiment in my constituency. However, we should ensure, through our county councils and as Members, that the document—which, although it is a prospectus, is not exhaustive—includes such considerations. I note that the constituency of the hon. Member for Colchester (Sir Bob Russell), who is present, has a significant Army presence, which is quite close to the railway station, but I am sure that other colleagues whose constituencies have RAF bases, including Marham in the constituency of my hon. Friend the Member for South West Norfolk (Elizabeth Truss) and Wattisham in the constituency of my hon. Friend the Member for Bury St Edmunds (Mr Ruffley), will want to follow that issue up.
Other Members present are from different counties, so they will talk about specific lines or issues there in more detail. For investors, including in tourism, the issue is capacity to get out of London to our different economic hubs. We should ensure that it is as easy as possible to get on the train to come to some of our beautiful beaches and our cultural highlights in different parts of our counties. Commuting into London is also an issue. There is no doubt, particularly in Essex, that people are fed up of terrible trains, having to stand for a long time and being crammed in. It is not fair on them. There is a two-way process: one thing that we need to do is boost off-peak services through tourism initiatives. LEPs and our county and district councils are keen to ensure more frequent and reliable services.
There is no question but that Cambridge with its research centre and development of capital, Norwich with the knowledge base in its university, especially in life sciences, and Ipswich and surrounding areas and their software development industry, provide a big opportunity for expanding connections between the counties. The risk is that the Government get it that the east of England is already a net contributor to the national economy and, therefore, do not think it needs investment, but we can generate a lot more investment as a consequence of such improvements.
Sir Bob Russell (Colchester) (LD)
I congratulate the hon. Lady on securing the debate and on her speech. For the benefit of the Minister, will she confirm that there has been detailed discussion among hon. Members from across the four counties? We were not united at the start of the journey; we are now united. I hope that I will have an opportunity to expand on that later.
Dr Coffey
That is a fair point. We have all been united in our vision of wanting better services for our constituents. We may have been less united, in our discussions with Network Rail and LEPs, on what that meant. I would like to think that the intentions of hon. Members across the counties have always been clear. This is not about trying to reduce services for our constituents, but improving them.
Mr Stewart Jackson (Peterborough) (Con)
I congratulate my hon. Friend on securing the debate. She has not mentioned the pre-eminent city in Cambridgeshire—Peterborough, as opposed to Cambridge. I jest. Does she agree that the great advantage of this prospectus, apart from its ambition, is that it is comprehensive and holistic? It integrates different modes of transport. It is not just a list of discrete transport schemes. There are references to the Felixstowe to Nuneaton freight corridor, taking the pressure off the A14 and the A11, and traffic movements to Stansted airport, all of which show that the prospectus is ambitious and, in the long run, will be good for the taxpayer as well as the local people in East Anglia.
Dr Coffey
My hon. Friend is absolutely right, and reinforces the point that investment in our rail infrastructure could mean that our region, rather than other parts of the country, can be a huge multiplier. The idea that people want to travel up to Lowestoft by car to have a look at investment is ridiculous. Along the east Suffolk line, sitting in a one-carriage train, perhaps after making the connection at Ipswich, is not always the most attractive way to arrive for an investors’ meeting.
For a quicker service on the great eastern main line, we need to speed up the trains. One way to do that is to focus on level crossings. I will refer to this again when I come on to the issue of branch lines, but we need to ensure that there are stretches where trains are unhindered. We also need to open up capacity at Liverpool Street station. Certain things have to happen before any of that can take place. Crossrail will have to be completed, which we hope will happen by 2018. We have to continue the work at Bow Junction to ensure that those lines can be used and that we get those slots. Peak services along the great eastern main line are already at full capacity. Although freight currently runs on the line, it does not do so during peak times. Extra capacity, therefore, is critical.
I do not pretend to be a rail specialist. I do not know the difference between four-tracking, the clever loops that Network Rail is now thinking about, or the extra bit of track that is needed in that stretch near Chelmsford. What I do know, however, is that there are clever brains working on solutions that will mean that we can open up vital capacity. By doing so, we can increase reliability and speed.
Mr Keith Simpson (Broadland) (Con)
What a vision of loveliness my hon. Friend is, and I congratulate her on securing this important debate. To cut to the chase, many MPs and many of our constituents believe that, in the past, neither Network Rail nor the franchisees have taken East Anglia seriously. We have the impression that previous franchisees have asset stripped. We have been dumped on with out-of-date rolling stock, and capacity has never been properly considered. The key question is this: is she confident that Network Rail and the new franchisees will take this seriously? If they do not, one could be forgiven for thinking that perhaps the Government do not have a priority.
Dr Coffey
I thank my hon. Friend for that intervention. We have to be serious and we need to ensure that the Government are serious, so that when the new tender is put out for 2014, the very exacting standards that we are demanding, exemplified by the prospectus, are delivered. Nothing less than that will be good enough. My hon. Friend mentioned rolling stock, and I agree with him. I will come on to the issue of traveller experience later. Yesterday, some hon. Members were on the same train as me travelling to London Liverpool Street. I am convinced that they are the same trains I used to travel on as a student between Liverpool and London, back in the early ’90s. To simply recycle stock when, on average, our carriages are 25 years old, makes me wonder how old some of our stock actually is.
We have a large number of unstaffed stations. Abellio is the current franchisee. It has a very short franchise, and has made some real improvements. We now have print-at-home and mobile phone ticketing. That might not suit every single passenger, with the demographic of our constituents, but it is a huge step forward. Instead of paying the full price, customers can now print at home or get a neighbour to do it for them. That is a big improvement, and I give credit for that to Abellio.
Matthew Hancock (West Suffolk) (Con)
From the point of view of my constituency, I emphasise the unity behind the proposals. My hon. Friend mentioned bottlenecks. She must agree that unblocking bottlenecks, especially at Ely, is a vital part of the prospectus, not least because increasing the amount of trains to Brandon, with stronger links to Cambridge and Norwich, is vital for its economic future. Therefore, it is not just on the east coast, but throughout East Anglia, that unblocking bottlenecks is critical for our economic future.
Dr Coffey
I could not agree more with my hon. Friend. Perhaps we should have started a book on how many times Ely North junction was going to be mentioned. I am sure that the Minister will be fully aware, by the end of the debate, of how important Ely North junction is across the county.
On other aspects of reliability, returning to a point made by my hon. Friend the Member for Broadland (Mr Simpson), Abellio is currently upgrading some locomotives to try and address short-term reliability challenges. There is nothing more frustrating than a lack of reliability. People may be happy with a slower service as long as it is reliable and on time.
My hon. Friend the Member for Peterborough (Mr Jackson) alluded to the issue of freight. I represent Felixstowe, which has the largest container port in the UK. Placing more freight on to rail is a key strategic priority. Indeed, it is part of the A14 challenge, which the Under-Secretary of State for Transport, my hon. Friend the Member for Hemel Hempstead (Mike Penning) is leading on behalf of the Department for Transport. We can get more freight on to rail. I am delighted that the Department had already confirmed the funding for the Ipswich north curve, which will mean that instead of trains going into London, they will be able to go straight across Ipswich and on to those lines. In the next franchise, in the longer term, we want to see the electrification of the track, which will improve connectivity, reliability and speed. It is critical for both Felixstowe and Harwich to remove some lorry traffic from the A14. The Ely North junction is key part for further developments up into the midlands. It would make such a difference for quite a small amount of money. To develop both junctions at the same time would make a lot of economic sense. My understanding is that the cost is approximately £41 million. I am a great believer in challenging Network Rail to do work more cheaply. I am sure that I am not the only hon. Member who feels that Network Rail mentions costs in units of £1 million, whether for a lift, bridge or whatever. With the McNulty review, I am sure better ways will be found to bring those bills down.
I am sure that hon. Members from different counties will refer to their own branch lines. My hon. Friend the Member for West Suffolk (Matthew Hancock) has already done so by mentioning Brandon, and the need to ensure that it becomes an inter-county line, not just a humble branch line. I have nine stations in my constituency. In the past year, when the service went up from two-hourly to hourly from Ipswich up to Saxmundham, we saw an increase in the number of passengers. We know that improving services will provide a return to the Government and to rail companies in terms of fares.
I was delighted to work recently with my hon. Friends the Members for Waveney ) and for Central Suffolk and North Ipswich on pressing the Government for funding for the Beccles loop. I am delighted that £3 million was confirmed a couple of years ago and that Suffolk county council came up with the other £1 million. We broke the ground not too many months ago and work is under way. In December, we will finally have an hourly service. That is compensation for there no longer being any through trains from Lowestoft to London. That sacrifice—made before we became MPs—allows more trains on the line between Ipswich, Colchester and London to increase capacity, preventing a slow diesel train, for example, holding other trains up. My constituents have paid a fairly heavy price until now, but I am sure that we will all be rejoicing in December; it will be a nice Christmas present for rail passengers in my county.
I have already mentioned the Beccles loop. Our county council’s ambition is a loop near Wickham Market station so that more freight can go to Sizewell C during its construction. It is important that we do as much as we can to get lorries carrying freight—construction materials—into the site and removing spoil from it off the mainly single-track roads in Suffolk.
I have already mentioned Felixstowe. I shall mention it again in relation to passengers. The port is keen to move more into freight and is legally obliged to dual the track between Felixstowe and Ipswich. My right hon. Friend the Minister is already aware of this and was kind enough to meet my hon. Friend the Member for Ipswich and I last week to talk about it. It is crucial that we continue not to reduce passenger services, but to ensure that obligations are kept and that the outcomes for passengers are the same, if not better.
Some colleagues from elsewhere may regard this as a wish list: it is a wish list, but it is a credible one. East Anglia has been the Cinderella of British rail for too long. With a commitment to railways not seen in a century, the coalition Government have the chance to be our Prince Charming, or Princess Charming, depending on legislation next year. I should like the Minister to accept our proposal and let East Anglian passengers travel happily ever after. However, this is no fairy tale; it is a real vision and a tale with a moral. When MPs, councils, businesses and passenger groups come together, we can achieve together, and that matters for passengers, for economic growth and for jobs, which is all great news for our constituents.
East Anglia can provide a huge economic benefit to the country, but we need infrastructure. Broadband is under way and we now need rail to complete the green dream and ensure that East Anglia rail delivers.
Mr Philip Hollobone (in the Chair)
If hon. Members would like to resume their seats, let me say that there is a wealth of East Anglian talent before me. The running order, since we are talking about railways, will be Priti Patel, Elizabeth Truss, Sir Bob Russell, George Freeman and Daniel Poulter. The wind-ups will start no later than 12.10 pm, so we have about 50 minutes.
Priti Patel (Witham) (Con)
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Suffolk Coastal (Dr Coffey) on securing this timely and important debate on rail services and infrastructure in the East Anglian region. She has clearly outlined the case for rail investment throughout the region, which is set out in the prospectus, and has given a strong explanation of the reasons for this debate today and the development of the “Once in a generation” prospectus, which was launched yesterday.
I pay tribute to all hon. Members from the region who have come together on a cross-party basis to draw up the document, because every colleague has had an input. This has been a labour of love, involving many stakeholders throughout the region. I put on record my particular gratitude to Chris Starkie of the New Anglia LEP for putting the prospectus together, corralling most of us to work on it and receiving our input.
I pay tribute to all Essex Members of Parliament who contributed to the document, to Alastair Southgate of Essex county council and to representatives from the Essex Rail Users Federation, particularly Derek Monnery and Mark Leslie, who have been stalwart in representing the voices of local consumers. For once, they have taken the voice of Essex on rail to the heart of the Department. They played a big role in overseeing the document—scrutinising many drafts of the prospectus and making strong contributions to ensure that our needs were met. Indeed, the work put into this prospectus and the big vision that it outlines for rail travel in the region has exceeded any previous endeavour. The outcome produced by the LEPs, councils and MPs is a collective effort that we can all be proud of.
The prospectus is ambitious, innovative and sets out comprehensive policies that are grounded in reality and achievable. I hope that my right hon. Friend the Minister agrees that those policies are all deliverable—the new post-2014 franchise coincides with Network Rail’s control period 5 for investment—including new trains, improved services for all our commuters, better stations and modern facilities. My hon. Friend the Member for Suffolk Coastal has already mentioned many examples of the poor and inadequate facilities for all our commuters. Those have to be dealt with.
I pay tribute to my right hon. Friend the Minister for always engaging constructively with many hon. Members, including me, on rail issues. Previous Westminster Hall debates were held in 2010 about the poor services to Essex commuters provided at the time by National Express East Anglia. She understood much of the frustration and dissatisfaction felt by our rail users. Of course, the franchise went to Abellio. I trust that she will continue to show understanding of the problems that our commuters face, and that she will support the measures that hon. Members from the region advocate.
Speaking as an Essex MP, it is in the best interests of Essex, the region and the country for the Government to adopt this prospectus and ensure that Network Rail and the future operator of the post-2014 franchise deliver the measures. First, the prospectus is a robust economic and business case in support of rail improvements. Secondly, it advances proposals that will provide commuters with long-overdue value for money.
There is a compelling economic case for new rail investment in Essex and the Anglia region. Essex is England’s economic growth engine and, as many hon. Members have heard me say before, it is the county of entrepreneurs. Despite the current economic climate, some 6,000 new enterprises a year are set up in Essex, creating jobs, growth and prosperity. These businesses need good rail links, and commuters need punctual, prompt rail services to open up employment opportunities in London as well as across the region.
With an enterprise zone in Harlow set to generate almost 5,000 new jobs, a new business park in Chelmsford, freight and passenger growth at Stansted airport and DP World investing £1.5 billion in creating a world-leading modern deep-sea container port in the London gateway, it is vital that our vibrant, entrepreneurial economy benefits from a modern rail network fit to ensure that the county can achieve its full potential, not just today and tomorrow but in 10, 15 and 20 years.
Let us be in no doubt that if rail improvements are made to support increased freight and passenger capacity, Essex will continue to be the gateway for trade and investment throughout the region and in Europe and the world. However, if our railway infrastructure continues to be overlooked—which is unjustifiable in my view and that of all colleagues—there will be serious consequences not only for the Essex economy but for UK plc. A commitment to investing in railways in Essex and implementing the proposals in the rail prospectus will send out a strong, clear signal to entrepreneurs and investors who come to the county, and Essex will become an even greater place to set up and run a business.
The costs of providing a modern rail service in the regions will be repaid many times over through fares and through the benefits of the extra economic growth that is generated. It is, for want of a better term, a no-brainer. There will be a long-term return on this investment. Increased rail capacity and better services are also needed to support our local population growth. Over the next 20 years alone, it is estimated that the current population of 1.4 million will grow by 14%. To accommodate those new people, who will of course flock to Essex, in the three local planning authorities that cover my constituency the construction of 60,000 new homes is anticipated. Many thousands more homes will be built throughout the county and the region, which will mean more demand for the railways. Moreover, more people are already using the railways. In the Braintree district alone, last year there were 4.2 million passenger journeys, which represented a rise of more than 130,000 on the previous year. More than half of those journeys—almost 2.2 million in total—came from Witham station in the heart of my constituency.
After years of poor service and under-investment for all commuters, many of whom are paying between £4,000 and £5,000 a year to commute into London, people deserve to start seeing some of that money put back into their infrastructure and service. Commuters currently feel as though they are being used as cash cows, with little coming back in return, although their fares have made the Greater Anglia franchise one of the most valuable and profitable, for train operators and the Government. We are pleading for something to be given back to our commuters. In 2010-11, the last year for which figures are available, the Office of Rail Regulation confirmed that the franchise raised £108.9 million for the Treasury, as commuters travelled almost 4 billion passenger kilometres. Despite all that money going in, however, our commuters have faced miserable journeys and an appalling customer experience, in particular in years such as 2010 and 2009. When National Express East Anglia ran the franchise, the customer experience was terrible and, according to the correspondence we were all receiving, customer satisfaction was at a low. In one study, 62% of passengers revealed that they arrived in London on time while only 48% travelling from London did so. In addition, the overcrowded conditions were horrendous, and they remain so because more and more people are using the service.
I am optimistic that Abellio can make some improvements during its current, short, two-year franchise. It has also been able to press Network Rail again on many of the delays, which is positive. We cannot, however, continue to tinker at the edges, with this sticking-plaster approach. It is all about investment and long-term future-proofing, which is why the implementation of the rail prospectus for East Anglia is so important to commuters in the region.
The prospectus gives all our commuters genuine hope and optimism. It demonstrates a commitment to give them, finally, the 21st-century rail services that they deserve and, to be frank, that they have been paying through the roof for. I urge the Minister to study the prospectus closely and to engage with us all. I know that she will; she is highly accommodating and has been constructive in all our dialogues so far. In my view, the costs will be relatively modest while the benefits will revolutionise our region, travel for commuters and businesses, and the whole economy. It will be worth it for us all.
Elizabeth Truss (South West Norfolk) (Con)
I congratulate my hon. Friend the Member for Suffolk Coastal (Dr Coffey) on securing the debate. It was tremendous when we all met yesterday at Liverpool Street station—commuters saw the swarm of East Anglian MPs launching the manifesto that we had put together. This is the first time that all of the MPs from East Anglia have agreed on a common platform from which to make progress, which is highly important and significant.
I cannot compete with my hon. Friend, who has nine stations in her constituency. I represent only five, although they are five important stations: Watlington and Downham Market on the Fen line; and Brandon, Thetford and Harling Road on the Norwich to Cambridge line. Those stations are incredibly popular and, over the past four years, we have seen a rise in passenger numbers of 20% at both Thetford and Downham Market, which outstrips the national rise. The reason is the strong growth in employment in Cambridge and throughout the region—Norfolk has bucked the trend in manufacturing, and we are also doing well in the food and farming industries—so we see a growing number of people using the train to get to and from work.
Having used the services many a time, I can testify that the carriages are getting more and more packed, in particular at peak hours, going both ways; an interesting thing about the Fen line is that it has almost as many people travelling out of London as into London, so the route is well balanced. That is only the start of what we are about to see, with massive growth in population throughout Suffolk, Norfolk and Cambridgeshire. We will see another 200,000 homes by 2021, so it is vital to have the rail services to deal with that increased capacity, because by then the congestion in our region will cost the economy an estimated £1 billion.
At the moment on those lines, we have hourly services, with a few additional services in peak hours, and that simply is not enough with the increased employment, housing and growth in the area. With my fellow local MPs, I have been calling for half-hourly services. The current work that we are doing to understand the effect of improvements to the Ely North junction indicates that investment in it would have a positive net present value of £260 million to our local economy, which is huge.
The Ely North junction is becoming famous in debates on East Anglian rail. It is a small area from which tracks were removed in the early 1980s, making it only a single-track junction. I recently visited it with my hon. Friend the Member for Mid Norfolk (George Freeman). Sadly, due to health and safety reasons, we were not allowed to walk along the tracks to see the junction, but we made do with kneeling at the level crossing, such was our commitment to see the junction improved, and driving around the Ely area, which is in neither of our constituencies. We wanted to visit to ensure that we understood the logistics.
To upgrade the junction would be a relatively low-cost endeavour, but the effect would be felt on a vast number of lines; my hon. Friend the Member for Suffolk Coastal spoke about freight services but, likewise, journeys to Ipswich, Peterborough, King’s Lynn and Norwich would all be improved. The critical importance of the junction came to light in May last year when I had a meeting with my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) and Network Rail. That key bottleneck was identified as what stood between us and getting a half-hourly service.
There are other issues on the line, such as the single track between Littleport and Downham Market, which often causes delays; likewise, a lot of level crossings ought to be dealt with by Network Rail. In the short term, however, opening up the Ely North junction would make half-hourly services possible on the line. In December 2011 my hon. Friend the Member for Norwich North (Miss Smith) organised a rail summit, at which the issue was highlighted. We had a further summit in January, specifically to discuss the junction.
My hon. Friends the Members for Mid Norfolk and for West Suffolk (Matthew Hancock) also held a meeting with the Transport Secretary in May. She very much agreed that we needed to see expenditure evened out across the country. She understands, as we do, that for a long time East Anglia has paid into the pot while other parts of the country have taken out of it. Given the economic potential in our area, that is damaging not only for local passengers and commuters but for the economic growth potential of the country as a whole.
Simon Wright (Norwich South) (LD)
One of the sectors of the economy that has not been mentioned yet but is incredibly important to Norwich is the retail sector. It is worth more than £1 billion every year, and one of the biggest complaints that I receive from shoppers is lack of parking. Does my hon. Friend agree that encouraging more shoppers to use rail, which we can do by improving the service, will unleash the current block on growing the retail sector of the economy, so ensuring that Norwich will continue to be one of the UK’s top 10 retail destinations?
Elizabeth Truss
I agree with my hon. Friend. There is also huge tourism potential in the region. Along the Norwich-Cambridge line, stations such as Thetford and Brandon could provide a good base for tourism in the Brecks if services were more frequent. People could also go shopping in Norwich when visiting the area.
At the moment, not only do we have unprecedented agreement among MPs of the region but we have a golden opportunity, with the Thameslink franchise coming up in 2013 and the Greater Anglia franchise coming up in 2013, to ensure that we specify the services we want. I encourage the Minister to ensure that half-hourly services are specified in both franchises. Demand exists from passengers, and the train operating companies have the ability to deliver, but it would be helpful to have a resolution from the Department for Transport that it will ask for that level of service, which our local commuters need, so that we have real value.
The other concern that I want to raise is intercity express programme trains, which were scheduled to go to King’s Lynn as part of the Thameslink franchise. Is that still the case, and can the Minister guarantee that we will see the new rolling stock on the line; that if we are successful in securing a half-hourly service we will not have a shuttle service from Cambridge to King’s Lynn, and that direct services to London will continue? Direct services are important for many local residents who either commute to London, or must travel there for business reasons. I would like answers to those specific points, but I am encouraged by the level of engagement of the Department. I hope that that will bring to an end years of under-investment in East Anglian rail, and that we are about to see a new golden era for our transportation. This is a huge opportunity to support a growing part of the country, and I again thank my hon. Friend the Member for Suffolk Coastal for this debate.
Sir Bob Russell (Colchester) (LD)
I declare an interest because of my rail ticket from Colchester to London. I believe that Colchester is the sixth busiest commuter station in the home counties, so I have more than a passing interest in the matter. I think my constituents who are commuters would say that at the moment they are not receiving value for money.
I congratulate my hon. Friend the Member for Suffolk Coastal (Dr Coffey) on securing the debate, and on all her hard work. I endorse every word that my neighbour, my hon. Friend the Member for Witham (Priti Patel), said, with her pan-Essex approach to the driving force of the economy in the east of England.
I would like the Minister fully to appreciate how unanimous MPs from the east of England are. I stress that because a lot of hard work has been done. When the journey started, not everyone was on board, and I plead guilty to being one of those who kicked up a fuss. One of the weaknesses and strengths of the new Anglia local enterprise partnership is that it is concentrated on Suffolk and Norfolk. It does an excellent job, but in my opinion the initial prospectus was silent on Essex. Others disagreed, and thought that the silence was covered, but I did not think it was. The prospectus now is fully focused on the whole of the great eastern main line from Norwich to London through the three counties. The guarantee in the prospectus is that there will be no reduction in the frequency of inter-city trains stopping at Colchester. I leave other MPs with stations in their constituencies to make their case.
There is a feeling in north Essex, of which Colchester is the obvious capital, that we are a neglected part of the county, because we are not in the new Anglia LEP. We are in the same LEP as Kent and East Sussex. In north Essex, we barely acknowledge Southend, let alone Kent and the outer reaches of Brighton. It is a credit to those who drew up the final prospectus that they widened their horizons beyond Suffolk and Norfolk, and recognised that we are all in this together—to coin a phrase. I regard myself as East Anglian before Essex, being only 5 miles from the Suffolk border. I urge the Minister to appreciate that, as we heard from previous speakers, we are East Anglia-orientated, not south Essex and not London. We are East Anglian in culture. I am delighted that the new Anglia LEP is adopting us, because we will get a better deal from the new LEP than we got from whatever the name is of the one we are in. We are a neglected corner.
I appreciate that others want to speak, so I shall be brief. I endorse the comments of the three previous speakers, but I want to put on the record that the guarantee in the prospectus of no reduction in the frequency of inter-city trains is important. We all have wish lists, and I also want to put on the record my four domestic wishes. I would very much like a direct service from Colchester to Cambridge via Ipswich; we must acknowledge that Cambridge is the central place in the six counties of east England. I would very much like a Sudbury to Colchester Town direct service. I do not have five or nine stations in my tight, urban constituency, but I have three. I would also like direct services from Colchester Town to London. That is not impossible, and additional capacity and the speeding up of services that others have mentioned is necessary. Finally, we are approaching the summer season, and I would like, if possible, Sunday services to the Essex coast from Colchester Town and my third station, Colchester Hythe.
I thank everyone involved in the issue and, to emphasise the point for the Minister, I repeat that this is the unanimous voice of East Anglia.
George Freeman (Mid Norfolk) (Con)
It is a pleasure, Mr Hollobone, to serve under your chairmanship. I add my voice to those congratulating my hon. Friend the Member for Suffolk Coastal (Dr Coffey) on our behalf. I also congratulate my hon. Friend the Member for Norwich North (Miss Smith) on leading the choreography to pull us all together, which is no easy task. I add my name to those of hon. Members who mentioned the local enterprise partnership, Abellio and Network Rail, who have all worked closely with us to make sure that the document has their active support and their approval of the measures within it as realistic. Jonathan Denby of Abellio has been a powerful force in helping to shape and drive the matter.
The prospectus sets out an ambitious, long-term vision for the East Anglian rail network. First and foremost, for far too long, commuters have had to put up with unacceptable under-investment in a network that they have paid for many times over. I want to focus on the importance of the East Anglia rail network in underpinning our modern economy.
Before coming to Parliament, I spent 15 years in East Anglia helping to build, finance and manage fast-growth science and technology businesses around Cambridge and Norwich. I know well and can testify to the growth potential in the area to which other hon. Members have referred, and which the Government are recognising in a number of their initiatives for an innovation-led recovery. They have powerfully—rightly in my view—set out the need for us to adopt a different model of economic growth and development in the light of the crisis that we inherited. It is a more balanced model of development driven much more from the regions and by business with finance following business growth, and without everyone having to commute to London to feed the banking machine, which is free to support and grow real businesses around the country, particularly drawing on our skills in the knowledge economy, whether life sciences, the digital economy, clean energy, food, nutrition or agriculture.
As hon. Members know, no region is better equipped than East Anglia to grab that opportunity, and to lead a new model of economic growth. Since the war—for far too long—East Anglia has been treated, seemingly, by successive Administrations as an area that can be taken for granted and from which people will commute to London, however poor the investment. Alternatively, it is seen as something of a rural backwater for retirees and house dumping when London targets need to be accommodated.
The area is ready to rise and do something more for this country. It is building great businesses across the board, but it cannot do that without infrastructure. That is why a coalition of Norfolk MPs, and those from across East Anglia more widely, are coming to the Government with a central message: we do not want a handout; give us a way in and a way out and we will deliver sustainable growth.
Fast modern rail is crucial to modern economies around the world for a number of reasons. We live in a global economy, and every start-up business in our area needs to think globally. Fast rail is a crucial link to our airports at Stansted and Norwich, as well as other London hubs, and it is crucial if we are to link the City of London’s world-class financial expertise to businesses in those clusters. In life sciences, for example—my area of expertise—if we do not link better Oxford, Cambridge and Norwich to London, so that people can fly in from around the world to visit companies, scientists and investors in these areas, we will not unlock our full potential. I like to think that in due course, our Cambridge-Norwich line might be part of a wider emphasis on a Oxford-Cambridge-Norwich railway that links the life sciences.
As we heard in an eloquent speech from my neighbour, my hon. Friend the Member for South West Norfolk (Elizabeth Truss), the cost of the gridlock that is East Anglia on an average morning or evening comes to £1 billion a year. People are sitting in cars and trains going nowhere in an area that has a lot more to offer.
Finally, Cambridge sits at the heart of the region that has the potential to drive global growth. As I know well because I was working there at the time, perhaps the most powerful thing that happened to unlock Cambridge’s growth—described eloquently as the “Cambridge phenomenon”—was the improvement of fast rail links to London, and principally the two hourly non-stop service. It became known as the “VC Express” or the “Cambridge Flyer”, and it dramatically shortened not only travel times, but cultural perceptions of the distance between Cambridge and London. Investors in London started jumping on the train and popping up to Cambridge for a morning to meet and view interesting companies. That is not happening at the moment in Ipswich, Norwich and other areas, but it could.
As we have heard, our region has been woefully neglected over the years. It was heartening to hear the Minister and the Secretary of State recognise at the highest level the need to balance rail expenditure between areas and tackle regional discrimination. It has also been recognised that the area is a net contributor to the Treasury, and with infrastructure we could deliver growth and sustainable development.
I would like to put down a marker. If the Government are thinking about pilot schemes for integrating the train operating companies with Network Rail to drive new models of more integrated planning, as we mention in the prospectus, we would like East Anglia to be considered for any such initiative.
We will not build a high-quality economy and attract and retain world-class talent if we allow our area to become a giant housing estate, with commuters condemned to traffic and gridlock. That is especially important to residents in my constituency of Mid Norfolk which sits, as the Minister may know, between Cambridge and Thetford on the Cambridge to Norwich line. Average incomes in my constituency are below £20,000—well below the national average. It is a very rural area that some might describe as something of a backwater in terms of national communications. It sits in the middle of the only county that is not yet connected to the national trunk road system, but it is zoned for massive housing growth, particularly in Wymondham and Attleborough, as well as further down the Cambridge-Norwich line in Thetford and Brandon.
The towns of Wymondham and Attleborough are happy to grow, but they want infrastructure so that growth is sustainable and will not be allowed to damage and undermine their quality of life. The railway sits at the heart of that challenge. If we simply build houses, and plan on the basis that everybody will drive, the morning after our beloved A11 is opened in its newly dualled state, it will quickly become a car park. The A11 needs to be the artery of East Anglia, but that will require more people in new homes to jump on the train to Cambridge, Norwich, Thetford or Ely in the morning.
The Minister will not be surprised that I mention the Ely North junction. It is the key bottleneck in plans to unlock the Cambridge-Norwich railway that was reopened less than a decade ago. The plans have strong cross-party support, but the junction is a bottleneck on the Cambridge-Norwich line, the Fen line and the freight line. I know that the Minister and the Secretary of State have been at pains to listen to the problem, and we are grateful for the time and trouble that they have taken. The Minister’s support on this issue has been crucial, and we hugely look forward to her reply.
Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con)
Many key points have already been touched on, and we have heard a lot from hon. Members about the historical under-investment in the East Anglian rail network. We heard in a well articulated speech by my hon. Friend the Member for Witham (Priti Patel) that although fares continue to increase, the reliability of the service continues to be a problem, and there has been consistently poor value for money for passengers who use the line.
[Mr Peter Bone in the Chair]
My hon. Friend the Member for Mid Norfolk (George Freeman) rightly highlighted the fact that if we want a first-class business environment in the east of England and East Anglia, we need first-class infrastructure. We are pleased with the strong Government support for investment in high-speed broadband in rural areas in Suffolk, Norfolk, Essex and other counties, but a key part of a first-rate business infrastructure involves a first-class railway. That is important for agriculture, life sciences, retail and the tourism industry, which is growing throughout our region. It is also vital for every passenger who uses the railways in East Anglia on a daily—or in some cases weekly—basis; we have seen a growing number of passengers throughout our region.
It is a pleasure to serve for the first time under your chairmanship, Mr Bone, and I, too, congratulate my neighbour and hon. Friend the Member for Suffolk Coastal (Dr Coffey) on securing the debate. I want briefly to highlight three key issues. We can all talk about important stations and branch lines in our constituencies. I have one station in my constituency—Westerfield—but I will not talk about it today. That does not mean that the station and those who use it are not important, but we need to highlight the key considerations. Improving the great eastern main line will benefit every branch line and station that comes off it. The Government have already listened to that key message, and we are grateful.
Commuters have suffered from lack of reliability on the service. My constituents who use the railways in East Anglia tell me that if they could have one thing, it would be a more reliable service that does not break down but ensures that people get to where they are going on time. That is vital for businesses and for each and every passenger on a daily basis. The lack of reliability of railways in East Anglia has undermined the service that they provide to their passengers. At the heart of the prospectus launched this week is a request that before we see increases in speed, reliability of the service must be the priority.
A key part of improving reliability involves improving capacity, and the prospectus rightly outlines the need for additional track capacity, particularly on the great eastern main line. As my hon. Friend the Member for Peterborough (Mr Jackson) highlighted earlier in the debate, we must ensure that businesses are supported correctly and that more track capacity is freed up on the Felixstowe to Nuneaton freight rail link, which is an important part of this debate. As the prospectus highlighted, if we want to support businesses in East Anglia, a first-class rail link between the midlands—one of the manufacturing engine rooms of the British economy—and Felixstowe, which takes 46% of the UK’s container traffic, is vital.
Furthermore, in terms of the passenger arguments that we are advocating today and the increased reliability of service, it is not desirable for freight to travel from the midlands into London and then back out, as happens at the moment. That slows down the passage of freight and is bad for business, but it also clogs up passenger capacity on the lines, which would be much better used to support improved reliability—a more reliable passenger service. Therefore, a key part of the rail prospectus is about ensuring not just that business is supported through the Felixstowe-Nuneaton freight rail link, but that there is recognition of the importance of that link to the passenger service. I am talking about the freeing up of passenger capacity on the rest of the rail network in East Anglia and particularly on the great eastern main line.
The primary issues are reliability of service and capacity, but it is also desirable to increase, where possible, the speed of service. However, we will get a faster service only if we deal with reliability and capacity as the first priorities. Reliability and capacity improvements will of course lead to greater train speed. If we want to achieve Norwich in 90, Ipswich in 60 and all the other key considerations, the only way we can do so is by focusing on reliability and capacity of service.
All the MPs present at the debate are very grateful for the support that the Department has given us in our fight for improved rail services in our own constituencies, but all of us are also aware that the issue is much bigger than any individual station or branch line. It is about improving the overall reliability and capacity of the service in East Anglia, with a focus—a laudable focus—on the great eastern main line as the primary driver for delivering that. I thank my right hon. Friend the Minister for her support for all that we have been doing. I again commend my hon. Friend the Member for Suffolk Coastal for securing the debate. I look forward to the Minister’s supportive comments when she responds to it.
Ben Gummer
Very timely. It is a great privilege to be able to contribute to the debate. I apologise for having come to it a little late; it clashed with a sitting of the Select Committee on Justice.
This is a very important week for the railway in East Anglia.
Elizabeth Truss
Does my hon. Friend agree that the launch that took place yesterday at Liverpool Street station showed the sense of purpose of all the MPs of East Anglia in putting their names to a new manifesto, and does he think that that should be taken very seriously by the Department for Transport when it is considering our overall national transport strategy?
Ben Gummer
I agree. My hon. Friend will know and I am sure that you, Mr Bone, will know very well that that sense of purpose is unusual in the east of England. When first the railway was driven up to Norwich, the good people of Norwich tried very hard to ensure that it did not go through Ipswich. They preferred a route that went via Cambridge. In the end, they got something approaching both. At that time, the town and the city were at war with each other for the privilege of having the railway. Happily, sense prevailed, but such was the animosity during that period—there is a serious point to this—that the quality of the infrastructure laid down suffered; investment was not forthcoming because there was no political direction to facilitate the backing required. That is why only two lines go between Chelmsford and Ipswich and then from Ipswich to Norwich. The result of that and the rather substandard nature of the track itself in places is that it has never fulfilled the desires and wishes even of the Victorian builders. We have constantly had to catch up since in terms of infrastructure improvements.
We start, therefore, from the position of having a poor railway in our region. It has had running repairs and second-hand rolling stock at every point; it has never had new rolling stock, apart from at its inception in the 1830s and 1840s. That is why all of us coming together as Members of Parliament, county councils, borough councils and local enterprise partnerships across the region is so important. We have established that sense of purpose with a view to obtaining what is a rather modest amount of investment compared with other infrastructure projects across the country.
I impress on my right hon. Friend the Minister both our unity and the fact that what we are asking for is very small compared with the release of economic growth and the possibilities for jobs and prosperity that the investment would give our region. I was not here earlier in the debate, but I am sure that the issue has been brought up. All of us have a vision not just for the railway, but for our region as a whole. It should be the California of Europe. It has a knowledge base that is certainly comparable with that in California, if not greater. It is a place where people want to live; it is a very attractive place in which to live and work. It is also close to the largest finance centre in the world. There is no reason at all why the eastern region should not achieve double-digit growth.
The reason why we are so keen to see that growth is that it will unlock potential for our constituents, especially those in certain areas. In our region—you, Mr Bone, will see this in your own constituency—there are significant pockets of severe deprivation, some of which are in my constituency. If we are to offer the people living there the opportunities that the Government are keen to extend to larger areas of deprivation in London and the north and in the nations of Scotland and Wales, we should also consider areas that may be smaller but suffer from similar levels of deprivation and require the assistance that the Government can provide in terms of investment.
George Freeman
Does my hon. Friend agree that as well as the importance of the commuter lines down to London, the regional links, not least between Ipswich, Cambridge and Norwich, are very important? We could combine Cambridge’s bioscience and digital and Norwich’s agricultural science, cleantech and food and medical science with Ipswich’s wonderful West Suffolk college and the Martlesham BT digital centre of excellence. If we put those together, we would build a very powerful triangle of innovation, to the benefit of all the villages and towns in the area.
Ben Gummer
I entirely agree. It is remarkable—a wonder—to see what has been achieved in Cambridge. It is remarkable also to see what is happening in Norwich—20 years of life science investment and innovation coming right. That is why it is so exciting to see some of the incipient projects in Ipswich. I was at University Campus Suffolk a few weeks ago to hear about some of the joint research projects that it is undertaking with significant universities around the country. It is a brand-new university—the youngest in the country—and it is already doing exciting advanced research. Some of the research, as my hon. Friend will know, involves geriatric science and the life sciences connected with that.
In Ipswich, there is an incipient life sciences industry, based around the largest software research centre in the country—Martlesham, just outside Ipswich, in the constituency of my hon. Friend the Member for Suffolk Coastal (Dr Coffey). Together with a very significantly growing food and drink sector and a large tourism sector in the county as a whole, it should contribute to remarkable growth, which could be released to the UK economy. East Anglia is already one of only two regions that are net contributors to the UK economy. Its contribution could be made even more significant.
Elizabeth Truss
We hope soon to get the Cambridge Flyer extended to King’s Lynn and Norwich. Does my hon. Friend agree that if there was a train like the Cambridge Flyer to Ipswich—the Ipswich Flyer—it would help to drive growth in a similar way to what we have seen in Cambridge?
Mr Peter Bone (in the Chair)
Order. Before the hon. Gentleman replies, I remind the Chamber and people who may have arrived late that the winding-up speeches are to start in about a minute’s time. The hon. Gentleman might like to bear that in mind.
Ben Gummer
Thank you for your guidance, Mr Bone. I am glad that I have no more than a minute left to contribute to the debate.
I will make one final point because I agree with every point my hon. Friend the Member for South West Norfolk (Elizabeth Truss) made. It is important that the line from Ipswich should benefit towns nearby, such as Colchester, and continue across the east-west link, from Cambridge to Bedford and thence to Oxford, creating an arc of knowledge across the country.
The Minister knows that travellers in East Anglia pay some of highest premiums in the railway industry. That money goes out of the region to subsidise loss-making lines elsewhere. We need to retain some of that money to invest in our area. It is only right that our constituents— not only the fortunate and well-off, but those who lack opportunities—can retain a bit more of that investment in our area, so that we can improve our rail links and make the contribution to our local, national and European economy that we aspire to make.
Lilian Greenwood (Nottingham South) (Lab)
It is a pleasure to serve under your chairmanship, Mr Bone. I am sorry that Mr Hollobone had to leave, because I know that we share a particular interest in rail investment.
I congratulate the hon. Member for Suffolk Coastal (Dr Coffey) on securing the debate and co-ordinating it so well with the publication of “Once in a generation—A rail prospectus for East Anglia”. She made an eloquent case on behalf of her constituents and the wider region. There may be competition for the title of the Cinderella of the railways—I am thinking of my midland main line—but the importance of improving Ely North junction has been put across strongly today.
The prospectus is a substantial document that presents strong arguments for future transport investment in East Anglia. I congratulate those involved in producing it. The east of England needs and deserves better transport links, particularly given the anticipated population growth, which hon. Members described. As a shadow Transport Minister, I welcome the prospectus’s publication, and I hope that it receives a sympathetic hearing within the Department for Transport. I look forward to the Minister’s response.
As many have said, the east of England is a net contributor to the Treasury, and better transport links could enhance that contribution. The prospectus reveals the patchwork of provision across East Anglia. Too many lines suffer restrictions on capacity, with passenger numbers on the west Anglia route alone expected to increase by 42% by 2021, leaving 59% of trains overcrowded. With the Government set to allow fares to increase by up to 11% next year, passengers expect and deserve better. As the hon. Members for Suffolk Coastal and for Central Suffolk and North Ipswich (Dr Poulter) rightly said, improving links to Felixstowe is vital for the expansion of rail freight, and to reduce congestion on the roads, cut carbon emissions and free up extra capacity for passenger services.
The proposals set out today would strengthen East Anglia’s vital economic links to London, but the document’s ambition does not stop there. The previous Government undertook improvements to lines and stations between Oxford and Cambridge, and the prospect of a reopened and revitalised varsity line is worth looking at in detail. The prospectus also presents a strong case for looking at modernisation of stock and track, including electrification, in East Anglia.
There is a compelling case for investment that meets local need and supports wider economic growth. The hon. Members for Witham (Priti Patel) and for Colchester (Sir Bob Russell) made a strong case on behalf of Essex and its potential for generating jobs through inward investment and business expansion. The hon. Member for Mid Norfolk (George Freeman) set out clearly how Norfolk and East Anglia can contribute to sustainable growth if properly linked to key centres, including the City of London. Perhaps next time I am on a windy Norfolk beach, I will try to remember that East Anglia is the California of Europe. The hon. Member for Ipswich (Ben Gummer) made an important point about the development of high-tech industries in that part of the country, particularly around Cambridge.
I agree that better infrastructure is needed to drive up passenger satisfaction rates, which are the lowest in the country. Unfortunately, I am concerned that Government policy may end up holding the proposals back. Labour Members have supported £528 million of efficiency savings in rail, but the Government have pushed ahead with a further £759 million cut to capital spending.
Sir Bob Russell
Will the hon. Lady briefly spell out all the improvements that the Labour Government made to the rail infrastructure in East Anglia in their 13 years in power?
Lilian Greenwood
Labour took action in government, and I am happy to say that transport spending in the eastern region increased in real terms during our time in power. In our last year in office, it stood at £1.494 billion, but I do not deny that a new approach is needed. That is why I will set out our proposals for a real devolution programme with transparent and fair regional funding. Unlike the Government’s proposals on devolution, ours include democratic accountability.
The prospectus makes a powerful case for investment in East Anglia’s rail network, but Government cuts have made it less likely that the funding will be found.
The Minister of State, Department for Transport (Mrs Theresa Villiers)
It is simply not true that the Government are slashing spending on our railways. We have embarked on the biggest programme of capacity expansion in the rail network since the Victorian era. The hon. Lady should get her facts right.
Lilian Greenwood
I am sorry that the Minister felt the need to spell that out, because she is wrong. She is cutting money from planned rail investment, and there will be an impact when hon. Members seek investment. I look forward to hearing what she has to say on the high-level output specification and what it means for not only East Anglia, but other parts of the country.
The hon. Member for Suffolk Coastal has said that she was reassured that
“it is not on the Government’s Agenda to reduce passenger rail services.”
She will surely hope, therefore, that the Government do not follow the model they adopted when they issued the west coast invitation to tender. The document allowed bidders to reduce daily stops at stations by up to 10%. Any reduction in service would be compounded by the McNulty report’s ticket office closures in the counties represented here today. Colchester Town in Essex, Thetford in Norfolk, and Whittlesford Parkway in Cambridgeshire, to give just a few examples, all face having their staff withdrawn. I am sure that the hon. Lady, having secured the debate, will also put pressure on her Government to ensure that existing services in East Anglia are protected. [Interruption.]
Passengers are already feeling the pinch. Services are overcrowded, and the Government have decided to increase fares by 3% above the retail prices index for the remainder of the Parliament. They have also given train operating companies the freedom to average out the rise, leading to fare rises of up to 11% next January. When personal and family budgets are under great pressure, with some commuters paying as much as £4,000 or £5,000 for their annual travel, the Government should be on the side of East Anglia’s commuters, not vested interests in the rail industry. [Interruption.]
Mr Peter Bone (in the Chair)
Order. If Mr Shelbrooke wants to intervene, would he mind standing, rather than grunting from a sedentary position?
Lilian Greenwood
Thank you, Mr Bone.
It is regrettable that the Government have added to the uncertainty about the future of East Anglia’s rail network. When National Express ceased to operate East Anglia rail earlier this year, the Government should have entrusted the franchise to public ownership through Directly Operated Railways, thereby providing stability in the run up to the Olympics. A two-year private tender with no long-term security or incentive for investment was not the solution East Anglia needed.
The Government’s tendering process in East Anglia also raises questions about their commitment to devolution. It is clear from the prospectus, and hon. Members’ contributions today, that there is local appetite for greater involvement in guiding infrastructure spending and delivery in East Anglia. We, in Labour, wish to promote that spirit by working more closely with local authorities to deliver a better transport system. The Government have already entered into negotiations with transport authorities in the north of England on potentially devolving responsibility for railway operations in that region. Why not do the same in East Anglia?
I urge the Government to listen to the calls in the prospectus to strengthen transport links to Stansted airport. Half of all passengers arrive at Stansted by public transport—the highest proportion for any major airport in the UK. Better transport links could help to relieve airport capacity constraints in Greater London without the environmental costs associated with other proposals. The Government are locked in distracting internal arguments on Heathrow expansion and fantasy islands in the middle of the Thames, but would it not be better to listen to those arguments instead?
In conclusion, I welcome the publication of the document and the spirit in which it was compiled. We want closer working between local authorities and other representatives, and we would back them with genuine devolved powers over transport spending. Discussions with the Department for Transport must now begin. There are many other worthy projects to consider at a time when capital budgets have been cut too far and too fast. Nevertheless, the report’s authors must be commended for the case that they have made on behalf of East Anglia, and I wish them all the best in their endeavours.
The Minister of State, Department for Transport (Mrs Theresa Villiers)
I join other hon. Members in congratulating my hon. Friend the Member for Suffolk Coastal (Dr Coffey) on securing the debate and providing a timely and valuable opportunity to discuss the future of rail services in East Anglia. I take on board the points that many of my hon. Friends made about the unity behind the prospectus that was published yesterday. I am well aware that regional rivalries go back to before the time when Boudiccan hordes burned down Colchester, so it is no mean feat to unite Essex, Suffolk and Norfolk, and the whole of East Anglia.
We fully recognise the importance of good transport links in East Anglia; that is why the vital dualling of the A11 got the go-ahead. My hon. Friend the Member for South West Norfolk (Elizabeth Truss) and others were right to highlight the importance of housing growth and the provision of infrastructure to support it. My hon. Friend the Member for Mid Norfolk (George Freeman), with his characteristic insight, analysed the economic benefits of transport improvements and the potential for expanding life sciences in East Anglia. Like everyone else on the coalition side of the House, I acknowledge the importance of getting the cost of running the railways down, so that we can take the pressure off fares and respond to the kinds of points that have been made by several hon. Members, including my hon. Friend the Member for Witham (Priti Patel).
Punctuality and reliability, which are obviously crucial, were raised by my hon. Friends the Members for Suffolk Coastal, for Witham, for Central Suffolk and North Ipswich (Dr Poulter), and for Ipswich (Ben Gummer). The period of poor service that came about with the start of the franchise was very unfortunate. Abellio has apologised to its customers. I am hopeful that lessons have been learned. Performance has improved significantly since a problematic start. I welcome the collaborative work that is now under way between Abellio and Network Rail, with a view to improving infrastructure performance and ensuring that possessions are managed more efficiently.
The resilience and reliability of the infrastructure remains a concern. I have no doubt that the rail regulator will continue to scrutinise Network Rail’s record and press for improvement. Network Rail is, however, working hard to address the problems, with a major renewal of the overhead line equipment, which has been one of the greatest sources of vulnerability over recent years. The Government are also taking action to crack down on cable theft, which Network Rail highlighted for me as a key problem for the reliability of the network.
Improvements are on the way. Parts of the east of England will benefit from Thameslink. Others, in Essex, will benefit from Crossrail, as we have heard. The work on Beccles loop is happening, thanks partly to support from Suffolk county council. I recognise the aspirations for progress on the western section of East West Rail, and the possibility of a future link between Cambridge and Oxford. Of course, progress is being made on the central section, which we hope will provide momentum for further progress. I agree with my hon. Friend the Member for Central Suffolk and North Ipswich on the crucial importance of upgrading freight connections, particularly between Felixstowe and Nuneaton, to ensure that we relieve pressure on the roads by providing an attractive freight alternative on the rails. The Government are committed to continuing to invest in improving our railway’s capacity to take freight.
The extent to which we can fulfil all the aspirations that have been talked about today, and to which we can achieve goals of the kind set out in the prospectus, will depend on the funds available, and, of course, a careful assessment of competing priorities around the country. I got the message loudly and clearly—
Mr Peter Bone (in the Chair)
Order. On the point about loudly and clearly, it would help if the Minister faced forward, so that the microphone could pick up what she is saying.
Mrs Villiers
Thank you for that steer, Mr Bone.
Later this month, we will publish our high-level output specification, to cover what we want the rail industry to deliver in the 2014-to-2019 period. Some of the larger headline schemes are likely to be directly mentioned in the statement, but most of the projects needed to deliver the general outputs that we will set in that statement will not be explicitly listed, so the July statement will not have all the answers on exactly how the benefits of rail improvements will be shared around the country. It will be followed by an industry process to decide which upgrades are needed to deliver the specified outputs, overseen by the Office of Rail Regulation. I assure hon. Members that careful consideration will be given to the points made about the Ely North junction and other improvements today. I should mention that this HLOS statement, like the last one, is likely to contain certain general funding pots that are to be made available over the five-year period, which could be used to support various different schemes around the country, including in East Anglia.
The forthcoming long franchise for Greater Anglia will be important in answering the questions we have heard today. We are granting a longer, more flexible franchise, because we believe that that will give the train operator a stronger incentive to invest in the improvements passengers want, including better trains and stations. We expect the next Greater Anglia franchise to start in the summer of 2014, and to last for up to 15 years. Our reforms to franchising put passenger satisfaction and service quality at the heart of the outputs that we require train operators to deliver. We will work closely with bidders and Network Rail to see how we can maximise the opportunity to integrate decision making more effectively between track and train management—that is another aspiration in the prospectus—and we will also require the next franchisee to introduce ITSO smart ticketing across the franchise.
Ben Gummer
Will the Minister reflect on a comment made by my hon. Friend the Member for South Suffolk (Mr Yeo)—that in essence rail travel has not really changed for the past 50 years? The long franchise gives a tenderer a fantastic opportunity to have a rethink about passengers and how the railway experience works, and to do some innovative things. That can be managed only in the 15-year context that the Government are setting.
Mrs Villiers
I agree that a long franchise can give many more opportunities for a train operator to innovate, and for us to draw private sector investment into the railways.
We will launch a public consultation on the next Greater Anglia franchise later this year. A detailed business case will be developed, and, drawing on the results of the consultation, we are likely to appraise a range of improvement options. As to what goes into the franchise, I emphasise that we have no plans to remove daytime passenger services from the Felixstowe branch line, which was a matter of importance to my hon. Friend the Member for Suffolk Coastal. Although Hutchison Ports has proposed the change, it has an obligation under section 106 of the Town and Country Planning Act 1990 to fund the required infrastructure upgrades.
We have heard many other aspirations: there are the half-hourly services called for by my hon. Friend the Member for South West Norfolk, and the specific service changes called for by my hon. Friend the Member for Colchester (Sir Bob Russell). Decisions on those will be made only after the consultation has taken place, but I shall ensure that this debate is fed into the process.
Mrs Villiers
I am afraid I do not have time; I have only a couple of minutes left.
As for aspirations such as “Norwich in 90”—a campaign for that has been led by my hon. Friend the Member for Norwich North (Miss Smith)—it is too early to say what the franchise will specify for the train service between London and Norwich. However, in making such decisions we will need to take into account the interests of all the communities on the line, and those who live in intermediate destinations such as Chelmsford and Colchester. Whatever train service we adopt, we shall encourage bidders to put together affordable proposals for improved journey times and a better customer experience.
We did some work on options for Norwich to London before letting the short franchise, and that suggested that spending about £10 million to £15 million on new locomotives and refurbishing existing passenger vehicles would make it possible to save about seven minutes on most trains, and that could be funded in a 15-year franchise from additional revenue. However, that is just one option. We hope that franchise bidders will devise alternative plans that either cost less or produce greater benefits for passengers.
One factor, of course, that bidders will have to take into account is the requirement to make modifications to rolling stock by 2020, to provide proper access for people with reduced mobility. In response to all hon. Members who talked about the state of the rolling stock—some of it is fairly elderly—let me say that there will be changes over the next few years because of the deadline. The decision on whether that will involve targeted improvements, full refurbishment, new rolling stock or a combination of all three lies in the future, but change will have to be made. In the meantime, Abellio is pressing ahead with a deep clean of rolling stock.
In conclusion—
Police (Surrey)
(12 years, 4 months ago)
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Mr Dominic Raab (Esher and Walton) (Con)
It is a great pleasure to serve under your chairmanship, Mr Bone. Before the debate had even started, I had already benefited from your advice and wisdom. Thank you. I am also grateful for the opportunity to address the Minister and to discuss police funding in Surrey.
Few issues are of greater importance to people throughout the country than ensuring that their local police force has the resources that it needs. The residents of Esher and Walton, and indeed of the county of Surrey, are no exception. Surrey’s front-line police officers do a first-rate job. I commend the dedication and commitment that they bring to keeping our communities safe. We are also blessed with a top-notch chief constable.
I want to say at the outset that I support the Government’s drive to promote efficiency and reform in the police service, which is in the interests of both law enforcement and the taxpayer. I commend the Minister for his pioneering efforts in that regard. In the current financial climate, all parts of the public sector must do their bit to deliver maximum value for money, and the police cannot be immune.
However, I have concerns about the current consultation on changing or removing the damping mechanism for police funding. The damping mechanism is a critical safeguard for forces such as Surrey, which lose out disproportionately under the central funding formula. In particular, the mitigation provided by the damping mechanism ensures that Surrey police enjoy the same level of increase or decrease in funding as other forces.
Neither Surrey police, Surrey police authority nor I object in principle to a review of the damping mechanism, but logically and fairly, it ought to be part of the wider review of police funding that the Government have pledged to carry out before the next comprehensive spending review. If the anomalies in the current funding formula could be ironed out to create a truly needs-based, fair system, damping could be phased out, but the current consultation, which focuses on the future of the damping mechanism from 2013-14 onwards, risks leaving Surrey financially high and dry through no fault of its own. That cannot be right.
Jonathan Lord (Woking) (Con)
Is it not the case that Surrey taxpayers pay some of the highest taxes into our national Exchequer, yet we also end up paying some of the highest precepts? It is not because Surrey police are not efficient; they are. Surely that cannot be fair.
Mr Raab
I thank my hon. Friend. He is absolutely right. As someone who worked in local government before becoming an MP, he knows the details far better than me. That basic logic and flow cannot be right. It cannot be right that we keep paying more and more and get less and less back. It is unsustainable.
That message was borne out in no small part by a 2009 review conducted by Oxford Economics of local application of the central funding formula. Surrey loses out under that formula for various compound reasons. For example, the funding formula takes into account daytime net flows of traffic, but not total traffic or total accidents, which are disproportionately high in Surrey compared with the other indices. It takes into account average deprivation, which is relatively low in Surrey, but ignores our proximity to areas of high deprivation, taking little account of cross-border criminals who may target the county. My borough, which is in the north-east, has a lot of that kind of crime. Nor does it take into account the impact of our proximity to Heathrow and Gatwick, which is also linked to crime levels.
Sir Paul Beresford (Mole Valley) (Con)
Does my hon. Friend agree that no account is taken of traffic through the county? That is a crucial point. As I understand it, data are available to show that through traffic relates to crime.
Mr Raab
I thank my hon. Friend. He is absolutely right. Oxford Economics considers the issue of flow in some detail. I commend the report to the Minister if he wants to examine the detail of what we are discussing.
Other elements, such as our proximity to high population areas, have also been proven relevant to levels of crime but are not factored into the funding formula, which measures only population levels within the county. Those shortcomings are mitigated by the damping arrangements. It is therefore unfair to remove or revise one without considering the other.
Surrey police do an outstanding job, which is reflected in the public’s 90% confidence rating. Today’s report by Her Majesty’s inspectorate of constabulary, “Policing in Austerity: One Year On”, breaks down the situation by individual forces, showing the progress that the Surrey police have made in dealing with austerity.
Mr Sam Gyimah (East Surrey) (Con)
Does my hon. Friend acknowledge that we should recognise the achievements of Surrey police in maintaining the same level of service to the public in Surrey, despite reductions of about £7 million in their budget so far, and that further cuts could risk public safety?
Mr Raab
My hon. Friend is absolutely right. The key issue is sustainability. It cannot be right that those who perform best in terms of delivering cost efficiencies while adding further front-line officers should be penalised and find themselves victims of their own success.
Surrey has achieved those net satisfaction ratings despite having faced challenging conditions for a number of years. It is important to put the issue in context; it is not all about austerity under the coalition. Surrey did not share in Labour’s “land of milk and honey” spending spree. While real-terms spending on the police increased nationally by 19% between 1997 and 2010, funding for Surrey police was cut by 39% in real terms. Measured by central funding per person, Surrey got the worst deal of all 43 police forces in England and Wales.
Faced with that legacy, Surrey police responded positively. In July 2010, the Audit Commission and Her Majesty’s inspectorate of constabulary praised Surrey police for their efficiency in work force deployment, the way they centralised cross-cutting functions such as human resources and their rigorous and robust approach to achieving cost savings.
Surrey police followed that up with their policing plan for 2011-14, which rationalised the police estate. That, of course, involved a difficult set of decisions that had to be conveyed, sold and communicated locally. It is a very tangible thing to replace police stations or sell off old estate to make way for new hubs. That was difficult. Surrey police also reformed their procurement practices; it is widely accepted that they were in the vanguard in doing so. They cut middle management, which is also difficult, as it creates morale issues in a force. It was not an easy decision, but they took it. Through the net savings, they focused on putting officers into the areas of greatest need, including neighbourhood policing and serious crime investigations, precisely the areas that the public, and I as their MP, want to be priorities for investment.
Over and above all those savings, Surrey police’s rigorous approach and financial discipline allowed the force to reinvest in an extra 200 police constables. That would be extraordinary given the financial straits everyone is in, but it is particularly so for Surrey, given the legacy that it inherited.
Despite the dire financial legacy left by the last Government, Surrey was the only force in England and Wales able to increase officer numbers between September 2010 and September 2011. As the Audit Commission, HMIC and the Home Office have commented, Surrey police are a model of how to get a financial house in order. They did so proactively, before the financial crisis compelled the wider belt-tightening now under way. They did not wait for the waves to hit; they were on the front foot. Like other forces, they are now halfway through a 20% real-terms cut in central Government funding. Surrey police have dealt with all those challenges while improving their record against several key indicators of performance, such as serious crime detection.
However, Surrey has reached its limits. If the damping mechanism is removed, the force stands to lose, in total—there are two components—£4 million in funding, the equivalent of losing 83 police constables. That would be a serious blow to the force and a kick in the teeth, not only to the force, which has taken such steps to be a model of cost-efficiency, but to the people of Surrey, who pay such high levels of tax, too little of which returns as investment in local public services.
Our police need to be properly funded to deal with the wide range of challenges that they face daily. There is a perception of Surrey as a leafy backwater with no crime, challenges or deprivation, whose sleepy towns and villages are the last place where crime or antisocial behaviour is a real issue; but as my colleagues who have spoken, and others, know, that is a myth. The reality is, as has been said time and again, that Surrey is a county force grappling with metropolitan issues.
Jonathan Lord
My wonderful ward of Maybury and Sheerwater is deprived by national standards and has a diverse ethnic mix. Does my hon. Friend agree that we can ill afford to lose 80-odd police constables in Surrey?
Mr Raab
I thank my hon. Friend for that intervention and I agree with him. One of the problems with the myth about Surrey—it is as true of his constituency as it is of mine—is that average levels of affluence hide pockets of deprivation and real social challenges, which play out in terms of law enforcement, policing, crime and antisocial behaviour. Having made difficult financial sacrifices and tightened their purse strings, communities want to be able to keep the savings for front-line policing. The key issue in my hon. Friend’s and my constituencies, and in those of my hon. Friends the Members for Mole Valley (Sir Paul Beresford) and for East Surrey (Mr Gyimah), is visible and responsive policing. We are seeking to make sure that that is safeguarded, and the damping mechanism is critical.
It is precisely because, overall and on average, Surrey is an affluent area that it has become something of a target for professional criminals from other areas. During my time as an MP, I have seen professionals targeting shops and businesses in Cobham, Thames Ditton and other areas, which also suffer from antisocial behaviour, robbery and other crimes. Overall, almost 50% of crime in the county is committed by non-Surrey residents, while in 2008, 59% of the organised crime gangs affecting Surrey operated from London. That cross-border crime is a serious concern.
Equally, as my hon. Friend the Member for Mole Valley mentioned, Surrey roads require constant policing. The county is in the top 6% of local areas for volume of traffic per resident, and in the top 15% for accidents per resident. None of that is accurately reflected in the funding formula. Unsurprisingly, despite all Surrey police’s good work, those factors, which are not picked up by the funding formula, have affected law enforcement capability, which is being measured against finite and shrinking resources.
One specific issue that I have raised with Surrey police authority and the chief constable is Surrey’s sanctioned detection rate, which is the percentage of crimes for which someone is charged, summonsed or cautioned. Surrey’s rate has been either the lowest or second lowest in England and Wales for each of the past three years. In 2010-11, it was 8% below the national average. That is a visible, tangible symptom of the difficult challenges with which the force is grappling with regard to finances and law enforcement capability. Although the figure is improving, the one thing that Surrey police cannot afford is to lose scores of officers, which is the risk we face as a result of the review of the damping mechanism.
The people of Surrey should not be short-changed when it comes to the police. Let us bear in mind that in 2010 Surrey contributed £5.5 billion to the Treasury, but we got back just one third of the national average level of funding for local public services. The residents of Surrey—the taxpayers of Surrey—understand that they need to do their bit. They also understand the need for Britain to cut her coat according to her financial cloth. They have been some of the most proactive participants in that regard, given all that has been said about the discipline that Surrey police have shown in the past few years. However, those residents and my constituents will neither understand nor support changes that result in Surrey police losing millions of pounds every year if their protection from a skewed funding formula is stripped away.
The future of police funding is an important and contentious issue. I know why Ministers are nervous about tinkering with the police funding formula, and a full discussion on how to reform it is beyond the scope of today’s debate. However, that wider debate needs to take place before changes to the damping mechanism can reasonably be pushed through. I urge the Minister to give an assurance that the damping mechanism will only be altered, phased out or reduced as part of a coherent package of reforms, and not in isolation.
Neither Surrey police nor the people of Surrey are asking for special treatment. This is not about a subsidy; it is about mitigation of the knock-on effect of a funding formula that does not accurately reflect local needs in Surrey, and the same is true for other forces. We are not asking for special treatment; we are asking for a fair deal. The damping mechanism gives Surrey some mitigation from the flaws of the funding formula, and until that formula is properly reviewed and reformed, that protection should remain intact.
The Minister for Policing and Criminal Justice (Nick Herbert)
Welcome to the Chair, Mr Bone. I congratulate my hon. Friend the Member for Esher and Walton (Mr Raab) on his forceful speech and on securing the debate and the support of his colleagues. I take Members who represent Surrey constituencies seriously when they hunt in a pack, as they have done today, and will pay the closest attention to what they say.
I join my hon. Friend in paying tribute to the Surrey force, which is ably led by its new chief constable. It emerged with a good review, from the report issued yesterday by Her Majesty’s inspectorate of constabulary, of how it is dealing with the inevitable reductions in spending that the Government have asked police forces to make. The review said that the force has a good history of bringing down costs and changing how services are delivered. It began to transform how it operates in 2009, before the 2010 comprehensive spending review. As a result, it is in a good position to achieve its savings target by 2015.
The force has plans in place that, if delivered, will achieve 100% of the £27 million-worth of savings that it is required to make between 2011 and 2015. In making those savings, and in contrast to every other force, Surrey plans to increase the number of police officers by 50—that is a 3% increase compared with other forces, which are losing officers. It is the only force in the country able to do that over the spending review period. Within that total, the force is reducing the number of officers in more senior ranks by not replacing retiring managers, and increasing the number of constables by up to 200. Surrey also plans to increase the number of police community support officers by 50, while reducing the number of police staff by some 8%.
That all means that, by 2015, 80% of Surrey’s work force will be on the front line, which is a considerably higher proportion than most other forces, where the average is about two thirds. In common with other forces, Surrey is increasing the proportion of its police officers on the front line from 78% to 90%, which is exactly what I think the public want to see.
On outcomes, crime is still decreasing in Surrey, although at a slightly lower rate than in England and Wales as a whole. It is important that the force maintains its focus in adapting to the changed spending environment and continues to deliver a high-quality service to the public and to reduce crime, which is, of course, the most important outcome for members of the public. My hon. Friend drew attention to the particular circumstances of Surrey’s funding and set out the ways in which he believes Surrey is disadvantaged. First, he mentioned that Surrey has raised a much higher proportion of its funding from its local precept than other forces; indeed, I think it raises more of its money from the local precept than any other force in England and Wales. There is a greater call on local taxpayers than in other parts of the country, but equally, Surrey has been relatively protected from the reduction in central Government funding. The forces that raise less money from their precept have suffered a proportionately greater reduction in funding than those that raised more, such as Surrey. That is merely a statement of the fact.
Let me elaborate. By 2012-13, the current financial year, Surrey was raising nearly half its overall funding from the precept. When we were allocating the funding for all forces in England and Wales at the beginning of the spending review period, a question arose. Since other forces were going to be affected to a greater extent by not raising more money from the local precept, should they have a lower reduction in their spending than forces such as Surrey? It was argued, including in this Chamber, by various hon. Members whose constituencies are policed by the forces concerned, that it would be wrong to penalise them when forces such as Surrey were more able to withstand the reduction in central funding.
The Government took the view that it was not right in principle to penalise local taxpayers for the fact that they were already contributing more for their local policing service. At the time, forces, police authorities and chief constables were expecting a 20% reduction in central Government funding. We had not indicated or confirmed that it would be an even 20% reduction for each force, so it was open to us to adjust the amount according to the money that was raised through the precept. Through the damping mechanism, we decided that the equitable solution, taking all factors into account, was to do what they expected us to do, which was to use the damping mechanism to achieve an even reduction in funding for all forces, including Surrey. From that point of view, I do not believe that Surrey was disadvantaged by our decision.
Sir Paul Beresford
The Minister will be aware that after Labour entered government in 1997, the tendency to shift money away from the south and south-east was to such a degree that even the Audit Commission commented on it. That included local government, schools, the national health service and the police. His argument is based on a funding formula that we want reviewed because it is flawed. We feel that we need a review. The damping stays, and after the review, he will have to have another form of damping, because he will have the arguments much the same way, but at least Surrey will be getting what we anticipate to be a fair share of the cake.
Nick Herbert
I hear what my hon. Friend says, but I disagree that the formula is not fit for purpose. It allocates funding according to need. The Government’s position is that we wish to move towards a full application of the formula. The question is not whether we do that, but at what rate and how. It would have been a great deal easier for the previous Government to move to full application of the formula and away from the distorting effects of damping when there were increases in funding for all forces. It is a great deal harder to do that when funding for forces is declining. Had we done so, some forces that benefit from damping, including Surrey—to the extent of an additional £3.2 million in the current financial year, as my hon. Friend the Member for Esher and Walton pointed out—would have seen a greater reduction in central Government funding.
For the reasons that I have set out, we felt that the equitable approach was not to move away from damping towards full application of the formula in the first two years of the spending review. However, we reserved our position in relation to years three and four. I have just consulted police authorities about what we should do regarding damping in those years. That consultation has just closed, and we will analyse the responses carefully. I will not prejudge our decision, but the points expressed by my hon. Friends the Members for Esher and Walton and for Mole Valley (Sir Paul Beresford) are well made.
Jonathan Lord
If the current funding formula truly reflects need, why do Surrey taxpayers, in addition to all the taxes that they pay nationally, have to pay the highest precept in the country? The Minister has already accepted that we have an excellent and efficient force.
Nick Herbert
The formula takes into account the need in an area. Taking a step back, if we look at the other end of the spectrum, towards a force in an urban area, where there is particular social deprivation, much higher levels of crime and all the complexities that arise because of that, it is obvious that the need is higher, and the formula reflects that. I accept that there has been a greater call on local taxpayers as a result of the amount provided to Surrey by central Government, but my point is that our decisions on spending reductions for all forces in years one and two, far from disadvantaging Surrey, treated all forces evenly, because those that raise much less from their council tax would have seen a much greater reduction in funding.
I should point out that Surrey has increased its precept in the current financial year. It has chosen not to freeze the precept, despite the Government’s offer. That increases the funding for the force. If Surrey were to increase its precept again in the last two years of the spending review, assuming the increases suggested by the Office for Budget Responsibility and no change in the current damping arrangements, the real terms reduction in funding over the whole spending review period would be just over 10%, which does not approach the 20% suggested for other forces. That is a 1.4% reduction in cash terms. Surrey is therefore in a relatively advantageous position, enabling it, for instance, to increase its officer numbers. Even if Surrey does not increase the precept in the last two years, the real-terms reduction in overall funding will be about 13%, or less than 5% in cash terms.
I am just stating the factual position that, as local taxpayers have been forced to contribute more, which I accept, Surrey has been relatively protected from central Government funding reductions over the past two years. The consequence is that it has not had the reductions in police officer numbers that other forces have had to make. Nevertheless, my hon. Friends have made strong points about the application of damping, and I will take those into careful consideration when I decide what to do in years three and four of the spending review. Their points about damping and the application of the formula were well made, and I assure them that they will be noted.
Millennium Development Goals
(12 years, 4 months ago)
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Mr Virendra Sharma (Ealing, Southall) (Lab)
It is a pleasure to serve under your chairmanship on this important issue, Mr Bone. I thank the Minister in advance for responding to my concerns, and I thank hon. Members for attending the debate.
An estimated 24 million children worldwide grow up without parental care. In some regions, as many as 30% live apart from their parents, and research suggests that that figure is increasing. Every child deserves to grow up, to go to school and to live their childhood free from hunger and disease, exploitation, abuse and violence. Experience has shown that this happens best when children are loved and cared for in a family setting.
The millennium development goals have focused global efforts to improve the lives of the world’s poorest people, yet many of the crucial targets are in danger of not being reached by 2015. That would have a devastating impact on the well-being of children throughout the world. Failure to provide proper care and protection for children is hindering progress in achieving many MDGs. Future development goals, which are currently being developed, need to recognise and eradicate those mistakes.
There are huge gaps in child protection systems around the world. Such systems are crucial to ensuring the protection of children who are without parental care. Therefore, addressing child protection in the MDGs and the successor framework is key in supporting the rights of such children. I will outline how children’s rights to care and protection are the missing link in achieving the MDGs. Children without the care and protection of their family are particularly vulnerable and hard to reach.
I want to cover two issues related to the MDGs: the importance of including protection and care concerns in efforts to monitor the MDGs; and the need to address the absence of an explicit reference to child protection and care in the current MDGs, if the post-MDG framework is to be effective in improving children’s well-being in the future.
MDG 1 aims to end poverty and hunger. Children who are in the care of the state, either in residential care or in detention, may fail to receive adequate food, despite the obligation on Governments to provide it, while children who are not in conventional households, such as those living on the streets, in migrant families, or in child-only households, are often excluded from social protection schemes. Poorly designed social protection systems are, at best, failing to reach children who are without adequate care and protection, and, at worst, actively encouraging family separation or child labour. In South Africa and Ukraine, payments to foster or extended family carers mean that children will be in better resourced households if parents give them up to other forms of care.
Anas Sarwar (Glasgow Central) (Lab)
I congratulate my hon. Friend on securing this important debate. In an answer to a parliamentary question I tabled, I was surprised to discover that the Department for International Development does not have a dedicated child protection policy. Does my hon. Friend think that that is something DFID should have, signalling post-MDG intentions?
Mr Sharma
I thank my hon. Friend for that appropriate intervention. I am sure that the Minister has taken note and will respond to it. I agree with my hon. Friend and share his concerns.
MDGs 2 and 3 seek universal education and gender equality. In its 2012 annual report, DFID acknowledges that to meet the target of universal primary education, efforts need to shift to the hardest-to-reach children. Education for all will not be achieved unless the current widespread exclusion of young married girls and children in extended family care, prison or work is addressed. Children who have lost both parents are 12% less likely to be in school than other children. The vast majority of children living and working on the streets do not attend school, while children in detention often have no access to formal school during their sentences. For the 13.6% of children who are child labourers, including a quarter of children in sub-Saharan Africa, combining work with school often has a negative impact on learning achievements, with long working hours preventing children from attending school at all.
International recognition of the links between child labour and education have not translated into policy change on the part of many Governments. To get education for their children, the only option for some families, who are in poverty or are far from a school, is to send their children away to live in institutions that provide education but are detrimental to their well-being in other ways. Long distances to school mean that some children have to find alternative accommodation, making them vulnerable to exploitation and abuse.
MDG 4 addresses child health. The widespread use of residential care for children under three places many children and infants at greater risk of dying young. In Russia, official statistics suggest that the mortality rate for children under four years old in residential care is 10 times higher than that of the general population. In Sudan, of 2,500 infants admitted to one institution in a five-year period, only 400 survived. There are currently at least 8 million children in residential care, with evidence to suggest a growth in this form of care in many countries in the former Soviet Union, sub-Saharan Africa and south Asia.
Finally, MDGs 5 and 6 address maternal health and combating HIV/AIDS. Ensuring that children have adequate care and protection is essential for improving maternal health and combating the spread of HIV. Preventing early marriage is essential for stemming the spread of HIV and preventing girls from becoming mothers at an early age when the risks of maternal and child mortality are highest. Trafficked children, child domestic workers and other working children often face sexual abuse. An estimated 2 million children, mainly girls, are sexually exploited in the commercial sex trade each year. Street children are often sexually active at a very young age.
Early sexual activity has profound implications for maternal and child health. Forced sex and limited power in relationships mean that girls without adequate care and protection often face early motherhood, with severe consequences for the health of both young mothers and babies. Pregnancy-related deaths are the leading cause of mortality for 15 to 19-year-old girls. Those who give birth aged under 15 are five times more likely to die than women aged over 20. Babies born to young mothers are also less likely to survive. Early and often forced sexual activity among children lacking adequate care and protection increases the risk of HIV infection. Lack of control over contraceptive use, inadequate knowledge of reproductive health, frequent sexual activity and having sex with often older husbands all result in such children being more vulnerable to HIV infection and other sexually transmitted diseases.
Children on the streets are often discriminated against by service providers and unable to access health care or advice about contraceptive use. DFID is committed to achieving education for all, including the most hard-to-reach groups. What is it doing to ensure that children who are outside parental care receive an education, and that their parents do not have to make agonising choices between schooling and care and protection?
DFID makes substantial investments in social protection programmes around the world. What is it doing to ensure that social protection reaches the most vulnerable and is designed in a way that keeps families together and does not push them apart? Through its commitment to achieving the MDGs, DFID is working to reduce child and maternal mortality and the spread of HIV. What is it doing to reduce separation from parents and deal with the abuse and exploitation that is so often the cause of dangerous early pregnancy and HIV infection?
DFID is focusing more on fragile and conflict-affected states and is working to mitigate the negative effects of climate change. What is DFID doing to ensure that, in dealing with preparedness and responses to conflict and disasters, emphasis is put on preventing families separating and on protecting children whose families are torn apart by war?
It is important that DFID ensures the development of indicators of impacts on children who are outside parental care and/or facing situations of abuse or exploitation.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)
Will my hon. Friend give way?
Mr Sharma
I am sorry, I shall continue.
DFID must invest more in appropriate, integrated child protection systems that adhere to the UN guidelines for the alternative care of children. The Prime Minister has recently been appointed co-chair of the UN Secretary-General’s high-level panel, looking at what comes after 2015 when the targets for the millennium development goals end. The first presentation of the panel’s work will be made in September.
The coalition Government recognise the importance of strong families in improving the lives of children in the UK, yet in their work in the developing world not enough is being done to keep families together. The UN is co-ordinating a global process to develop a post-MDG framework and there is an opportunity for the UK to influence the process, and the outcomes of the development of these goals, by promoting specific reference to children’s rights to care and protection in any framework and by ensuring that extra effort is made to consult hard-to-reach children, so that their voices are heard in the global debates on a framework that could shape their future. I should like the Minister to address his Department’s role in those two areas.
The post-MDG framework should include specific targets on children’s protection and care, for example, by measuring reductions in numbers growing up in large institutions, in detention, in harmful child labour, living and working on the streets, or experiencing violence, abuse or neglect in homes and schools. A consideration of children’s protective rights will also help to ensure the equitable achievement of the millennium development goals. Only through a consideration of such basic rights will it be possible to make wide-reaching and sustainable progress in efforts to alleviate child poverty, increase access to education, improve maternal and child health, and reduce the spread of HIV and AIDS.
The Minister of State, Department for International Development (Mr Alan Duncan)
I thank the hon. Member for Ealing, Southall (Mr Sharma)for calling a debate on a topic that has an important bearing on the lives of so many people around the world. There is little doubt that children who live without parental care or in situations of severe family abuse and neglect are the most vulnerable in any society.
Children in the poorest countries are particularly at risk, especially those living through conflict or humanitarian disasters. In most societies children with disabilities face particular difficulties, as do children living in institutional care. Girls are often the most vulnerable, which is why the UK Government are working closely with partners, such as the Nike Girl Hub, to improve the lives of many thousands of girls living in abject poverty worldwide.
UNICEF estimates that almost 18 million children worldwide have lost both parents and 153 million have lost one parent. Many of those children face real hardships. They are often left without protection and care. Some are fortunate enough to be able to live with relatives or friends, but many more end up on the streets, having to fend for themselves and eke out a living.
Supporting vulnerable girls and boys is an important priority in international development. The UK Government are helping to tackle it in a range of ways, including through specific programmes aimed at improving the lives of the most vulnerable, as well as through our work with others, including overseas Governments, the United Nations, the private sector and civil society.
I can answer the question asked by the hon. Member for Glasgow Central (Anas Sarwar) in his intervention by making it clear that those who work on child rights and child protection receive training and tuition on those subjects. DFID tailors child protection programmes to the context of individual countries and includes child protection clauses in its grants to partners.
Hon. Members will be aware of international statutes that have a bearing on the issue of vulnerable children. The UN convention on the rights of the child and the International Labour Organisation’s convention on child labour provide a universally agreed set of non-negotiable standards and obligations on human rights for children that must be respected by Governments in all societies, and clear frameworks to hold Governments and others to account. The UK is not just a signatory to those conventions, but is actively working with others to ensure that the standards are put into practice and genuinely help to improve the lives of the poorest and most vulnerable people across the world.
In answer to the hon. Member for Ealing, Southall, I shall focus on four ways in which we are working to improve the lives of vulnerable children living without parental care. First, international evidence shows that cash transfer programmes are one of the most effective ways of reaching orphans and vulnerable children. In some cases, those are in the form of pensions, because many of the children live with their grandparents. For example, where one or both parents died from HIV/AIDS, such payments provide a vital source of income to help poor families care for children and stick together. In other cases, cash transfer programmes directly target the children themselves. For example, in Kenya, DFID is supporting the Government’s orphans and vulnerable children programme, which directly targets children without parental care, and is reaching more than 55,000 households. Over the past few years, it has resulted in a reduction in the proportion of those aged six to 13 doing paid work from one in 20 to one in 100. It has also helped to reduce the number of people living on less than a dollar a day from one third to one fifth.
In Zimbabwe, DFID is supporting the Zimbabwean Government’s national action plan for orphans and vulnerable children. It will help at least 25,000 children to secure their basic rights and meet essential needs, by providing money for food and school fees and helping orphans to access justice services.
Secondly, the UK is the second largest donor to the UN children’s fund—UNICEF—which works in 190 countries, helping the poorest and most vulnerable children in a huge range of areas, including health and education, child labour, trafficking, and recruitment into armed forces, and giving critical support to children in institutional care. In 2011, for example, UNICEF helped 19 million women and children with nutritional support after natural disasters, and helped 6 million of the most vulnerable children receive schooling in the aftermath of a disaster or humanitarian emergency.
Thirdly, as the hon. Member for Ealing, Southall rightly said, the millennium development goals are central to the UK’s development priorities, which we are ensuring include the poorest and most vulnerable children. For example, we support universal primary education, because we know that the high cost of education is the biggest deterrent to school attendance by the most marginalised children. By supporting countries such as Kenya, Tanzania, Malawi and Uganda to remove school fees we have seen a dramatic surge in school enrolment, helping more than 1 million extra children to go to school in each of those countries. Through the UK’s support to the World Food Programme’s “Food for Education” programme, we are helping to provide high-energy biscuits to 400,000 children in Afghan secondary schools and, therefore, an incentive for very poor children to attend school.
Children are often orphaned because of diseases such as HIV/AIDS, malaria and tuberculosis. The MDGs are vital in focusing the international community and Governments on tackling such killer diseases and, as a result, have prevented millions more children from losing their parents in the first place. The MDGs have helped to shape the quickest and biggest improvements in poverty reduction, child survival and school enrolment that the world has ever seen. The goals that follow the MDGs after 2015 must build on that success, while learning lessons from them.
I am aware that some people argue that the post-MDG goals should be a continuation of the current MDGs, while others say that the United Nations should completely rewrite them. The UK Government will play a role in helping to shape the new goals and will work to ensure that they meet the needs of the poorest. Our commitment comes right from the top; I am delighted that the Prime Minister will be co-chairing the high-level UN panel that is to lead the process. All may rest assured that he is personally committed to the new framework dealing with the needs of the most vulnerable and marginalised children.
Last, but certainly not least, our support to civil society partners is also vital to reach the most vulnerable children and communities. For example, through Save the Children, the Government are providing vital life-saving support to those affected by the humanitarian crisis in the Sahel. We are assisting Save the Children and other organisations to mobilise early support for the most vulnerable children. Last year, DFID’s funding helped Save the Children to reach 2.7 million people with emergency food, clean water and health care in east Africa.
Through War Child we are helping children in detention centres in Afghanistan; boys are often locked away just for petty theft, and girls are usually locked up for what is called running away or eloping. Conditions in many such centres are deeply shocking; children are often denied education and they are given little food or comfort. War Child’s interventions are helping to improve the justice system as well as conditions in the centres, and children are assisted to reconnect with their families and local communities when they leave the centres.
Our support to Plan International is helping more than 6,000 children who live and work on the streets in Dhaka, Bangladesh, to transform their lives. It provides safe shelters, basic education, health and sanitation facilities, information on issues such as sexual abuse, child labour and trafficking, and counselling for the most vulnerable and traumatised children.
In conclusion, the UK Government are acutely aware of the vulnerability of children around the world, in particular those without safeguards to protect them. We are doing a great deal on this agenda but, clearly, more needs to be done. We will continue to work with others to find effective ways of meeting the needs of those children. We are also fully aware that the post-MDG framework must include a focus on the world’s most marginalised people, including vulnerable children. I thank the hon. Member for Ealing, Southall for raising the issue in today’s debate. He has done a great service to an important cause in the field of development.
Question put and agreed to.
Written Ministerial Statements
(12 years, 4 months ago)
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Extra-statutory Concession (A19)
(12 years, 4 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
Her Majesty’s Revenue and Customs is today publishing a consultation document on extra-statutory concession (ESC) A19.
The document sets out HMRC proposals to introduce changes to ESC A19 over the course of the next year and seeks the views of taxpayers to inform any future changes.
ESC A19 allows HMRC, under certain prescribed circumstances, to forgo the collection of tax arrears where they arose because of HMRC’s failure to act on information provided by the individual, their employer or the Department for Work and Pensions (DWP).
Following discussions with taxpayer representative bodies over the last year, it is clear that more can be done to make ESC A19 easier for customers and their representatives to understand and to ensure that the concession remains fit for purpose following the introduction of the national insurance and PAYE Service (NPS). In response to those discussions, HMRC has proposed a revised version of ESC A19 and would now like to seek wider public opinion on this revised version to help test its thinking in this area.
In particular the consultation seeks to:
improve the clarity of ESC A19 so that it is more user-friendly and easily understood by taxpayers;
help HMRC bring greater objectivity to ESC A19; and
help HMRC align ESC A19 with the HMRC charter and ensure that it continues to be available in appropriate cases.
The consultation document is available on the HMRC website at: http://www.hmrc.gov.uk/consultations/index.htm.
Sanctions for Directors of Failed Banks
(12 years, 4 months ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
The Government are today launching a consultation on proposals that could prevent the directors of failed banks from holding similar positions at financial institutions in the future. The Government are also consulting on the possibility of introducing criminal sanctions for serious misconduct in the management of a bank.
The Financial Services Authority’s (FSA) report into the failure of the Royal Bank of Scotland, published in December 2011, highlighted how errors made by senior management contributed to the bank having to be saved by the taxpayer. It also set out the difficulty in taking regulatory action against the individuals concerned under the Financial Services and Markets Act 2000.
The Government are committed to tackling the legacies of the crisis and implementing the most far-reaching reforms of British banking in our modern history. Today’s proposals are some of the most ambitious in Europe.
The first proposal will make it easier for the regulator to stop directors of failed banks from taking up similar positions in the future. At present, the onus is on the regulator to prove that an individual is not fit to hold an executive position in a bank. The proposals in the consultation, if taken forward, will mean that an individual who has been a director in a failed bank will have to prove that they acted properly and were not responsible for the failure before taking up a similar position in another financial institution in the future. If taken forward, the necessary measure would be included (as a Government amendment) in the Financial Services Bill.
The second proposal would involve the creation of a new criminal offence for serious misconduct in the management of a bank. Government recognise that there are practical issues to consider and that the introduction of a new criminal offence could raise complex issues. So this is an initial consultation. As a result, it would not be possible to include the proposal in the Financial Services Bill and, if it is taken forward, the Government would envisage including the necessary legislation in another Bill during this Parliament.
The consultation will close on 30 September 2012. Copies of the consultation document have been placed in the Libraries of both Houses.
Planning Simplification Measures
(12 years, 4 months ago)
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The Minister of State, Department for Communities and Local Government (Greg Clark)
Today I am announcing additional measures to support the delivery of sustainable development by making the planning system simpler and more effective.
The national planning policy framework and the Localism Act provide the basis for a radically improved planning system and there is clear evidence that they, and the earlier written ministerial statement on planning for growth, are already delivering results: we are seeing the rate of local plan adoptions rise—37 plans have been adopted in the last 12 months, compared with less than 60 adopted in the six years before the 2010 general election, and high levels of approval rates for planning applications.
The proposals I am announcing today will help streamline the process of applying for planning permission, ensure that planning is properly resourced and create greater engagement and accountability in the process.
Over 100 local planning authorities are working with front-runner communities on neighbourhood planning. To help those communities with their neighbourhood plans, we will be providing further funding to the four organisations currently offering support on neighbourhood planning: the Royal Town Planning Institute (Planning Aid); the Prince’s Foundation for Building Community; the Campaign for the Protection of Rural England, working with the National Association of Local Councils; and Locality (the Building Communities Consortium). The further funding will enable the four support providers to offer practical and bespoke advice and assistance to those leading communities with their neighbourhood plans.
In line with commitments set out in the growth review and autumn statement, we have identified a number of potential changes to the use classes order and associated permitted development rights. If agreed, they would provide new opportunities for development and sustainable economic growth through the reuse of existing buildings, without the need to apply formally for planning permission. These include temporary or so called “meanwhile” use of empty commercial premises as recommended in the Portas review. A consultation paper is being published alongside this statement.
The national planning policy framework has successfully distilled over 1,000 pages of policy into around 50, with clear benefits for every user of the system. The next challenge is to do the same with planning guidance—some 6,000 pages of it. Practitioners will have an important role to play in ensuring we establish clear, usable guidance that supports effective planning and I will shortly announce more details on the approach we propose to take.
There is also scope to make the information requirements for planning applications clearer, simpler and more proportionate. This can be achieved without undermining the ability of local planning authorities to make well-informed decisions, or the ability of the public fully to understand what is being proposed. I am publishing detailed proposals for consultation alongside this statement.
We also intend to speed up the process for determining planning appeals, which I know can be a source of frustration for applicants and communities alike. We will consult on proposals to both shorten and streamline the process for all parties later this year.
It is important that local authorities, communities and planning inspectors can rely on the information contained in applications. To reinforce this point I will amend the declaration on the standard application form so that applicants are asked to confirm that the information provided is, to the best of their knowledge, truthful and accurate.
We are also proposing to make technical amendments to regulations to clarify and improve the operation of the community infrastructure levy. We intend to introduce these regulations in the autumn.
Providing planning departments with the resources that are required to turn round planning applications efficiently and effectively is important. The planning application fee is a relatively small component of the costs of any development, but delays by planning departments in the processing of applications can lead to substantial costs for residents and professional developers. Fees are currently set by Government and have not been increased since 2008. Most councils are experiencing a shortfall in fee income which is failing to meet the costs of deciding planning applications which, in turn, has to be subsidised by ordinary council taxpayers, who end up subsidising the planning process. The Government therefore propose a one-off adjustment to uprate fees in line with inflation, amounting to around 15% since 2008. We intend to introduce new fee regulations that would make this change come into force in the autumn.
Appropriate resources must be matched by improved performance. The growth review announced the Government’s intention to introduce a “planning guarantee” that it should take no longer than 12 months to determine any planning application, including any appeal. The guarantee places an equal expectation on local planning authorities and the Planning Inspectorate that they deal with cases in no more than 26 weeks. The guarantee is aimed at the minority of decisions that take a significant amount of time beyond the statutory time frames of eight and 13 weeks (for minor and major applications respectively) to determine. Later in the year we will publish a consultation paper on proposals to underpin the guarantee, together with a report on existing performance against it by planning authorities and the Planning Inspectorate.
We are also taking a number of steps to improve the performance of statutory consultees such as the Highways Agency, Natural England and the Health and Safety Executive. Alongside the requirement for key consultees to produce improvement plans, announced in the autumn statement, we intend to take forward our commitment to ensure that there is a more effective mechanism for applicants to obtain an award of costs, if there has been an appeal against refusal of planning permission where a statutory consultee has acted unreasonably. I have today published a consultation paper setting out these proposals. The suggested changes to the award of costs circular also make it clear that appellants may be at risk of having costs awarded against them if the evidence on which they have based their appeal is found to be manifestly untrue.
Taken together, the measures that I am announcing will make a further important contribution to our task of making planning simpler, more accessible and better able to support sustainable development.
The consultation documents being published as part of today’s announcements will be available on the Department’s website.
Olympics Security
(12 years, 4 months ago)
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The Secretary of State for Defence (Mr Philip Hammond)
In December 2011, I informed the House about the military contribution that was being planned in support of the police-led safety and security operation being put in place for the London 2012 Olympic and Paralympic games. I can now confirm that, following further planning and exercising, the Government have agreed to the deployment of ground-based air defence (GBAD) systems as part of this contribution.
The deployment will consist of four Rapier and two high-velocity missile (HVM) systems which will form part of an integrated and multi-layered air security plan that includes Typhoon aircraft (at RAF Northolt) and helicopters (at Ilford TA centre and from HMS Ocean) as well as a network of air observers and radars. This plan provides the most effective capabilities to deliver a safe and secure airspace during the games.
Both the Rapier and HVM systems were deployed to six carefully selected sites for the live military exercise, Ex Olympic Guardian, which took place between 2 and 10 May. The exercise allowed us to test the integration of the equipment with the other elements of the air security plan and confirmed the effectiveness of the GBAD systems, including the associated detection capabilities that are themselves important in compiling the best situational awareness of the airspace over London.
The Government recognised at the outset that the deployment of military equipment and personnel across London could be unsettling. The deployment of military assets, including GBAD, is a temporary measure to provide security over the period of the games. Since December, the Ministry of Defence (MOD), with the Metropolitan police, has been engaging local communities, landowners, relevant council leaders and Members of Parliament to allay concerns, provide reassurance about these deployments and, as far as possible, take measures to minimise the local impact. The MOD remains committed to this engagement and is pleased that the majority of the public recognise and support our important contribution to keeping the games, London and the UK as secure as we can. A small number of activists object to the deployment of these defensive measures and a legal challenge to the Government’s decision to deploy GBAD has been initiated. The MOD will defend these proceedings vigorously and is confident of defeating them.
The coming weeks will also see the return of HMS Ocean to the Thames, Typhoon aircraft to RAF Northolt and helicopters to Ilford TA centre. The mobilisation of volunteer reservists in support of the Olympics will also begin in earnest. The defence contribution to the wider police-led safety and security operation is on a similar scale to that of other recent Olympic games. It is a balanced and proportionate measure which will deter would-be aggressors and reassure domestic and international audiences that we are ready to play our role in ensuring a safe, secure and enjoyable 2012 Olympics.
Child Sexual Exploitation
(12 years, 4 months ago)
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The Parliamentary Under-Secretary of State for Education (Tim Loughton)
Today I am setting out details before both Houses of three reports that deal with sexual exploitation of children and I outline the Government’s plans to take our existing action plan forward to deal with this horrendous crime.
The conviction of nine members of a network responsible for child sexual exploitation in Rochdale on 8 May raised serious concerns about the safety of young people in residential care and the ease with which they can fall prey to such abuse. On 9 May, the Secretary of State for Education asked the deputy children’s commissioner to report to him urgently on emerging findings from her inquiry into child sexual exploitation in gangs and groups. He asked that the report should focus particularly on risks facing looked-after children living in children’s homes.
We are very grateful to Sue Berelowitz for this early report which sets out emerging findings ahead of the interim report which will be published in September. It is being published today, together with our response to its recommendations which we accept in full and are driving forward as set out below.
Sexual exploitation blights the lives of too many of our children and young people and we need to do more to protect children, support victims and punish perpetrators. That is why the Government published their “Tackling Child Sexual Exploitation Action Plan” in November 2011, looking at this abuse from the point of view of the young person and the impact not just on the victim but the whole family. We have been driving forward implementation of the plan, involving five Government Departments working with a wide range of local and national organisations, voluntary and community sector partners, and law enforcement agencies. We have made it very clear that this kind of criminal behaviour will not be tolerated and that offenders like those in the Rochdale case can expect to face the full force of the law.
We are also publishing today a progress report on the implementation of the action plan and announcing further urgent action to help protect young people in residential care in light of recent serious concerns about the vulnerability of such children, in particular those placed a long way from their home area.
Our progress report shows that local safeguarding children boards and others have been rising to the challenge to do more to identify and tackle child sexual exploitation. Recent well-reported police operations have highlighted some very effective joint working by the voluntary and community sector and by statutory agencies. There are many examples of valuable initiatives that are making a practical difference—such as the “Say something if you see something” campaign addressing the problem of hotels unwittingly being used as venues for the sexual exploitation of young people and the Barnardo’s project which is developing specialised foster care placements for victims of child sexual exploitation. The new sentencing regime for dangerous offenders, which is likely to be implemented by autumn 2012, will introduce mandatory life sentences for very serious repeat offenders and help bring more perpetrators to justice.
But as long as exploitation still exists, we can and must do more. There are still areas of the country where the existence of child sexual exploitation is not properly acknowledged or addressed. This is wholly unacceptable, and underlines the need to sustain the drive to implement the action plan fully. To support this, we are publishing alongside the progress report a new, accessible, step-by-step guide for front-line practitioners on what to do if they suspect a child is being sexually exploited. We will continue to work with local safeguarding children boards and practitioners to promote improved practice supported by this new guide.
The Office of the Children’s Commissioner’s report published today sets out a compelling case for making urgent improvements in children’s residential care. While it makes it clear that the majority of children who become victims of sexual exploitation are not in residential care, it is also clear that these young people are disproportionately at risk. The report highlights concerns about the quality and stability of placements in children’s homes. It draws particular attention to the large number of children who are placed a long way from their home area, and who can be at additional risk through such isolation. The Government accept the report’s recommendations about how to secure improvements and provide better safety and support in children’s homes. These concern, in particular, the responsibilities of local authorities in deciding to place a child in another area, and in responding if there are problems.
The Government also welcome the “Report from the Joint Inquiry into Children who Go Missing from Care”, issued on 18 June by the all-party parliamentary groups for runaway and missing children and adults and for looked-after children and care leavers. This emphasised the need to tackle failings in arrangements to safeguard these extremely vulnerable children and young people.
In the light of concerns raised by the Rochdale case about the safety of children in residential homes, Ofsted immediately brought forward for urgent inspection a number of homes where information received suggested some concern about the sexual exploitation of residents.
Ofsted’s new framework for the inspection of children’s homes, which was introduced in April this year, focuses more strongly on whether a home has taken action to implement recommendations in previous reports, and whether improvements are flowing through in consequence.
In addition, we are taking the following immediate action to respond to the recommendations in the reports from the deputy children’s commissioner and the all-party parliamentary groups:
Make sure that we have a clearer picture of how many children go missing from care and where they are by improving the quality and transparency of data;
Ensure children’s homes are properly protected and safely located by removing barriers in regulation so that Ofsted can share information about the location of children’s homes with the police, and other relevant bodies as appropriate;
Help children be located nearer to their local area by establishing a “task and finish group” to make recommendations by September on strengthening the regulatory framework on out-of-area placements. While there may be good reasons for placing a child or young person at some distance from their home area, it is difficult to accept that nearly half of all children in children’s homes benefit from such distant placements. Both reports are clear about the problems that can arise. We will consult on changes in the autumn.
Establish a further expert working group to look at the quality of children’s homes. This will review all aspects of the quality of provision in children’s homes, including the management of behaviour and the appropriate use of restraint, and the qualifications and skills of the work force. Too many children are still being placed in homes for short periods of time, and the care they receive can often fail to address the complexity of their needs. The group will consider the location and ownership of homes, local authority commissioning practices and arrangements to drive improvement. It will complete its work by December.
The actions we are announcing today underline the Government’s determination to tackle child sexual exploitation and protect our most vulnerable children.
The following documents will be available in the Libraries of both Houses:
Report on the emerging findings of the Office of the Children’s Commissioner’s inquiry into child sexual exploitation in gangs and groups,
Letter from Tim Loughton MP to Sue Berelowitz, deputy children’s commissioner,
Letter from Tim Loughton MP to Ann Coffey MP, chair of the APPG for runaway and missing children and adults,
“Tackling Child Sexual Exploitation Action Plan” progress report and step-by-step guide for frontline practitioners on what to do if a child is being sexually exploited.
Midlands and North-East England Floods
(12 years, 4 months ago)
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The Secretary of State for Environment, Food and Rural Affairs (Mrs Caroline Spelman)
I would like to provide an update on the significant flooding events that took place on Thursday 28 June following a further period of extraordinarily high rainfall.
Last Thursday, there were heavy thunderstorms across Northern Ireland, Wales and England where it particularly affected the midlands, Yorkshire and both the north-west and north-east. These thunderstorms caused intense rainfall over short periods, with levels of up to 35 mm seen in just 1 hour in Hereford and Shrewsbury, and up to 50 mm of rainfall in 2 hours in the north-east.
It has been confirmed so far that at least 570 properties were flooded, mostly through surface water flooding, caused by particularly intense rainfall over short periods in urban areas.
Around 80 properties have been reported to have flooded in both the midlands and the north-west, around 400 properties have been flooded in Yorkshire and the north-east, and approximately 35 properties flooded across Lincolnshire.
I am also very sorry to have to report that, tragically, one gentleman, Mr Michael Ellis, lost his life after being swept away in flood water in Bitterley, near Ludlow in Shropshire. I am sure that all Members of the House will join me in offering their heartfelt condolences to all his family and friends, at this difficult time.
The flooding experienced has also seen serious impacts on transport links. Both east coast and west coast mainlines experienced significant disruption due to landslides associated with the heavy rain. In the north-east and north-west there was widespread and severe disruption to highways, and across all affected areas many minor roads were temporarily closed. A thunderstorm near to Birmingham airport also caused temporary closure with delays to flights being caused, and a small number of diversions and one cancellation.
At the height of the flooding event on Thursday, more than 20,000 customers were without power, with 3,000 still being disconnected on Friday morning. Around 63 schools had to be shut on Friday due to the effects of the flooding, mostly in the north-east.
To put the amount of rain that we have seen recently into context, I can confirm that 2012 has had the UK’s wettest recorded April-June quarter since records began. I can also confirm that this June has officially been the wettest in both England and Wales since records began. Up to 27 June, the total UK rainfall was a record 130.1 mm. This has not been a normal event. The previous wettest June was that in 2007.
I would also like to once again take the opportunity to praise the excellent response from our front-line emergency services. I know that specialist flood rescue teams were requested and attended in affected areas, and this made a real difference in the response to the emergency.
The Prime Minister, the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for Newbury (Richard Benyon), who is the Floods Minister and I have all visited impacted areas in the past few days, giving us all the opportunity to meet with people who have suffered through the flooding of homes and businesses. We understand the devastation flooding causes. However, it has also been impressive to see the community spirit shown in those impacted areas where people really do come together to overcome adversity, as well as providing the opportunity to meet with some of the brave emergency responders who put their own lives at risk to ensure the safety of others. On Saturday, I visited the north-east where east Gateshead and North Tyneside bore the brunt of the storm. But I am pleased to say that existing flood defences like Blackball Mill protected at least 100 homes from serious flooding.
I am also very grateful for the diligent work by Met Office and Environment Agency staff in the Flood Forecasting Centre. Timely warnings were given as well as the promotion of the text messaging service for those in flood-affected areas. The predictions that have been in place, not just for this event but throughout all of the flooding events that we have been experiencing in the past month have been invaluable, and have made a real difference in our ability to prepare for flooding and limit its impacts as much as possible, such as teams of local authority and Environment Agency operational staff working well before the flood waters arrived, clearing drains, testing defences and preparing flood basins.
As the clean up for these events takes place, Government officials will soon be discussing the recovery arrangements with local authorities in affected areas. However, unfortunately over the past weekend we have experienced further significant rainfall, and this has led to further flooding of 79 properties in Cumbria and 18 in Lancashire. My sympathies go out to all those affected at what is undoubtedly a difficult time.
As I said last week, with our changing climate, we will never be able to completely prevent flooding as we have seen over the past week and in earlier June. However, through the excellent preparations and work of front-line responders, including the police, fire service and the Environment Agency, and the investment being made by Government, we are better prepared for flooding than ever before.
Foreign Affairs Council
(12 years, 4 months ago)
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The Minister for Europe (Mr David Lidington)
My right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs attended the Foreign Affairs Council (FAC) in Luxembourg on 25 June.
Foreign Affairs Council (FAC)
The FAC was chaired by the High Representative of the European Union for Foreign Affairs and Security Policy, Baroness Ashton of Upholland. A provisional report of the meeting and all conclusions adopted can be found at:
http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/EN/foraff/131188.pdf.
The agenda items covered were as follows:
European Neighbourhood Policy
Ministers discussed the situation in the EU’s southern neighbourhood, focusing on Syria and Egypt. This Council marked the anniversary of the revision of the EU’s neighbourhood policy. The conclusions summarised the progress to date on the EU’s southern neighbourhood policy. Ministers agreed on the Council’s approach to EU funding in the neighbourhood from 2014, incorporating clear conditionality, with the capacity to reduce funding in the event of democratic regression.
Syria
The discussion centred on concerns about the deteriorating situation in Syria, and the significant consequences for the region. Ministers agreed conclusions (see link above) condemning the shooting down of the Turkish military plane on 22 June and the recent atrocities. They reiterated the EU’s support to the Annan plan, and called for more robust and effective pressure through a UNSC resolution, using chapter VII measures. They also confirmed additions to EU sanctions listing a further six banking and state entities and one individual and a strengthening of the EU arms embargo on Syria. The Foreign Secretary encouraged further engagement with Russia.
Egypt
The Council welcomed the peaceful conduct of elections in Egypt. The conclusions (see link above) congratulated Mohammed Mursi on his election as Egypt’s President; welcomed his commitment to inclusivity; reiterated the EU’s full support to Egypt’s democratic transition and renewed the offer of EU assistance. The conclusions reflected broad agreement on Egypt.
Iran
The Council confirmed its position on Iran oil sanctions, allowing the embargo to come into force on 1 July. High Representative Catherine Ashton gave a factual account of the E3 plus 3 and the 18-19 June Moscow meeting, noting that the next stage would be technical talks.
EU Human Rights Strategy
Ministers adopted conclusions on a strategic framework on human rights and democracy with an action plan implementing it. The Government took the difficult decision to override the House’s scrutiny reserve resolution on the action plan. This decision was not taken lightly, as the Government consider that parliamentary scrutiny is as an essential ingredient to the democratic process and oversight of EU decision-making. The two texts are the culmination of a two-year review of the EU’s external human rights policy, and the EAS hopes also to agree a third element: an EU special representative for human rights. The Foreign Secretary set out our strong support for EU action on human rights globally, while stressing that the agreed elements do not affect in any way the balance of competences between the EU and member states. He added that Parliament would want to debate the issue before the UK could give approval to the mandate for the proposed EUSR on human rights. Ministers also stressed the importance of freedom of religion, and of women’s rights.
Bosnia and Herzegovina
Ministers agreed conclusions welcoming political progress since the start of 2012. They discussed further the steps which Bosnia and Herzegovina would need to take to make progress along its EU path. Ministers noted the European Commission’s high-level dialogue on accession on 27 June, which would be an opportunity to deliver key EU messages to Bosnian leaders.
Pakistan
High Representative Ashton briefed Ministers about her recent visit to Pakistan, during which the EU-Pakistan strategic dialogue had been launched. The Foreign Secretary argued that Pakistan should remain a strategic priority for the EU, and led calls for stronger engagement over the next five years, under the EU-Pakistan engagement plan agreed earlier this year. Ministers agreed wide-ranging conclusions (see link above) offering EU support for Pakistan’s forthcoming elections, reaffirming commitment to trade concessions, and pointing to a third EU-Pakistan summit to deepen the relationship further.
Other Business
Ministers exchanged views on how visa policy could be used to encourage political change in Belarus. The situation in Mali was also discussed, and this item will be on the agenda of the FAC in July. Ministers also approved:
An EU position for the 14th meeting of the EU-Moldova Cooperation Council;
A Council decision authorising the opening of negotiations of a framework participation agreement in crisis management with the Republic of Moldova;
A partial general approach on the EU’s external financing instruments for the next multi-annual financial framework, as the basis for negotiations with the European Parliament;
Conclusions on central Asia, a progress report on the implementation of the EU strategy for the region, and the appointment of Patricia Flor as EU special representative for central Asia;
Conclusions on the Democratic Republic of the Congo.
I will continue to update Parliament on future Foreign Affairs Councils.
Nursing and Midwifery Council (Strategic Review)
(12 years, 4 months ago)
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The Parliamentary Under-Secretary of State for Health (Anne Milton)
On 26 January 2012, I announced to the House that the Government had commissioned the Council for Healthcare Regulatory Excellence (CHRE) to conduct a strategic review of the Nursing and Midwifery Council (NMC). The review has been published today and a copy has been placed in the Library. Copies are available to hon. Members from the Vote Office and to noble Lords from the Printed Paper Office.
Strong regulation of nurses and midwives is crucial to ensure public protection and, as the CHRE report shows, effective leadership within the NMC is key to this. The Government will be seeking urgent assurances that the processes which are in place for the appointment of a new NMC Chair are robust, given the importance that strategic leadership will have for the future performance of the NMC.
I would like to thank the CHRE for its work. The Government expect to see the NMC implement all of the recommendations that have been made.
Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Pitkeathley)
Good afternoon, my Lords. As your Lordships will know, if there is a Division in the Chamber while we are sitting this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Local Government Finance Bill
(12 years, 4 months ago)
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Lord McKenzie of Luton
“( ) paragraph 6 (regulations about non-domestic rating income);”
Lord McKenzie of Luton
My Lords, I shall speak also to Amendments 2, 3 and 4. At the start of our deliberations, it might be helpful if I set out our approach to these Committee proceedings. This is a framework Bill. A tremendous amount is being left to regulation-making powers in the Bill—at least a couple of dozen powers on my count—which comprises just 19 clauses. We accept that the framework has been filled in in part by recent statements of intent and that there is a plethora of technical and other papers, but that is not the same as having a complete set of draft regulations. We will therefore use the opportunity of this Committee to probe the detail of what is intended and get as much as we can on the record. We will also seek to insure, where appropriate, that those regulation-making powers give the maximum opportunity for parliamentary scrutiny, hence these amendments.
Clause 1 introduces new Schedule 7B, which contains the nuts and bolts of the business rate retention scheme. It provides, among other things, for certain of the new regulations to be by way of the affirmative procedure and the rest by the negative process. This group of amendments adds to those that should fall into the affirmative category.
Amendment 4 concerns paragraphs 37 and 38 of the schedule. The Delegated Powers and Regulatory Reform Committee recommended that regulations made by virtue of paragraph 39 should be subject to the affirmative procedure because they impose a liability on a billing authority. This is what the amendment seeks to achieve. Paragraph 39 refers to regulations under paragraphs 37 and 38, and it is presumably those that should be subject to the affirmative procedure. Although we will want to discuss the detailed provisions later in our deliberations, we assume that the Government accept the Delegated Powers Committee’s recommendations on this matter, even if not our precise wording.
Amendment 1 deals with paragraph 6. This requires, following a local government finance report, payments of the central share of non-domestic rates to the Secretary of State. However, the regulation-making power includes the power to define what non-domestic rate income is and what adjustments can be made to amounts payable. We will discuss some of the detail of this later, but the power to define what income is for the purposes of the local/central split, including judgments about authorities acting diligently, is, we suggest, significant and should be subject to the affirmative procedure, at the very least on its first use.
Amendment 2 seeks to bring the provisions concerning payment on account under the safety net arrangements within the affirmative procedure. Again, we argue that this is much more than a mechanistic provision concerning calculation. It is potentially very significant for some authorities. It covers the circumstances in which safety net payments might come about. We welcome the fact that other regulations relating to the levy and safety net are to be subject to the affirmative procedure and consider that the same should apply to paragraph 26. So far as we can tell, the issues around payment on account are not covered in the statement of intent or in the government response to the resource review consultation. The consequences of catastrophic reductions in year of a business rate base, likely to be accompanied also by an upsurge in eligibility for council tax support, need serious consideration and should be subject to the affirmative procedure.
Finally, Amendment 3 focuses on paragraph 30, which deals with transitional protection payments. These are existing arrangements designed to dampen the effect of changes to business rate liabilities arising from revaluation. This could have a significant implication for the business rate retention scheme, and it is proposed to take the effect of this outside of the scheme. This requires regulations concerning calculations of a billing authority’s deemed rate in income and actual rate in income, including judgments about whether an authority has acted diligently. This is, again, a very significant provision, which should be subject to the affirmative procedure. We are in uncharted waters over lots of these areas, on a range of key issues, and we should do all we can to strengthen the parliamentary scrutiny. I beg to move.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, as the noble Lord, Lord McKenzie, said, this is framework legislation—as indeed is Local Government Finance Act 1988, which precedes it. It is therefore to be expected that there will be a number of detailed matters which will be dealt with in regulations. The appropriate level of parliamentary scrutiny for each set of regulations will differ depending on the precise subject matter at hand, and we have carefully considered the appropriate level of scrutiny for each of them.
This is why provision is already made for a number of regulation-making powers in the Bill to be subject to the affirmative procedure, as the noble Lord acknowledged. Regulations under paragraphs 8, 20 and 23, for example, which all deal with the calculation of various payments under the scheme, will be under affirmative order. The Government have made these regulations in particular subject to the affirmative procedure in recognition of the need for the highest level of parliamentary scrutiny over such types of finance provisions, given their significance and impact within the rates retention scheme.
Similarly, the tariff and top-up payments that will flow to and from local authorities will be determined by the local government finance report for a year, which must be approved by resolution of the House of Commons. That again affords the appropriate level of parliamentary scrutiny over key payments within the scheme.
All other regulation-making powers in connection with the non-domestic rating in the Bill are subject to the negative resolution procedure, as the noble Lord said. This is in line with the approach that is currently taken in the existing Schedule 8 to the Local Government Finance Act 1988, and also reflects the more technical or administrative nature of those powers. These include the regulations specified by the noble Lord in his Amendments 1 and 4.
The Delegated Powers and Regulatory Reform Committee, as the noble Lord has acknowledged, has carefully considered the Bill in advance of our debate today. The fourth report of the Committee, published on 21 June, considered that not only is the balance in new Schedule 7B between provision in the Bill and provision in delegated legislation “about right”, but also that the level of parliamentary control over regulations set out in the Bill is, subject to one exception which I will come on to in a moment,
“appropriate according to the relative significance of the various powers conferred”.
Noble Lords will not therefore be surprised when I say that I agree with the conclusions of the Delegated Powers and Regulatory Reform Committee on this point and therefore cannot accept their amendments.
We have carefully considered what the appropriate level of parliamentary scrutiny should be for each regulation-making power in the Bill, and our approach is supported by the findings of the Delegated Powers and Regulatory Reform Committee, whose responsibility it is to consider such issues. However, I hope that the noble Lord’s disappointment in my response will be tempered by my confirmation that we will bring forward an amendment at Report to make those regulations made by virtue of paragraph 39 subject to the affirmative procedure. I think that that is what the noble Lord was looking for. This is the exception to which I referred earlier, and in line with the recommendations. With those explanations, I hope that the noble Lord may feel able to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for her reply. Of course, I will withdraw the amendment given where we are. I am pleased that the Minister has confirmed that government amendments will be tabled to deal with the recommendations from the Select Committee. But I shall dwell for a little on two provisions to try to explain further why we believe that their significance is such that they should be subject to wider parliamentary scrutiny.
On payments on account of the safety net, the provision was put in the Bill, as the Minister knows, to give local authorities that are suffering in year from a significant downturn in their business rates an opportunity to get support during the year rather than wait until after the year, which is the general structure of the scheme. In the circumstances in which those opportunities present themselves, it is of crucial importance to local authorities to know what the rules of that provision are. I would have thought that it was also important for our scrutiny of something of that magnitude, which is not simply an issue of narrow accounting but an issue of real substance as to how a key part of the business rate retention scheme will work. I shall not dwell further on the paragraph 6 issue, other than to say that this is not just about accounting for the debits and credits; it is about a definition of income for the purposes of these provisions. I am sure that I will not manage to change the Minister’s view on the matter this afternoon, but we would like to reflect on it because these are significant provisions that deserve wider parliamentary scrutiny. I beg leave to withdraw the amendment.
Lord McKenzie of Luton
Lord McKenzie of Luton
My Lords, in moving Amendment 5 I shall also speak to the other consequential amendments—Amendments 55, 57, 58 and 60—in this group. The amendments would defer the introduction of the business rate retention scheme for at least a year, as determined by a resolution of Parliament. We recognise that the Secretary of State already has power in the Bill to defer its introduction until a later year, but all the indications are that he has no intention of doing so. The Minister will no doubt confirm that.
My noble friend Lord Smith’s Amendments 6 and 7, which we support, are very much an alternative formulation. If passed, they would require the Secretary of State to defer the introduction.
This is not about seeking to wreck the proposal or to kick it into the long grass. We support a localist approach and the concept of a business rate incentive scheme, so why should we defer? First, and very importantly, we do not yet have legislation; it will be October or even November this year before the Bill becomes law. I am bound to say that it seems somewhat discourteous of the Government to prejudge what might come out of your Lordships’ deliberations. To be clear, we are intent on proper scrutiny of the Bill but are not trying to slow it up. The Localism Act, of which I am sure we all have fond memories, ended up in a completely different place after it had been through your Lordships' House. I do not predict quite the same rate of change on this one. However, it seems to me that we should wait to see the final shape of the legislation—to pre-empt it would be unfortunate.
Lord Smith of Leigh
My Lords, I will speak to the amendment in my name. I am glad to follow my noble friend Lord McKenzie and support the arguments that he used. Before I come to the detail, I declare my interest in this matter. I am leader of Wigan Council, chair of the Greater Manchester Combined Authority, vice-chair of SIGOMA and vice-president of the LGA. I can see that I am not alone in that.
Looking in detail at the Bill, Clause 1(7) clearly gives the Secretary of State some flexibility to defer introducing the Bill. Therefore, I tabled my amendments for two purposes. One was simply to try to understand—and I hope that the Minister can help me in her response—under what circumstances and when the Secretary of State may use the power under this clause. More importantly—again, I want to follow up the points raised by my noble friend—if local authorities want to change the funding system, they want to do it well. However, we have to accept that if we do not let them know what the new system of funding is by a certain point during this year, it will be difficult or impossible for them to implement it by 1 April next year.
I have chosen 30 November as the cut-off date as that gives local authorities four months in which to plan and make sure that computer programmes and so on are able to cope with the technical aspects of the Bill. Those are not yet in place and cannot be until all the details and statutory instruments are available. If we leave it much later than that, we will be getting towards the end of December, although as far as government is concerned the middle of December will probably be the latest date because Christmas will intervene and not much will be done then. If we respect the fact that local authorities will have work to do on this part of the Bill, and probably more informally on some of the later parts of the Bill, then we need to be honest, say that we cannot achieve what this House needs to achieve by a certain date and not go forward.
Lord Jenkin of Roding
My Lords, before my noble friend replies to the debate, I should like to add a word. The noble Lord, Lord McKenzie, quoted a passage from London Councils’ briefing, which we have all received. I and my noble friends have tabled a number of amendments—to which we will come later and to some of which the noble Lord has added his name—which recommend a marked change in the structure of this division of the business rate. London Councils—I should declare an interest as one of its presidents—has indicated to me that on balance, with regard to this part of the Bill dealing with the business rate retention scheme, it would be a little upset if the date were postponed.
A lot of work is being done on this by London Councils and there has been a good deal of discussion about the pooling arrangements that may be appropriate. Although it is not put as a very firm and immutable point of policy, its view is that 2013 for this part of the Bill is right, and I think it would regret it if the date were changed. I draw a very clear distinction between this and the later part of the Bill dealing with the council tax, where there is still an enormous amount of anxiety that councils will simply not be ready with their own local schemes. However, we shall come to that later. I think that I should let the Committee and my noble friend on the Front Bench know that on balance London Councils would regret a postponement of Part 1.
Lord Tope
My Lords, I suppose that I, too, should begin by declaring an interest. I am simply a councillor in the London Borough of Sutton. I am not a vice-president of anything, or at least not yet—I see that the noble Lord, Lord Beecham, is disappointed with that declaration.
I listened to the noble Lords opposite making the case, with which I am sure many in local government would have some sympathy. I think that all of us, on both sides, would wish to be a little further ahead than has proved possible. However, I suspect that as we will say time and again with this Bill, we are where we are now and we have to consider the question of postponement. My noble friend Lord Jenkin is right to draw a distinction between postponement of the business rate retention proposals and a possible postponement in implementing the localisation of council tax support, to which we will come later. There will be many in local government who have sympathy with what has been said on the other side of the Committee and perhaps more so when we get to council tax support.
As a councillor, I have thought quite hard about this in respect of my own authority and more generally. I do not support postponement. I would rather we were not where we are. Until relatively recently, it was expected that this Bill would be enacted by the end of this month but clearly that will not happen until much later. I hope that, in reply, the Minister will be able to give us a clear and firm commitment that by Report stage, in October, all that is required to be published will have been published, albeit in draft form. I take the point that until the Bill is enacted, it cannot be in an absolutely final form. However, if local authorities know all that they need to know by October at the latest, and I hope a little before that, and if the Minister is able to give a reassurance, I believe that most local authorities will share my view on business rate retention that we are so far down the road and there is so much expectation that this will happen—there has been so much wish that it should happen and we shall come to that later—that postponement now would not be welcome, particularly to me. I hope, with some confidence, that the Minister will resist these amendments.
Lord Beecham
My Lords, my noble friend Lord McKenzie alluded to some of the difficulties that surround next year’s council budgets, to which these amendments refer. In particular, he mentioned reserves and the uncertainty about the timetable, as well as general uncertainties that are leading councillors to take a more conservative view about the level of reserves that should be held. I declare an interest as a member of Newcastle City Council and as a vice-president of the Local Government Association, a position that I hope to share with the noble Lord, Lord Tope, as soon as possible. The president is here, so perhaps he can take that message back to the association.
In my council, we have been accustomed to running on a very modest level of reserves. The treasurer is concerned about the degree of uncertainties not only because of legislation and the general financial situation but also because of the growing number of outstanding valuation appeals in the commercial sector. Of course, that goes very much to the heart of what the business rate will deliver. It seems that these appeals are growing in number. The noble Earl, Lord Lytton, mentioned to me recently that they are taking about two years to be settled. I am not suggesting that the programme be held for two years, but it is an indication of the growing levels of uncertainty about what might ultimately be the yield, let alone about how the Government would handle the business rate when it is collected. In addition to that, a new category effectively of precepting authorities will arise in November when a handful of electors up and down the country will choose their police commissioners, who will have responsibility for 11% of the council tax. Clearly, that will relate to the business rate income. That is another element of uncertainty. In my submission, all this suggests that it would be sensible to ensure that the legislation is firmly in place, is absolutely clear and takes into account these other factors.
I suspect that we shall be debating at some length, as the noble Lord, Lord Jenkin, has pointed out, the position arising in relation to council tax benefits or council tax support, as it will be known, and the new systems that will apply. I would have thought that it would make more sense to take those together against the background to which I have referred, a background that the Secretary of State apparently referred to at the LGA conference last week, when he made what he described as a jocular reference to tackling councils’ reserves. By the word “tackling”, I take it that he means requiring that they should be used. Against the kind of uncertainties that we are talking about, such an approach would surely be highly risky and damaging.
I do not know whether the Minister is aware of quite what the Secretary of State said; if she is not, I would not ask her to respond at this point. However, I would be grateful if the situation could be clarified, perhaps by a letter to Members of the Committee—and perhaps wider than that, because it will also send a shiver up many a treasurer’s spine, on top of all the other uncertainties that we have. We will certainly be pressing hard for a deferment of the council tax benefit side, as it seems sensible for the system to change at the same time and not in parts, particularly given the other uncertainties that I have mentioned in relation to the amendments before us.
Lord Palmer of Childs Hill
My Lords, may I pick up on the point made by the noble Lord, Lord Beecham, about reserves? I hope that when the Minister replies to that point, as she was asked to do, she will include within it how the strong reservations of the accountants’ organisation CIPFA about how much local authorities should hold in reserves will fit in with what the Secretary of State has apparently said. I hope that she will talk about specific reserves as well as unallocated reserves. It would be great if this could be clarified at some stage.
Lord McKenzie of Luton
My Lords, before the Minister replies, perhaps I might return to the reference made by the noble Lord, Lord Jenkin, to London Councils. I accept entirely that London Councils has changed its position on deferment of the business rate component of this Bill—the briefing that we had a month ago certainly put us in a different slot—and I was not seeking to suggest otherwise. However, I was seeking to relay what is still its current view, as I understand it, which is that the scheme needs to be urgently revamped if it is to produce the radical shift in the structure of local government funding that the Bill proposes. I do not know what process the noble Lord might feel there is to achieve that if there is no deferment of the Bill. Are we going to follow up with an amendment Bill next year? How is it actually to come about? What is there within the Bill that would enable that radical restructuring that is apparently wanted? I do not know whether that is what the noble Lord supports.
Lord Jenkin of Roding
I am grateful to the noble Lord for giving me an opportunity to explain. I referred a few moments ago to the number of amendments tabled on the first part of the Bill that would make quite substantial changes, particularly about the division between the central and local shares of business rates revenue. That would be a change that, if my noble friend Lady Hanham could persuade her colleagues that it might be accepted, would go a long way towards meeting the concerns not only of London Councils but of the Local Government Association and local authorities generally, which are anxious to see a faster process of the localisation of business rates revenue. I will no doubt have an opportunity to talk about this a little later, but I do not think that the questions of timing and of the changes that we are proposing are in any way inconsistent. As my noble friend Lord Tope said, there would be some regret if this were to be delayed. I think that both he and I were making that point. Perhaps that is a way of explaining to and satisfying the noble Lord, Lord McKenzie, that there is no inconsistency in what we were arguing.
The Earl of Lytton
My Lords, the noble Lord, Lord Beecham, made a perfectly correct reference to some comments that I put to him. Indeed, I have made comments in the context of this Bill before. Before I go any further, I ought to declare various interests: as a practising chartered surveyor, a member of the Rating Surveyors’ Association and a member of the Institute of Revenues, Rating and Valuation, which explains my interest in the valuation aspects of business rates.
There is a growing issue that creates a greater than usual level of uncertainty with regard to the yield of business rates. I referred previously to the number of outstanding non-domestic rating appeals. I believe that the current total is around 144,000 or 146,000. Even if you get rid of the repetitious ones, the true total probably sits at around slightly more than that—so, 80,000 or 90,000 appeals. Some of these go back to the 2005 rating list.
Business rate payers are getting increasingly concerned that access to justice is effectively being denied to them. A typical lead-in period from the time when an appeal is lodged to the time when the Valuation Office Agency is able to make any sort of substantive comment, I am advised, is in the order of two years—and that is not to the time when it actually gets before the valuation tribunal, when the valuation officer can actually open his book and address the issue. I do not blame the Valuation Office Agency for that. I think that the Committee should be aware that this is fundamentally to do with the agency being starved of the necessary resources. It is being starved of the personnel and starved of the resources to upgrade its computer technology; its computers do not interleave with the valuation tribunal’s computers, and so on and so forth.
Businessmen are particularly concerned because the non-domestic multiplier—that is, the multiplier that is applied to the rateable value in order to provide, as it were, the gross amount of the rates payable before transitional relief and other things—contains an element for potential losses to the tax base arising from successful appeals. So businesses up and down the country are bearing the cost of this contingent risk factor which is implicit in the fact that we are dealing with a system that is lacking in the necessary resources.
My point in raising this on Second Reading was to outline that this is the nature of the animal that is about to be bestowed—or, rather, its risks are about to be bestowed—on to billing authorities. I think that this needs to be addressed. I do not know how this relates to whether the Bill should be brought into force in 2013 or subsequently—I make no comment about that. I just say that there is an in-principle issue about the maintenance and management of the tax base that, if you do not get it right, will be in the nature of passing the buck, an issue that the noble Lord, Lord Beecham, raised on Second Reading. This is a risk factor. I think that it would be entirely wrong, although— I declare another interest as president of the National Association of Local Councils—that does not make me unaware of the risks that are being imposed on the principal authorities, which are represented here by their president, my noble friend Lord Best. I think that it is right that, when we are dealing with these matters of principle, we actually address them at this stage. This is part of the tapestry—the backdrop—over which an awful lot of the other bits that we discuss will have to be viewed.
Baroness Hanham
My Lords, I thank everybody who has contributed. I particularly thank my noble friends Lord Tope and Lord Jenkin, who have broadly said what I will say. I do not think that local government really wants us not to proceed at this stage. This has been in the offing for some time; people are well aware of what is coming about and there have been many discussions with them. Therefore, the suggestion that local government will not be able to implement the rates retention system from 2013 is not correct. Local government will have all the information that it needs to implement the rates and retention scheme effectively, before it has to do so. We will be publishing draft regulations before Report in October. Other information in terms of consultation of the technical detail of the scheme is going to be available over the summer and there will be draft secondary legislation in the autumn before the draft local government finance report is due. Therefore, by autumn, all the information necessary for the implementation of the business rates scheme will be out, even if some of it is in draft. Other information will then be available tying in to the local government finance report, which has to be laid, as it is part of the whole system.
The noble Earl, Lord Lytton, has raised a question that I hope we may defer, because he has tabled a major amendment about it for later in the debate. Indeed, some of the points raised by the noble Lord, Lord McKenzie, are also the subject of amendments. We might have a better opportunity to discuss them later. While I understand the noble Earl’s views that this is, or should be, part and parcel of the scheme, we think that that could and should be dealt with separately. As I said, we will come to points on appeals later on, but in setting up the retentions system we will make an adjustment to reflect the cost to local government of outstanding and future appeals, so there will be some amelioration.
We have worked pretty collaboratively with local government throughout the development of these proposals. In March 2011, we published the terms of reference of the local government resource review and in doing so we clearly set out the aims and the scope of our proposed reforms, as well as the timetable for implementation. We have since consulted local government on numerous occasions. In July 2011, we published a consultation on the design of the rates retention scheme and, in August 2011, we published a further eight technical papers to provide more details on these proposals.
We have listened to what local government has said. This was evident in our response to the consultation published in December 2011 and, indeed, that consultation continues today. The Bill that we are debating is the product of this attentive engagement and consultation. It has, of course, received pretty considerable scrutiny—perhaps unlike the Localism Bill—in the other place and there has been a gap since then for people to think about it and to ask for any information that they do not have.
We will continue to work with local government as we proceed. First, there is our working group made up of local government representatives, including the LGA, which is contributing to the policy and technical debate for the information that will be coming out shortly. There is a further consultation later this month on the technical details underpinning the scheme. There is plenty going on still to shape the legislation going forward.
In terms of our approach to the implementation, we believe firmly that the existing timetable should be adhered to. Before the new rates retention scheme is introduced in April 2013, local authorities will be consulted on their baseline funding before the end of this year, and after a debate in the other place they will receive their final settlement in early 2013. That follows the normal practice that has existed for years. I can remember discussions on local government finance taking place: we always thought that it was a bit tight, but it has always been at the end of the year, sometimes in December. That will be there. This means that the timescale for agreeing baseline funding in advance of April 2013 will be the same as happens currently for the first year of a multi-year settlement. Local authorities will be able to use that information to inform their local budget setting in a timely manner, as they always have done.
I strongly believe that we should be able to implement the rates retention scheme from 1 April and that it is desirable to do so, because local government is expecting it. Moreover, the Bill contains provisions to amend the date of introduction to a subsequent financial year should this be absolutely necessary, although I do not think that noble Lords should hang on to the coat-tails of that. It seems inevitable that such a clause would be included in legislation; there often are clauses in case the absolutely extreme happens. I do not expect the extreme to happen over business rates; I expect them to be implemented by 2013 for all the reasons that I have given noble Lords about the consultation, the discussions and the information that has been presented. Broadly, unless there are major changes to the draft regulations—and I suspect that, even if there were changes, we would be able to cope with them—we will be able to proceed as I propose and get there satisfactorily by the beginning of the next financial year.
For all those reasons, I reject the amendments. I am conscious that I have not commented on the intervention of the noble Lord, Lord Smith, but perhaps I can pick up those points later.
Lord Smith of Leigh
My Lords, I welcome the Minister’s reassurances that information will be in the hands of local authorities—we will test that on Report in October when we can see what happens. I do not think that I ever said that I wanted this provision to be deferred; I simply made the point that a stage will come when it is too late. The Minister herself said that, in using the word “extremes”. I would be interested to know what those extremes might be that would delay the provision from 1 April. She also thinks that there could be circumstances that lead to delay. My point was very simple: as long as the information is available so that we can put it into place, that is fine. But we will obviously be able to test that out.
Lord McKenzie of Luton
My Lords, I thank the Minister for her response to the amendment, which I will in due course withdraw. I follow on from the wise words of my noble friend Lord Smith, who has incredible practical experience of leading a major council. I was unclear from the Minister’s reply whether we had the assurance that all draft rates will be available by the time we get to Report, or all the information needed. There is not necessarily a position on that; all the information that somebody needs is one thing, but seeing it in terms of regulations that will, we hope, in due course go through the parliamentary process is something else. The Minister said that the timeframe is consistent with the current timeframe of the local government financial settlement. Well, yes—but this is not a routine local government finance settlement. It is a significant change, so aligning it timewise is not necessarily appropriate. The noble Lords, Lord Tope and Lord Jenkin, both said that there would be disappointment if there was a deferment. That may be the view of some but I know that it is not the view of everyone.
I am not sure that we fully covered the issues raised by my noble friend Lord Beecham and the noble Lord, Lord Palmer, about reserves, particularly the issue around CIPFA advice. It would be good if the Minister covered that before we put this matter to bed.
The noble Earl, Lord Lytton, again made a very powerful point. I was struck by his contribution at Second Reading. Summarising the concerns, he said that risks are about to be bestowed on billing authorities but the maintenance of the tax base is with central government. That mismatch is a real issue. Later in our deliberations we will come to some amendments that may enable us to go into that, but I am not sure that there is not a broader issue about having the ability to test the appropriateness of the rating system to bear the weight of this new way of dealing with local government finance. However, we will have to see when we get to those amendments.
Perhaps the noble Baroness would deal with the issue of reserves and clarify whether we are talking about draft regulations or about information in another form. We have had lots of statements of intent, which have been very helpful, but they do not amount to fine detail. If we have draft regulations by Report, when is it expected that they will come into effect? What is the rough timetable?
Baroness Hanham
My Lords, the regulations that are going to be of significance will be in draft form. I guess that that will be most of them and any that are not will not be worrying us. I think that I can give the Committee an assurance that the draft regulations will be available for us to consider by Report. That is what I would want to happen and I take that on board.
I apologise for not having picked up my noble friend Lord Palmer’s comment about reserves. I shall have to write to him about that, although I ought to know how they are interlocking. Unfortunately, I did not hear the Secretary of State’s speech at the local government conference but I am sure that, whatever he said, he was not getting at local government in any way. However, there are a number of aspects of reserves—main reserves and specific reserves—and perhaps I may write to Members of the Committee before the next stage to give them the information that I think they are looking for. I hope that that will satisfy that aspect of their queries.
Lord Palmer of Childs Hill
While the Minister is on that subject, perhaps I may ask a question, although, first, I should have declared my interest as a councillor in the London Borough of Barnet. I apologise.
Lord Palmer of Childs Hill
No, I am not a vice-president of anything. In addition to the comments that I and the noble Lord, Lord Beecham, made about reserves—specific and non-specific—one also needs to take into account the restrictions imposed on local authorities by external auditors. External auditors used to come under the Audit Commission but now they are a stand-alone operation. They require a certain level of reserves on the balance sheet, and it would be difficult if central government were to impose requirements on those reserves. External auditors say that you have to have £5 million, £10 million or £15 million in reserves to make everyone feel comfortable, but I have always said when making speeches that I think they make people feel too comfortable. However, that is what the auditors say and they will qualify your accounts if you do not do that.
Baroness Hanham
I return to the fact that unfortunately I did not hear, and do not know, what the Secretary of State was referring to. Of course, reserves are part of local government finance and part of control systems in local government. I should like to make some further inquiries about how that interlinks, if it does, with what we are talking about—the business rate retention scheme—so that I do not mislead the Committee. I know that the provision and use of reserves—and sometimes councils have large reserves—could potentially be used to help to ease the current financial situation. I shall not say anything more about that because I do not know what was said but I shall come back to it.
I was also asked about the police authority, and again I apologise for not picking that up. As I understand it, and I shall write if I am incorrect, the police authority will make the precept because it will be in place until November. It would be pretty unreasonable to ask a new police commissioner to come in to sort that out in the short time available. Therefore, what he or she inherits from the police authority will be what goes forward for the first year. After that, the police commissioner will set his or her own precept. I am not being prodded from behind and being told that that is incorrect but I will let noble Lords know if it is not correct.
Lord Smith of Leigh
I am sorry to intervene again, but that contradicts what I was told on Friday. Because of the problems of timing, the police commissioners would want to set the budget for the year from 1 April. In fact, I have just written a letter to the Home Office to ask whether we can do something about that because it makes timing very difficult.
Baroness Hanham
If there is a disagreement on that then I must make sure that we know the answer. I have given the answer that I think is correct.
Lord McKenzie of Luton
My Lords, I thank the noble Baroness for her further explanations on that. I propose to withdraw the amendment. In doing so, I would just comment that I did not refer earlier to the comments of the noble Lord, Lord Jenkin, on deferral of the council tax benefit support scheme. I think that that might be more fruitful territory when we reach that provision. I beg leave to withdraw the amendment.
Lord McKenzie of Luton
“Representations from local authorities regarding a re-set of the system
(1) The Secretary of State shall establish a mechanism to allow local authorities to make representations on whether they believe a re-set of the system is required.
(2) The Secretary of State shall, prior to the publication of the Local Government Financial Report in any year, give consideration to any representations he has received, and must lay before the House of Commons a report detailing—
(a) any representations he has received from local authorities on whether it would be appropriate to re-set the system; and(b) his or her decision on such representations and the reasons for that decision.”
Lord McKenzie of Luton
My Lords, Amendment 8 would introduce a new clause concerning a reset of the system. A reset would involve reassessing individual authorities’ baseline funding levels and a recalculation of tariffs and top-ups. The technical paper issued last year on establishing the baseline suggested that a reset might involve a completely new method of assessing relative needs and resources, but the purpose of this amendment is not to stray into that territory. The purpose of this amendment is to cause there to be a mechanism that would allow local authorities to make representations on whether they believe a reset of the system is required. Such a mechanism would include an obligation on the Secretary of State to report to the House of Commons on representations received and decisions made thereon, with reasons.
In their response to the consultation on the business rate retention proposals the Government made clear their aspiration for the reset period to be 10 years, and they have stated that they do not propose to reset until 2020 at the earliest—an aspiration, we should note, that would extend to the end of the next Parliament and beyond. However, they have acknowledged that in exceptional circumstances a reset could be required within the 10-year period. Will the Minister tell us what would count as exceptional circumstances?
We acknowledge that certainty over not only the quantum but the period of an opportunity will enhance the incentive. The longer the period between resets, the greater the likely incentive for business growth, as local authorities will retain the benefit of the growth for longer and it will be more encouraging of longer-term investments. That is notwithstanding the fact that the legislation would permit a reset on an annual basis.
There is, however, another side of the coin. Long periods between resets could lead to circumstances where the baseline funding position of an authority does not reflect its funding needs. Population movements, which the Government themselves identified in their response, could lead to the level of resources diverging significantly from core service pressures. We have a debate next Thursday on funding for adult social care, which is a clear example of pressure on services. Setting needs for a decade based even on an updated formula grant for 2012-13 might not be the firmest foundation.
Absent resetting, how could local authorities address the divergence experienced between needs and resources? With the safety net only being available when the business rate base falls by a certain amount and with restrictions on council tax rises—even if those were possible—where can authorities look? We will soon be debating how the Government intend to deploy the 50% central share of business rate, so I would be interested to know the basis on which that might occur longer term.
This amendment seeks only a modest but formal process for local authorities to propose a partial or full reset of the system. Of course there will always be informal opportunities to press a case, but in the interests of transparency we argue for the amendment. I beg to move.
Baroness Hanham
My Lords, I am grateful to the noble Lord, Lord McKenzie, for introducing this amendment. Within it he raises some other points which we will come to later, particularly regarding the 50% retention issue, which is the subject of later amendments. However, I do not think that this provision is necessary. On a point of principle, the lack of a specific provision for making representations to the Government does not prevent anyone, or any authority, from doing so at any time. Nor do the Government need any particular legislative provision to be able to consider a representation. If an individual authority feels that it is in difficulties, it is perfectly entitled to come to the Secretary of State and say so.
Receiving and considering representations is a fundamental part of the Government’s work and the Government consider and respond to representations from members of the public and from local government every day. Representations constantly take place on local government finance, for example. I therefore do not think that we need this provision. I am not clear that the proposed new clause would bring any additional practical benefit to what will be an already transparent process, and I will explain why.
Under the rates retention scheme, the annual local government finance report will set out the tariff payments that individual authorities in the regime will be required to make to central government and the top-up payments that individual authorities will receive. There will continue to be an annual local government finance settlement and an annual local government finance report. A draft of this report will be shared with local authorities before it is laid before the other place. The report may be implemented only if it is approved by Members of the other place.
The Government intend to fix tariffs and top-ups at the start of the scheme and then link them in future years to the retail prices index. In future, the Government intend to fully reset the scheme only to reflect any reassessment of authorities’ needs, with the exception of the first reset period, at intervals of about 10 years to create the strongest possible incentive effect. I think that the noble Lord supports that view although he is concerned about individual authorities, but I think that I have addressed that point. In years where a reset does not occur—anywhere between one and 10 years—tariffs and top-ups will change only by RPI. At the very least, therefore, it will be clear to all, from the calculation of tariffs and top-ups in the annual local government finance report, whether a reset has taken place. It will be open and clear.
In practice, of course, we would expect to let local government know well in advance when the Government intend to reset the system. We have done this already by signalling the intention to reset the system for the first time following implementation in 2020. That is in seven years’ time. However, it remains the case that in any year, during the course of the debate on the annual local government finance report, Members of the other place would be perfectly entitled to ask the Secretary of State what representations he had received during the course of the year about whether it was appropriate to reset the system and why he had chosen not to act upon them.
Specific provision is not needed here for the Government to be held to account properly about resetting the system. It is an inherent part of the system through the transparent annual local government process. I therefore believe that the amendment is unnecessary and I hope that the noble Lord will withdraw it.
The noble Lord asked what would count as an exceptional circumstance. That is slightly difficult to see until you see it, although such a circumstance could arise if resources became significantly out of line with needs. The noble Lord asked me previously what the safety net will cover. It will cover situations such as a major company collapsing with the consequence that the business rate is wiped out. That goes back to the previous amendment, and I apologise for not picking it up.
I hope that the noble Lord feels able to withdraw his amendment.
Lord Beecham
Will the Minister look again at subsection (2) of the amendment to which she implicitly referred? The amendment would require the report in any year to refer to,
“any representations ... received from local authorities on whether it would be appropriate to re-set the system”,
and to the Secretary of State’s decision and the reason for that decision. The Minister rightly says that people could ask a question or a succession of questions about that. This amendment systematises that process so that it is clear and seen as an integral part of the annual financial report. I cannot see the difficulty in the Government accepting that it should be part of the information base to be considered alongside the whole of the rest of the local government finance settlement at the appropriate time. Would it not be more convenient for Ministers to do it that way rather than to have to reply to a succession of questions, perhaps over a different period, not necessarily tied in to the process of approving the report?
Lord True
I should declare an interest as the leader of a London borough and as a member of the leaders committee of London Councils. I hope that my noble friend will maintain the position that she has just set out. I was encouraged by what she said about not ruling out exceptional circumstances. I shall not weary the Committee with my rather unusual local authority, which will be a tariff authority, as I referred to it at Second Reading.
It seems to me that we have a very open system. In all the years that I have been following local government I have never noticed the noble Lord, Lord Beecham, being slow in coming forward to make representations either public or private. Indeed, many of us in local government have often been very grateful for those representations.
Lord Beecham
Could the noble Lord remind me of any that have been successful?
Lord True
I am sure that the noble Lord, Lord Beecham, was extremely successful in secret with that one Government with whom he had a good relationship once upon a time.
I do not wish to detain the Committee. I would simply say that surely the problem with a system like this one is that you will then have emulous enthusiasm, so that if the authority of the noble Lord, Lord Beecham, makes representations and they are going to be published in a report before Parliament, someone will come to me or to my noble friend Lady Eaton and say, “Why has your authority not made representations?”. So we will have lots of local authorities asking directors of finance to put in their representations so that they can be published and ticked off in a report to Parliament. I do not think that we should bureaucratise this too much until it seems, with experience, that the Government are suddenly not prepared to hear representations on the system. Then we can look at it. However, I think that there is a risk of overbureaucratising this and that it could be a make-work rather than provide a solution. I appreciate the intent with which it is offered but I hope that my noble friend will stick to the position she set out.
Baroness Hanham
Yes, I will. We feel that this would be overly bureaucratic. As I laid out in my response, this can happen. If somebody has a reason or a need for a reset, or they think that they have, they can make representations. I do not think that that requires legislation. I do not intend, unless I am pushed at another stage, to accept that it is necessary at all, as such provision already exists. There is already a process by which that can happen.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister. We have probably aired this enough, at least for this occasion. I am grateful in particular for the acknowledgement that exceptional circumstances exist when issues are out of line with need. That begs a whole range of other questions, but having that on the record is useful. We might want to explore it further at a later stage, but for now I beg leave to withdraw the amendment.
Lord Smith of Leigh
Lord Smith of Leigh
My Lords, I shall also speak to Amendment 17, which is in this group. In tabling Amendment 9, I was intrigued by the language being used in the schedule. We obviously understand what “may not exceed” means but the implication is that it may on occasions be less than that figure. I am intrigued to know on what occasions it might be less and why. What did the Government have in mind in drafting this? If they did not mean it ever to be less then presumably they would have used the words that I use—“shall equal”. This is a probing amendment and I do not want to speak further to it.
Amendment 17 is more substantial. One thing that I think local government has welcomed over recent years is that we no longer do quite the procedure that the Minister outlined, and that in announcing a settlement for a year, Governments have given indications of what the settlements are likely to be in two subsequent years. The benefit of that to local authorities in terms of future planning and what they need to do is very important. In my own authority, under the current arrangements we now have a four-year plan and have to reduce expenditure by £66 million, which is 28% of our budget. It is not easy and we are trying to make sure that it happens. However, we could not take out the expected sum on an annual basis unless we knew what was intended for subsequent years. We have to plan to remove £20 million-odd this year and £18 million next year, so it is really important.
In keeping with the tradition that has grown up in local government, I am asking in this case that when a particular year’s settlement is announced we will be given indicative figures for future years, or at least for the next two years. That would enable us to plan the system much better than if we were simply told on an annual basis. As I say, this has been a real improvement which I think has been welcomed by all sides in local government, and I hope that the Government will maintain it.
Lord Jenkin of Roding
My Lords, the noble Lord, Lord Smith of Leigh, has made a point but I am sure he would agree that it is a fairly narrow one, whereas some of the other amendments in this group raise wider issues. Perhaps I may step back for a moment to remind the Committee of what the problem is that we are talking about. There can be no doubt whatever that when the Government published their position paper, Business Rates Retention Scheme: The Central and Local Shares of Business Rates, there was very substantial disappointment on the local government side at the figure of 50% as the split between the local and central shares of the business rates. The arguments were well rehearsed at Second Reading but I will remind the Committee of the two main arguments.
First, it is recognised that the higher the local share, the stronger is the incentive to encourage development and therefore growth and jobs. Indeed, the Government’s document more or less admits that, and the tables they have produced show that that is the case. One is talking here about a broad feature of national economic policy. The second argument is more specific, and is directed at the consequence of the division. As was said by a number of noble Lords at Second Reading, the result is that priorities are still being substantially determined centrally rather than locally. It has increasingly been the declared policy of the Government to achieve more local decision-making and more local control over their affairs and finances. At Second Reading, I warned my noble friend that she might hear some of the same arguments with which she was assailed during debates on the then Localism Bill. We were able to make a certain amount of progress on that. There were a number of quite significant amendments which strengthened the localist case for more local decision-making. I hope that we might perhaps have a similar result here.
There has been a good deal of discussion within the local authority world of how one could change the position to give the authorities the prospect of an increased share in future. A number of proposals were put up, some of which have found their way into other amendments. When discussing this with the Local Government Association—I ought to have declared a long time ago that I am a vice-president of that—
Lord Jenkin of Roding
Surprise, surprise, but there we are. Discussing this with the Local Government Association, it seemed to me that there would be merit in building in some form of escalator. Amendment 12 in this group introduces a limit, as it were, to say that it cannot be less than the previous year. However, that only stops it going down. Amendments 21 and 22, in the names of my noble friends and me, seek to build in a regular process by which the centralised share falls and the localised share rises. I do not for one moment claim that this is the only way of achieving an escalator; obviously, there might be a whole range of different options to do that. With these amendments we are arguing for the principle that the local authorities should be able to look forward over the next few years to a steadily rising proportion, both to increase the incentive to encourage development and more jobs, and to give expression to the increased localism which the Government aim to champion.
Amendment 22 spells out our proposal. I have said that I do not think this is necessarily the only way of doing it, but the proposal is quite simple: one starts at 50%; two years later the central share declines to 45%; two years after that to 40%; and two years after that to 35%. This takes us only up to 2018, and of course one is hopefully looking further forward than that. The corresponding local shares would go from 50% to 55% two years later; then to 60%; and then up to 65%. Therefore, over the period up to 2018, we would move from 50:50 to 65:35. Perhaps we could write this, or something like it, into the Bill. I made it absolutely clear that there are a number of different options for doing this and this was the one that seemed to attract some support in the local authority world. Local authorities particularly want to see some legislative provision setting out that the 50:50 split is not to be permanent or long-term.
As I have made clear—and this is very different from what I said when I was Secretary of State for the Environment in charge of local authorities—I am a huge supporter of the principle of localism. The noble Lord, Lord McKenzie, and others have made the same point. However, I detect the hand of the Treasury in this wish to maintain a 50% share. There is a feeling that it does not want to let go. My noble friend Lord Brooke of Sutton Mandeville and I have both been Treasury Ministers—I was the Chief Secretary at the Treasury—and I recognise that temptation. It seems to me that we have a choice here. Are we really going to encourage an increase in localisation or are we going to maintain a strong central control with some modest shift in favour of localism?
In considering the Bill and this particular proposal for the division of the business rate retention scheme, I hope that the Government will be prepared to accept that their good faith and belief in the principle of localism and localisation would be demonstrated by writing something like this into the Bill. That is what we are looking for. It would give an enormous fillip to the encouragement of local government which would go the whole way back, and local government would come to be seen as a more important area of governance in this country.
There is no doubt that as, over the past 30 or 40 years, the public have seen local government decision-making increasingly being taken over by central government, there has been a great loss of public interest in and concern over lower and lower voting figures. It is to the huge credit of local councillors such as the noble Lord, Lord Smith of Leigh, and others who are here that they have kept the flag flying in these difficult times. We now have a change of direction and I think that this has given local government an enormous boost of encouragement. It can say, “We really do still count. We are still looked to as an important area of government and not just as an instrument of central government”.
To my mind, if we could build into the Bill some form of escalator so that over the next few years there could be seen to be a shift in the percentage from a 50:50 towards a 65:35 split, or whatever it might be in six or seven years’ time, that would send out a very important signal to local government that the national Government are on its side and that they want to make localism work and make it a greater reality. The advantage would be that it would increase local authorities’ incentive to encourage development and so achieve growth and jobs.
If that is not done, it will give the impression that the Government—the Treasury would carry the blame—are giving a higher priority to tight monetary control than to encouraging growth. There has been a huge amount of argument about that over the past year or two but here is one way in which we can fight back on it. I hope that we will be able to persuade my noble friend on this. She will no doubt wish to discuss it not only with her colleagues in the DCLG but with Treasury Ministers—I know that they have a lot of other things on their plate at the moment—to see whether we can do something along these lines. It would be a hugely important signal to send out and a great encouragement to local authorities, as I hope that noble Lords will agree.
Lord Best
My Lords, I would like to speak to Amendment 16, which comes before the amendments in the name of the noble Lord, Lord Jenkin. I declare my interest as president of the Local Government Association. I express thanks to my various vice-presidents, particularly to the noble Lord, Lord Jenkin, for an exposition in very eloquent terms on the point covered by my rather cruder Amendment 16.
The LGA, representing district, metropolitan and county councils of all political hues, as the noble Lord has said, has expressed disquiet that there is to be a division of the business rates that retain so much central control, despite the positive rhetoric of localism. The LGA recognises that central government wants to keep a firm hand on local government finances during the period of deficit reduction covered by the current spending review, not least to impress the international financial markets that deficit reduction is being taken very seriously. The measures in the Bill are likely to last well beyond that deficit reduction timescale and local government at large is keen to ensure that the retention by central government of 50% of all business rates revenues, and indeed 50% of any business rate growth, shall not be maintained after its purpose has been fulfilled.
This amendment calls for central government to discontinue its retention of a share in local government business rates revenue after 2014-15; that is, after the last financial year in the current spending review period. I recognise that the Government may well be keen to extend the period a little longer because their deficit reduction objectives are likely to go on beyond 2015. However, the LGA, London Councils and others representing local government all agree that that top-slicing of business rates revenues by central government needs some clear end date. The 50% top-slicing greatly restrains the ability of local government to benefit fully from its support for any business rate growth and undermines the localism agenda of devolving powers away from the Secretary of State to local government.
In responding, perhaps the Minister could address one aspect of this concept of a central share of all business rates. I know that the Government have stated their intention to return the revenues that they receive through this arrangement to local government. That certainly sounds as though the Government’s intentions are not to redirect resources away from local spending, but it is unclear how the funding received by the Government will be returned to local authorities and what conditions are likely to be attached to it. Clarification on just how that somewhat circular movement of finance will operate would be much appreciated. The underlying point of the amendment is to draw out the Government’s view on just how long this central government control over half the business rates should last. I entirely support the comments on that from the noble Lord, Lord Jenkin.
Lord Tope
My Lords, my noble friends and I have added our names to Amendments 12, 16, 17, 21 and 22, which have been very ably spoken to by the noble Lords, Lord Jenkin and Lord Best. I shall not repeat all that they said; suffice it to say that I agree with everything that they said. The noble Lord, Lord Jenkin, made some mention of the disappointment in local government when the 50:50 split was announced. That was profound perhaps because local government was expecting more, given the rhetoric from the Government when the so-called repatriation of the business rate was first announced, something for which all parties in local government have strived ever since my noble friend Lord Jenkin nationalised it some years ago. So there was an expectation. He has repented many times since then—and blessed is the sinner.
Baroness Eaton
My Lords, a key concern of many local authorities, even within the new system, comes from those who are heavily dependent on government funding, the top-up grant or RSG. They are concerned with how that grant will be distributed, what factors are in the formula and whether a damping mechanism will still be retained.
When baseline rates are being calculated, the percentage share will be based on a historic average going back five years, which should help local authorities whose business rates have struggled to keep pace with the RPI. The lower the baseline rate position, the higher the top-up to which the authority will be entitled. There is potentially a small danger that there could be a significant change in an authority’s business rate’s tax base between setting the local share baseline and commencement of the scheme. Has the department recognised that and is it likely to make any allowances for it happening?
Another area of concern is that if only marginal changes are made to the current formula grant distribution model, the formula will not adequately reflect the needs placed on some local authorities, particularly for looked-after children—that is just one example—and local authorities that see a sudden increase in primary school numbers. Those are our concerns. The new RSG gives the Government scope to reduce local authority spending without having to reset top-ups and tariffs. How this reduction will be distributed is not known. For authorities where the RSG element is by far the most important element in their income, not knowing how that mechanism works makes forecasting very difficult indeed.
We have not mentioned what has been referred to on a number of occasions: the suggestion that local authorities should be interested in pooling. In principle, the pros and cons of the impact of pooling can easily be seen. It sounds a very good idea, and it is not hard to judge whether it is going to be good or bad, but if we do not have a mechanism by which to know what the outcomes will be for individual authorities within that pooling, it is very difficult not to have just a clubbing together. If you have more than that, administration and governance matters are going to be of concern because there will be a possibility of risk and reward, and that needs to be ascertained. It sounds a very good idea that we meet as a club to pool things, but the effect will be different on different authorities within that pool, and I would like the Minister to say how the Government think that will work.
Lord Brooke of Sutton Mandeville
My Lords, I am not a vice-president of the Local Government Association.
Lord Brooke of Sutton Mandeville
It is more important that I made the remark that I made a moment ago. I am not rising to move an amendment, and I think I can give the Minister an assurance that I shall stick to that resolution about not moving amendments. I am grateful to my noble friend Lord Jenkin of Roding for reminding me that I was once a Treasury Minister, although for a reason he may not have expected by his reverence—reference.
Lord Brooke of Sutton Mandeville
I will accept the reverence. My noble kinsman was, like my noble friend, Chief Secretary to the Treasury. In fact, he was the first, so he was allowed by Harold Macmillan to invent the title. In those days, the UGC of semi-beloved memory was a Treasury function for which my noble kinsman was responsible. Two decades later, I became Higher Education Minister. When I entered office, the hand of the Treasury was still in evidence in relation to higher education institutions, particularly in relation to the disposal of assets. If a higher education institution disposed of an asset, it had to hand back to the Treasury the entire financial fruit of its decision to so dispose. I was Higher Education Minister for two and a half years. About halfway through that period I persuaded the Treasury that its policy was not conducive to higher education institutions disposing of assets and it allowed higher education institutions to retain 50% of the assets they sold—a percentage that is germane to today’s debate. Before I left office the Treasury had come round—although it did not execute it until just after I left office—to letting higher education institutions have the whole lot. I say this simply to encourage not only the rest of the Grand Committee but even conceivably the Minister that it may be possible that concessions may be made at some stage in the future.
The Earl of Lytton
My Lords, I apologise to the Minister. I would like to follow the point raised by the noble Lord, Lord Jenkin of Roding. Not being a financial expert, but with my experience of the local government finance system, I liken this to that time-honoured competition that used to appear in some newspapers, the spot-the-ball competition, which I am afraid rather dates me. I refer to where the money goes and all these labyrinthine methods of checks, balances, benefits, credits and grants for this, that and the other.
However, I would like to concentrate on the question of the 50% share of the business rates under the business rate retention scheme. I say that as a veteran of development schemes of one sort or another by virtue of my profession. By the time there has been a redistribution to various other precepting bodies, a 50% take of the business rate is hugely unlikely to be any real incentive to a billing authority in terms of encouraging the growth in the tax base. Ultimately, it is the growth in the tax base that is the key to this. Unless the rate of tax per property band or per square foot of business space goes up, with all the consequences in terms of public opinion that that might involve, we have to grow the base. The other thing that will come up later is the question of making the system fundamentally more efficient, on which I have various amendments later on.
The development process represents a great number of hazards in terms of the finance of organising it and, particularly until recently, the growth of the front-loading of all manner of planning applications with a plethora of things related to sustainability and compliance with planning. Local electorates, furthermore, bearing in mind that they tend to be council taxpayers, often view large-scale development, particularly commercial development, in a negative light. So there is a downside to the whole process. A series of political risks has to be underwritten by this, and that requires a careful balance of what the yield will be before one can expect a billing authority to embark on this road with regard to so little a sum as 50%. That has to be reviewed, particularly because I understand that 50% would also apply to new space that comes on stream, so there will be no gain there either unless you happen to be in a son-of-enterprise-zone area, in which case a different set of rules will happen.
One particular question was put to me by the chief executive of the Institute of Revenues Rating and Valuation, a body of which I am a member. I am not expecting an answer to this, but it is worth pointing out at this juncture. The current council tax benefit scheme is financed by the Department for Work and Pensions by way of the subsidy paid to the billing authority. The current amount that I have been given for England is £4.3 billion. That might be for England and Wales and if I have not got the sums quite right, I apologise to the Grand Committee.
Under the new local support for council tax—the LSCT scheme set out in the Bill—the grant for this new scheme is to be paid out of the central share of business rates and the amount is to be the same £4.3 billion less 10%, because we know that the whole process will be scaled back by that amount. If one is doing a spot-the-ball competition, the question is whether and, if so, how will the Department for Work and Pensions reimburse the Department for Communities and Local Government the £4.3 billion—minus the 10% of course—which is being financed by the business rate? I should say straightaway that I do not expect an immediate answer from the Minister.
Lord Greaves
There are one or two brief things that I would like to say. I apologise to noble Lords for not being present at Second Reading, when I was enjoying myself in France. I declare an interest in that I am a member of a district council in Pendle, in Lancashire, and a member of its executive. I am also vice-president of the Local Government Association. Why my noble friend is not is a mystery.
Lord Greaves
The noble Lord was sacked. I think further investigations are required, and we will report back.
I was moved to speak by listening to my noble friend Lady Eaton. I support a great deal of what she said, which was in emphasis a little different from some of the contributions made by other noble Lords. In principle, these amendments are right: 50% is a remarkably low figure to be retained by local government, and certainly not what was expected when the scheme was first announced to the world. However, I want to bring noble Lords down to earth with regard to some local authorities. Retention locally of the business rate will not be a financial bonanza for those local authorities at 50% or at any other higher percentage. Many authorities, as my noble friend said, will continue to need to rely on the rate support grant, if it continues to be called that, because they will have great difficulty not only in finding ways in which to expand their tax base by increasing their business rate but also maintaining them at the present level. This is a fact of life, and the localisation of business rates in these areas, including my own region of east and Pennine Lancashire, does not have the rosy glow around it as it does in areas that will find it easier to grow a commercial base. That is not to say that people will not try to do it, but in areas such as my own it will be a matter of trying to hang on to what is there at the moment.
I give an example. A small district might have two or three large mills or factories contributing quite a high proportion of the business rate. It only requires one or two of those to close down and the position will be fairly catastrophic. It is not the same in every kind of area and whatever kind of system we have in future will have to retain a substantial element of redistribution at least for those authorities. I do not know what proportion of authorities that is, but I have heard my honourable friend Andrew Stunell tell me that about 20% will be substantially reliant in future on continued redistribution elements of the grant. I do not know whether the Minister has an idea or can enlighten us after this Committee.
The second thing that causes a certain amount of alarm is the 50%. It is really the argument about what happens to the money that is centrally controlled. How far will this kind of area, which tends to be the old, declining, industrial area—although not all as some are coastal towns that have fallen on bad times, and so on—rely on the traditional kind of government grants, particularly capital grants, for regeneration? We discussed this issue in your Lordships’ House last week in a debate launched by the noble Lord, Lord Mawson.
The noble Lord, Lord McKenzie, and I were making similar points that parts of the country are missing out on the grants that are now available, compared with the past. That is partly as a result of the reduction in funding for capital schemes and the fact, for example, that the regional growth fund is cumulatively less than the regional development agencies used to have available to disperse. It is partly because there is a tendency now to go for growth and to go for the places where growth is easiest and perhaps to go more to the south-east, the Greater London area, the big cities, the city regions and metropolitan areas. There are very exciting and worthy schemes for authorities to work together for economic growth and development in areas such as Greater Manchester. Those places that do not naturally fit into the big city regions risk missing out. I am talking about my own area in Pennine Lancashire, but there are others as well, in the north-east, in west Cumbria, and elsewhere around the country. Our concern is about how much the less fashionable and less sexy areas, or the areas which find growth more difficult and where the return on investment may be less as a percentage, are going to miss out on this 50% redistribution. There are huge questions there.
I ask the Minister whether the Government have an assessment at this stage of how much of this central fund is expected to be used for different purposes. How much of it is expected to be used for council tax issues which the noble Earl, Lord Lytton, was talking about? How much is expected to go on administration? How much is expected to go on straightforward redistribution to the sort of areas I am talking about? How much will go to traditional funds and schemes for capital investment and development around the country? How much will go on regeneration? How the Government will use this money is not clear to me at all. I can see in total the kinds of things it is going to used on, but I do not really know whether they have an estimate of how much is likely to be used for the different elements. I would find it extremely interesting and useful to have that information, if the Government have worked it out.
Baroness Hollis of Heigham
My Lords, I had not intended to come in on this part of the Bill; I was waiting for council tax to come up. However, the points made by the noble Lord, Lord Greaves, have triggered a set of questions for me. Does the department have a “who pays, who gains” outcome as a result of these changes? If so, can the Minister share that with us? I am very unclear.
I am delighted to see that the noble Lord, Lord Jenkin, has been converted from the error of his ways. Let me remind him that before the business rate was nationalised—I think it was the only thing that was nationalised under the Thatcher Government—authorities like my own, which were no longer unitary after the disaster of 1974, none the less received a business rate. This meant that those who lived outside the fringes of the city area and who did not pay the domestic rate, contributed through the business rate to the city’s well-being. This meant that a city could therefore serve as a regional centre while having only the property rate of a rural district council.
More important still, it meant that the leader of the council—myself—or the chair of finance would take great pains with the Chamber of Commerce. Every year, I went with a prospective budget, and it had a very direct influence over how we constructed our budget. As a result, until the nationalisation of the business rate under the noble Lord, Lord Jenkin, and as there was a direct pay-off to our revenues, I was willing to forego rateable value on new property; I was willing to invest in apprenticeship schemes; I was willing to do the environmental works, the roads and so on, to get small enterprises off the ground; and we were willing to help SMEs to develop through local enterprise trusts. We did all that because there was a direct pay-off. I could never understand the huge folly of a Conservative Government, which is above all expected to be business-oriented, cutting that link with the city authorities—admittedly, they largely tended to be Labour authorities at that time—which gave them an incentive to build their business.
After nationalisation of the business rate, the result was—I did the figures—that my local authority was contributing something like £14 million a year in business rate to the Exchequer and receiving back something like £7 million. The adjacent Conservative authorities, which did virtually nothing, were contributing about £2 million and receiving back about £4 million. In other words, they were piggy-backing off the flow of the nationalisation of our business rate to rural areas, because they had never had a concern to develop business in their areas, partly because they had high property values and did not want to be contaminated by it. It also meant that I no longer had any incentive to do something similar. I forgot to declare that I, too, am a vice-president of the Local Government Association.
I applaud this move, even if it does not go as far as I would like. However, I understand the need for an equalisation grant, otherwise Westminster would retain far too large a share and other local authorities would have very little. As a result, it will be really important for us to see what greater equity there will be now in terms of the statistics between who pays in and who gains and what the return is. Some authorities, such as my own, are district councils trying to do a unitary job with district council revenues—thank you very much to the Government for that—and they will be glad to have that money if it allows them to look after their business economy as well as the wider economy, in terms of building tourism and so on for the whole area.
For the sort of authorities that the noble Lord, Lord Greaves, mentioned, which may well need this money but may not receive it, there is a problem, too, of the distribution between those authorities whose money comes from small but highly valued premises—solicitors’ premises and so on—and those that have relied in the past on large physical premises such as factories, which are now closing due to the shift in the British economy. A reason for this request is that we were screwed the last time around and it was a disastrous policy for government, of whatever complexion, as well as for regional economies. I hope that this time around we will get a more equitable and sensible distribution. If the Minister can help us by promising to circulate some of these figures, it would be very valuable indeed.
Lord Beecham
My Lords, my noble friend Lady Hollis makes a very good point about the relationship between local government and business. It is interesting that the London Chamber of Commerce and Industry, in its briefing for today’s discussions, makes the point that more than a quarter of a century after the noble Lord, Lord Jenkin, perpetrated his terrible crime, 53% of London businesses apparently think that councils are currently responsible for setting the level of business rates. It says that that reveals a breakdown in communication between councils and businesses. Some of us might think that it simply betrays a complete ignorance of how local government works on the part of those who really should know a little better. However, that does not mean that the situation should not be improved.
I sympathise with the amendment tabled by the noble Lord, Lord Jenkin, because he seems, rightly, to want to rebalance this position. The Government seem to take a rather Augustinian position in respect of localism: “Lord, give them localism—but not yet”, would be one way of putting it. Another way, perhaps more familiar to the Secretary of State in his earlier days as an enthusiastic Marxist, would be to describe it as a form of democratic localism. Democratic centralism was the vogue under the Stalin regime but this is democratic localism, which is to say that all the orders come from on top and are then applied locally. This division certainly seems to portend something of the kind.
In a way, the game is given away by paragraph 9 of the statement of intent on business rates retention. Having previously said that a number of “specific grants”, which I will mention in a moment, will be included in the business rates system, that paragraph goes on to say:
“As a result, the Government is able to set the local share at 50% which delivers our objectives on growth and localism while allowing for future fiscal control to protect the interests of the taxpayer and the wider economy”.
That is a fairly clear statement that the Government are seeking to use this 50% as a controlling mechanism.
Lord McKenzie of Luton
My Lords, there are a number of propositions on our agenda concerning the local/central share. We welcome the opportunity to probe all of the issues, as indeed we have done in this debate, and I hope to focus on a consensus for the next stage of our deliberations on Report. I am happy to work with the noble Lords, Lord Jenkin and Lord Tope, to try to achieve just that.
The central share and its application is one of the more troubling aspects of this part of the Bill. It is troubling in the sense of lacking considerable detail, certainly beyond the early years of the scheme. It may be that all of this detail is tucked away in the plethora of documentation provided to us, and doubtless the Minister will point us in the right direction if it is. But there is not much light shed on the subject in the revised statement of intent of last month. Our concern, which has been echoed today, is that the central share will be used in whole or in part to fund matters that would otherwise have been funded by central government. Another concern is clearly the basis on which the central share is to be returned to local government, and there is of course the quantum of the share—the 50:50 split. But these issues about where the money will go and where it will end up clearly troubled the noble Lord, Lord Greaves, and the noble Earl, Lord Lytton, and others who have spoken.
What is driving the local/central split is the Government’s desire to control the overall envelope of local authority spending, routinely determined through the local government finance settlement. What this is currently controlling of course is the formula grant and its distribution. There is a range of other funding available to local government—its own fees and charges and council tax—as well as hitherto a series of grants, some non-ring-fenced and others which are. These grants do not all fall within the orbit of CLG. Such grants are controlled through the usual departments’ DEL processes. Although we have challenged the Government’s draconian cuts for local government—28% in Wigan, as we heard—we were not proposing to open up a broad debate on this aspect except to say that, by the reduction in the control total, the Government have added to the certainty that the business rate in aggregate will exceed the control total.
Of course, currently the whole of the business rate collected is returned on some basis to local government through the formula grant. Indeed central government tops that up with revenue support grant as well as formula police grant. We are now told that for the key year of 2014-15, which has the lowest spending control total, business rates will exceed that total and, therefore, cannot just be left uncontrolled in the hands of local government. A percentage will be peeled away to be applied to local government by central government.
For the record, perhaps the Minister would set down how the 50% has been calculated. What is the forecast of national business rates for 2014-15 and the extent to which that exceeds the control total? How is the 50:50 local control share split derived from that? The technical paper 2 sets out how that will be done and which multipliers are to be used, but some work must have been done to derive the 50:50 proposal. It would be very helpful if we could have that detail. Please can we be given the figures? How much headroom have the Government given themselves between the control totals and the local shares for 2014-15? The intention is that local authorities will be kept whole for 2013-14, based on the application of the formula grant. Can the Minister say whether it is expected to utilise the whole of the central share for that year in this way?
Appendix A to The Local Government Finance Settlement in England: A Guide to the Basics sets out a complete list of grants for the current year. Can the Minister confirm that, at least in theory, any of those could, in whole or in part, be funded from the central share? If you look at it, you will see that it includes, from the Department for Education, the dedicated schools grant, the pupil premium grant, the early intervention grant, the extended rights for free travel, and from the Department for Health, the learning disability and health reform grant. Those are very substantial amounts of money that concern local government in England and, on the proposition that the Government have advanced today, they could fall within the ambit of that description. If not, it would be good to have a denial on the record.
There is a separate issue about the extent to which the local and central shares are calculated after deducting amounts to cover the new homes bonus and other matters. Reading the various documents, I was a little confused about where the funding for the new homes bonus was ending up. Originally, I understood that it came from central Government and was not part of the local government settlement. On the basis of what we have read, I am not sure whether it is now being met from within the business rate total, the top-slice in a sense. If that is wrong, perhaps the Minister could put me right on that.
If the central share is to be used to replace any of these grants, the distribution of it would presumably follow existing rules, but if we prevent that happening, what other options do the Government have for distributing the central share? That hugely important question has been asked by many noble Lords in this debate. We are entitled to know the basis on which the central share will be made available to local government. At one extreme, which we could probably support, it might be distributed strictly by reference to a needs and resources analysis, such as formula grant, which, notwithstanding tariffs and top-ups, could ameliorate the consequences of the distributional effects of the business rate retention scheme. So it might be good for equity but not as good as an incentive. At the other extreme, it could be distributed in a way that is neutral between authorities or as favours the more advantaged authorities. There are no hard and fast rules and we need some clarity from the Government on this crucial point.
Lord Greaves
I wonder whether I can help the noble Lord. Does he agree that a further question, in addition to the very detailed ones that he is asking about the different grants, is whether any of this money might be distributed through non-departmental bodies—quangos and so on—such as the Homes and Communities Agency, and whether some of the money that they disperse might come from this source?
Lord McKenzie of Luton
That is a very interesting question. We have an amendment coming up which is intended to probe the heads under which various categories of institution are counted as qualifying as English local government. It is a possibility but we can specifically probe that when we come to the next group of amendments.
This really is the most troubling aspect of these proposals. Unless I am missing something, it is an area where we do not have enough information. On one basis, we might be happy with a share that is not 50% but 30%, and on another basis we would not want any central share at all. Under Amendment 9, my noble friend Lord Smith probed why we have that particular formulation. I am sure that the Minister has an answer.
Amendment 17 touches on the hugely important issue of not only having information about the current year but being able to project what is likely to happen in subsequent years, particularly in an environment where councils are having to save every penny they can and take painful decisions about cutting back on services.
Amendment 12 in the name of the noble Lord, Lord Jenkin, seeks to ensure that the quantum of the central share will not grow from year to year. Given the RPI increase in rateable values, this should mean that the percentage of the central share gradually declines.
However, we need to be mindful that all these matters could be achieved by central government charging grants against the national business rate collection so that both central and local shares decline in amount— effectively top-slicing. Perhaps we can have amendments to deal with that, as we need to protect against that possibility.
Amendments 21 and 22 in the name of the noble Lord, Lord Jenkin, offer a rather novel approach, which dictates a gradually reducing percentage share of a billing authority’s central share and a gradually increasing percentage of a billing authority’s local share, so that whatever is top-sliced—if anything is—what remains is increasingly skewed to the local share. I think that that approach has some real merit. I should be very happy to engage in discussions to see how it might be developed and made watertight if it is to be included in the legislation so that the Government do not have a way round it. Subject to what the Minister says about the distribution of the central share, we would seek to support that.
Amendment 16 in the name of the noble Lord, Lord Best, seeks to preclude the determination of a local and central share after the financial year ending 31 March 2015. Whether we can support this depends on what happens to the central share. If its application provides a means of redressing possible adverse distributional consequences of the BRRS, there may be an argument for its continuance. Otherwise, it is the business rate scheme that will drive the distribution of the control total, or its equivalent. Even if the rebasing is fair at the point that tariffs and top-ups are established, the dynamic does not mean that it will continue in that way until the reset date.
I shall comment briefly on a few of the contributions to this debate. The noble Lord, Lord Greaves, made the point that whether the figure is 50% or somewhat higher, it will not necessarily change the world for some authorities, particularly smaller ones. I would echo that from Luton’s perspective. My noble friend Lady Hollis reiterated the point about cutting the link between business and local government through the nationalisation. However, we should not berate the noble Lord, Lord Jenkin, any further; I think that he has redeemed himself by his approach, and he has certainly done so with his introduction to this debate, which was very constructive.
The noble Baroness, Lady Eaton, talked about the RSG distribution and the formula grant. I think she was referring to how you set the baseline and the parameters that are going to be used, and we are going to have some debate on that. If the resetting is not going to be for seven or 10 years, getting that as right as possible is hugely important. It might be—we might get some good news from the Minister—that it could be ameliorated in part by use of the 50% central share, but I am not sure that we are going to get that news this afternoon. I am looking forward to the Minister’s reply.
Baroness Hanham
My Lords, so do I. I am grateful to all noble Lords who have spoken to their amendments. They asked a number of questions, in particular, the noble Lord, Lord McKenzie of Luton, at the end. Some of them I will be able to deal with, but some I will not. I think the sensible thing is for me to make sure that we give a written response to questions where there is a need for detail so that we can come back to them at the next stage or have discussions in between, if that is necessary on the full information, not all of which I have today.
I shall start with Amendment 9, which was moved very shortly by the noble Lord, Lord Smith, and seems to require about six pages in reply. I am going to have to skim through this extremely important matter which has clearly shaken the tree a bit. On the face of it, Amendment 9 makes a very simple change to the accounting arrangements for the central share but, as the noble Lord, Lord Smith, probably knows, it has a far greater effect than it may seem.
I shall say a little about how the provisions will work. Paragraph 1 of new Schedule 7B requires a “main non-domestic rating account” to be kept for a year. Most payments to and from local authorities in respect of business rates will be made into and out of this account. The exceptions are levy and safety net payments, which we will come on to later.
Paragraph 2 sets out the payments to be credited to, or debited from, the main account. This includes sums received from local authorities in respect of the central share. We have said that the central share of business rates would be used for the purpose of funding grants to local government outside the rates retention scheme. I shall return to that later. The provisions that enable this are set out in sub-paragraphs (3) to (5).
Amendment 9 seeks to make it clear that the sum that can be debited from the account in respect of the central share shall equal the payments received by the Secretary of State from authorities in respect of the central share. That sounds very simple and sensible, but in fact it does not take account of the Government’s intention to use some of the central share money to fund the transitional protection payments provided for in Part 8 of the schedule. This is because, following revaluations, the Government are obliged by current legislation to put in place a transitional relief scheme, so that business ratepayers whose bills increase significantly can see their bills phased in over a number of years. The transitional relief scheme is paid for by similarly phasing down the bills of those ratepayers who see their liability fall significantly as a result of a revaluation. Earlier, the noble Earl, Lord Lytton, was discussing the effect of appeals on precisely this area.
In the context of the rates retention scheme, this means that some authorities could see lower income as a result of the transitional scheme being put in place for ratepayers and some higher as the transitional scheme unwound. That is clearly an untenable situation. Authorities’ income is supposed to reflect their success in promoting development and not the technical vagaries of the transitional relief regulations, so we have always said that we would take transitional relief completely outside the rates retention scheme and provide for a separate series of payments to and from authorities depending on whether they see more or less income as a result of the transitional relief scheme. Part 8 gives effect to this.
The payments themselves, however, will be credited and debited to the main rating account. I hope that the Committee is following this. The scheme will be set up to balance over time but, in any year, we may pay out more to authorities than we get in. So the current wording in paragraph 2(4), which Amendment 9 seeks to change, demonstrates that if there is a deficit, it can be met from central government’s share. In other words, central government will bear that cost. So while central government could choose to debit less than it has received from authorities by way of central share income, it cannot debit more. On the strength of this explanation, I hope that the noble Lord, Lord Smith, will feel able to withdraw his amendment.
I turn now to the remaining amendments in this group. The noble Lord, Lord Jenkin, explained very clearly and plainly what he is trying to do. Amendments 12 and 21 would effectively mean that the central share could never be increased, since it could never be greater than the previous year’s central share. Amendment 16 would set the central share for the current spending review period only, and Amendments 17 and 22 would fix the central and local share—or a trajectory for them—over a number of years.
The noble Lord, Lord Jenkin, and other noble Lords asked about increasing the local share. We have always made it clear that over time we would hope to increase the local share, particularly once we have the finances back on track. It is difficult to see how legislatively we could allow that bearing, in mind that this whole question of the economy is such a difficult area at the moment.
We have also made it clear that in setting up the rates retention scheme, our aspiration is to provide for a long period between resets of up to 10 years. The corollary of that is that the central and local shares and also the tariff and top-up payments will be fixed for the duration of the reset period. By definition, the 50% rate would go on for 10 years unless there is an amendment. Between resets, therefore, we do not anticipate central and local shares changing from year to year. The 50% will last until 2020. That will give local authorities much greater long-term certainty about their financial obligations to central government and the funding that they can expect to receive from government than under the current three-year spending review process. However, the Government must retain the ability to alter the local share of business rates where it is necessary to maintain affordability and protect the interests of the taxpayer and the wider economy. However, it would be imprudent to presume that there might never be a time when we might need to increase the central share.
The percentage approach to the central and local shares of business rates was adopted in response to views expressed in last year’s consultation about the potential risk of being expected to pay a fixed sum in business rates to central government. By sharing business rates on a percentage basis, some of the reward of positive growth, but also some of the risks of negative growth, will be borne equally by central government. The Government have, and always will have, an interest in public spending, and it is unrealistic to expect the Government to take their hands off it completely and to constrain themselves, as Amendments 12, 16, 17 and 21 suggest.
I will have to write to noble Lords about some of these points because I may not have the answers, but I was asked how the 50% share was set. How did we get there? The Government have considered a range of factors involved. If the information about the setting of the 50% share is not available before the next stage, it will be available in the local government finance report in the figures for business rate totals. That may not be soon enough for noble Lords.
Lord McKenzie of Luton
Can I just clarify this? The detail of the clarification is to come but, in respect of 2014-15, is it the case that the local share that derives from that calculation is equal to, or about equal to, the control total that the Government are seeking to apply to local government and that there is no extra in there?
Baroness Hanham
It is going to be based on the base from this year. Every local authority will be equal when it starts on this system, but the tariffs and top-ups will bring that to the equality base when there is too much in one and not enough in the other. So that will be the first shuffle to get the equality base across the piece.
Lord McKenzie of Luton
If the Minister could just clarify this, it would be really helpful. As I understand it, the local and central shares have been calculated by reference to the lowest of the control total years. I understand why arithmetically that is so. In respect of that year, is the 50% local share that comes from that calculation equal to the control total for that year? Is it the case that there is no extra in the central share and that just enough has been left for 2014-15 to be able to apply the control total and keep it intact, or has central government taken more than that?
Baroness Hanham
The Government will provide revenue support grants to make up the difference between the local share of the business rates and the spending control totals for local government in 2013-14 and 2014-15, having taken into account the amounts needed. Noble Lords asked about the new homes bonus. In future years, the total amount of grant funding will be determined through spending reviews and the Government will set up the base for distribution in the annual local government finance report. I do not think that that will answer the noble Lord’s question, but I will write to him.
Baroness Hanham
And I had better write to the noble Lord, I think. That seems pretty fair.
I was asked about the specific grants. The funding will be from the central share and the finance for specific grants, and that will include the revenue support grant. I will write on the specific grants that already exist and tell the Committee what is included.
The noble Baroness, Lady Eaton, asked about the local authorities’ pool and how the money gets distributed if they go into one with others. Frankly, that will be a matter for the pool to decide; they will regulate themselves. We would expect there to be a local government lead on that so that they can receive payments and that formal arrangements would be agreed on the operation of a pool, so it will be governed by some sort of constraints.
The noble Baroness, Lady Hollis, asked who paid and who gained, but that rather depends what you mean by who pays and who gains. We have always said that no council will be worse off as a result of its business rate base at the outset of the scheme. That was what I was trying to explain about the base, the tariffs and the top-ups. I am sorry if I did not come across well, but that is what the situation is. The information that the noble Baroness sought will be available at a point of the draft local government finance report. That will be my answer to some of the questions: that the information will be ready for a bit later on, I hope before we consider this matter further. I hope that that covers the points made.
There have been a lot of discussions, some of which we will come to on further amendments. I note what the noble Lord, Lord Tope, said about local government’s disappointment regarding the split. I appreciate that that is the situation, but we ought not to ignore the fact that by making the local business rate stay with local government, even if things are then done to it, we are setting a very sensible principle: giving the business rate to local government and maintaining it with it. That principle can then be worked on in the future, regarding how much is left. However, I think we have established an important principle here. I hope the noble Lord is happy to withdraw the amendment.
Lord Smith of Leigh
My Lords, that was a very interesting grouping of amendments, which received a wide range of contributions. I congratulate the Minister on the scope of her responses. She gave a full and helpful answer on the first amendment that I moved, Amendment 9. I will obviously read what she said in Hansard, and if necessary come back. She was definitely trying to be helpful in understanding it. However, she did not really respond to Amendment 17. She noted at the time that she was not sure whether there would be continuity, but perhaps she would like to write to me on that one.
I thought that the debate was really interesting, because it got some way to the fundamental parts of the Bill. The contributions of the noble Lords, Lord Jenkin of Roding and Lord Greaves, seemed to be a contradiction. We all want the Bill to achieve growth in local areas for the country. However, to use a Lancashire expression, I say to the noble Lord, Lord Greaves, that 50% of nowt is nowt and 100% of nowt is nowt. Therefore, it is not really going to help in those areas where there is no growth.
Lord Smith of Leigh
Yes, you do get the negative. I am afraid that the risk is there as well, but there was a safeguarding scheme. However, if that stays at 10%, it could be very significant. There is a contradiction.
My noble friend Lady Hollis’s contribution was about accountability. That would be the phrase that I would use. She described what happened with the business rate in the old days. There was a real accountability between the levying authorities and local businesses in discussing what was involved. Now, when we have a situation in which 50% of the money is disappearing and there is clearly a lack of understanding about the current system, as my noble friend Lord Beecham said, I suspect that businesses think local authorities set the rate because they collect it. We are the responsible agents in collecting the money, so clearly if the Bill comes in the name of the local authority, businesses will assume that that is where the money is going, and not that local authorities are simply a receptacle for transferring the impact onwards.
One of the Minister’s comments is at the heart of this: she said was that if we get the base, we can try to get people equal against the base. But my contention is that if the base is not right, inequality will just be built into the system. If the issues and the problems that the noble Lord, Lord Greaves, mentioned as existing in his area are not reflected in the base, it will not be fair. I beg leave to withdraw the amendment.
“(4A) Such an amount should only be paid in place of other grants to local government if the Secretary of State is satisfied that the overall needs of local government will be met.”
Lord Palmer of Childs Hill
My Lords, in moving this amendment, I shall speak also to Amendments 13 and 14. It appears that the effect of the central share is to allow the Government to reduce what would have been grants outside the formula grant—that is, paid for by general taxation—and thus allow the business rates to take up the slack. The Treasury could thus substitute business rates for other taxes. I would like to ask if the Minister agrees that there is a danger of improving central government’s fiscal position at local taxpayers’ expense. That is the crux of this very short amendment.
This would not have an immediate effect; the estimates have been made by various local government bodies that the effect could begin in 2016-17, but it could be a real effect.
The central share will come back to councils, as we have discussed, but not necessarily the same councils, in the form of grants. Other noble Lords have given an example of Westminster and have said that that is why there has to be a reallocation of these moneys. I understand and appreciate that, but the real problem is that one reallocates business rates to give an incentive to local authorities to improve businesses within their areas and improve the economy in those areas. Many of them need that incentive; the current system of business rates whereby you collect the money and keep none of it is not an incentive, which is why this is an improvement. If you take away and redistribute, you lose a lot of that incentive from the places where there could be a great improvement in the economy.
Mention has been made by other noble Lords as to the 50%. I could have come in at that stage, but I thought that I would include it in what I am saying now. There is one other aspect to a 50% share, which has not been broached by other noble Lords—that 50% for the Government and 50% for the local councils is a dangerous percentage. Local authorities will lose, as they have in other instances, the difference between the half-empty and the half-full bottle. You know exactly what it is when it is 50%, but it is more difficult when they start recalculating and the share is 51% and 49%, as has been my experience in local authorities. Measuring the value of local council housing, when the example given by CIPFA was 50:50, when the local authority came to use the calculation they took the wrong half, because it was never 50%—it was always something else. Someone in Whitehall may know how to do it; there is a rumour that that is the case. But there is a danger that when you have 50:50, you will end up with 51:49, which would mean that you would not know which was the Government’s share and which was the local authorities’. I would hope that the larger share would be for the local authorities.
The amendment makes the point that the Treasury will be able to switch grants that have been paid for by general taxation into the rates system and in effect raid local businesses to assist the Exchequer. All this will, of course, be in addition to the cut of £500 million, in terms of the legislation overall. Amendments 10, 13 and 14 seek to protect local councils and central government from that usual thing of temptation, because it is not easy to resist temptation. As Oscar Wilde said, “I can resist anything except temptation”. I do not think that we should put too much temptation in the way of central government. I beg to move.
Lord McKenzie of Luton
My Lords, we have Amendments 11 and 24 in this group. Amendment 11 is a very straightforward probing amendment; it refers to paragraph 2(5) on page 20 and is to do with payments to local government in England. Presently it reads:
“The reference in sub-paragraph (3) to use for the purposes of local government in England includes the making of payments under an Act or an instrument made under an Act (whenever passed or made) to”—
then it gives a range of authorities.
Baroness Hanham
I thank noble Lords for this short but none the less important amendment. I understand the concerns that prompted the amendments in this group, but I hope that I can persuade noble Lords that they are unnecessary.
Currently, the Government determine how much local government spending the country can afford and set local government grant totals.
The Deputy Chairman of Committees (Lord Bichard)
My Lords, there is a Division in the House. The Committee will adjourn for 10 minutes.
Baroness Hanham
My Lords, as I was saying before I was rudely interrupted by the television screen, currently the Government determine how much local government spending the country can afford and they set local government grant totals—both formula grant and specific grants—accordingly. Redistributed business rates income is then used to fund formula grant and any difference is made up from revenue support grant. That is the situation at the moment. The more business rates there are in the system, the less revenue support grant is needed, and vice versa. Therefore, since 1990, business rates have been used in partial replacement of revenue support grant.
Although the mechanism is different under the rates retention scheme, the principle is exactly the same. The business rates retained through the central share will be used to finance both revenue support grant and specific grants in the same way as they are currently used to finance formula grant. Earlier the noble Lord asked me, although I was not able to answer, whether grants relevant to local government from other departments are included. They will be put into that one pot, so all the grants will be relevant. Therefore, we cannot see why the Government would need to accept Amendment 14, as it would place greater restrictions on central government than currently exist. I hope that, looked at in this way, the noble Lord will agree not to press his amendment.
Amendments 10 and 13 accept the principle that the central share should be used to finance other grants but seek to ensure that this happens only if the Government are satisfied that the overall needs of local government will be met. The overall need of local government will be, as it is now, a factor that, along with the wider economic situation, will inform the amount of specific and revenue support grant that government will provide to local authorities.
At future spending reviews, the Government will have regard to the resources available to authorities from their own resources—council tax and, in future, retained business rates—along with the overall spending needs of local government and the fiscal situation of the country, to determine how much grant should be provided.
I hope that, having reflected on the nature of the spending review and the reality that the overall needs of local government will be fully considered as part of that process, the noble Lord will agree to withdraw his amendment. The Bill contains assurances that any money paid by way of central share will be used by government only for the purposes of local government.
On Report in the other place, amendments were made to the Bill to make clearer what was meant by “local government” in this context. The list set out in paragraph 2(5) of Schedule 1, however, was not intended to be exhaustive. Rather, it was illustrative of the sorts of bodies that would be covered by the phrase “local government”. Amendment 11 would have the effect of making the list definitive—something that it was never designed to be, and therefore I cannot accept the amendment. It could otherwise be added to or detracted from and have something else substituted.
Amendment 24 would require the Secretary of State to set out in a local government finance report what payments the Secretary of State had made from the central share. I have rather more sympathy with the principle of this amendment and, although the details are probably over the top, we have discussed it and I think we have said that it will be available just before the local government finance report. However, I must say to noble Lords that the amendment is unnecessary. It will be clear from government accounts how much revenue support grant and specific grants central government have paid out in any year. It will also be clear how much has been collected by way of the central share and debited from the national accounts. It will therefore be obvious whether the Government have used the central share money in support of local government.
Nevertheless, I am prepared to think about whether, regardless, it would be helpful to set this out in the local government finance report in respect of an earlier year. Because of the timing of the outturn data, that would mean that we could not set out this information except in respect of the two previous years, which might make it a little out of date. However, we will consider that and talk to the LGA about it. I hope that, having heard those comments, the noble Lord will be happy to withdraw his amendment.
Lord McKenzie of Luton
The noble Baroness dealt with the question of whether the list in sub-paragraph (5) is complete, and the answer was that it is not. If it were, however, what other bodies would be on there? Would it be a vast range? Can she give us a clue as to which others might have sat on that list?
Baroness Hanham
I think I have said all I can say. The list is not complete and others can be substituted or interposed if necessary. Those will arise at other times but I do not know what they are. If we have information on or a sort of idea of which others we might be talking about, I will let the noble Lord know, but at the moment it is simply left that other bodies may be included.
“(2) In Schedule 8 to the LGFA 1988, after paragraph 5(7) insert—
“( ) Appropriate rateable values will exclude a percentage of any increase in total rateable value of all appropriate hereditaments within the billing authority area as laid down by the Secretary of State in regulations.
( ) In setting the percentage, the Secretary of State must take into account the indexed rate of increases in rateable value of all hereditaments of all billing authority areas.””
Lord Best
My Lords, if the wording of Amendment 15 is pretty incomprehensible to most of your Lordships, I assure the Committee that I, too, found it extremely hard to follow. Indeed, officials at the DCLG have suggested that it should refer to Schedule 7 to the Local Government Finance Act 1988 and not Schedule 8, and they may well be right. However, I am anxious not to get bogged down in the incredibly complex intricacies of the Bill’s wording. Instead, I hope that this amendment will open up the debate on one important issue within the Bill.
The point of disagreement that the amendment addresses relates not to any difference on policy but to a divergence on the best way of implementing that policy. It is a difference between the clever people inside central government departments who devised the Bill’s clauses and the clever people inside local government who spot practical deficiencies therein. With this amendment, I think that all concerned are in agreement on the policy objective: that new arrangements should enhance incentives to local government to be more business-friendly and to increase the commercial viability and the wealth generation of the areas they serve. However, those drafting the Bill may not have chosen a route in this so-called fiendishly complex mechanism that achieves the desired goal in at least one important respect.
The problem is that the legislation would see councils rewarded from an increase in business rates that follows from physical growth in the authority’s tax base—that is, an increase in rateable floor space—but not from increases in the rateable value of existing properties. That means that there is an incentive for councils to go for the building of new offices or for larger-scale, out-of-town developments, but there are no incentives for councils to enhance the rateable value of existing buildings—for example, by spending money on the public realm, transport and community safety, attracting more businesses and more customers and users of services to the area. In heavily developed city locations, there may be few opportunities for creating lots of new buildings, leaving aside the kind of intensification that buildings such as the Shard can create. However, councils can be hugely important in improving the environment and the quality of an area, which leads to greater attractiveness to businesses and thence to higher business rates.
As I read the briefings, I am left with the thought that excluding business rate growth that comes from rental price increases at revaluation is simply an omission in the Bill. All of us would want to encourage councils to pursue economic growth policies that attract new businesses that result in such rises in rental values. Clearly, it can take a lot more effort on the part of a council to organise the upgrading of the business district, spending money on green spaces, on transport links, on improving appearance and on enhancing safety and security than simply granting planning consent for an edge-of-town, traffic-generating, environmentally unfriendly shopping centre; yet the former would provide no benefit to the local authority in terms of a share of the uplift in business rates while the Bill incentivises the latter.
I have had a look at several reports that have been sent to me, starting with a useful one from the Centre for Cities think tank, which was published in February. It makes the case for rewarding revaluation of growth because in some areas physical growth is just not where the focus should be if the end goal is growth and jobs. It identifies two types of area in particular—high-density restricted supply areas such as Westminster or Camden and slower growth or right-sizing areas such as Preston and Chatham. It also includes data demonstrating that, in 2007-08, 50% of authorities saw a reduction in rateable floor space, which the authors put down to a reduction in manufacturing, factories and so forth.
London Councils produced a report last year that included a graph detailing the physical expansion and decline of local authorities’ business rate tax base. The overall position for London was a net loss of properties. Some 14 out of 33 London boroughs actually saw an average decline during the period and, of those that achieved reasonable physical growth, the effects of the Westfield development in Shepherd’s Bush and terminal 5 opening at Heathrow had a large positive effect on the two boroughs concerned: Hammersmith and Fulham and Hillingdon respectively.
Then there was a report from the London Chamber of Commerce called Driving Local Growth, which detailed the results of a survey it carried out asking London businesses for the most important areas for prioritisation by local authorities. Interestingly, the result was not that businesses were keenest on planning considerations being improved but that infrastructure was top of their list, improving community safety and the public realm. Those were registered as most important by local businesses.
I know that this is a somewhat London-centric case, but many other towns and cities will also be seeing little physical growth in business premises but real opportunities to make what already exists more profitable for their areas. A system that incentivises councils only to promote physical growth seems to miss the point and is certainly not an environmentally sustainable approach.
It would be helpful if the Minister could take this away and satisfy herself that the Bill has not unwittingly erred in this regard and that an amendment along these lines would not be in everyone’s interest. I note that prior to the last general election the Conservative Party published a report about the business increase bonus, calling for the measures that would incentivise councils to promote economic growth and support businesses by ensuring that authorities directly benefit from enhancing local commercial environments. If the amendment that I propose is defective in that regard, other amendments are proposed by those with a deep understanding of these matters from within local government. I hope that the Minister will accept in principle that this issue is worth pursuing.
Lord Beecham
My Lords, not having had at the forefront, or indeed at the back, of my mind details of Schedule 8 to the Local Government Finance Act 1988—or indeed Schedule 7, if that be the correct schedule—I am obliged to the noble Lord, Lord Best, for having explained what was to me, frankly, an unintelligible amendment, but it is entirely intelligible now. I find myself in the odd position of already having spoken to it, in a sense, because I addressed some of the same issues and used some of the same terms as the noble Lord, Lord Best, when I spoke to an earlier amendment. I share the concern about the temptation to incentivise what the noble Lord described as new rateable floor space rather than enhanced rateable values. To that extent, I support the thrust of his argument.
However, I am less convinced about some of the other aspects. For example, massive taxpayer investment in Crossrail will presumably generate increased rateable values in the authorities in London that it will serve. Many of them are quite deprived authorities, so in one sense that is a good thing. On the other hand, that was not a decision of those authorities; the decision was taken by central government, funded by all taxpayers, including those in equally deprived parts of the country such as the one in which I live. The London chamber, to which I and the noble Lord referred, was right to say that authorities should be rewarded and incentivised for the decisions that they take. It is not necessarily appropriate that they should benefit significantly from an increase in business rate generated by taxpayers in the way that, for example, Crossrail might be argued to have induced. Presumably, it will take some time for that to happen.
I am also slightly concerned about the basis on which the claim is made that effectively we should be looking at a rise in rental values. I am not an expert in the property market but at the moment I anticipate that, although there are some exceptions, there is no great buoyancy in the commercial property sector. Many of us see empty shops, offices and factories. In my city of Newcastle we have seen the closure of one significant employer in a very modern factory in one part of the city, and we are seeing the almost certain closure of engineering works in an enterprise zone, for which the noble Lord, Lord Jenkin, was originally responsible—I give him credit for that. It was formerly Vickers and is now BAE. It will close with the loss of many jobs and the site will come on to the market. To put it mildly, I think that the anticipation that rental values will rise in the foreseeable future is incredible. It does not seem to me to be a firm basis on which to base these calculations.
Therefore, there is something in this argument—particularly the points that the London chamber raised—about trying to connect the reward to the positive actions of an authority. The converse is that an authority should not be penalised for things beyond its control when the rateable value falls, either because of general economic effects or because of an impact on general levels, leading no doubt to appeals against valuations. I have no doubt that the noble Earl, Lord Lytton, would be able to elucidate on the kinds of effects that might develop.
Therefore, the Committee needs to look at how we can tie the incentivisation to the actions of the local authority in the broad sense that the London chamber and the noble Lord and I referred to earlier—with investment in infrastructure and particularly skills and training, as well as, depending on the circumstances, community safety or other features in the local economy—rather than rely on the actions of the national Government or their agencies. The Highways Agency can transform a situation in certain areas, just as Crossrail might have done, and perhaps other bodies would have the same function or effect.
I take it that the amendment is from the Local Government Association, from which we have heard so much this afternoon. Some of us should go back to the LGA to explore this issue in greater depth to see whether we can come up with something more related to the activities of its members. I should be interested to hear the views of the Minister. I do not know whether the noble Earl, Lord Lytton, proposes to speak on this part, but it would be very interesting to hear his comments on these points, which relate very much to his professional expertise.
The Earl of Lytton
My Lords, with that invitation I had better rise to my feet. First I should declare an interest that I have not declared previously and probably should have done—that I have a small involvement with a local chamber of commerce, although I do not know that it especially informs this bit of the debate.
The noble Lord, Lord Best, mentioned a very important factor—that the constant incremental renewal and upgrading of our infrastructure and townscapes, as I believe he was chiefly referring to, is directly related to concepts of added value and therefore has wider application. The confidence to invest in such schemes is clearly dependent on certainty of outcomes. I said previously, on Second Reading, that I was concerned at the lack of certainty of outcomes. Like all uncertainty, it adds to risk and is a highly corrosive factor in getting good levels of net present value, to use valuer-speak.
The Bill’s laudable intentions are to a large degree overshadowed by some very difficult times, with the possible exception of central London. That colours everything, including the way in which these schemes can be financed independently and the sort of risks that you can afford to take with taxpayers’ money, if you are not financing them through conventional means. That obviously applies to central government just as it does to billing authorities and local authorities. My concern is about the migration of commercial floor space to other uses; I refer in particular to losses to residential uses. That may be the only certain outcome that delivers a sufficient return on capital invested to justify the financing. We live in the real world where finance is very difficult. Even if you have retained finance because you are a larger company, unless you can make a robust case to your finance director and the other key decision-makers, it is not going to go ahead. Things which are slow and drawn out and which have long timescales all add to the risk, even if there are no other issues.
I know that the coalition has tried to make sure that the planning process is simplified. None the less, as I mentioned on the earlier group of amendments, there are sufficient uncertainties with all the boxes that developers have to tick. Many of these boxes have to be ticked up front and much of the ticking process costs real money up front. That is the problem that the real commercial world faces. I do not see how the classic role of government, which is to intervene in circumstances of market failure, can be shifted from central government, effectively backed by the political backcloth with central government resources and finance. I do not think that you can move that intervention to overcome market failure to a local government scenario. It will not work. The whole thing is too complicated, the finance is too tight, and matters are too uncertain.
The noble Lord, Lord Beecham, referred to Crossrail, and of course there are other large infrastructure schemes across the country on a wider scale. One thinks of HS2, the high-speed rail system. Many of these create blight. Although in the long term they are considered to bring benefit, they create short to medium-term blight of the most acute nature—in other words, people are unable to sell their properties and business premises are unlettable and so on. This, too, has a highly corrosive effect but, as I see it, it is not in the gift of local government to deal with these large-scale issues of blight.
The real question goes back to what the noble Lord, Lord Best, was asking: how do we deal with the necessary incremental improvements to and upgrading of our infrastructure without this driver of a commercial outturn? In a sense, the commercial outturn is there because value and satisfaction are added. More trade may be brought to an area. For instance, if it is a seaside town the number of beds let per annum in lodging houses and hotels may increase. There can be all sorts of things that go with that. However, it is a slow and diffuse process, and that means that the benefit is not sufficiently directly connected to the investment for the authority to claw that back. It is not a bankable benefit in the authority’s hands, and that is where the disconnect arises.
It may be that this whole consideration goes much wider than the context of the Bill. However, we are transferring duties and powers and supposedly finance streams to local government, and I think that it is right to consider this issue in its wider context. At the beginning of this afternoon’s proceedings, I mentioned that it is part of the backcloth in which we operate. I certainly hope that the Minister will be able to give some comfort that the cause and effect—in other words, the risks and costs of investment and the returns that can be gained from it—will be better looked at and better managed, even if they cannot be dealt with through the business rate retention scheme. There need to be other ways in which this issue is dealt with; otherwise, we will see areas going into wholesale decline with a considerable loss in values and, with that, risks to the loan books of the mortgage sources that have lent against those investments, as well as risks to the whole financial structure. We do not need to do that. Once we start going down that road, huge perils lie there. We really need to make this constant investment in order to make sure that that does not happen. We have to move forward; there is no stand-still position.
Lord Palmer of Childs Hill
My Lords, I support my noble friend Lord Best because there is a need to take into account revalued and increasing rateable values of properties. The analogy used by the noble Lord, Lord Beecham, reminded me of development land tax where when agricultural land got development planning permission its owner had to pay substantial extra taxation. We are in danger of looking at how much individuals, companies and corporations make as a result of Crossrail or whatever. If the land has increased in value as the property has increased in value, it ought to be a factor in the calculation of what the local authority receives. The point made earlier was that local councils such as Westminster would gain by the redistribution. Projects such as Crossrail spread that gain through rural areas and the like. I do not think that the fact that some local authorities may gain because of a national or regional development is a reason not to give that local authority the benefit of having an increased rateable base. If you look at new floor space, there are many places where that will not happen. Some noble Lords showed a degree of pessimism when they spoke about how things will devalue rather than increase in value. We have to look positively at how we should encourage local authorities to do infrastructure and to encourage infrastructure, even if it is Crossrail or whatever, so that the valuations of those properties increase and local authorities can see the benefit. That would incentivise local authorities to co-operate on those matters.
Baroness Hanham
That was an interesting, if unexpected, debate. When it started, I was very touched by the fact that I had a little note that said, “The purpose of Amendment 15 is not entirely clear”. My reply may not be totally applicable either, but somewhere along the line we have clearly raised really important points. We are going to have to look again at the amendment, but in the mean time, I will tell the Committee what we thought it was about, and if it does not quite tie up, we will sort it out, I am sure, between now and the next stage.
I am advised that the amendment in its current form could not stand as it would insert an amendment into Schedule 8 which, as a result of this Bill, will cease to apply for any purpose in England. That is the first problem. Even without this technical deficiency, we have a bit of a problem. We fully respect the noble Lord’s views that under the rates retention scheme authorities should be able to benefit from rental growth as well as physical growth. Westminster has been touched on by several speakers, but for authorities such as Westminster or, potentially, for my ex-authority Kensington and Chelsea, the potential for physical growth is much more limited than for others as there are very constrained sites with developments all through.
The efforts of local authorities to make their areas more attractive to business are not quite as limited as some would like to pretend. Efforts that have resulted in a steady increase in rental values and hence rateable values will arguably go unrewarded under the rates retention scheme. The duty of government is to legislate for a rates retention scheme that is workable for the whole of local government, not just for some authorities. For that reason, we could not devise a scheme that allowed local authorities to keep any part of the growth in rateable values. To explain why, I need to explain to the Committee how the revaluation works, although I hesitate to do that because the noble Earl, Lord Lytton, will understand this far more than I do. Perhaps for the benefit of the Committee we should go through it.
Every five years, the Valuation Office Agency undertakes the revaluation of non-domestic properties and, as a result, the aggregate rateable value of all English non-domestic properties either—amazingly—increases or decreases. In setting the multiplier for the first year following the revaluation, the Government take account of the overall increase or decrease in order to ensure that overall the same amount of tax is raised from business after revaluation as from before. For example, if the aggregate rateable value were to double, the multiplier would have to halve. In that way, it simply redistributes the tax burden between businesses on the basis of their up-to-date property values.
In the new world of rates retention, the system is set up at the outset so that through the means of tariffs and top-ups there is an initial redistribution of resources. That protects the position of those authorities that are relatively resource poor. But if, as I explained, we collect no more money from businesses following the revaluation than we did before, it follows that there is no additional money in the rates retention system. If therefore some authorities are to be allowed to keep additional resources, by the same token, some will have to receive less. Therefore, because of the uneven distribution of the rates base, this would not just mean a cut in funding for those authorities that have seen their rateable value fall. So an authority could see a funding fall, even if its rateable value had risen, if that price was by less than the national average. That could not be fair. In fact the only way to ensure that all authorities see their rateable value rise and see some income benefit is to break the multiplier link and raise the overall burden on business, and the Government are not prepared to do that.
For those reasons, I cannot accept the amendments that seek to allow any part of an increase in rateable values to be retained by local authorities. I hope that that explanation, somewhere along the line, meets the basis of the amendment. If it does not, perhaps we could discuss it between now and the next stage. I am not sure at all that it covers any of the matters raised by the noble Earl, Lord Lytton. Having looked at Hansard, we may need to come back to that. While it was a very relevant aspect to commercial improvements, I am not sure that it necessarily fits in with the amendment, but it may do. I will happily say that if the amendment is to be pursued and if the noble Earl feels that the reply is not adequate or there is something more that needs to be done, we should discuss it between now and the next Sitting and then we might be able to get us both together to decide what we are trying to achieve.
Baroness Hollis of Heigham
I was intrigued by the Minister’s answer. I fully understand her point about the multiplier effect and all the rest of it, but I did not understand her bald statement that the Government were not willing to allow local authorities to retain any growth et cetera under that formula, if you were to break the link. Why can the Minister not make a distinction, which most of us would expect to operate, between an increase in the value of commercial property—the amount per square foot as affected which runs across a city, which I absolutely accept has to be recalibrated given the equalisation formula—with the additional increase that comes through the efforts of local authorities for either the growth of a particular business or new business coming in? Those are two different sets of flows of money. The Minister did not distinguish between the two. The point about encouraging local authorities in this way was precisely to put a new emphasis and new attractiveness on the second of these.
Baroness Hanham
I did have to look over my shoulder for that one and I am told that it is an improvement against physical growth, but I will write a bit further to the noble Baroness.
Lord Best
My Lords, I am grateful to the noble Lords who supported this difficult but fundamentally important amendment. I thank the noble Lord, Lord Palmer, and the noble Earl, Lord Lytton. Perhaps I might respond briefly to the noble Lord, Lord Beecham, by saying that the objections he raises—first, that some places would get a windfall and might not deserve it and, secondly, that some places will see a fall in rental values and therefore of rateable values and income—did not strike me as undermining the case here. Major infrastructure projects require people to buy into them; to accept that Crossrail will come through town, or whatever the big issue is. It helps if there is some financial return to that area for the inconvenience that can elapse, perhaps for several years, when major infrastructure projects come through. However, this amendment is not of course specifically addressing that but addressing the upgrading of a particular part of town by the efforts of the local authority. That is the principal objective.
In relation to the noble Lord’s second point, that some areas may see a fall in values—that factories may close and nothing may happen—this amendment is intended to provide local authorities with a greater incentive to prevent that and to do something about it. If the council makes the area much better for customers to come to and for offices to recruit staff to work there, and if it does some good for the area, that is surely good for the local economy and can revive and regenerate a place. However, if councils have absolutely no incentive to spend that money in times of difficult resource allocation for them, it would seem most unlikely that local authorities would put their backs into trying to drive some business improvement and growth in those places. It strikes me that this amendment still has some heart to it. The technicalities have completely escaped me along the way and I would be very grateful if I could take up the Minister’s offer to explore whether or not her response was helpful.
Lord Beecham
Perhaps the Minister would also like to consider that question. I come back to the point that the noble Lord, Lord Best, has just made. I have a fair amount of experience in this area of regeneration. When I was leader of my city council, we had two quite different propositions. The first was, initially, to start developing along the riverside in Newcastle and to take advantage of the then Conservative Government’s enterprise zone. It was developed as a business park and we helped an engineering company, Michell Bearings, to move into a new factory. That factory was modern and all the rest of it but, 20-odd years later, it has closed. There is nothing much we can do to get it reopened. It is in an enterprise zone and has that attraction, for what it is worth. It is close to a bypass, which we would like the Highways Agency to do something about but cannot.
Against that, when we were faced with another aspect of enterprise zones, the development of an out-of-town shopping centre, we worked very closely with local business to promote the existing shopping core in Newcastle, just as other authorities did when faced with similar problems. That is one case where we can and did do something by responding to a downward pressure on business. In the other case of the closure of that factory, and indeed of another which we had always supported in another part of town, there is very little we can do. That, it seems, is the dilemma: we could find by accident or design that a substantial benefit is going to areas which have contributed nothing in the way of policy at all, let alone investment, towards the creation of value which they will get not just in the form of a 50% share of the rates that accrue but as the full amount. That is the point. Subject to the tariffs and all the rest of it, there is to be a retention, is there not, of the growth in business rate and not just the core rate. That could be quite accidental, and the product of other people’s decisions to which the local authority may have made no contribution at all. The consequence in the system as a whole is that it could widen disadvantage between one area and another. That is the point that we need to explore further. I have said enough and I leave it at that.
Lord Greaves
Perhaps I can follow with a much smaller-scale example. I ask noble Lords to imagine an old warehouse that has low-level use and is paying relatively low business rates. There is a joint proposal by the council and its owners, if it is near the centre of town, say, to work together to turn it into a modern retail facility with a much higher rateable value: the same building, on the same footprint, with no change to the shape of the building so there is no expansion. What is the difference between doing that and, for example, demolishing that building and then having a completely new retail building, which would presumably provide an extra rateable value that could come within the scheme and have 50% of it going to the local authority? There seem to be marginal cases here, either on a larger scale—such as the noble Lord, Lord Beecham, spoke about—or just individual things. I think we need an answer to that. In the case I am talking about, there is no difference in terms of the input of the local authority between the new building and the renovation of the old building.
Baroness Hanham
In response to the noble Lord, Lord Greaves—and again I think that we need to look into this—it seems to me that where you have a building which goes out of business, and consequently the rates from it may go away as well, if that building is converted for another use and there is a revaluation then the local authority can keep that growth, subject to the conditions that arise from growth. It contributes to the local authority’s income from the rateable value. I do not see that there is a problem with that in terms of what the local authority subsequently receives as a result of having maintained its proportion of that rateable growth. We can check that through, but I think that is correct.
Lord Greaves
In practice, if the property has been empty for a certain time—I am not sure of the details—they will have to pay rates on it anyway.
Baroness Hanham
In either case, I understand that the local authority would get the benefit of the rate and the growth.
The Earl of Lytton
My Lords, I am thinking about the current process of recording hereditaments, as they are known, in the local rating lists. I call to mind that as a result of the riots last year, one or more commercial premises were totally destroyed. As I understand it, there is a vacant site awaiting redevelopment that is described as a shop and premises, and it is in the list at £1. The Prime Minister had in fact said in the wake of the riots that properties with damage would be taken out of assessment altogether. Now, there is a little wrinkle here. If a site remains in the assessment, effectively as a cleared site, but is still called a shop and premises or a department store and premises, or whatever it was, at a £1 rateable value then it is still in the list. When it comes back into the list again as a refurbished property, it will be at whatever the level is of the new premises. If it was a redevelopment process—not riot damage or anything like that—in which the local authority was a key player, the question is whether it stands to be disenfranchised because the hereditament has not been taken out of the list altogether and is not therefore really a new entry in the list. It is a revaluation of an existing one.
This might be looking for trouble where there is none, but I want to be very careful. As I made clear both in the debate on the Queen’s Speech and at Second Reading of this Bill, there are a number of little wrinkles creeping in because of the way in which Treasury policy now appears to influence the work of the Valuation Office Agency in handling the entries in the valuation list. I want to be absolutely sure that by dint of this business of not taking things out of assessment when in fact they probably should be, we are not going to find that we have disenfranchised the authority from that gain in rateable value, which is undoubtedly the work of its own hands.
Lord Brooke of Sutton Mandeville
I realise that the noble Lord is about to ask permission to withdraw his amendment, but I could see that the Minister and her counsellors were engaged in conversation. If I just add a couple of sentences, it might enable the Minister to conclude her conversation, though I am not in any sense imposing on her.
If this is the last opportunity to give advice to the noble Lord, Lord Best, before his private conversation with the Minister, let me say something in the context of Crossrail, which has been used as an example and which had major constituency implications for me. On Crossrail mark 1, there was massive residential blight involved, about which I am happy to talk to the noble Lord, Lord Best. In the case of Crossrail mark 2, the Corporation of London was deeply involved in the terms that actually enabled the project to take place at all.
Baroness Hanham
My Lords, the noble Lord, Lord Brooke, gave me an opportunity to respond, which I am not going to take.
Earl Attlee
My Lords, this may be a convenient moment to adjourn the Committee until 2 pm on Thursday 5 July.
House of Lords
NHS: Spending Formula
(12 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Quin
To ask Her Majesty’s Government whether they intend to make changes to the formula governing levels of NHS spending in the different NHS regions in England.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, from 2013-14, the NHS Commissioning Board will allocate resources to clinical commissioning groups and the Department of Health will make a ring-fenced public health grant to local authorities. The Secretary of State has asked the independent Advisory Committee on Resource Allocation to develop formulae for both CCGs and local authorities. We published ACRA’s interim recommendations for local authorities on 14 June and its recommendations on CCG funding will be published in due course.
Baroness Quin
Is the Minister aware of the deep concern in the north-east and other parts of the north of England that if the Government, as has been rumoured, move away from using deprivation and health inequalities as an important criterion, and simply use an age criterion, areas of the north where life expectancy is lower will lose out, compared to more affluent areas in the south? This and other government-trailed proposals, such as regional public sector pay or regionalised benefits, as well as the daily reality of more job losses and more house repossessions in the north than in the south, are adding to concerns that there will be a dramatic worsening of the north-south divide. Will the Minister and his colleagues commit themselves to narrowing that divide, rather than widening it further?
Earl Howe
My Lords, yes. I am aware that this has been said, and it is based on a misapprehension, perhaps as a result of misunderstanding what my right honourable friend the Secretary of State said a few weeks ago. He was not suggesting that deprivation should not be a part of the future funding formula, but simply that age should continue to be the primary factor, as it currently is and should be, in the context of our intention to reduce inequalities of access to health services.
Lord Walton of Detchant
Is the Minister aware that a number of major surveys carried out by all-party groups into conditions such as muscular dystrophy and other neuromuscular diseases, Parkinson’s disease and, most recently, dementia have demonstrated gross inequalities in the standards of care, longevity and other important factors, in different parts of the country? The Neurological Alliance has pointed, in another major report, to serious discrepancies in relation to neurological and rehabilitation services in different parts of the UK. Will the proposals that the Minister has described do something to correct these serious inequities?
Earl Howe
My Lords, to a certain extent, we must say here that we are where we are. There is a lot of justice in what the noble Lord has said. We know that services in certain parts of the country are underfunded, compared to the level of clinical need and disability, and commensurately that some services are overfunded in other parts of the country. However, we cannot move suddenly to a position where we redress the balance. That would destabilise services. We certainly believe in equal access where there is commensurate need for the services, particularly those to which the noble Lord referred.
Lord Brookman
We are still the United Kingdom and the Question of the noble Baroness, Lady Quin, is very valid. I am originally from the valleys of south Wales. Life is pretty tough there. I hope that the National Health Service will provide equal service to the people in the valleys of south Wales as it does in the more prosperous areas of the country. Will the Minister confirm that that will be the case?
Earl Howe
My Lords, it is of course for the devolved Administration in Wales to decide on their own allocation of the health budget for Wales. That is not within my gift, as the noble Lord will understand. However, certainly within England we would expect the funding allocations to support the principle of securing equivalent access to NHS services, relative to the prospective burden of disease and disability. Because we have an independent NHS Commissioning Board, people can be assured that this will put beyond doubt that allocations are driven as far as possible by each population’s need for healthcare services and not by extraneous factors.
Baroness Greengross
My Lords, later this afternoon the All-Party Group on Dementia, which I am privileged to chair, will launch a report on the rates of diagnosis, the challenge of dementia and how it can be met. We know that more than half of all people with the disease have not been diagnosed. Diagnosis offers access to a memory clinic that can reduce the impact of the disease or postpone its worst effects. Is the Minister aware that the variations across the country are horrific and that people do not know where to go? Will the Government do something to ensure that everybody has access to the care and support that they need in an area that they can reach?
Earl Howe
My Lords, we come back to the issue of age in this context. I say again that we believe, as did the previous Government, that age is the primary driver of an individual’s need for health services. The very young and the elderly, whose populations are not evenly distributed throughout the country, tend to make more use of health services than the rest of the population—the noble Baroness gave a very graphic and important example of where that applies. This principle is reflected in the most recent PCT-weighted capitation formula. As I said earlier, there are imbalances that, over time, we will seek to correct.
Baroness Tyler of Enfield
My Lords, accepting that —as the Minister said—we are where we are, could he explain what evidence base is being used to determine the allocation of resources to CCGs?
Earl Howe
My Lords, the funding formula is made up of a number of components, including capitation, deprivation, age, the number of young people not staying in education and the number of people over 60 claiming pension credit. I have a long list in front of me. However, ACRA, the independent body that I mentioned, is composed of a group of independent-minded people who are keen to take into account every relevant factor that bears on this question. If my noble friend wishes, I will write to her with a more detailed list of the factors that historically have been in the formula.
Lord Foster of Bishop Auckland
My Lords, because the Minister has said that he will work very hard for more equality around the regions, we believe it—but that is not true of the Government as a whole. We are terribly worried, for example, that in the first round of local government negotiations the county of Durham lost £171 million, whereas the county of Surrey gained £60 million. If what we hear is true, the same kind of negotiation will go on in the next round. Will the Minister have words with his colleagues to say that people expect the same kind of equality in local government as he is trying to achieve in health?
Earl Howe
My Lords, I can go further than that. As the noble Lord knows, public health at a local level will become the responsibility of local authorities. Public health grants in 2013-14 will not fall below the 2012-13 estimates, other than in exceptional circumstances where responsibilities shift or where there has been a gross error in the calculation. ACRA proposes a public health formula driven mainly by a measure of mortality, which is strongly correlated with deprivation, and we are actively seeking views on these proposals.
Housing: First-time Buyers
Lord Gavron
To ask Her Majesty’s Government whether they propose any action to assist first-time property buyers following the publication of the English Housing Survey Headline Report 2010-11 on 9 February, showing that the level of owner-occupation in England has fallen to its lowest level since 1988.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
This Government are committed to supporting people’s aspirations to own their own home and are sensitive to the particular challenges facing first-time buyers. That is why we are supporting initiatives that we have started such as the FirstBuy scheme, shared ownership schemes, the NewBuy guarantee scheme and the reinvigorated right to buy.
Lord Gavron
I thank the Minister for her Answer. Is she aware that around 40 per cent of people living in London and parts of the south-east between the ages of 20 and 39, whose salaries are just above the limit for social housing, are still priced out of the open market because they cannot afford to buy or to rent at existing prices? These include nurses, teachers, firefighters, police officers and others who are essential to our well-being and who need to live in the city near to their jobs. Apart from the various schemes mentioned, for which I thank the noble Baroness, is she aware of any proposed changes in the planning system that might encourage the private sector to produce some sort of solution to this problem?
Baroness Hanham
My Lords, the national planning policy framework, which my department introduced recently, opens up many doors to planning and housing initiatives. That will release land for house building to support both affordable housing and houses for purchase, which should begin to solve the problem raised by the noble Lord. Another issue is that some people can afford the mortgage but cannot afford the deposit. Those are two areas, and I am sure that we will hear more about both.
Baroness Maddock
My Lords, is the Minister aware that first-time buyers in the north-east of England are returning to the market, and that there are more than there were in 2009? Have the schemes that she outlined in her earlier replies assisted first-time buyers in the north-east, and are there any other initiatives specifically designed to help first-time buyers?
Baroness Hanham
My Lords, I thank my noble friend for her question. With regard to the north-east, I can give her only the figures for FirstBuy, because the NewBuy scheme, which is the latest scheme, cannot identify figures yet as it has not been going for long enough. There were 129 purchase completions by first-time buyers in the north-east recently. Of course, the north-east is really important. As we heard earlier, there are different schemes and different worries. There are also other schemes that help with mortgages. A number of authorities and banks are helping to support mortgages, and the NewBuy scheme will come into that as well. Not only in the north-east but across the country we are beginning to see a solution to what has been a very difficult problem.
Baroness Royall of Blaisdon
My Lords, what is the noble Baroness’s response to the construction industry figures that were released this morning, which demonstrate that the industry is desperately in need of a boost? Does she agree that the Prime Minister should focus on alleviating the current housing crisis rather than on future Conservative policies that might include a housing benefit cut for the under-25s? That would have a detrimental effect on many young people, including those on low wages.
Baroness Hanham
My Lords, the construction industry is dependent on land that is available to buy. As I am sure noble Lords know, the Government are releasing their own land as fast as they can. There is a very big programme of land release, most of which is to be designated for housing, both private and public sector, along with the infrastructure to support it. Many schemes across the country have already been identified for these initiatives, and the construction industry itself is all ready to go. We know that builders are ready to take up the land that is available, so I am sure there will be a boost to housing in the near future.
Lord Vinson
My Lords, I believe that there is great common cause across the House that everything should be done to stimulate the building industry. It is one of the great motors of the economy and is a perfect contracyclical investment because housing, once built, is there, so the money is not wasted. Will the Government assure us that they are using every opportunity to help to fill the huge gap in the demand for housing by stimulating in every possible way the housing market and the construction industry, thereby creating many lower-paid jobs for people who would not otherwise be employed? It is a great key to our prosperity.
Baroness Hanham
My Lords, I thank my noble friend, who I know takes a great interest in these matters. I answered him to some extent in my response to the noble Baroness, Lady Royall. We are hoping and expecting to stimulate the construction industry through our programmes for new housing. It is absolutely essential to the growth of the economy that the construction industry should get going again, because it is in that sector where skills and training will be required for new jobs. I agree completely with my noble friend.
Immigration: Foreign University Students
(12 years, 4 months ago)
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Lord Hannay of Chiswick
To ask Her Majesty’s Government what consideration they have given to the benefits to the United Kingdom of ceasing to classify foreign university students as economic migrants.
Lord Hannay of Chiswick
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as a member of the council of the University of Kent.
The Minister of State, Home Office (Lord Henley)
My Lords, the United Kingdom uses the internationally agreed definition of the migrant, which is someone who comes here for over 12 months. It is right that students staying for that period are counted because during their stay they are part of the resident population. It would damage public confidence in statistics to discount them.
Lord Hannay of Chiswick
My Lords, I thank the Minister for that somewhat familiar reply. The main reason he has given in replies to earlier questions—he has just given it again—for not changing our present practice of classifying students for policy purposes in the net migration figures is the existence of a UN guideline to the effect that anyone who stays for a year is a migrant. Can he confirm that the guideline does not have the force of international law, is therefore not binding on the British Government and, further, is not applied in the calculation of net migration figures for policy purposes by our main competitors in the higher education sector—the US, Canada and Australia? Is it not about time that the Government ceased to handicap the most rapidly growing and most promising invisible export sector we have?
Lord Henley
My Lords, I fail to understand what the noble Lord and Universities UK are getting at in their objections to us applying proper statistics as agreed by international convention, which is what we follow. If the noble Lord is suggesting that by changing the way we count the statistics, we will make life easier for universities, again I fail to understand him. I do not see why they are discouraging undergraduates from coming to this country. All we require of the students is that they show an ability to speak English and that they have an offer of a place at a university in the United Kingdom. The statistics simply do not come into it, so fiddling with them would discourage students because it would imply that probably the only subject they ought to come here to study would be statistics.
Lord Eden of Winton
Can my noble friend assure the House that nothing is being done now that would in any way damage or reduce the substantial economic benefit that bona fide foreign students bring to this country, in particular to our universities, colleges and academies where the English language is taught? It is important that this should continue unabated.
Lord Henley
My Lords, I totally agree with my noble friend, and we want to continue to encourage them to come here. I do not see why changing the statistics is going to discourage them. We have, in fact, seen an increase in the number of students who come to reputable and proper universities, and a reduction in the number of those who come to bogus colleges and schools, who come here not to learn but to work.
Lord Winston
My Lords, is the Minister aware that Britain is regarded by foreign students outside the EEC as a no-go area? I see that that is the case when I visit the United States and see foreign students there. Is he also aware that the Home Office has completely inadequate data on what universities students go to when they enter this country, what courses they take, and what happens to them? Is it not about time that the Home Office made much better preparation of these data so that we can police this better?
Lord Henley
My Lords, what the noble Lord says is complete nonsense. Britain is not seen as a no-go area; we are seeing an increase in the number of students coming here to reputable universities. If this was a no-go area there would be a decrease in the numbers of students.
Baroness Prashar
My Lords, now that the Government have taken the steps to deal with bogus students, what steps are being taken to encourage bona fide and genuine students to come to the UK, and who is taking responsibility for that?
Lord Henley
My Lords, it is for the universities themselves to encourage people to come to them. As I have put it on a number of occasions, we want to control the bogus students. We have not seen a reduction in the number of proper students who come to proper universities. We have, in fact, seen an increase over the years, and I do not see why any changes we make to the way in which we count our immigration statistics are likely to discourage people from coming to this country.
Baroness Hollis of Heigham
My Lords, the Minister will be aware, as the House is aware, that 60% of overseas migrants to this country are students, and the Government are concerned to cap the number of overseas foreign migrants to this country. However, the Minister will surely also be aware of his own Home Office research of November 2010, which shows, as other contributors to your Lordships’ debate have said today, that 96% of students who are registered for degrees at bona fide universities return home at the end of their course. We are talking not about statistics here but about policy. Can the Minister therefore not put students who apply for bona fide degrees, and all the gains between this country and their home countries, in a different stream from the Government’s efforts to cap foreign migrants who come to this country?
Lord Henley
We are, in fact, talking about statistics. The Question is about statistics and about how—
Lord Henley
That is what the Question is about, and I am answering it in those terms. We are talking about the statistics and how we measure the number of migrants coming here. Merely changing the way that we count those immigrants does not affect students coming into this country. I simply do not see how the way in which we count overseas students makes any difference to the decision made by them as to whether they come here. The only restriction we impose on them is that they have to speak English and need an offer of a place at that university.
Baroness Brinton
My Lords, given the Minister’s response to the noble Lord, Lord Hannay of Chiswick, is he aware of the OECD definition of permanent migration, which has a subset that specifically excludes international students? On this basis, does the Minister agree that the UK should follow the example of the USA, Canada and Australia, all of which use this subcategory from the overall immigration numbers?
Lord Henley
We should follow the United States, Australia and other countries that the noble Baroness mentioned, and stick with the United Nations measures, and that is what we will do.
Syria
(12 years, 4 months ago)
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Lord Wright of Richmond
To ask Her Majesty’s Government what action they are taking to prevent ammunition and other military assistance from being provided to Syrian rebels.
The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford)
My Lords, we do not provide arms to the Syrian opposition. A European Union arms embargo is in place. Any EU citizen or company in breach of the EU arms embargo may be subject to prosecution under the laws of each individual member state.
Lord Wright of Richmond
My Lords, I am grateful to the Minister for that reply and I am very glad to hear that we are not supplying any military equipment to Syria. I have asked the Minister on several occasions for the Government’s assessment of how many foreign fighters and munitions are being supplied to Syria by other countries. Is the Minister aware that there are persistent reports that fighters from Afghanistan, Libya, Iraq and central Asia, paid for by Saudi Arabia and Qatar, are being infiltrated into Syria with the aim of changing the Shia regime in Damascus? There have also been more recent reports of heavy Saudi troop movements towards the Jordanian and Iraqi borders.
I hope the Minister can assure the House that we will continue to resist any suggestion that NATO might become involved in what has for some time been a Sunni/Shia—if not an Arab/Iranian—dispute. Does the Minister accept that any military intervention from outside, from whatever quarter, in the highly volatile and dangerous situation in Syria could provoke even greater deterioration in the security situation and further complicate Kofi Annan’s extremely difficult mission?
Lord Howell of Guildford
I totally understand the noble Lord’s concern about an escalation and military intervention. With regard to the assessment that he has asked for repeatedly, I cannot, by the nature of the activities he is talking about, give him a precise assessment. We are talking about activities that are inevitably covert and not reported, where statistics are not gathered. As he knows from his enormous experience in the Middle East, rumour is fleet-footed and can rapidly escalate into all kinds of assertions about what is happening. We work very closely with Saudi Arabia and Qatar. We stick very closely to the EU embargo. That is our position and that is what we will continue to do.
Lord Trimble
My Lords, can my noble friend confirm that the Turkish aircraft that was shot down recently was shot down by Russian equipment and that there may very well have been Russian personnel involved? Is it not the case that the Russians continue to supply equipment to the Assad regime that enables it to continue to oppress its people?
Lord Howell of Guildford
Regrettably, I can confirm that the Russians are continuing to supply attack helicopters and equipment to the Syrian regime, which of course is a regime of unparalleled violence that is using its equipment in the most evil and oppressive ways. I am afraid that I cannot give any confirmation as to what weapons actually shot down the Turkish fighter. The Syrians have offered to hold an inquiry with Turkey, but that is being resisted for the moment. It is a very serious matter and the Turks are arguing that it is an attack on NATO as a whole. I am afraid that the circumstances are all in dispute and I cannot confirm the first part of what my noble friend said.
Lord Triesman
My Lords, I think the House will understand the concern in the Question of the noble Lord, Lord Wright, and indeed in parts of the Answer; there will be general support for the arms embargo and a desire not to see any increased volatility. However, alongside the concern about the spread of armed conflict, it is wholly understandable that people should seek to defend themselves from a barbaric and murderous regime, and that is another key part of this equation. If we are to sound sincere—and not sanctimonious—what do Her Majesty’s Government believe can be done to assist those people who may have an ambition to acquire munitions, if they are to feel that there is any other hope of achieving at least a degree of safety as the regime tries to kill them?
Lord Howell of Guildford
I share the sentiment behind the noble Lord’s views. He asked what can be done. My right honourable friend the Foreign Secretary has made very clear indeed what can be done, both at the ministerial action group over the weekend in Geneva and at previous meetings, and will continue to make that clear: namely, that we want to find a basis on which we can bring forward a robust resolution by the UN Security Council that has the support of all those, including the Russians and the Chinese, who hitherto have not been ready to display the robust action and condemnation of violence and terror that we would like to see. We would like to see the text for that resolution worked on this week—in fact, we are pressing that it should be so—but there is the obvious obstacle, of which the noble Lord will be aware with his experience, that not all members of the P5 are in agreement.
Lord Trefgarne
My Lords, what are the prospects of success for Kofi Annan’s mission and has the Foreign Secretary very firmly supported them, as I believe he has?
Lord Howell of Guildford
The prospects of success obviously remain clouded while there is no sign of all the warring and killing parties in Syria agreeing to anything. However, the movement that was agreed at the weekend was not all that we would have wished but it was something. The agreement was that there would be a combined move to try to achieve—with the aid of the Kofi Annan plan—a transitional government body, upon which the beginnings of peace and dialogue could be built. So, the Kofi Annan plan is there. It is the path to the transitional government body that has now been agreed. There was disagreement about who should be on that body. This was an undoubted difficulty that we cannot gloss over. However, the Kofi Annan plan is a means to an end and it is still in place.
Baroness Falkner of Margravine
My Lords, given that the plan agreed this weekend has a mutual consent clause that bars the US and Russia from either getting rid of President Assad or keeping him there, it is evident that the plan will not go anywhere. Will the UK Government work with the UN to review our sanctions regime in light of the fact that 40,000 fighters now belong to the Free Syrian Army and the carnage is continuing unabated? Should we not review this to allow the Syrians to defend their wives and children rather than be massacred in cold blood?
Lord Howell of Guildford
These again are sentiments one totally agrees with, and of course we have some pathway forward with the European Union. Within the European Union, we are all agreed to apply and strengthen the sanctions and we are working all the time to see how that can be done. Once we get to the United Nations level, we are back with the difficulty that my noble friend, from her experience, understands full well—I know that she does. This is that, if we cannot get the wholehearted agreement through the United Nations Security Council of those who are supplying arms and of those who apparently resist the adequate condemnation of the slaughter, we cannot get the resolution in place. We will continue to work extremely hard to break through on this matter but we have not got there yet.
Draft Enhanced Terrorism Prevention and Investigation Measures Bill
The Chairman of Committees
That the Commons message of 29 June be considered and that a Committee of six Lords be appointed to join with the Committee appointed by the Commons to consider and report on the draft Enhanced Terrorism Prevention and Investigation Measures Bill presented to both Houses on 1 September 2011 (Cm 8166) and that the Committee should report on the draft Bill by 9 November 2012;
That, as proposed by the Committee of Selection, the following members be appointed to the Committee:
B Doocey, B Gibson of Market Rasen, L Jay of Ewelme, L King of Bridgwater, B Neville-Jones, L Plant of Highfield;
That the Committee have power to agree with the Committee appointed by the Commons in the appointment of a Chairman;
That the Committee have power to send for persons, papers and records;
That the Committee have power to appoint specialist advisers;
That the Committee have leave to report from time to time;
That the Committee have power to adjourn from place to place within the United Kingdom;
That the reports of the Committee from time to time shall be printed, regardless of any adjournment of the House; and
That the evidence taken by the Committee shall, if the Committee so wishes, be published.
Police and Crime Commissioner Elections (Functions of Returning Officers) Regulations 2012
(12 years, 4 months ago)
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Lord Henley
That the draft regulations and orders be referred to a Grand Committee.
Neighbourhood Planning (Referendums) Regulations 2012
Baroness Hanham
That the draft regulations be referred to a Grand Committee.
Education (Amendment of the Curriculum Requirements for Fourth Key Stage) (England) Order 2012
(12 years, 4 months ago)
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Lord Hill of Oareford
That the draft order be referred to a Grand Committee.
Office of Qualifications and Examinations Regulation (Determination of Turnover for Monetary Penalties) Order 2012
(12 years, 4 months ago)
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Lord Hill of Oareford
That the draft order laid before the House on 15 May be approved.
Relevant document: 2nd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 25 June.
Green Deal (Qualifying Energy Improvements) Order 2012
Baroness Stowell of Beeston
That the draft order and regulations be referred to a Grand Committee.
Financial Services Bill
(12 years, 4 months ago)
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18:18 - Division on Amendment 35AB - Ayes: 197 / Noes: 251 - Amendment 35AB disagreed.
Lord Sassoon
Lord Eatwell
Lord Eatwell
My Lords, the amendment stands in my name and that of my noble friend Lady Hayter of Kentish Town. Members of the Committee will be aware that there has been considerable debate about the relationship between directions of the Financial Policy Committee and the attainment of a satisfactory rate of growth and employment in the economy. The issue at stake has been whether financial stability is achieved at the expense of growth and employment or whether financial stability can enhance the growth performance of the economy.
The amendments in this group—those in my name and that of my noble friend Lady Hayter, as well as those in the name of the noble Baroness, Lady Kramer, the noble Lord, Lord Sharkey, and the right reverend Prelate the Bishop of Durham and those in the name of the noble Lord, Lord Sassoon—all seek to include growth and employment within the broad remit of the Financial Policy Committee. My amendment would balance a similar requirement on the Monetary Policy Committee to have regard to the general economic policies of the Government and argues that the Financial Policy Committee should have regard to the Government’s growth, employment and other economic objectives.
I suggest that “having regard to” is the appropriate admonition to the Financial Policy Committee at this stage and that the amendments in the names of the noble Baroness, Lady Kramer, and others and of the noble Lord, Lord Sassoon, are defective. They are defective because they are too insistent. The noble Baroness’s amendment, Amendment 35, states,
“in relation to financial policy in a manner designed to contribute to the achievement by the Bank of the Financial Stability Objective; and this shall include promoting … a stable and sustainable supply of finance to the economy, and … subject to that, the economic policy of Her Majesty’s Government, including its objectives for economic growth and employment”.
That of the noble Lord, Lord Sassoon, refers to the Financial Policy Committee “supporting” the economic policy of Her Majesty's Government.
In 2006, the economic policy of Her Majesty's Government resulted in an unsustainable boom. “Supporting” or “promoting” that policy would have been exactly the wrong thing to do. The role of the Financial Policy Committee is to lean against the wind in terms of what is happening in financial markets. When markets are overheated and expanding too fast and when the economy is growing too fast, it is the role of the Financial Policy Committee to use the levers at its disposal to change the supply of credit in the economy and consequently to slow growth down. That is why the careful wording, “having regard to”, embodied in my amendment is superior to “promoting” growth and employment, in the amendment of the noble Baroness, Lady Kramer, and to “supporting” growth and employment, in the amendment of the noble Lord, Lord Sassoon.
I have great respect for the position that the noble Baroness, Lady Kramer, the noble Lord, Lord Sharkey, and the right reverend Prelate the Bishop of Durham are taking, because their intentions are entirely sound. Especially at a time of recession in Britain we all want to support growth and employment but we have to be careful in assessing the role of the Financial Policy Committee. In the amendments tabled by the noble Lord, Lord Sassoon, which were announced by the Chancellor in the Mansion House speech a few days ago, the emphasis on supporting is again excessive.
I suggest that the noble Baroness, Lady Kramer, and friends and the noble Lord, Lord Sassoon, look to a more careful wording than they have here. I think they have gone over the top in these recessionary times, but good times will return one day and in circumstances where growth is high, perhaps excessive, it will be the role of the Financial Policy Committee not to support the growth and employment policy of the Government of the day. I beg to move.
Baroness Kramer
My Lords, I appreciate the introduction to the topic from the noble Lord, Lord Eatwell, and I hesitate to speak on behalf of all of my noble friends but I think we have become aware in this country and across the globe that shifting the balance of policy in favour of economic growth is a desirable target. Therefore, to use language, as he has, which downgrades that role in the way that it is approached by the Financial Policy Committee frankly strikes me as unfortunate. We are talking to some degree about semantics but we have learnt the hard lesson that promoting is more important than simply paying regard. He could argue that when his own party was in government it chose the wrong policy path and was pushing on a boom. But had it really examined that boom, it would have recognised that underneath it the fundamental necessary structures for economic growth were not being achieved.
We have all heard in a variety of other debates that manufacturing was declining steadily, certainly as a percentage of this country’s GDP and in comparison to competitive economies such as Germany. We know that there was an incredible overreliance on a banking sector that was reporting forced profits because we were hearing an inflated set of reports from the banks that were not based on a genuine economic boom. We know that underlying that whole period, youth unemployment was steadily growing even though it was masked by overall employment figures. We know that that particular boom was being fuelled by consumer debt that led to both intensive borrowing by individuals and therefore a lot of purchasing, which in a sense was a false contribution to the underlying economic growth, and also inflated house prices creating a house-price bubble. Requiring the new FPC to dig beneath what is actually happening in the economy, to recognise what is happening with the fundamentals of economic growth and then to give that a great deal of importance in the way that it shapes its policy is essential.
I am glad in many ways that the whole issue of economic growth does not have much in the way of party characteristics. I hesitate to quote from the BBA at this point but, like a curate’s egg, everybody has good stuff in parts and this is one of the good parts. It talks about the Chancellor’s commitment to an economic growth objective to stand beside the financial stability objective and says:
“This is to be welcomed as we have said on many occasions that there is a risk that insufficient weight will be placed upon the achievement of economic growth and jobs which must be the overarching objective. This we believe feeds through to ensuring that the FPC be set the symmetrical task of using its tools and powers not only to subdue demand at the top of the economic cycle”,
which is the issue of sustainable growth,
“but also to ensure that reserves are used in support of lending capacity at the bottom”.
That strikes me as very important. Mr Sants, before he stepped down from his role at the FSA, said:
“Changing the FPC’s remit is really important. The interaction between regulation and economic growth should be debated at the FPC”.
It seems to me that the language we have used frames that debate.
I wanted to take this opportunity to comment on part of the amendment in my name and those of the noble Lord, Lord Sharkey, and the right reverend prelate the Bishop of Durham, because it contains within it one further element that the noble Lord, Lord Eatwell, at this particular point in time, has not addressed. That is the language that includes within the objective the promotion of,
“a stable and sustainable supply of finance to the economy”.
We see that as important enough to be worth integrating and highlighting. We should not simply assume that it will be part of an economic growth objective without a specific mention.
The reason we have done that is probably evident to many in your Lordships’ House. We have all shared frustrations over Project Merlin, quantitative easing and credit easing, and I fear we may have the same problem as we look at the consequences of the Government’s new “funding for lending” scheme. The Government, or the Bank, effectively push money into the system, which gets as far as the banks but does not emerge the other end. The second quarter report from the Federation of Small Businesses shows that demand for credit among its members was stable but that more small firms than ever were being rejected, with the rejection rate now reaching 41%.
The Bank of England’s credit conditions survey, for that same second quarter, shows that for small businesses, interest rate spreads actually widened, despite the Government’s loan guarantee scheme, which is meant to bring down interest rates for small businesses, and despite a sharp drop in default levels among them. Small businesses are demonstrating that they are less risky than they might have seemed historically, but are being rejected at a greater rate and also found that they were facing wider spreads on interest rates. We have to acknowledge at present that high street banks are the only distribution network of any size to get credit to those who need it on a small scale, but looking at the overall situation, we can easily recognise that the high street banks have many easier ways to generate a higher level of return than lending to small business.
There is a reason why, in our language, we have used the word funding and not just credit. The supply of finance is not just a debt issue but one of equity capital. Capital willing to take risks is hard to find. Angels are fewer than ever and venture capitalists are finding funds harder to raise. Indeed, long-term money of any kind is difficult to find at the moment, as I suspect the Government are finding as they try to look at ways to develop infrastructure projects. Some disintermediation of the banks is, if anything, aggravating the problem.
The UK differs from many other countries because it has very low retail investment in bonds and equities. Retail money is less volatile and tends to stick through the good times and the bad times. Germany is a good example, although there are many others, of a country where businesses, particularly small businesses, have been far less impacted because that retail sector, investing in both bonds and equities, is available to them.
There is another area where it is crucial that we have the attention of the FPC because the regulator can make a difference. We have a system now where the small end of the spectrum is very ill served—the small stockbroker, who often followed the small company, has largely gone. Most of the funding we have is simply fairweather funding. To change this, we have to develop a reliable funding supply. I understand that that is not for the regulator alone, but the regulator has a huge role to play if we are ever going to close those kinds of yawning gaps. This amendment puts it in a position to act. Some will say that there is already a competition objective in this Bill. There is a competition objective for the FCA, but it is very much designed to encourage a multiplicity of products—not to bring in new players or expand the scope of existing players, but to cover access to funding right across the business spectrum. Those are two very different things and we believe that we must capture that second aspect in the language that we use.
The FPC has to be engaged and to be part of making sure that there is capacity for funding the system across the whole spectrum, whether it be small, medium or large businesses. I would argue it also covers disadvantaged individuals and social enterprises, charities and other bodies which play a crucial role in our society today and will play bigger roles in the future. I suspect that other people will have much more to say about that, perhaps around this amendment and others. It is to push those underlying principles that we have put down Amendment 35.
Baroness Valentine
I am grateful to the Government for tabling Amendment 35A. This is a very important and conceptually challenging issue. I hope noble Lords will excuse me if I talk around the subject a little because, while it is certainly a step in the right direction, it is not at the moment clear to me whether, in legal terms, this amendment sets the right framework.
We should, perhaps, first consider that whatever framework we adopt must be flexible enough to operate effectively in three primary sets of economic conditions: first, the healthy state when one would expect the Financial Policy Committee to be scanning the horizon for future shocks at the same time as being conscious of any impact its actions might have on economic growth; secondly, crisis, where stability must be paramount; and, thirdly, the current state where uncertainty, principally from the eurozone, must be expected to continue for some time. This is, of course, a situation over which we have little control.
In the first and third of these scenarios, the issue at stake is the interplay between economic health and financial stability and the difficulty of balancing the two. There is a well-known saying:
“A ship in port is safe, but that’s not what ships are built for”.
In this instance we can see absolute financial stability as a safe port but it would be ironic, given our island’s history as a trading nation, if the port were so secure that our businesses could not put to sea.
At a simple level, this is seen in the tension between capital ratios set by regulators and the demand that the banks increase lending, variously voiced by parts of the Government, some parts of the business lobby and the media. It is sometimes forgotten that the collective interests of the banks are, in fact, aligned with those of the Government in seeking economic health and financial stability, but both sides of the lending equation have curbed their appetite for risk. Just as banks are mindful of their own exposures, small businesses, because of economic conditions, will be both less robust to lend to and less keen to take on debt.
On this point, it is essential to have a common understanding between the Bank of England, BIS and the Treasury, and for the banks and the real economy to have the same understanding of where we sit on the risk spectrum. We also need the Government to be clear whether, and to what extent, they can or want to influence lending in the marketplace through initiatives such as the Business Growth Fund, the green investment bank or, indeed, their shareholdings in certain banks.
The amendment, as proposed, makes it clear that financial stability retains primacy. Some have argued that there is a logic to this because it mirrors the hierarchy of the Monitory Policy Committee’s objectives. The flaw in this argument is that the primary objective of the MPC is clear and measurable. Inflation is X%. Conversely, I know of no indicator as simple as inflation that would provide a proxy for financial stability. The primary objective of the FPC therefore requires judgment. We cannot state that financial stability is 23 whereas last month it was 27. So the point at which the secondary objective comes into play can remain for ever opaque.
I think this argues for one of two approaches: either tightening up the FPC objective to one which is measurable or leaving it as it is but then recognising that the interplay between the primary and secondary objective is necessarily different and therefore that the current drafting may not in fact be fit for purpose.
The challenge for the FPC is that it is unlikely that any Government will be prepared to state explicitly where the axis between stability and growth should sit. As we saw under the previous regulatory culture, the Government’s desire for risk-based regulation, under which banks could and would be allowed to fail, lasted only as long as it took for a bank actually to find itself on the brink of failure. Under the new regime, I suspect that Governments of all political persuasions will wish to champion both goals, leaving it to the FPC to judge how to offset the two. I believe, therefore, that we need a clear mechanism under which the FPC can demonstrate how it has achieved its primary objective while complying with the requirements placed on it by its second one and not hindering the Government’s economic strategy.
Lord Sharkey
I shall speak briefly in support of Amendment 35, in particular the inclusion of the requirement to promote the Government’s objectives for growth and employment. I emphasise the importance of promoting a healthy and flourishing SME sector in achieving those objectives. The report of the noble Lord, Lord Young, last month, Make Business Your Business, noted that 50% of private turnover, excluding financial services, and 60% of private jobs are provided by SMEs, but SMEs still face great difficulty in finding funding.
The Breedon report of March this year estimates that by 2016, there will be a shortfall of between £26 billion and £59 billion in finance needed by SMEs for working capital and growth. The Government need to take direct action further to improve the supply of finance to the SME sector, in particular in our deprived communities. SMEs in those communities attract only 4% of all investment in SMEs and are in areas where unemployment, especially youth unemployment, is likely to be high.
There is another urgent reason for providing finance to the SME sector. That is to do directly with job creation. The Kauffmann Foundation, a highly respected United States think tank, published a study in July 2010 entitled, The Importance of Startups in Job Creation and Job Destruction. I will have more to say about the findings of the report later in the debate, but its most striking findings were that in the 28 years it surveyed, all net new jobs came from start-ups and that during recessionary years, job creation in start-ups remained stable while net job losses in existing firms were highly sensitive to the business cycle.
That surely has lessons for the UK. If the Government are to succeed in creating the right number of new jobs, they must strongly and actively promote not just SMEs but the start-up subsector of SMEs. To have the appropriate effect, they must do that particularly in our deprived communities. Without such strong and directed promotion, the growth and employment objective is in danger of remaining just that—an objective.
Lord Blackwell
My Lords, I apologise to the House that I was unable to contribute to the Second Reading debate. The fact that all these amendments recognise the interlinking of financial stability policy and the wider economic objectives is a major step forward. However, the amendment proposed by the noble Lord, Lord Eatwell, is mistaken in its wording. It is a fallacy to believe that monetary policy and financial policy can be conducted orthogonally, independently of general economic and fiscal policy. The two inevitably interact, and it is fallacious to believe that we can have a government Chancellor of the Exchequer in one corner deciding on a fiscal policy and an independent bank deciding on monetary policy in complete isolation—and, if necessary, disagreeing and conducting an alternative economic policy.
We are in this situation only because the previous Government separated monetary policy from the independence of the Bank of England in 1997. Until that point, the assumption was that the Chancellor of the Exchequer and the Government were accountable to Parliament and to the electorate for economic policy in the round. The Governor of the Bank of England certainly had a crucial role in advising the Prime Minister and the Chancellor of the Exchequer on monetary policy.
At the end of the day, however, a common policy was agreed that ensured that monetary policy and fiscal policy were aligned to the same objectives. They might be the right objectives, they might be the wrong objectives, but at the end of day the Government and the Chancellor of the Exchequer were accountable to Parliament and to the electorate for those decisions. The idea, as the noble Lord said, that at times you want a Bank of England or a financial policy committee to pursue a policy that is at odds with government policy is mistaken and misrepresents the way in which these functions ought to work together.
I therefore much prefer the wording of my noble friend’s amendment, Amendment 35A. Although I agree with much of what the noble Baroness, Lady Kramer, has said, my noble friend’s amendment has the great advantage of simplicity, and I support him in that.
Lord Peston
My Lords, I criticise both Amendments 35A and 35 on the grounds that they are both illogical and make no economic sense, to put it as bluntly as I can. I am amazed, however, at the intervention by the noble Lord, Lord Blackwell, just now, because he comes to the wrong conclusion. How can he support Amendment 35A on the basis of his analysis of interlinking?
Let me start with Amendment 35A. If you asked anyone why you would want to achieve what is in paragraph (a), the answer would be, “Because it makes the economy work better”. It is not wanted for its own sake, as far as I can see, because it involves a total confusion of means and ends. Therefore, sensible economics would delete the words—a favourite activity of my noble friend Lord Barnett and me—“subject to that”. All that is required is the word “and”—forget the “subject to that”.
The same applies to the amendment in the name of the noble Baroness, Lady Kramer, et al. What she wants to achieve is desirable; no-one would doubt that. However, if we ask, “Why do you want to have a stable and sustainable supply of finance to the economy?”, the answer is, “Because it makes the economy work better”. We cannot assume that the Government’s economic aim is to make the economy work worse; quite the contrary. My view is therefore that I would be reasonably happy with either of the amendments if “subject to that” was taken out, but in no other circumstances.
If I can, I will go back to the Monetary Policy Committee, which the noble Lord, Lord Barnett, and I have criticised for years now because of the “subject to that” clause. It gets around this dilemma by ignoring “subject to that”. I have said in this House before that in my judgment the MPC breaks the law under which it was set up, because there are now real inflationary dangers. You do not have to be a Friedmanite to say that expanding the quantity of money, which is what monetary easing is, is immensely dangerous when it comes to the future inflation rate of this economy.
Somehow or other, most members of the MPC—I am not certain that they all do—ignore that bit of the subject, go ahead with quantitative easing and forget their inflation objective, even though they are not achieving it. These two amendments might well be equally innocuous. Maybe in practice the whatever it is called—I am still having trouble with the acronyms but I think I am talking about the FPC—will become totally cynical and forget the subject of that bit at certain critical times. It would be better if the three little words “subject to that” were taken out; and then, to be perfectly honest, I do not care which amendment we agree to.
Viscount Trenchard
As other noble Lords have said, all three amendments are well intentioned. I also welcome the Government’s intention to introduce a new objective for economic growth and employment. However, it is a pity that we are not contemplating the introduction of a requirement to have regard to international competitiveness. If you have regard to the international competitiveness of the marketplace, that will certainly serve the Government’s declared objective to support economic growth and employment.
I do not understand why it is believed that the maintenance of international competitiveness is synonymous with the discredited system of light-touch regulation. We should not abandon at this stage any attempt to reintroduce into the Bill, in more places than at present, at least a requirement—if not an objective, which is what ideally I would like to see—always to have regard to the maintenance of the competitiveness of the marketplace, because that is what drives growth, creates employment and has made London what it is today.
I understand that the FSA’s report on the failure of RBS suggests that the FSA’s need to have regard to international competitiveness was one reason for regulatory failure, but I humbly submit that I doubt that. I believe that you can always have regard to competitiveness while at the same time protecting the consumer and ensuring the stability of the marketplace.
On the three amendments, I am afraid that I am unable to support Amendment 35 in the name of my noble friend Lady Kramer because it sounds very much like the command economy. It would give too much of a planning role to the Financial Policy Committee, and I suggest that it would be very difficult to give that committee on the one hand an objective to achieve a stable and sustainable supply of finance, and on the other a duty to remove or reduce systemic risks that include unsustainable levels of leveraged debt or credit growth. To give that body responsibility both to maintain sustainable credit and to prevent unsustainable credit at the same time would mean that it had to decide exactly how much was going to be lent to every business up and down the land. I submit that this command economy-type interventionist role would be inappropriate, and certainly would not lead to maintaining the competitiveness of the marketplace.
As for the other two amendments, I have great sympathy with the amendment of the noble Lord, Lord Eatwell, who treats the growth objective as being equal with the stability objective. Although I am happy to support my noble friend’s objective, which subordinates the growth objective to the stability objective, I ask the Minister to explain in what circumstances he thinks the growth objective would have to be ignored.
Baroness Noakes
My Lords, I support the formulation of the Minister’s amendment. While I understand what the noble Lord, Lord Eatwell, says about having regard to—not simply blindly following—the Government’s policies, which the Financial Policy Committee might think are irresponsible, my noble friend Lord Blackwell answered that point effectively. It would be intolerable to have a government-owned body in effect running a policy contrary to the Government’s own policies. However, he has a point but it is already dealt with by the ability of the FPC to make regular reports. Where it has to report on its view of financial stability, the FPC has ample opportunity, on a regular basis and without any interference by government, to say what is making financial stability difficult to achieve—if achieving that is indeed the Government’s economic policy. Therefore, we do not need to reformulate it as the noble Lord, Lord Eatwell, suggests.
I do not support the amendment tabled by the noble Baroness, Lady Kramer, because I am slightly appalled by the prospect of the FPC going out promoting government policy, let alone going out promoting various forms of finance being available to the City. That goes way beyond what the FPC was set up to do and is probably way beyond the competencies of the kind of people it has attracted.
Lord Davies of Stamford
My Lords, I will comment on the two previous contributions. I very much agree with the noble Baroness, Lady Noakes. It would be quite wrong to put the FPC in a position in which it was simply a mouthpiece for the government policy of the day. It is very important that it is independent. In response to the views of the noble Viscount, Lord Trenchard, on competitiveness—the suggestion that the FPC should pursue competitiveness as an objective in itself—my answer would be that competitiveness is an intermediate objective, not something that one pursues for its own sake. If one has an obligation to have regard to or to pursue—we will come back to the differences in a moment—growth and employment, anyone pursuing or having regard to those objectives is bound to take competitiveness into account because without it we will not get growth or employment. Growth and employment are ends in themselves, unlike competitiveness; that is the distinction.
We have a menu of choices before us this afternoon. All three amendments believe there should be a link between government economic policy, particularly on growth and employment, on the one side and financial stability on the other. No one has contended—nor could they easily do so—that those objectives should be pursued totally in isolation from each other. However, of the three choices before us, the amendment of the noble Baroness, Lady Kramer, and the right reverend Prelate the Bishop of Durham is the most coercive and creates an unqualified statutory obligation to pursue growth and employment. That is very dangerous because it is likely to result in a conflict of objectives. It is a great mistake to place in statute what could be regarded as contradictory objectives. The government amendment in the name of the noble Lord, Lord Sassoon, does not do that because the reference to government economic policy and growth is subsidiary to the obligation to pursue financial stability. The least coercive of the three amendments, and the one that I most incline towards, is that of my noble friend, Lord Eatwell.
It is particularly important that we should discuss this today, because the results of our discussions, deliberations and votes may have a very specific impact on the economy, about which we must all be very concerned. The situation today in relation to the pursuit of financial stability is particularly grim. There are at least a couple of areas where the Government appear, as of this afternoon, to be contradicting themselves very sharply and dangerously—namely, their policies on economic growth on one side and financial stability on the other. I will set out those two examples in the hope of carrying the Committee with me.
One is in relation to quantitative easing. The Government have promoted or encouraged the Bank of England to promote—in all events the 1946 Act makes it clear that the Bank cannot incur liabilities without the Treasury’s agreement, so the Government must be responsible—a policy of quantitative easing that runs into several hundred billion pounds, as we know. That policy was designed to encourage banks to increase their lending by automatically increasing their reserve assets as they received money from the Bank of England in exchange for bills and other instruments that it is purchasing under the quantitative easing programme. It has not worked at all and that has been very marked indeed. The Minister must have noticed the figures that show that the two quantitative easing exercises have not resulted in any increase in bank lending. The bank lending figures do not seem to correlate at all to quantitative easing. The Government need urgently to ask themselves why that is.
One of the extraordinarily perverse and, frankly, foolish aspects of the quantitative easing programme is that the Bank of England is paying the clearing banks or the commercial banks for the deposits that result from the programme. Its whole purpose was to encourage banks to lend and to encourage an increase in the money supply—in M3 or M4. That has not occurred because the banks have been keeping their deposits at the Bank of England. They are not using them under the fractional reserve banking system to leverage out and increase their lending to the rest of the economy, to the private sector. It is extraordinarily foolish to pay interest on deposits at the Bank of England because that reduces the opportunity cost to the banks of not lending—of not responding to the quantitative easing programme by increasing their lending.
When the Minister responds to the debate, can he first tell me the amount of interest—I am not sure whether it is 50 or 75 basis points—paid by the Bank of England on these reserve assets and deposits, which is a completely wrong thing to do? Secondly, why is the Bank acting so perversely? If it did not pay any interest on those deposits, there would be a much greater financial incentive on the banks, given that they would not be earning anything on that aspect of their assets, to lend more to the private sector, which they are noticeably not doing. Had the Bank decided, under the quantitative easing programme, not to buy in instruments from the banking system—the financial institutions—but to go out into the market and buy instruments, such as short-term gilts at the short end or Treasury bills and so on, from the non-financial private sector, it would have automatically increased the money supply. The Bank did not do that, and I do not know why the Government did not decide to do it that way. The way that the Government have done it seems to be somewhat contradictory and it certainly has not produced the desired result.
The Minister will not be surprised to hear my second point because I have made it two or three times already in this Chamber. It is contradictory to pursue a policy of encouraging bank lending to move the economy to greater growth, while at the same time forcing the banks to increase their capital ratios. In an ideal world, it would be a good idea for the banks to increase their capital ratios. It is something that we should have been doing in the good times when banks were running up their assets, perhaps to an excessive level in both quantity, which was too great in relation to their capital resources, and quality, which was subject to the law of diminishing returns as the assets were increased in the boom times. Those were the days when we should have been pursuing such a course. Of course I recognise that the Government of which I was privileged to be a member was in power at that stage, but the Tory party and members of the coalition cannot claim any virtue in this matter, given that, far from urging us at the time to bring in any such measures, they were always urging us to deregulate the banks further. Nevertheless, we are dangerously pressing on the accelerator and the brake at the same time.
The Minister normally replies to me by saying, “It doesn’t matter. These new capital ratios do not have to come into effect until 2018”. That is a somewhat naive approach. Anyone who has sat on the board of a bank, as I have, knows that if you know you have to achieve certain capital ratios in five years’ time, that is the trajectory that you have to pursue from now until the end of that period. In other words, it constrains you in your lending. It means that you have to be much more selective in the loans you take on because you are concerned that otherwise you will not reach the target that has been imposed on you. I recognise it is very difficult, with the present state of the financial markets both here and in the eurozone, to go back on an announced programme of strengthening the capital ratios of banks.
However, it is an almost textbook example—which will probably be cited in business schools and seminars in economics departments for several decades to come—of the Government pursuing two completely contradictory policies and now finding themselves in great difficulty. Even if they want to extricate themselves from this contradiction, they have already engaged in this particular programme and sent instructions to the banks, and it would obviously cause considerable problems in the financial markets if we suddenly announced that we did not want to strengthen the capital ratios of banks.
These are two good illustrations of how easy it is to run into a contradiction between the Government’s main economic policy objectives—which must always be to stabilise the economy, and in bad times, such as we are in now, to increase growth and employment—and the financial stability mechanism. From the menu of the most coercive, the medium and the least coercive amendments before us, I reject, as I have already said, the most coercive. I think that it is a mistake. I am fairly open-minded about the other two. It is very important that the FPC has an obligation to take into account my noble friend’s formulation of “other, wider economic objectives”. It would be very wrong of it to act blindly, as though it were in a watertight compartment. It may be that we can go a little further and place an obligation on it, provided that it is subsidiary to its main obligation in the view of the Government.
This controversy parallels discussions we have had in both this House and the other place. I remember the discussions in the other place 15 years ago, when we made the Bank of England independent, quite well. There were two great examples of successful independent central banks in the world at that time. One was the Federal Reserve system, which had a double objective statutorily imposed on it. Those objectives were price stability and employment, which in the short term can sometimes be in contradiction. It was left to the Federal Reserve board to resolve that contradiction. On the other side was the ECB which, basing itself on the Bundesbank tradition, had a single technical objective of price stability defined by maximum inflation rate of 2%. We had to choose between the two but ended up with something slightly between them, which may also be the right solution on this occasion, in this context.
Lord Hodgson of Astley Abbotts
The noble Lord, Lord Davies of Stamford, has given us a pseudo-economic lecture. I have to tell him that the lesson that will be drawn by future business schools will not be about the economic policy of this Government but about the economic policy of his Government, which led this country to the edge of ruin. That is the case that will be taught in business schools: how not to do it. It was his Government, of which he proudly said he was a part, that led us to the pass that we are now in.
Turning now from the general to the specific, the noble Lord, Lord Eatwell, in his introduction, described—
Lord Davies of Stamford
I realised when the noble Lord said that I had given a pseudo-economic lecture that he was going to disagree with me. He appears to have ignored the point that I made, to which I should like him to respond. Although in retrospect it is true that the previous Government might have taken moves other than those they did on financial regulation and supervision—I regret that we did not but this is very easy with hindsight—at the time, the party that he was and is a member of was urging us to deregulate. It said that we were constraining the competitiveness of the City of London with excess regulations. I have no doubt that he would have been one of the first on his feet to object and protest had we increased capital ratios, supervision and the examination of the quality of the assets in banks in this country.
Lord Hodgson of Astley Abbotts
I am very glad that the noble Lord appreciates that the previous Government got it wrong. The reality is that it was the macroperformance of the Government, which they now seek to blame on sub-prime lending in the United States, that left the country without adequate protection, not having taken adequate financial decisions in time. That is what a Government are supposed to do. It is the prime responsibility of the Government to make sure that the economic security of the country is maintained.
Going back to Amendment 34, in the name of the noble Lord, Lord Eatwell, he used, if I may say—in no patronising way—the attractive phrase, “leaning into the wind”, when he introduced it. Amendment 34 is stated in fairly general terms. It refers to,
“having regard to the Government’s growth, employment and other economic objectives”.
The noble Lord raised the issue of tension between that and the other objectives. Amendment 35A “leans into the wind” rather better than the noble Lord’s amendment. It refers to,
“contributing to the achievement by the Bank of the Financial Stability Objective, and … subject to that, supporting the economic policy of Her Majesty’s Government”.
That is a much more precise way of approaching this than the rather more general way that the noble Lord explained in his amendment. I am comfortable with Amendment 35A. It is more specific and purposive than Amendment 34 and does not contain the coercive elements of Amendment 35, tabled by the noble Baroness, Lady Kramer, with whom I agree on many other things but with whom I do not agree on this occasion.
Lord Phillips of Sudbury
My Lords, one takes one’s life in one’s hands if one tries to interpret the ineffable complexities of the Bill and of these amendments. However, I will try because I think that there has been some misunderstanding of Amendment 35, starting with the noble Lord, Lord Eatwell, and finishing with the noble Lord, Lord Davies of Stamford. If one analyses it closely, one sees that the fears that were expressed are not justified.
First, the promotion bit of Amendment 35 is couched within the purpose of the committee, which is to,
“contribute to the achievement by the Bank of the Financial Stability Objective”.
Therefore, whatever it does by way of promotion must be within that objective. The amendment continues by stating that this shall include promoting, first and crucially,
“a stable and sustainable supply of finance to the economy”.
That is the number one priority. Only then, and subject to that, as the noble Lord, Lord Peston, made clear, is there the inclusion of promoting,
“objectives for economic growth and employment”.
For the life of me, I do not see how the noble Lord, Lord Eatwell, can persevere with his concern, given that the right of promotion is subject and subsidiary to promoting a stable and sustainable supply of finance, and then has to be within the Bank of England’s financial stability objective.
Furthermore, there is no coercion here given that the economic growth objective is third on the list of priorities. Frankly, there is not a straw of difference between “promoting” these things and—in Amendment 35A, tabled by the noble Lord, Lord Sassoon—“supporting” them. Some may say that there is a difference, but as a lawyer I say that there is little or none. I contribute these thoughts in the hope that more light will be cast on Amendment 35.
Lord Flight
My Lords, I support the Government’s amendments. I would like to make two small points to pick up on the point made by my noble friend Lord Trenchard. First, when it comes to the achievement of stability, having adequate competition in the domestic market is crucial. The problem with the banking system is that it became too much of a cartel without enough competition. When cartels exist, they tend to do the same thing at the same time and the resulting problems are often large in scale.
I well remember, following the Barings problem, having many discussions with the then Governor of the Bank of England, the late Sir Eddie George. What happened then was that the lender of last resort principle was deemed to apply only to banks that were too large to fail, so smaller banks such as Hambros were closed down and sold, and we ended up with a moral hazard problem and a cartel problem. I stress that adequate domestic competition is very much part of the stability objective, whereas with economic success it is international competitiveness that is arguably more important, particularly for the role of London.
We will come to this subject later on, but there is an important difference in the interplay between adequate domestic competition and being adequately competitive internationally in terms of the two objectives of stability and economic growth.
Lord O'Donnell
My Lords, I rise to support Amendment 35A and in particular to speak in favour of the phrase “subject to that”. It is important that we understand why this was put there for the MPC. The basic economic principle was that low and stable inflation was the best prerequisite for long-term sustainable growth. Shocks to economies happen, which mean that inflation will move away either above or below. When that happens, the MPC has a choice. It has a choice of which path of its instruments—we thought at the time of just interest rates but obviously QE is part of it—it should choose. The legislation gives a very clear answer to that because it says “subject to that, look to the broad economic objectives”, so it should be choosing that path which best meets those economic objectives while hitting long-term stable inflation.
It works for the symmetry with the FPC because we would all say that financial stability is a necessary and sufficient condition of sustainable economic growth. When you get shocks to financial stability—and boy have we had a shock—you then have choices about how you get back from those shocks. I strongly agree with the noble Lord, Lord Eatwell, that in these circumstances you do not want to have pro-cyclical regulation, which could make matters worse. It is really important that the “subject to that” is there and that that builds in the economic policy.
For those who want to explain economic policy in a lot more detail and put subsectors in, I would say that could be a very long list, so I think you have to rely on economic policy. The amendment is very clear. It refers to the Government’s,
“economic policy … including its objectives for growth and employment”.
I, for one, would ask “What is the economic policy of the Government?”. The Prime Minister made that clear when he said that we do not live by GDP growth alone and that what really matters is maximising well- being. Therefore, I think we have an overall strong objective which allows us to get to the right policies. It is not about a simple mechanistic formula.
The Lord Bishop of Durham
My Lords, I would hesitate to disagree with the strong voices who have accused me of coercion. It is some time since I was last accused of coercion—not since the Church Commissioners sold off my palace with its dungeons. Coercion is much less of an opportunity than it used to be.
The amendment is not coercive and I disagree with the views that have suggested that it is intended to be. It is part of a series of amendments which are meant to open up the market and make it easier to have more stable and sustainable supplies of finance across the market. It refers to a stable and sustainable supply of finance; not to creating it but to enabling it—making it possible. One of the characteristics of many areas of economic stress, such as those in my diocese, is the creation of microeconomies, which may be much weaker or stronger than the national averages may indicate. Many contributions from noble Lords have tended to look at the macro and national picture and have forgotten some of the local and smaller problems that happen but which nevertheless affect many people. Adequacy of finance varies significantly even within one size or sort of company, as I remember from my days in the oil industry during a collapse in the oil price. SMEs in the south of England may find a very different position from what they will find in the north-east. The noble Viscount, Lord Trenchard, called it an amendment for a planned economy, but the word used is not “planned”; rather the intention is reflected in the word “promoting”.
The speeches of many noble Lords seem to assume that the present situation is working. In many parts of the country, it is not. Some areas are virtually demonetised, apart from cash, and this is a significant problem. The reports of the Bank of England agent in the north-east indicate the irregularity of finance. Anyone who has managed the finances of a company and a social enterprise, as I have, will know that that is a more serious problem than a continual supply or even a shortage of supply. You need to know what you are planning for. Moreover, a lack of attention to regulatory barriers to access to finance is likely to result, without attention, in a less competitive and open market that in turn will see a continuation of these inequalities across the country.
It may well be that the language of the amendment to which I have added my name is a little too forceful and coercive—I am rather attracted by coercion—and that seems to be a common view which I would probably be hard put to resist. I hope that the Minister will take note of the issues of closed and inadequately liquid markets in certain areas of our economy and of access to finance being more difficult in less fashionable areas where the need for employment creation is severe.
Lord Barnett
My Lords, I am delighted to follow the right reverend Prelate. I was in his cathedral on Friday and it was a very happy occasion. It is as beautiful as people say.
As my noble friend Lord Peston said, the two amendments are reasonably innocuous. I can certainly accept both of them with the exception of those three little words, and this is the first time that I have heard a real defence of them. Indeed, the noble Lord probably printed them himself. Last week I said that the noble Lord, Lord Sassoon, does not need to reply to most of these debates because we have three noble Lords here in the House who would be even better able to do so. However, as I say, I have not previously heard a proper defence of the words “subject to that”. The noble Lord is the first to do so, and I am sorry to have to disagree with a potential Governor of the Bank of England, if he still thinks that after all our debates.
The words “subject to that” have always seemed to be totally unnecessary because the Government of the day will certainly want to deal with inflation and, not subject to that but always on top of that, to look at economic objectives. I cannot see why that should not be so, and if I may say so, I have still not heard a good defence of it. But the amendments seem harmless enough, subject to the removal of those three words.
The question of QE has been mentioned in this brief debate. I do not wish to extend it, but it so happens—probably luckily for the Government rather than as a result of their policies—that inflation has remained relatively low. My noble friend Lord Peston, who is my professional adviser on these matters, may be right to say that that has nothing to do with the Government. However, what concerns me about both of the amendments is that I am not sure where the objectives of the Government lie on growth. I wish they could explain them, but perhaps on another occasion rather than today. Perhaps the noble Lord, Lord Sassoon, or one of the other defenders of the Government’s policy could also tell us what their policy is on economic growth and employment, because it is not succeeding. However, I will not pursue it any further except to say that I hope that the Government will be able to accept the removal of those three words.
Lord Phillips of Sudbury
I have a great deal of respect for the noble Lord, Lord Barnett, who says that he wants to see the words “subject to that” taken out. Am I quite clear that, in saying that, he is not in favour of a stable and sustainable supply of finance ranking as a higher priority than growth?
Lord Barnett
I am saying that I find the two amendments relatively harmless, and that I would be able to accept them. That is all I was saying.
Lord Stewartby
My Lords, I well remember the debates that we had all those years ago on the Monetary Policy Committee, and how many objectives could be added to the central one. This is a bit of a nostalgic occasion, because we are going through different subject matter but the same basic problems. I start from the point that the more of these extras you have, the more confusing they are likely to become for those who have to identify them and classify them under a heading—for example, “You’ve got a bit of employment here, and perhaps supply of finance. How is that getting on in our calculations?”. Those who attempt to allocate specific ingredients under these headings will fairly quickly find themselves with a lot of practical problems.
That leads me to say that I am probably a bit more cynical than sceptical than most noble Lords here today. There is a tendency to be overexpansive in economic policy-making, because Governments tend to be optimistic, and are therefore more likely to err on the side of overcooking than undercooking. Their focus also tends to be short-term rather than long-term. It is very difficult to feed in long-term assessments of this when it takes a good while for the implications of individual policies to be evident. I am, therefore, at the cautious end of this argument, and we ought to be very careful about not loading the process with too many objectives.
We should definitely say that nothing should conflict with growth or whatever we want, but it is different when one puts it in a negative rather than a positive way. You can add any number of “promoting”, “contributing”, “having regards to” and so forth, but the fact that there are all these different explanations illustrate that it is not a precise science. To treat it as though it were would be a recipe for difficulty and internal conflict. I may, therefore, be in a minority of one about this, but most of what has been said this afternoon comes from a starting point that itself is questionable.
Lord Sassoon
My Lords, the Government have always been clear that the Financial Policy Committee, as the body responsible for ensuring the stability and safety of the financial sector as a whole, must have financial stability as its primary focus. That is our starting point. However, we have been equally clear that the FPC must balance the pursuit of its primary objective for financial stability with the wider impact of its actions.
In our February 2011 consultation document the Government spoke of the need to,
“build the balance between financial stability and sustainable economic growth”,
into the FPC’s objectives. In addition, my right honourable friend the Chancellor made clear, when giving evidence to the Treasury Select Committee almost exactly a year ago, that we do not seek “the stability of the graveyard”. Our first shot at achieving this symmetry within the FPC’s framework was the creation of an economic growth “brake” for the FPC. The provision set out in subsection (4) of new Section 9C prevents the FPC from taking action that would significantly adversely affect the ability of the financial sector to contribute to medium- or long-term economic growth in all cases, regardless of the strength of the financial stability rationale. That is a very strong backstop provision.
However, the Government have listened to calls, both in another place and in our Second Reading debate in this House, for the FPC to be given a positive duty to support economic growth. In response to those calls, government Amendment 35A amends the Bill to give the FPC a secondary objective to support,
“the economic policy of Her Majesty’s Government, including its objectives for growth and employment”.
As many noble Lords are aware, this wording is identical to that used in the MPC’s secondary objective.
The noble Lord, Lord Eatwell, has used similar wording in his Amendment 34, but in the form of “having regard” rather than a secondary objective. I believe that in this case a secondary objective is more appropriate—more purposive, in the words of my noble friend Lord Hodgson of Astley Abbots—than “having regard”. We mean to be purposive here. The Government’s intention is to require the FPC to seek proactively to support economic growth. For this, you need an objective, not simply “having regard”.
Some noble Lords have questioned how such an objective bites in the context of the MPC. I am very glad that the noble Lord, Lord Barnett, is at last starting to get answers to his questions from the noble Lord, Lord O’Donnell, who is much more expert in these things than I am, and long may he continue to keep the noble Lord, Lord Barnett, supplied with explanations. In my inadequate way, I shall attempt to give one or two examples; first, of how the new secondary objective will impact on the FPC’s decision-making. I do not want to get sidetracked too much on the MPC but I will make one or two remarks to suggest that similar wording has impacted on the MPC as well. It is most important to think about the FPC, because that is what we are talking about here.
Let us imagine that the FPC takes action, such as imposing additional capital requirements, during the upturn of the cycle, when systemic risks are building up and financial stability concerns are heightened. If the situation changes—for example, the expansion subsides and the financial stability risks reduce—the secondary objective for economic growth will incentivise the FPC to remove those additional capital requirements in order to free up money for lending to the real economy. This effect will work in tandem with the new requirement for the Bank to review previous actions, which we will discuss in due course.
Lord Davies of Stamford
My Lords, will the noble Lord recognise that what he has just described as being the result of his amendment is precisely what the Government are not doing in the present circumstances? The economy is not reviving and the Government have not reconsidered their policy of imposing additional capital requirements on banks.
Lord Sassoon
My Lords, first, I was talking about different economic conditions, and, secondly, I would have thought that the point made by the noble Lord, Lord Davies of Stamford, would endorse why it would be extremely helpful to have such a secondary objective on the FPC.
Moving on, a second example of how such a secondary objective will operate is where the FPC is choosing between various different courses of action to address a systemic risk. Assuming that the actions under consideration are equally effective in addressing the risk to stability, the secondary objective will require the FPC to select the action that is more compatible with the Government’s economic objectives.
I agree with the noble Lord, Lord Eatwell, that it is the role of the FPC to lean against the wind.
Lord Peston
Before the noble Lord goes on with his agreement, which I am looking forward to, I still have not heard any argument from him about “subject to that”. What he has to say requires the word “and”, not “subject to that”. There is no way that “subject to that” makes any sense. To give him an example, could he imagine the head of the FPC being interviewed on the “Today” programme? The first question is, “What are you doing?”. “I’m contributing to the stability objective.” “Oh, and, incidentally, do you support the Government’s economic policies?” “Oh, no.” Can you imagine him saying, “Oh, no”? I cannot imagine any circumstances in which he would say, “Oh, no”. I cannot even imagine any circumstances—unless he wants to be regarded as insane—in which he would say, “I am unable to answer that question”. His only possible answer to the question “Do you support the Government’s economic policies?” is “Yes”, which is why the word “and” ought to be there and not “subject to that”.
That is why I regard the view that the Treasury took on the MPC as fudging the thing. I am afraid the ex-Treasury people have to recognise that that is what the MPC does. Could you imagine the Governor of the Bank of England saying, “I don’t support the Government’s economic policies”? We are not discussing the MPC. We are discussing the FPC—I always forget its name. Why does the Minister not use the simpler language, rather than “subject to that”, which is totally spurious?
Lord Sassoon
My Lords, as I was coming on to say, I agree with the noble Lord, Lord Eatwell, which is very much to the point of the noble Lord, Lord Peston. The FPC has to, and should, be able to lean against the wind—in appropriate circumstances—which is why the FPC’s primary objective is and should remain financial stability. It is right that it is “subject to that” primary objective that the FPC should seek to support the Government’s economic policy. The wording picks that up in the way that an “and” would not. We will have to disagree on that. I have given examples of where I believe that the FPC will interpret the language we have used appropriately.
Although I do not want to go too far into MPC territory, it is relevant to look at the MPC because there are examples one can draw out from its analysis to suggest that language is used in the MPC context in a very similar way to the way I would expect it to be used in the FPC context. I draw the attention of the noble Lord, Lord Peston, to what deputy governor Charlie Bean said in February 2012: that if the MPC,
“had chosen to run a substantially tighter monetary policy, then that would only have served to depress activity and raise unemployment even further … it would also make the task of fiscal consolidation and de-leveraging even more challenging. And by providing a gloomier climate for business, it would also inhibit investment and slow the necessary re-balancing of our economy towards manufacturing and internationally tradable services”.
Although this is not the time to go into it further, it is possible to argue—and the evidence is very much there—that the MPC is affected by the wording in the same way in which the suggested wording of the Government’s amendments will bite on the FPC. I am grateful to the noble Lord, Lord O’Donnell, for further illuminating some of these issues.
The three situations in which the noble Baroness, Lady Valentine, quite rightly postulated that the new secondary objective needs to work were good times, crisis and uncertainty. I can only say that I completely agree with her and that the wording that the Government propose strikes the right balance and will take account of all those scenarios. Of course, we are not relying solely on the secondary objective for growth, but I am sure that she understands that.
Lord Eatwell
My Lords, I am grateful to all noble Lords who have taken part in this debate. I was going to say “short debate” but it got a bit longer as we went along, as these things tend to do. The reason is because, although it appeared at the beginning to be a debate on semantics, it actually addressed the fundamental issue of giving powers to unelected officials in the form of the Financial Policy Committee, the exercise of which would in the past have typically been associated with elected, accountable politicians. That is a fundamental philosophical issue in the Bill and it is interesting to reflect for a moment on why it has arisen.
First, there is a fundamental difference among many in this House about whether it is more desirable to have a separable economic policy, in which monetary and financial policies are pursued entirely separately from policies on growth and employment, or a collective economic policy conducted with the Bank, the Treasury and all relative institutions collectively deciding on the overall stance that should be taken. That is a fundamental debate in economic analysis. However, it is not the point here, which is why we have been slightly diverted.
The point here is about the role of the Financial Policy Committee, which is an innovation that has arisen because of the change in economic circumstances, involving the speed at which innovation in financial policy can dramatically change the environment of a given government policy. The Government can suddenly find that a particular economic stance is being undermined or distorted by significant innovation in financial markets. The development, for example, of the credit derivatives that underpinned sub-prime mortgages in the United States changed the whole housing finance policy of the United States—an innovation by financial institutions that changed the environment of government policy.
The key role of the Financial Policy Committee is to watch out exactly for those sorts of things. That is what it is there for: to maintain a persistent study of what is happening in financial markets and how that might change the environment for government policy, and of the implications of any particular stance that the Government and/or other economic policy actors, such as the Bank, have taken.
Having said that, this was an interesting debate and we have eventually focused on the issue of “supporting” or “having regard to”. Obviously, since I put the amendment down with my noble friend, I think “having regard to” is a more appropriate relationship given the role of the Financial Policy Committee, but, in light of the debate, I beg leave to withdraw the amendment.
Lord Sassoon
“(a) contributing to the achievement by the Bank of the Financial Stability Objective, and(b) subject to that, supporting the economic policy of Her Majesty’s Government, including its objectives for growth and employment.”
Lord Eatwell
“(1A) The Financial Policy Committee is to exercise its functions with a view to contributing to the achievement by the Bank of the FCA's integrity objectives, including but not limited to those set out in subsection (2)(f) of section 1D and section 1DA of FSMA 2000 as inserted by section 5 of the Financial Services Act 2012.”
Lord Eatwell
My Lords, I rise to move manuscript Amendment 35AB and speak to manuscript Amendment 110ZA, which is associated with it. First, I apologise to the Committee for introducing a manuscript amendment and, indeed, for introducing a manuscript amendment to replace a manuscript amendment. It displays the serious defects in my own drafting abilities and I hope to do better in future. I apologise for that but it is a testimony to the flexibility of your Lordships’ House that we are able to consider these amendments now, which are designed to give the Committee the opportunity to address a very important matter that, as we know, has arisen in the last few days. It would be foolish to pretend that these amendments have not been brought forward as a result of the revelations of the LIBOR scandal in the last few days. However, it is valuable to give the Committee the opportunity to debate these issues in a concrete way and with a concrete proposal on which it can opine.
The consequences of this scandal are so serious and so far-reaching that their implications for this Bill are immediate. Fortunately, we had not reached what might be deemed the relevant part of the Bill that should be amended to take account of what we now know—something that, a week ago, we did not know. We now know that the setting of benchmark prices is a fundamental element in the efficient operation and stability of financial markets as a whole—that is, of the generation of systemic risk as defined in the operating principles of the FPC—and that the process of setting one of the most important benchmark prices in the world, the dollar LIBOR, has been severely compromised.
Lord Kerr of Kinlochard
Given that the noble Lord has explained that the public inquiry he seeks is not an alternative to the Tyrie inquiry, can he confirm that the Opposition will be co-operating in full with the Joint Committee to be set up under Mr Tyrie?
Lord Eatwell
I certainly think that Mr Tyrie and the Treasury Committee can and will pursue their activities in their normal way, including perhaps the pursuit of this particular inquiry. As to the future policy of the Opposition on the organisation of that inquiry, we are trying to achieve the best possible outcome. I see the best possible outcome as a three-dimensional one.
Lord Carlile of Berriew
My Lords, I welcome the opportunity for this short debate on a matter of great public interest. I have to say to the noble Lord on the opposition Front Bench that the Opposition have asked the right question but given the wrong answer to that question. The LIBOR issue is an immense financial scandal. It appears to have not just the scope of one bank, but possibly to affect other financial institutions. It affects not only what has happened in the United Kingdom, but affects at least four jurisdictions, including the United States of America. It affects the reputation of the City of London in a major way. Those of us who are as old as I am remember bankers in the City of London by the adage, “My word is my bond”. Now we see, “My Maserati is my success”, as the evidence of what happens in the City of London. I hope that noble Lords of all parties and none will agree that, as a result of this scandal, we need to emerge from it with “my word” being “my bond” once again. The trust in the City of London is why the City of London succeeded in the past. It will not succeed in the future if those who do business there, if I may use a Scouse expression, are seen merely to be “wide loads”.
What has happened undoubtedly potentially merits investigation for criminality. I do not believe that a parliamentary inquiry is the right way to winkle out criminality, welcome though a parliamentary inquiry is. It is not a way in which criminal investigations are carried out. In fact, it is a ludicrous proposition to suggest that this is the job of a parliamentary committee, however well led. I do not for one moment question the leadership and integrity of Mr Tyrie. He is obviously very good at what he does. I do not favour a judicial inquiry, because a judicial inquiry can quickly become a behemoth. I do not draw a comparison with the Leveson inquiry. Lord Justice Leveson is not merely an old friend; he is doing a brilliant job with a very specific inquiry of an entirely different kind. However, I fear that if a judicial inquiry were established, within a few days we would see some of the best lawyers in London—including some Members of your Lordships’ House—earning vast sums of money from lining up in front of a senior judge, expecting an outcome at some distant time, possibly in this decade, possibly not.
Lord Howard of Lympne
Could not the investigation that my noble friend asks for be carried out without the appointment of a special prosecutor but by the Serious Fraud Office, which has already embarked on such an investigation, with the director, if necessary, asking for additional resources to enable him to bring such an investigation to a speedy conclusion?
Lord Carlile of Berriew
I am grateful to my noble friend, who has considerable experience of dealing with high-level legal matters. I believe that might be achieved, but in my view there needs to be the clearest statement of intent by the Government. My intention, as my noble friend implies, is that whoever carries out this special investigation should be invested with the powers of the Serious Fraud Office, which are considerable and important. That is why I suggested earlier that this should take place under the instructions of the director of the Serious Fraud Office, Mr David Green QC. However, I believe that the Serious Fraud Office is completely unresourced for this kind of investigation. I also believe that in public terms, if the Government made it clear that they would provide Mr Green with the resources immediately to appoint a special prosecutor, albeit under his umbrella, and that person was provided with a team, probably largely from outside the SFO, which has been recruiting a large number of staff recently and may not have the experience to deal with this inquiry at present, then we would have a quicker and better result.
I do not want to detain your Lordships’ House for too long. However, I want to make the point that we have not yet reached the situation in which the essential issue is being investigated properly—that is, the potential criminality of those whom we were entitled to trust.
Lord Phillips of Sudbury
My Lords, I came to the City as a young lawyer in 1964 and am still there. Until last Christmas, I was a non-executive director of a well known City insurance entity. I agree wholly with the sentiments of the noble Lord, Lord Eatwell. However, the writing has been on the wall about the state of values in the City for very many years. The most recent shock—the LIBOR scandal as one might call it—is but one of many and there will be many more still to come, I am sad to say. It has been an open secret in the City that the culture has declined over the years to one of near amorality, where the law rather than normal moral instincts has been the arbiter of conduct. That in turn has declined, predictably, to a situation where too often if amorality is confronted with a significant loss of a good deal then there is little resistance left in the system and criminality occurs. Most of it is impossible to trace as it is in the form of market manipulation and oral conspiracies—whether within a firm or between different firms. It is a sad spectacle. To be fair, the vast majority of people in the City deeply regret where we have got to. Unfortunately, however, the culture of huge corporations tends to crush the moral life out of people in those entities. You get the occasional whistleblower who will stand out against the herd but one knows, I am afraid, what has happened recently to those few brave people.
The noble Lord, Lord Eatwell, is absolutely correct in his strategic overview of where we now are. We must, however, ponder this a little more than the space of this debate will allow. I am inclined towards giving serious thought to some sort of commission. It does not have to be a royal commission—a phrase which has attracted a good deal of adverse thought lately—but it is such a huge congregation of issues, not just confined to the City and certainly not confined to narrow misdeeds such as the LIBOR matter, that we may be better off with a royal commission that can look at the thing in the round, take its time, and let the criminal side of all this be separated and dealt with by the Serious Fraud Office or, conceivably, a special prosecutor.
My Amendment 109—to which my noble friend Lady Kramer and the noble Baroness, Lady Meacher, have added their names, and which we will probably get to next time—ironically achieves almost the identical effect to that of the first part of Amendment 110ZA, tabled by the noble Lord, Lord Eatwell, so I am obviously in favour of that.
In closing, the other quick point I should like to make is to wonder whether there should not be a wider duty of integrity in the Bill than that which applies only to the FCA in proposed new Section 1D on page 17 of the Bill. The prudential authority should be subject to a similar integrity objective, and it might make sense to have such an objective for the whole financial regulatory sphere. That is all I wish to say beyond thanking the noble Lord, Lord Eatwell, for raising this matter at this time.
Lord Neill of Bladen
My Lords, I should like to make a few observations about the amendment. We are at Committee stage of the Bill. While it is passing through your Lordships’ House there has been an enormous scandal about the fixing corruptly of the LIBOR rate by Barclays over, I understand, a period of years—a practice in which it is possible that other banks took part. They have thereby done enormous damage to the reputation of the City of London as a place where you can get honest dealing. The matters thus far brought to light show innate corruption, whereby it is seen as perfectly all right to rig the figures that you supply in order to fix the LIBOR rate and to bring in profit or reduce losses. That is a form of corruption.
One can go back to one’s early days with a bank. I banked with Barclays from the mid-1940s onwards. The notion of the bank then being involved in this type of activity was absolutely laughable. The banks have turned into merchant banks of the worst possible character, and that ethos is reflected in conduct that reveals a completely disgraceful picture.
The question is: what is the best way to have a wider inquiry into that matter? At the moment, it is a pity that what is called the Tyrie inquiry is being allowed to carry on on its own, without any thought as to whether or not the investigation of those facts would be central to any wider inquiry about the integrity of banks. However, how do you investigate integrity? The theory is that you are not allowed to look at other cases because Tyrie is dealing with the matter. In fact, it is the best possible evidence you can have of the way that bankers think today. You want to know all the details of that case and not exclude them from it, rather than ask a generalised question: how do we establish integrity or lack of it in the City?
I therefore assume that today we are having an exploratory discussion, that the amendment will be withdrawn, and that there will be time, at least by Report, to consider revised proposals of what might be done by way of investigation. The suggestions of noble Lord, Lord Carlile, are interesting and persuasive, but all this has just been pitched upon the House of Lords because of a curious financial scandal coming to light at this very time while we are in Committee. I hope that consideration will be given as to whether matters in relation to the banks and financial institutions could be better conducted after we have had time to think and the Government have had time to react to the amendment. I hope that some reasonable and rational delay will be introduced and that the amendment will be withdrawn.
Lord Davies of Stamford
My Lords, I am very glad indeed that we have an opportunity to discuss this extremely important matter. The news over the past few days has been dramatic and horrific, and the public would think that our parliamentary system was woefully inadequate if we did not take time not just to discuss this matter but to come rapidly to conclusions, which is why I profoundly disagree with the noble Lord, Lord Neill, that we should not take any decision today and that the amendment be withdrawn. I hope that my noble friend who spoke extremely powerfully on his amendment will press it in due time.
There seems to be prima facie evidence of widespread abuses, dishonesty and corruption—a good word that I take from the noble Lord, Lord Neill, with pleasure, because it is the right word—in our banking system. None of us would have supposed that that would arise here in the City of London. All of us have been excessively complacent about the standards of conduct which are applied in the City of London.
Lord Kerr of Kinlochard
My Lords, like the noble Lord, Lord Neill, I hope that the noble Lord, Lord Eatwell, will withdraw his amendment. His three-dimensional answer to my question made it impossible for me to support it, because I fear that he is taking a hostage. The most important thing that must be done is to establish quickly how we can ensure that the fixing of LIBOR cannot happen again. That is the crucial operational thing to do. I agree with those who say that this is an international scandal. I agree that around the world, people know about this. There are plenty of other scandals in the banking system that must be addressed, such as the mis-selling scandal and questions of remuneration and bonuses. There is plenty of time for a study of the culture of the banking and financial services industry. That is important but not urgent. What is urgent is to do something operational now.
I understand from the Prime Minister’s Statement that the Wheatley report will be published this summer. That fits very well with the Tyrie exercise, which will finish this autumn and can establish what happened. It should not go into areas of criminality. What was said by the noble Lord, Lord Carlile of Berriew, was fully justified; I would not go down the special prosecutor route but would follow the advice of the noble Lord, Lord Howard. We need a quick operational inquiry to establish how to make sure that this shocking thing—this poisoning of the water supply that is a scandal around the world—is put right and cannot damage London, and borrowers and lenders, any more.
I will say one further thing to remedy an omission in our discussions, and those of the other place, yesterday. I am confident that Mr Agius is an honourable man. It is a pity that no tribute was paid yesterday to the way in which he immediately accepted responsibility and felt that the buck must stop with him.
I was reminded of the noble Lord, Lord Carrington. Nobody thought he was responsible directly, hands on, and involved in the loss of the Falklands. I do not believe for a moment, and I do not believe that anybody in this Chamber believes, that Marcus Agius was in any way involved in fixing the LIBOR rate, yet he undoubtedly did the right thing, and it is important that that should be put on the record. It makes a striking contrast to the behaviour of some others in public life these days. I advise anyone intrigued by this reference to read a remarkable speech made on Friday on the Steel Bill by the noble Lord, Lord Fowler, referring to another Member of the present Government.
Baroness Kramer
My Lords, I want to associate myself with the words we have just heard from the noble Lord, Lord Kerr, on the importance of acting quickly. I speak as someone who has spent most of her career in banking, working with clients on transactions that involve the LIBOR rate and I understand the significance of the issues we have discussed in this House.
As others have said, this is not just a UK issue. The earliest that any inquiry, as proposed by the noble Lord, Lord Eatwell, could begin would be the autumn, so we are looking at something like a two-year inquiry. I am not sure that he understands—
Lord Eatwell
If the noble Baroness would allow me, perhaps it would be for the benefit of the Committee if I said that I certainly did not rule out the Wheatley or Tyrie inquiries: I argued that both have something to contribute. I say that to the noble Lord, Lord Kerr, as well. Therefore, I accept the whole notion of acting quickly—it can be handled—but we then have to ask: what next?
Baroness Kramer
When the noble Lord, Lord Eatwell, talks about the Tyrie inquiry, I am still not clear whether he is talking about the Joint Committee of both Houses, in which the Lords are as involved as the Commons, or whether he is simply talking about the Treasury Select Committee acting, if you like, in its normal way. I think that he has avoided giving us clarity around that issue.
The critical thing here is that other jurisdictions will act. The United States will not sit around while a committee lasting one or two years talks about the fundamental issues of banking, so the actions that we are going to take have to be decided in a far more immediate way. We have great opportunity with this Bill and with the forthcoming banking reform Bill. The changes will have to be embedded in those Bills at the latest if we are to stem the tide of real disadvantage.
If anyone doubts that work is afoot elsewhere to deal with the problems that we have been so slow to pick up and deal with, I suggest they take a look at today’s Wall Street Journal. There is an article in there called “Lining Up Potential Successors to Libor”. It is very clear that we in the UK are on the back foot and we need right now to get on to the front foot and not start playing for the long grass, however worthy that is. It is that sense of urgency that I want to convey. If we hear that the answer for the British Government is going to be a commission, there will be a very cynical reaction in the United States that once again the Brits are going for another long-term committee with navel-gazing and endless discussion, rather than immediate action. Perhaps someone can tell me what the value is of a commission that reports after all the changes have taken place. That sounds to me like a method for closing a stable door long after the horse has bolted. It is crucial to get that horse moving now, without delay.
I also have to say that I regard a Committee of both Houses as an extraordinarily effective way of getting to the root of a problem. Think of the expertise we have in this House. Surely that is exactly what we should be using. The breadth of the experience we can bring is important. Moreover, it is very different from Leveson because at the heart of that inquiry is the reality that it is investigating a relationship between politicians and the media, one in which there is a high suspicion—outside here I would probably go further, but that would not be tactful—of collusion and corruption. Politicians cannot investigate themselves under those circumstances, but I do not think anyone is suggesting that that is the situation in the banking industry. We are not talking about political collusion or corruption here.
Indeed, if we doubt the effectiveness of the political system in handling this, let us look at Bob Diamond’s resignation this morning. It is easy to see what happened. He knew he would face the Treasury Select Committee on Wednesday, so he sat down with his lawyers—I am guessing that, but I suspect I am right—and started to role-play how he would behave in the meeting. Soon he realised that his position was totally untenable. That is effective action, and it is what we should be building on, not going back to some sort of long-term commission. The additional benefit is that if there is leadership from Parliament, it will continue to observe and supervise the banking industry for many years. It will not pack up and go away after 18 or 24 months. We should build on that, not lose it.
Perhaps I can make a last comment. We seem to be going through an extraordinary trend, if you like, of subcontracting out our responsibilities. As politicians with the privilege of being part of this Parliament, surely we ought to be taking the tough decisions. We should not be trying to find someone else to contract out to every time there is something tough to do, otherwise we might as well just become a commissioning body. I would argue that we should look at our strengths and skills and take this opportunity to act. That would show the banking industry and the wider world what we can do. The longer term is too late, and we have to be aware of that.
Lord Myners
My Lords, I fear that the noble Baroness, Lady Kramer, might not have been listening to my noble friend Lord Eatwell. He supports the inquiry to be chaired by Mr Andrew Tyrie as well as the Wheatley review. I believe that the proposal of my noble friend is complementary to and necessary as an addition to those reviews.
Yesterday the Chancellor of the Exchequer said in the other place,
“we know what has gone wrong”.—[Official Report, Commons, 2/7/12; col. 613.]
I do not think that the people of this country know what has gone wrong. With all respect to the noble Lord, Lord Kerr, this is not simply a question of LIBOR. I first tabled a Written Question for the Minister about the manipulation of the LIBOR rate in March last year and got a very backhanded response from him; I have raised it several times subsequently. But this goes well beyond LIBOR. The lying and deceit around LIBOR manipulation that we know has taken place systemically across the banking industry—it is not limited to Barclays alone—is but a symptom of a wider cancer at its heart.
You can go to your bank manager to have your passport photograph signed. Banking was a profession held in high regard. It was associated with trust, integrity and prudence. How has that changed, and why? That is why we need a commission of review. The terms of reference of the Tyrie review are, as my noble friend said, extremely limited. They are ring-fenced and precise, so they do not ask the sort of questions that should be asked. Yesterday in this House the call was made for a review that would focus on the transparency, culture and professional standards of the banking industry. The Tyrie terms of reference do not look at the transparency, culture and professional standards that were called for by the speaker in this House—and that speaker was the Minister. We need a fundamental review of what has gone wrong in banking.
How can it be that a bank built on the Quaker traditions of Barclays can find itself in a position where three of its senior board members have resigned within 24 hours and where I confidently predict more will resign by the end of this week? How can we be comfortable with that? The noble Lord, Lord Kerr, referred to Mr Marcus Agius, whom I know well and hold in extremely high regard. It seems as if Barclays has been involved in a car accident where Mr Agius was the passenger sitting in the back. Yesterday he resigned, taking the blame for the accident. Today Barclays has concluded that it is the driver who should take responsibility, and now Mr Agius has got back into the car, which he has to drive from the back seat. This is a state of complete chaos. How can a great British industry, one in which we have led the world, have got itself into such an awful mess?
To answer those questions, we probably need to go back to the 1980s to see how the transition has taken place. Tyrie and Wheatley are not going to do that. Their work should continue, but the call by my noble friend Lord Eatwell for a thorough, deep and considered evidence-based review of what has gone wrong in banking, and what we can do to ensure that it does not happen again, seems to be an undeniable case. I shall certainly support the amendment if my noble friend presses it to a vote.
Lord Higgins
My Lords, we should be grateful for the opportunity to have a debate this afternoon because it enables us to focus on what our priorities should be. We have essentially been considering two things: how wide an inquiry do we need and how urgent is it that it should produce results quickly? What has become quite apparent is that one inquiry is not going to be enough. What has happened is this: on the one hand we need a short-term inquiry, but on the other hand we need a strategic inquiry. We also need the kind of investigation which the noble Lord, Lord Carlile, has put forward, but in a sense it is a separate issue because the outcome of that inquiry will presumably be the prosecution of particular individuals. In no way would the noble Lord’s inquiry tell us how to reform the banking system. So that is something which is self-contained and separate.
We come then to the question of the best tactical answer. I fear that the position has been somewhat confused by the references to Mr Tyrie. Let me make it absolutely clear—I speak as someone who was the chairman of the Treasury Select Committee for 14 years—that I have the greatest respect for Mr Tyrie, who has been doing a magnificent job as chairman of the committee, which I understand is to take evidence from Mr Diamond this week. But the question then arises of whether Mr Tyrie should also be the chairman of the Joint Committee, the proposal put forward by the Government. I think that this confuses the matter. The shorthand around the use of the word “Tyrie” has actually become extremely confusing. Yesterday I expressed a view that I shall repeat now: to do the jobs both of chairman of the Treasury Select Committee and chairman of the Joint Committee is too much. It will distract from the normal work of the Treasury Select Committee, while the Joint Committee will need the full attention of whoever is appointed as its chairman.
I am not clear on how it suddenly became apparent that Mr Tyrie would chair the Joint Committee. My noble friend the Minister pointed out yesterday that the Joint Committee will presumably decide who its chairman should be. I would prefer Mr Tyrie to continue as chairman of the Treasury Committee because he is doing such a good job, and I believe that someone else should chair the Joint Committee. However, that will be a matter for him and the respective committees to decide. At all events, the Joint Committee is the right way to go as regards the immediate investigation and rapid conclusions on what needs to be done urgently. That leaves unanswered some of the more fundamental positions that need to be considered. The body which could most appropriately do that was suggested by the opposition Front Bench.
To summarise, leaving the separate Carlile issue on one side, the Treasury Committee should continue with its work in the normal way; the Joint Committee should consider the immediate actions that need to be taken as it unearths the problems, as no doubt it will; and there ought also to be a longer-running inquiry. There will not then be any accusation that we are kicking the matter into the long grass, and at the same time we will get rapid results on the tactical situation. In the light of your Lordships’ debate, it is becoming increasingly apparent that that structure is the right approach.
Lord O'Donnell
My Lords, I support the sentiments expressed by the noble Lord, Lord Kerr, and the noble Baroness, Lady Kramer, and believe that we need to handle the very important issues raised by the noble Lords, Lord Eatwell and Lord Myners. There is a way of managing all of this.
First, importantly, we have a lot of information already. We want an inquiry to establish the facts, but we need to bear in mind that we have MoJ, CFTC, and FSA reports on the LIBOR issue that have raised enormous issues. I would very strongly support what the noble Lord, Lord Carlile said, but with the noble Lord, Lord Howard, variant, if I might put it that way; that is, that these reports have raised serious issues of criminality. We need to investigate those issues quickly, with sufficient resources, and with all the power and vigour that we would use if this were some other form of crime. That process is crucial. It should happen straight away, and it should not be resource-constrained.
Secondly, the Wheatley report will be important specifically to the way in which we handle the LIBOR issue. It is urgent, and plenty of others would like to take this business away from us. The Wheatley report, which should be with us through the summer, will suggest some amendments to this Financial Services Bill. I particularly like the suggestion of LIBOR being a qualifying financial instrument, which might well get us through a lot of these issues.
We then come to the more general set of issues on what is wrong with banking and how we can restore confidence in it. Those are very important questions. In my maiden speech, I suggested that we should have a Joint Committee of both Houses chaired by the chairman of the Treasury Select Committee who would have authority and power. Given the experience of Members of this House, it could come up with some answers that would get past the problem of reputational issue. Both Houses acting together would command confidence and such a committee more generally at what emerges from the LIBOR case.
Some issues will emerge directly from the LIBOR case which will relate to our future banking reform legislation, touching on the whole question of splits and the like. That Joint Committee could guide us as regards the changes we would need. I am in favour of changes to that legislation and I would look at total assets rather than only at risk-weighted assets, and at total leverage ratios rather than only at what is proposed. However, that is a separate issue that we will come to later in this House.
Lord Peston
My Lords, the background to my few remarks is the text:
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.
I am delighted that some of the better educated—no doubt those who were taught economics—are well aware of the provenance of this remark, which was by Adam Smith. He would not have been in the least surprised by what happened with LIBOR or by all the other conspiracies that, if we had enough time, I could tell you about, including the price fixing that still goes on in our economy.
Turning to my main remarks, I have a feeling that I will be in somewhat of a minority. I found what the noble Lord, Lord Sassoon, said yesterday, in announcing the Government’s proposal for what we will call the Tyrie inquiry to be totally unconvincing. The public require an objective inquiry which they can believe without a shadow of doubt is not a stitch-up. I do not believe for one moment that the remit given to the chairman of the Treasury Select Committee enables that inquiry to take place in any way whatever. I speak for myself in saying that, although I regard myself as totally objective and totally honest, if I were asked to be on that inquiry I would refuse because I do not believe that the public want people who are involved inside to be conducting it. We have very much to face up to that. I might ask the noble Lord, Lord Sassoon, why, if he is so anxious to keep politics out of things, does he make political remarks in almost every address he gives to this House—but that is simply me being my usual acerbic self.
Am I right, that the Prime Minister—given that this is a matter of absolute national importance—did not consult the Leader of the Opposition in deciding how we should go forward? The Government ought to backtrack and try to find a consensual way of going forward that would involve the Prime Minister talking to the Leader of the Opposition. I am not saying that we would definitely get a good outcome to that but I am absolutely convinced that that is the approach that ought to have been adopted.
I want to say a brief word about how speedily anything can happen. We are going to rise in three weeks’ time and, in the case of our House, not come back until October. As far as I can see, that means that any inquiry will certainly have to be short—whether it will be sweet, I do not know. This notion that it is all going to be done very quickly I just do not find believable, whoever does it. I have a holiday booked so I am not very keen on coming back earlier but we may have to. Again, perhaps the Minister can talk to us about the speed of the inquiry.
Perhaps I might ask another practical question: am I right that the corrupt practices on LIBOR have stopped? Do we know for a fact that they have definitely stopped? Perhaps the Minister could tell us. I hope that they have definitely stopped.
What is unavoidable is that we have to look at what the regulators have been doing. An inquiry that does not do a full examination of the regulators themselves would simply not be worthwhile. We are told that neither the FSA nor the Bank had the power to investigate the setting of LIBOR. I would have thought that the head of the FSA and, even more, the governor could have sent for some of the people involved with LIBOR for an informal chat—forgetting about what their powers might be—just to find out what they were doing, looking for some enlightenment. I find it astonishing that we are being told that neither the governor nor the main regulator knew about LIBOR, and did not think to apprise themselves of what went on, whatever they thought their formal powers were. I must say, if I had been one of them, I would have done that—perhaps that is why I have never been appointed to anything.
I have also been going through the nightmare of rereading your Lordships’ Second Reading debate, in which I was unable to take part. What is absolutely fascinating is that the one acronym that never appears in any noble Lord’s speech is LIBOR. There we are, all the great experts, and what we are really doing—as always happens—is fighting the battles of the past. Most of the speeches were looking at accounting for the financial crisis that started a few years ago and discussing a Bill to prevent that financial crisis ever happening again.
The great Chicago economist Frank Knight—who was very much on the right, I might add—wrote a classic work called Risk, Uncertainty and Profit. He said that risk was what you did not know was going to happen but that it was measurable, due to probability and that sort of thing. He argued that what really mattered was uncertainty, which you know about in an almost contradictory way: you know that what is really going to happen is something that is totally unexpected. The problem was how to prepare for it—how to expect the unexpected. He never found a satisfactory answer to that but he did say that the free market capitalist system was at least the best way of adapting to those unexpected shocks when they occurred.
This is where I disagree very strongly with the noble Lord, Lord Kerr, who said that what we have to do is make sure that LIBOR does not happen again. That is precisely to get it wrong: LIBOR is not going to happen again; something different is going to happen and we need a system that prepares us for dealing with something different. I do not think any of what the Government are proposing covers that.
En passant, the noble Viscount, Lord Trenchard, said that light-touch regulation was discredited. I have to tell him, I would be a light-touch regulator if I were one, because I do not believe that the role of the regulator is to run the businesses that it is regulating. That is my concept of light-touch. I believed it then and, if you accept my concept of light-touch, I believe it now. One place I would like us not to go to is the regulators essentially running the banking system, and I hope that the noble Viscount agrees with that.
Going back to the issue of the Joint Committee, it should not be ad hominem, as I think has been said; it is nothing to do with Andrew Tyrie. The real question is: should the Treasury Select Committee in the other place, which deservedly has a tremendously high reputation, be involved in this in any way? I do not want to go down the path of the Joint Committee; I would much rather go down the path suggested by my noble friend Lord Eatwell. I would be interested to know if other noble Lords know anything about this, but I think it would be a terrible mistake, in trying to maintain the very high reputation of the Treasury Select Committee, if it got involved in this inquiry. That would be a mistake beyond belief.
We end up with two possibilities. One is that we divide and test the opinion of the House on what my noble friend Lord Eatwell proposes; he will decide this. The other, which is what I would like to see happen—and I know I am being immensely naive here and there is probably nothing the Minister can do to help us—is that the government proposals are withdrawn and the Minister’s right honourable friend the Prime Minister and my right honourable friend the Leader of the Opposition do what I suggested earlier: get together and see if they cannot come to us with some proposals. This is a matter of national importance.
The noble Lord, Lord Carlile, will notice that I have not said a word about prosecuting the guilty because that is not my subject. As an atheist, I believe that if we do come back to this planet, I intend to come back as a Queen’s Counsel and certainly not as an economist. I really do believe that in the national interest the leaders of both main parties should get together and come back to us with some jointly agreed proposals.
Lord De Mauley
My Lords, I think I detect that the mood of the House is that we should move towards a conclusion. I do not want to stifle debate but perhaps I might suggest that my noble friend should speak and then my noble friend the Minister should wind.
Lord Framlingham
My Lords, I shall be very brief. Issues such as this are extremely complicated on the one hand and very simple on the other. We are dealing specifically with LIBOR—at least I am—which I am not an expert in. I am sure that there need to be inquiries—what sort of inquiries will be determined today, or later—which need to get to the bottom of the problem as quickly as possible.
In his opening remarks, the noble Lord, Lord Eatwell, said he was not sure what the word “integrity” meant in this context. I know precisely what the word “integrity” means. I also know precisely what the word “greed” means. I also know precisely what the word “criminality” means. Finally, I know what the word “prison” means. I support the noble Lord, Lord Howard, in this. Whatever else happens in terms of inquiries, the Serious Fraud Office should get on to this immediately to find out what has gone on and who the culprits are, and bring them to justice. That will be the best way to make sure these things and others like them do not happen again.
Lord Blair of Boughton
My Lords, I know that the Minister is about to speak but can I give a slight and practical example of how witnesses will approach these different inquiries. I find myself entirely in agreement, as any Cross-Bencher should be, with both sides of the House. How does a witness approach these different inquiries? They approach the criminal inquiry with the narrowest possible dimension about the facts in dispute. I have appeared at the No. 1 court at the Old Bailey, so I know what it feels like. You are always told that you should answer only the question you are asked. When you appear in front of a parliamentary inquiry, you have the same approach with a view as to where the political issues will come from, which you have to think about. When you appear, as I did, in front of Leveson, you do so on a completely different basis. My evidence to Leveson began in the 1820s. In other words, you are looking at the whole issue in the round. I do not understand why there needs to be any dispute between the two sides of the House in this debate. Have a criminal inquiry, have Tyrie and have a judge-led inquiry into the ultimate circumstances of the way in which the banking culture has taken over parts of our society.
Lord Sassoon
My Lords, first, let us be clear that these amendments have very little to do with the Bill before us today. They are all about the Opposition’s misguided attempts to slow down what we need to do to deal with the consequences of the LIBOR scandal. We need rapidly to restore public confidence in the financial services industry, which the Government are pressing on with. We do not need to kick these very serious matters into the long grass, as the Opposition now propose. It is time for Parliament, as well as the Government, to take clear leadership on these matters. The events of recent days have highlighted that the culture of banking is badly broken. The Government are in the process of fixing the system, but we need to change the mindset of the profession and those working in it. This is about restoring banking to what it should be about: to be the most, and not the least, trusted profession.
The basic facts of the attempted LIBOR manipulation are clear. There have already been published reports from three regulators in the UK and the US. We do not need a judicial inquiry to tell us what the facts are. A judicial inquiry would be principally aimed at establishing the facts; it would likely take years to complete, might not be able to start until after prosecutions had been completed and would cost the taxpayer millions of pounds.
Now we need three things. First, we need the rapid prosecution of individuals who may have broken the criminal law. This is what the SFO and the Crown Office in Scotland are looking to do. Secondly, we need to look at how LIBOR cannot be fixed again, which is the subject of Martin Wheatley’s review. Thirdly, we need to look into the ethical and professional standards of the financial services industry and we need to do so urgently to ensure that the banking industry is serving the needs of the wider UK economy and the continued global competitiveness of London and the UK.
For this reason, the Government recommend that Parliament considers undertaking an urgent inquiry into the culture and ethics of the banking industry to help shape the urgent reform that is so much needed. The Government propose the establishment of a full parliamentary committee of inquiry, comprised of representatives from both Houses, and set up by a joint resolution of both Houses. The proposed terms of reference for the committee are building on the Treasury Select Committee’s work and drawing on the conclusions of UK and international regulatory and competition investigations into the LIBOR rate-setting process, consider what lessons are to be learnt in relation to transparency, conflicts of interest and the culture and professional standards of the, financial services industry, including the interaction of these with civil sanctions and criminal law. While I hear noble Lords seeking to paint this as a narrow inquiry, on any construction, these words will give the Joint Committee a very wide remit.
I am also glad that the Opposition now seem to support the creation of this committee. I have laid out what is required. We certainly do not require a proliferation and duplication of reviews that could go on for several years. We recommend that the inquiry should commence immediately and conclude by Christmas. As noble Lords are aware, the Government plan to introduce the banking Bill that will implement the recommendations of Sir John Vickers’s Independent Commission on Banking in January next year. This will bring far-reaching and lasting changes to the structure of British banks. The Government’s preferred timetable for the committee of inquiry would allow the Government to use the Bill to make any appropriate further changes needed to the standards of the banking industry and the criminal and civil powers needed to regulate it, and hold people to account for their behaviour.
The Joint Committee will do its work well and comprehensively and will report by Christmas. However, if, at that stage, this House or another place was not satisfied with the work of the Joint Committee, it will be possible for Parliament to press for a further inquiry. At that time, the inquiry proposed by this amendment would not even have started. The Government fully intend that Parliament should play a significant role in getting to the bottom of what happened and helping make the system more robust. It is surely highly desirable and consistent with many of our previous discussions in recent months that your Lordships’ House should be fully engaged in the process, bringing the full breadth of its expertise to bear from Peers of all the main parties and none.
This is already a big Bill, on which time is now being taken up by debating the merits of an inquiry—a debate that will not help noble Lords with the key business of the House today, namely scrutinising the detailed contents of the Financial Services Bill. It may help your Lordships to know that in another place on Thursday there will be debates on two Motions—one an opposition Motion, another a government Motion—to consider in detail the questions that we have debated at some length this afternoon. It is appropriate to leave another place to debate those Motions on Thursday so that we get on with and stick to the Committee’s core task today on the Financial Services Bill.
Lord Carlile of Berriew
I am grateful to my noble friend for his response. Will he confirm that, if there is to be an SFO-led inquiry into any criminality arising from the LIBOR incident, the SFO will not be expected to meet the cost of that inquiry from its existing budget but will be given the separate funding needed so that the inquiry can be full, complete and properly resourced?
Lord Sassoon
My Lords, as was in the Statement yesterday, I can confirm that the SFO is on the case, looking at all the possibilities for criminal prosecutions and that the Crown Office in Scotland is doing likewise. There has been no request of which I am aware from the SFO for additional resources. I assure my noble friend that, if there was such a request, it would be looked at sympathetically by the Government. It has been an important and lively debate because these are critical issues for the financial services industry and I hope that, with those further explanations, the noble Lord, Lord Eatwell, will withdraw his amendment.
Lord Barnett
I am sorry to hear that it has been a wholly non-party political debate today until the noble Lord got up. However, will he at least consider—or, if not him, get somebody in government to consider—the point that my noble friend Lord Peston made? Given the circumstances of great national interest involved here, the Prime Minister should take the trouble to talk to the leader of the Opposition with a view to finding a way through that would be accepted on all sides. In those circumstances—if he could give us the kind of assurance that we need—I would certainly press my noble friend to withdraw the amendment. Can he give us any kind of assurance?
Lord Sassoon
My Lords, even better than that, two Motions will be tabled in another place on Thursday which will give an opportunity for the different views of the Government and Opposition on these matters to be aired fully. We should look very seriously at where that debates leads to.
Lord Eatwell
My Lords, I am grateful to noble Lords who have taken part in a debate which, as the noble Lord, Lord Sassoon, said, is timely and important. I was impressed by the fact that virtually every noble Lord who spoke, with one or two exceptions to whom I shall refer in a moment, felt some wider consideration was needed than that currently envisaged in the Government’s proposals with respect to Mr Wheatley and—if I may be forgiven by the noble Lord, Lord Higgins, for using the shorthand—Mr Tyrie’s review. The noble Lord, Lord Carlile, wanted to go wider in a different way by introducing the innovation of a special prosecutor. Special prosecutors have at best a very mixed record in the United States, which should be taken into account. Focusing on the legal issues is too narrow an approach in the circumstances that we face. As the noble Lord, Lord Phillips, said, there is “a huge congregation of issues”; my noble friend Lord Myners said that a fundamental review was needed; a “strategic inquiry” was the phrase used by the noble Lord, Lord Higgins. As my noble friend Lord Peston pointed out, the next major financial crisis is unlikely to occur in the LIBOR market; the next scandal will occur somewhere else. Unless we look at the underlying foundations of problems in our banking industry, we will not be in the least prepared. The noble Lord, Lord Blair, with his experience of legal matters in financial regulation, referred to a need to consider things “in the round”—I could not have chosen a better phrase.
The major difference, as I detected, with the arguments that I put forward came from those who felt that I was trying to slow things down. That is the last thing that I am trying to do. As I pointed out, I am entirely supportive of Mr Wheatley’s proposals and I am supportive of the idea of a Joint Committee moving forward to deal with the specific implications and consequences of the LIBOR element—what Mr Tyrie refers to as the ring-fence proposals. However, as the noble Lords, Lord O’Donnell and Lord Kerr, said, if there is no sign of getting to a solution, then we can have an inquiry. As the noble Lord, Lord O’Donnell, said, we should perhaps consider whether we need to go further.
The key issue then becomes one of timing and why we should not get on with all three? We should understand of course the legal issues with respect to prosecution—I take that under advisement—but what is the problem with addressing these matters? There is no other reason not to deal with all three. I reject entirely the caricature that I was suggesting that things be slowed down; I certainly was not. We need to get on with the immediate issues, but there are much wider issues affecting the future of this country that need to be addressed.
Lord Howard of Lympne
The noble Lord has repeatedly talked about the need for a wider inquiry than what I think we have all agreed to call the Tyrie inquiry. Given what on any view are the extraordinarily wide terms of reference of which the Minister has informed the Committee today, can the noble Lord identify any specific angle, matter or issue that is not covered by those wide terms of reference?
Lord Eatwell
Yes, indeed, my Lords, I can do that straightaway. Those terms refer to,
“drawing on the conclusions of UK and international regulatory and competition investigations into the LIBOR rate-setting process, consider what lessons are to be learnt from them in relation to transparency, conflicts of interest, culture and the professional standards”.
It is from them that lessons will be learnt—not from the wider characteristics of the industry; not from what the regulators were doing; not from the unintended consequences of the reforms of the 1980s; and not from the change in the nature and conglomeration of the banking industry. Lessons will not be learnt from any of those issues, which are much wider than those in the terms of reference. I am happy to provide the noble Lord with a copy.
Lord Anderson of Swansea
Has my noble friend considered the problems caused by the timetable set by the Government? If the proposed Joint Committee goes through the normal procedures, it will have to call for evidence. That process will take several weeks, which will eat up the rest of July until the Recess begins. This House does not return until the beginning of October. If the timetable is to end by Christmas, the committee will have to have several weeks prior to Christmas before the publication of its report, which essentially means that only the months of October and November will be available for its considerations. That would be a wholly impossible timetable.
Lord Eatwell
My noble friend has made an important point about the pressures that will be faced by Mr Wheatley’s committee and, if we may call it that, the Tyrie committee.
I do not want to delay the Committee. I have made two major arguments in favour of the amendments put before your Lordships. First, the terms of reference, to which the noble Lord, Lord Howard, has just referred, are too narrow. My Tyrie refers to them as “ring-fenced”. That is his expert view, which I accept. Secondly, we have to take this matter out of party politics. It was awful how yesterday’s discussions degenerated into a spat about which politician said what to whom and when, and who was responsible. That is not the issue; the issue is the future of our financial services industry. Let us get this matter out of party politics. I believe that I have heard around the Chamber support for the position that I have taken and therefore wish to test the opinion of the Committee.
Lord Sassoon
Lord Eatwell
“( ) factors likely to lead to a loss of confidence in the financial system as a whole”
Lord Eatwell
My Lords, this group of amendments is a rather mixed bag but all of them refer to various duties of the Financial Policy Committee. The first, Amendment 36, which is in my name and that of my noble friend Lady Hayter, adds to the definitions of systemic risk in new Section 9C(3) of the Bank of England Act 1998 the collapse,
“of confidence in the financial system as a whole”.
Academic research has identified four major sources of systemic risk, at least to date: first, linkages, or the connections between markets, referred to in new Section 9C(3)(a); secondly, the distribution of risk, particularly in the context of cyclical variations in risk, referred to in new subsection (3)(b); thirdly, excessive leverage, debt and credit growth, as referred to in new subsection (3)(c); and fourthly, the general collapse of confidence, which is not referred to at all. This is a serious omission—probably a slip in drafting, but none the less a serious omission in the analysis of systemic risk.
There can be a major systemic failure that is not associated with any of new subsection (3)(a), (b) and (c). You can have a situation that is not represented by linkages between firms, is not to do with the distribution of risk, and is not due to excessive leveraged debt or credit growth, but is due to the collapse of a firm in a particular strategic position within the industry, which leads to a general collapse of confidence. There is no necessary visible linkage between the firms, but the collapse of confidence can lead to a general systemic failure. Adding this fourth component—which is completely standard in the usual list of four in the academic literature—would complete the set from which, for some reason, this element has been neglected. To use the felicitous expression of the noble Lord, Lord Sassoon, it would plug the gap.
Amendment 37 is a probing amendment, although it has more substance than that. New Section 9C(4) of the Bank of England Act says:
“Subsections (1) and (2) do not require or authorise the Committee”—
the FPC—
“to exercise its functions in a way that would in its opinion be likely to have a significant adverse effect”,
et cetera. The phrase “in its opinion” seems to me to make the new section completely meaningless. How would you ever tell? If something happened and the committee pursued some set of objectives that had a significant adverse affect on the capacity of the financial sector to contribute to growth—something the noble Lord earlier this afternoon pointed to as a very positive provision in the Bill—how would you then know whether this had been “in its opinion” or not? You would go along to the committee and ask, “Why did you do this?”. It would respond: “In our opinion, it was the right thing to do. End of story”. Consideration of the implications of its acts has been ruled out of court. The phrase “in its opinion” seems to make the clause devoid of meaningful content. If we remove it, we will improve the overall import of the Bill and, significantly, of this section that refers to the functions of the FPC.
With Amendment 39, I have a real mystery. Systemic risks are defined as credit growth, debt and leverage. However, in new Section 9C(7), all those terms are defined with respect to the UK only. Why is that? We live in a global financial market. Why do they refer to the UK? If these conditions had been in place and the FPC was considering the position of the Royal Bank of Scotland, that bank would have been found to be totally secure, because almost all the problems that assailed it occurred outwith the UK. The growth of credit from that bank was excessive outwith the UK. Its debt position was defined not by the debt it owed to individuals in the UK but to bond-holders and individuals throughout the world. I must be reading this completely wrongly but am totally mystified as to why credit growth, debt and leverage, as referred to in the definition of systemic risk, are confined to the UK. I would be very grateful if I could be enlightened and told that somehow I have got this wrong and that this does not confine consideration to the UK but is dealing with some other, wider element.
Continuing the international theme in this pot-pourri of amendments, I turn to Amendment 44, which deals with page 5, line 39, and refers to the overall functions of the Committee, suggesting that it should be,
“assessing its functions in the light of the policies of the European Financial Stability Board”.
As we know, much of the structure of the regulatory rule book for the UK will be written in Brussels. The EU, like the UK, is feeling its way towards defining the proper role of its macroprudential regulator, namely the European Financial Stability Board. The EFSB will, over the next couple of years, build a toolkit not unlike one that we desire for the FPC—rules on leverage ratios, procyclical provisioning, risk-weighted capital ratios and so on.
It is essential that measures taken in the UK are compatible with measures taken at the EU level, and vice versa. That is why the FPC must, at the very least, assess its functions in the light of what the European Financial Stability Board is doing. We will have an independent position, and the EFSB does not have the same European-wide status as the banking securities markets and insurance regulators, but none the less we want the activities of our FPC to be compatible with those of the EFSB.
To sum up, this is somewhat of a bran-tub. You put your hand in and take out amendments to see which aspect you would like to look at, so it is a slightly diverse group. Amendment 36 adds to systemic risk the risk of collapse of confidence in the system as a whole. Amendment 37 removes “in its opinion” from the new subsection whereby the FPC must take account of its impact on the financial sector’s contribution to growth, as the phrase would render the clause meaningless, or at least inoperable. Amendment 39 raises the question of why growth, debt and leverage are defined purely with respect to the UK, when—for goodness’ sake—we in Britain are dealing with some of the largest global financial institutions in the world. Amendment 44 simply adds to the functions and the need to take into account the actions of the European Financial Stability Board. Going back to Amendment 36 and the collapse of confidence in the system as a whole, I beg to move.
Lord Sassoon
My Lords, I do not know whether this group is a pot-pourri or a bran-tub, but let me attempt to do justice to a number of these amendments. Fine group though they make, they do not entirely find favour with the Government, as the noble Lord will know, because I do not believe they are necessary. I shall address each of them in turn.
Amendment 36 attempts to add,
“factors likely to lead to a loss of confidence in the financial system as a whole”,
to the list of specific types of systemic risks. I can reassure the Committee and the noble Lord in particular that new subsection (3) is not intended to be an exhaustive definition of systemic risk. The types of risk that have been highlighted in this section are generally accepted to be the main types of macroprudential risk, but systemic risks may well arise in future that are not included in these categories. That is why the FPC is free to look at anything else that it believes might pose a systemic risk to financial stability, and I would certainly expect that something that would undermine confidence in the system as a whole would have an impact on stability. It could be argued that market confidence is a necessary component for financial stability. I therefore believe that this is already included in the FPC’s objectives as they stand, and that Amendment 36 is not necessary.
Lord Eatwell
Yes, I can see that. I put a little question mark linking the two new subsections which seem to me to be contradictory, or at least inconsistent. I still do not understand why new subsection (3)(c) says that the systemic risks which the Financial Policy Committee has to consider are those which include,
“in particular … systemic risks attributable to structural features”,
and,
“unsustainable levels of leverage, debt or credit growth”.
How do we define leverage? It means,
“the leverage of the financial sector in the United Kingdom”.
Why? Debt means,
“debt owed to the financial sector by individuals in the United Kingdom”.
Why? Credit growth means,
“the growth in lending by the financial sector to individuals in the United Kingdom”.
Why? Why do we have these definitions when the noble Lord is quite right that new subsection (6) seems to contradict them?
Lord Sassoon
My Lords, the most important thing is that we are talking about financial stability in the UK, and the FPC needs to consider first and most importantly the metrics and indicators of financial stability in the UK. After all, the objective is for the FPC to protect and enhance the stability of the UK, so it is quite right that the definitions refer to the effects in the UK. We are not interested in the FPC deeming that it is not its business to deal with leverage in non-UK markets, but on the other hand it is quite right that the risks themselves may come from factors that arise outside the UK; I think that that is the point the noble Lord is trying to get to, which I believe is well covered by new subsection (6) and which we have made clear in the response to the Joint Committee. It is not the responsibility of the FPC to actually engender results outside the UK; it should be engendering results in the UK.
Lord Eatwell
I am sorry; the noble Lord must be wrong on that. If a bank is lending excessively outside the UK, then the FPC most certainly should be concerned. The idea that the FPC should be concerned only in managing results in the UK must be entirely wrong and could not be the basis of successful stability for the UK financial sector.
Lord Sassoon
No, my Lords, it is not wrong. If we are talking about a British bank, it is a British bank, and that is linked to these metrics and to the remit of the FPC. Of course that is captured in the FPC’s remit. I think we are getting ourselves excessively excited about a simple issue that is perfectly well drafted in the Bill, which is that the FPC has a wide and appropriate remit to deal with financial stability in the UK, but that it should properly take account of systemic risks that may arise both inside and outside the UK. That is exactly what the drafting of the two clauses taken together means. If the noble Lord had been critiquing the Bill as it was introduced in another place, he would have proper grounds for questioning that, but we have plugged a possible gap, and the construction now works.
Baroness Noakes
I do not wish to be unhelpful to my noble friend, but I am probably going to be. What the noble Lord, Lord Eatwell, says seems to make sense. The systemic risks in subsection (3)(a) and (b) are defined in subsections (5) and (6) as not having any geographic restriction, but subsection (3)(c), which is defined by subsection (7), as the noble Lord, Lord Eatwell, said, relates only to,
“individuals in the United Kingdom and businesses … in the United Kingdom”,
for credit growth, debt, and so on. That ignores the fact that many banks have global balance sheets. As we do not have rigid subsidiarisation, a UK balance sheet could have significant exposures to other territories, depending on how a particular bank’s overseas operations were organised. Many of them are run as branches out of the UK institution and therefore, I should have thought, would be posing the kind of risks on which the FPC would need to keep an eye. I am unclear why we have chosen that formulation. I accept that for the systemic risks it does not matter where it applies, but when we are talking specifically about credit growth, debt and leverage, it is as if it can impact on the UK only if it happens in the UK, and I do not think that that is correct.
Lord Sassoon
I shall have another go, because this is tricky but important. The Financial Policy Committee is charged with responsibility for the overall financial stability of the UK: the systemic risks and the macroprudential role. We need to distinguish that from the situation of individual firms which will or may contribute to the overall systemic risk. In this discussion we risk conflating two things. One is the systemic risk in the system, which the FPC is charged with dealing with. That is credit growth, debt and leverage as defined by subsection (7), which is referenced to the United Kingdom. The financial stability of the United Kingdom is the concern of the FPC. That does not mean that risk may not come from the international financial system—that is made completely clear by subsection (6). However, for individual financial institutions for which the PRA will have first responsibility, if the FPC considers that they contribute to the overall situation, it does not rule out or limit consideration of the factors that affect individual financial institutions. The clause and the definitions do not rule that out. We should not confuse what is being defined here. The definitions are not exhaustive of the systemic risks which the FPC should consider. It may consider whatever else it considers relevant.
Lord Eatwell
Let me try this just one more time, because the argument that the list is not exhaustive is a toss-away argument: we did not include that, but it does not matter, because it covers everything. Let us be a bit more serious and deal with precisely what is in the Bill. To make the discussion concrete, I shall deal with the first part of subsection (7), which refers to credit growth. In my opinion, credit growth is an important indicator of systemic risk. Indeed, Professor Shin of Princeton University, who is the authority in this field, has identified credit growth as one of the key variables which any macroprudential regulator should have in its sights.
Let us consider credit growth. We are told that with regard to systemic risks in particular,
“‘credit growth’ means the growth in lending by the financial sector to individuals in the United Kingdom and businesses carried on in the United Kingdom”.
That cannot be right, because the stability of banks and financial institutions in the UK often crucially depends on the nature of credit growth in lending to individuals outside the UK. The businesses to which they lend will operate within and outwith the UK. What is the notion that somehow it must be businesses carried on in the UK? Will, say, British Aerospace be included? It happens to be a British company, but I believe that most of its operations take place outside the United Kingdom. I may be wrong about that, but a substantial proportion of its operations take place outside the United Kingdom. Would British Aerospace be covered in respect of lending to businesses carried on in the UK?
We could take out subsection (7) and lose nothing. It is the old adage that you teach pupils all the time: when in doubt, take it out. It adds nothing but confusion to the specification of the role of the FPC and the definition of systemic risk. Of course, the FPC is responsible for systemic risk in the UK, because that is its juridical domain, but that systemic risk can arise from activities by UK institutions on a worldwide scale. When in doubt, take it out. Let us drop subsection (7) and make the Bill more coherent.
Lord Sassoon
As there is doubt about this—considerable doubt, it seems, in the noble Lord’s mind—that is precisely why we need to leave it in. Again, he conflates the role of the FPC, which is to deal with financial stability issues, threats and risks in the UK. He says that it is clear that the Financial Policy Committee's remit is only for the UK. I do not know how he comes to that conclusion. If there were no definition of levels of unsustainable leveraged debt or credit growth, that would precisely raise in people’s minds the question of what is their geographic limit.
Lord Sassoon
If the noble Lord will let me continue, this discussion precisely makes the point that the FPC is responsible for systemic risk, which may be measured in terms of these factors and others listed in the clause. In that respect, we are talking about the UK. That is independent of whether banks are or were lending excessively to foreign companies. That is dealt with in other ways, as I have explained: partly through the PRA looking at the individual leverage ratios or whatever for the individual bank. Equally, if there is a systemically important institution about which the FPC is concerned, this in no way limits the considerations to the business of that institution simply in the United Kingdom, because this is dealing with something else. This is dealing with the overall systemic risk that the FPC is trying to deal with, not any question about where individual firms are doing business.
Lord Eatwell
My Lords, if it in no way limits the consideration of systemic risk, I would say again that it is otiose; it is worthless. It adds only confusion to the Bill. With respect to the noble Lord, the juridical domain of the FPC is defined by the definition of “regulated persons”.
Lord Sassoon
My Lords, we risk confusing different things again. The definition of “regulated persons” is wholly different from the question of financial stability for the UK. The concept of “regulated persons” is dealt with elsewhere. We are in a completely different part of the financial landscape. We are risking mixing up the microprudential with the macroprudential. When the noble Lord reflects on this debate, he will understand that these definitions are appropriate. He would say that they are unnecessary; I say that they are necessary in order to define the objectives of the Financial Policy Committee. However, a careful reading will show that they in no way restrict the FPC or the PRA in looking at the activities of individual regulated businesses, wherever they are, in so far as they relate to regulated activities or to the financial stability objective.
I shall move on to Amendment 37, which seeks to remove the words “in its opinion” from the economic growth “brake” that prevents the FPC taking action that would have a significant adverse affect on the ability of the financial sector to contribute to long-term sustainable growth. I disagree with this for three reasons.
First, in principle, the FPC is the best placed to assess the likely effect of its own actions. We do not want the FPC to rely on other people in forming this assessment. The FPC will be the expert macroprudential regulator. It is the right body to decide how the brake applies and the drafting should reflect that. Secondly, that assessment will be completely open, transparent and subject to outside scrutiny via publication of the decisions in the FPC’s meeting records. The government amendment, which we will discuss shortly, will go further and require the FPC to explain how it has complied with the duty to consider the “brake”. Thirdly, in practical terms I do not believe that there is any sensible alternative to this approach. In whose opinion would it be, if not that of the FPC itself? I am sure that the noble Lord does not envisage the FPC’s meeting adjourning while it seeks the opinion of some other body.
Amendment 44 would add to the FPC a function of assessing its functions in the light of the policies of the European Systemic Risk Board, or ESRB. I appreciate the sentiment behind this amendment. The Government believe that, given the international nature of financial markets, macroprudential policy will be most effective when co-ordinated internationally. I assure the Committee that, in the Government’s view, the current measures in the Bill and other arrangements are more than sufficient to achieve this.
The Bill requires the FPC to have regard to the international obligations of the United Kingdom. This will encompass the obligation to have regard to any warnings or recommendations from the ESRB that apply to the UK. It is also worth noting that the Governor of the Bank of England, like all European central bank governors, is a member of the ESRB. The current governor is also the first vice-chair of the board. The Bank is, and will continue to be, closely involved with the work of the ESRB and this will be reflected in the work of the FPC. The governor will be able to feed back the decisions and policies of the ESRB directly to the FPC. As the governor and the Bank will influence the policy of the ESRB, I expect that it will often be closely aligned to that of the FPC. As I am sure the Committee is aware, the UK authorities are required to respond to any recommendations that they receive from the ESRB. I am sure that they will give careful consideration to the policies of that board.
On the basis of this more extensive debate than I had anticipated, I hope that the noble Lord, Lord Eatwell, will agree, on reflection, that his bran tub of amendments is not completely necessary. I would ask him to withdraw his amendment.
Lord Eatwell
My Lords, I think I am naïve, because I am bemused by the drafting of this Bill. Sometimes we are told that things are unnecessary; of course they are being done, but they do not need to be on the face of the Bill. At other times we are told, “We have got to describe everything in extreme detail. Even though there might be some apparent internal contradictions, at least it covers every base”. We do not seem to care very much, with respect to the logic of the story, whether we have the one or the other. I will comment on the amendments, so that we can take them formally as we go through.
With respect to the collapse of confidence in the system as a whole, that is just leaving a hole in the Bill. If the Minister wants to leave a hole in the Bill, that is up to him. I was trying to make it a bit better, and more comprehensive; just the sort of thing we are told that we should do. It would have helped; it would have provided the FPC with another stimulus in its overall definitions of its objectives, which would have contributed to its effectiveness. The idea that it is just rolled into everything else is not true. It is easy to construct models which do not have the other elements, and this element is important. I refer noble Lords to the literature: Professor Shin is the name reference.
If we turn to “in its opinion”, the noble Lord was very convincing on that one, so I take his arguments. On Amendment 39, and the whole addition of this business about the UK, I think that it is a mess. The noble Lord has been completely unconvincing. He has not been able to justify in any coherent way subsection (7) and that is regrettable. It is regrettable that the Bill is left like this. One would think that the Minister would at least say, “Let’s take it away and look at it, just to make sure that I have got it right”, since he cannot defend it on this occasion.
On Amendment 44, we are told, “Oh, it’s all going to happen anyhow. There are nice informal procedures, whereby these things will be taken into account. So you don’t need it, because it’s going to happen anyhow.” It is going to happen anyhow because the governor happens to have yet another hat: was it vice-president of the organisation? I am sure that the vice-president of that organisation is busier and better informed than the Vice-President of the United States is reputed to be on policy there. None the less, how can we be sure that our next governor—whoever it might be; maybe it will be the noble Lord, Lord O’Donnell, who is not in his place—will not also be the vice-president and be as engaged and whatever else it might be?
We cannot make laws on an ad hominem basis; that is not the right way to do it. Surely, if the noble Lord accepts that these functions are appropriate—indeed necessary—he should accept Amendment 44 or agree to have a look at it and come back with some rather better drafting than mine. In the mean time, I am sorry to be grumpy about this process, but I really thought that we were trying to improve the Bill. I beg leave to withdraw the amendment.
Lord Sassoon
Lord McFall of Alcluith
“(8) The Treasury and the Financial Policy Committee must agree and publish a set of indicators which the Committee will use to measure its performance in meeting the Financial Stability Objective.”
Lord McFall of Alcluith
My Lords, this amendment is in my name and that of the noble Baroness, Lady Noakes. The Minister has just said that the FPC is responsible for overall financial stability in the UK. That was a question that exercised us in the Joint Committee on the draft Financial Services Bill, the question being, “How do we work towards establishing financial stability indicators between the FPC and Her Majesty’s Treasury?”. We realise that it would be difficult to set indicators for the FPC and, unlike the MPC, which has a single measured target—namely, the rate of inflation—the FPC does not do that. We think it important that our indicators, particularly for external assessment, should see whether the FPC is doing its job and achieving the government target, unlike the MPC, where it is very easy for people to see that it is dealing with that issue.
We understand that the FPC’s performance will be the focus, but it is important to put forward an amendment to the Bill. The Court of the Bank of England said in its response to the Treasury Committee that it did not want this in legislation, and in a follow-up letter to the Treasury Committee the governor said that there should not be hardwiring of a narrow set of indices in legislation. He wanted flexibility on this issue and a review at regular periods.
We realise that the snapshot element of stability has to mean that we need flexibility on this issue, and that the financial stability report would be an important tool for accountability, just as the inflation report is for the MPC. However, the Government responded to the Treasury Committee that in an annual remit to the FPC they would recommend additional indices if that needed to be fleshed out. Something needs to be in the Bill, and primary legislation is a good place to put that.
The governor set out in his letter to the Treasury Committee a number of indices that we could discuss. I would like this amendment to provoke discussion of a number of those indices—for example, a simple averaged leverage ratio of the major UK banks, the aggregate leverage ratio of the UK banks, the UK long-term real interest rates, the household debt-to-income ratio and the growth of lending in the UK to the non-financial sector, which has been topical now for four or five years without any solution in sight. These indicators are important, but if the Minister thinks that the Monetary Policy Committee and the inflation report, when it is produced to Parliament, are going to cause a bit of heat, in terms of the FPC this will really exercise politicians. We can imagine that certain judgments of the FPC would be unfavourable to a number of politicians who have particular constituency interests, and the FPC would find itself in the eye of the storm. Ahead of time, looking at certain indices and working out, the FPC is extremely important. When a body such as the FPC is given responsibility, it should be allowed to get on with that. I do not want to see it in the eye of the political storm. In order to ensure that that is not the case, we have to get these indices so that we understand what the FPC is about. There is some external assessment so that politicians and others do not just jump on the FPC for a job that it is pursuing as the result of inadequate indicators that have been supplied to it. That is the basis of the amendment. I beg to move.
Baroness Noakes
My Lords, as the noble Lord, Lord McFall, has already said, my name has been added to this amendment. It is one of those that have been put forward in the spirit of co-operation with the other place, and is one of the items left over, in the opinion of the Treasury Select Committee in the other place, at the conclusion of consideration of this Bill there. I was happy to put my name to it so that we could have a proper debate on the issue in your Lordships’ House.
There does not seem to be any fundamental disagreement that some indicators of financial stability should be used in the dialogue about how well financial stability is going along and ultimately, I imagine, how well the FPC is doing its job. Consequently, I am unclear why there has been so much resistance to date to recognising the importance of this in the Bill. The Bank of England rightly said that this should not be hardwired into legislation—that is, the hardwiring of the particular indicators. I do not think that anyone has a monopoly of wisdom at the moment regarding what those indicators should be and it is clear that the nature of the indicators will change over time, so it is wholly inappropriate for specific indicators to be reflected in the Bill. The amendment would merely ask the FPC and the Treasury to agree and then publish a set of indicators, and clearly that can vary over time.
I find it difficult to understand the Treasury’s approach on this. Usually the Treasury likes to get stuck in on practically anything and not leave things to the Bank of England, but it seems quite content to leave the issue of financial stability indicators solely to the Bank of England and to have no direct locus itself. It was curious that when the Government responded to the Treasury Select Committee’s 21st report of 2010-12, when this issue was raised, the response said:
“If necessary, as part of its annual remit to the FPC the Treasury will be able to make recommendations about additional indicators that it feels the FPC should consider”.
I do not understand why we have to have this indirect dancing around recommendations made in the context of an annual remit to the FPC. The measurements that are used to tell whether or not the financial stability objective has been met should be so caught in the dialogue between the Treasury and the FPC that it should be a routine item for discussion, not one left to the possibility of recommendations.
This is all part of the link of accountability from the functions of the Treasury in relation to the FPC to Parliament. The Treasury should be accountable to Parliament for its role in agreeing the indicators and not just say, “Well, it’s really up to the Bank of England and we’ll give them a recommendation if we feel that they’re seriously out of line”. I am struggling to find why the Government have not embraced the very modest idea that the Treasury should be agreeing this issue with the FPC.
Lord Davies of Stamford
My Lords, I think that my noble friend Lord McFall and the noble Baroness, Lady Noakes, have been very persuasive on this point. All human institutions—indeed, all human beings—perform best in life and achieve the most when we set ourselves clear objectives, we monitor our performance in meeting them and we are quite clear and honest with ourselves and others about the extent to which we have met them. Clearly, with regard to an institution that has public responsibilities and fiduciary responsibility on behalf of the public as a whole to supervise our financial sector, those criteria and objectives and the extent to which they have been achieved or otherwise should be a matter of public knowledge and public debate. I am certain that matters should proceed like that.
As the noble Baroness has just said, the amendment would not in any way hardwire specific metrics or criteria into the legislation; it says merely that the FPC and the Treasury would have to agree among themselves what particular objectives or criteria they were going to adopt for a foreseeable period, and then we could watch to see whether they were adopted or not. I do not have any specific objectives or criteria to put forward except perhaps an addition to the sort of principles that my noble friend Lord McFall referred to. We should at least mention something that, while it is quite obvious, the public would expect to be there, such as that the FPC would expect to intervene sufficiently early and to be sufficiently alert to the difficulties that can arise in order to avoid situations where the Bank of England has to supply either solvency support to banks by way of deposits in a crisis or indeed liquidity support or solvency support if it requires accuracy or nationalisation. These are extreme examples of how things can go badly wrong. They have gone badly wrong over the last few years and there should be an explicit commitment to avoid those mistakes and those disasters in any agreed criteria which may come out of the discussion between the Treasury and the FPC foreseen by the amendment.
Lord Northbrook
I support the very sensible amendment in the names of the noble Lord, Lord McFall, and my noble friend Lady Noakes. As the noble Lord, Lord McFall, stated, the MPC’s remit is to target inflation. Finding an indicator—or a set of indicators—for the FPC is difficult. There is merit in amending the Bill to ensure that a set of statistics is available to help external bodies, including the Treasury, to assess the performance of the FPC. The recommendation in the Treasury Committee’s report says:
“The selected range of indicators must be flexible and under constant challenge and review, not only by Parliament, Government and the Bank of England, but also by others such as financial industry practitioners, the media, academia and the public. The indicators should be published so that the performance in maintaining financial stability may be monitored and so that it can be held accountable for that performance. The FPC should report against these criteria at regular intervals”.
To the same extent, the Joint Committee said:
“The FPC should begin work towards developing indicators of financial stability in dialogue with the Treasury. They should be published and the FPC should report against them. The set of indicators should be flexible and subject to regular review”.
The recommendations of these two committees are very powerful and, as the noble Lord, Lord McFall, has already stated, the court was generally supportive but did not believe that they should be put in the Bill. I happen to disagree: I think it would be much clearer to have these in the Bill.
Lord Eatwell
My Lords, I support the amendment in the name of my noble friend Lord McFall, and the noble Baroness, Lady Noakes. This is—reflecting our earlier discussions—one of the Tyrie amendments. It is very cleverly drafted because it does not attempt to specify a particular set of indicators. It knows that the FPC is in a learning experience: that we are all going to be in a debate over indicators, instruments and so on in the years to come. Nothing could further that debate better than to propose a set of indicators, such as, for example, the rate of credit growth, which we have just been talking about, although not just in the UK. This is an extremely valuable amendment which, is, I hear, supported all round the Committee and I would expect the Minister to take account of the weight of this support.
Also in this group is a series of amendments in my name and that of my noble friend Lady Hayter. I would like to take a few minutes to address these. They are all concerned with the reports that the Financial Policy Committee is required to make and they all specify characteristics of the report. The first one requires the presentation of scenarios: the attempt by the Financial Policy Committee to look at various potential crises—stress-testing, we call it at a micro level—and assess the impact of their policies and of various events. We have learnt from the Office for Budget Responsibility how useful this technique can be and I am sure it will be extremely effective in the assessment of macroprudential measures. Amendment 73, requiring the presentation of scenarios, fits in with the philosophy of policy-making and of the empirical basis of evidence-based policy-making in finance today. I therefore hope the Government will accept it.
Amendment 74 is consequential upon today’s acceptance of the Government’s Amendment 35A, which we agreed earlier this afternoon. After all, if the Financial Policy Committee is required to take into account government policies on growth and employment, then it is surely appropriate that it should report on its performance on what it is required to take into account. This should really have been down as a consequential amendment to Amendment 35A but I am happy to help the Government out and introduce their consequential amendment for them.
Amendment 75, on the issue of indicators, referred to by the noble Lord, Lord McFall, and the noble Baroness, Lady Noakes, places those indicators in the reporting structure of the FPC. Amendment 76 would relate the FPC’s report to the functioning of financial markets and of the wider economy. If they do not discuss that then I am blowed if I know what they are going to discuss. So let us at least hope that that is agreed by everyone around the Committee.
These are just four amendments to flesh out the characteristics of FPC reporting which will be a crucial part of FPC accountability. Given that we are handing these powers to unelected officials, the reporting structure is an important component. That reporting structure— and the debates over the role of the FPC—would be enormously enhanced by the acceptance of Amendment 40 in the name of my noble friend Lord McFall and of the noble Baroness, Lady Noakes.
Lord Sassoon
My Lords, I wish we had a simple tag that we could use for amendments which come up so often when talking about legislation where we all agree on the substance but there is a kind of debate on whether it needs to be in or not. We are substantially in that territory with a number of amendments in this group. I will take them in turn.
First, Amendments 40 and 75 seek to require the Financial Policy Committee to publish a set of indicators of financial stability. I agree that financial indicators will aid the Committee, Parliament and the public in assessing the effectiveness of the FPC’s actions, but I hope I can assure the Committee that the amendments are unnecessary. The noble Lord may groan, but I acknowledged at the outset that this is one of those “is it necessary or not” amendments. Let me try to give the evidence because it is important to adduce the evidence of how things are going already—of which there is quite a lot—to put flesh on to the bones of why I believe it. We have looked very carefully at the Treasury Committee’s recommendations and have accepted a lot of amendments as a result. The Government’s record in picking up the Treasury Committee’s recommendations is very clear. We have been through them very seriously, and we have accepted a lot of them. I am grateful to the noble Lord, Lord McFall of Alcluith, and my noble friend Lady Noakes for assiduously going through them and provoking a further debate on the ones we have not picked up. That is quite right and proper. This is one amendment that we believe is unnecessary. I will give some reasons why I think the Committee should be satisfied on this.
The starting point is the Bank’s statement, in its response to the Treasury Committee’s report on bank accountability, that the FPC will publish and report against a set of indicators. Further than that, the FPC has already given some signals of the indicators it finds most useful for assessing risk through its oversight of the Bank’s financial stability reports over the past year and so too has the governor via a letter to the Chairman of the Treasury Committee last year.
Baroness Noakes
My Lords, my noble friend is mischaracterising what I was suggesting in relation to this matter. The amendment states merely that the Treasury and the FPC,
“must agree and publish a set of indicators”.
There is no suggestion that the Treasury could use this mechanism to tell the FPC not to look at certain things. The issue is whether or not the Treasury should take the responsibility of agreeing a range of indicators that are appropriate to the FPC’s objectives, just as the Treasury does in relation to the indicator that is set for the MPC. We know that it is radically different from the MPC, and that a single indicator cannot be set and that it cannot be the sole responsibility of the Treasury. However, the Treasury should have some responsibility for agreeing with the FPC the range of indicators that will be used.
I hear the cry of a child in the Public Gallery. It is amazing the effect that one has when talking about financial stability.
It is important that the Treasury should be engaged formally in the process, and it should not just leave it to the Bank of England. Equally, the Bill should not be silent and leave it to the Bank of England to choose whether or not to put forward indicators. I agree that it is doing so at the moment, but is it wise to legislate that there should be no requirement for it to do so?
Lord Sassoon
My Lords, I am sorry if my noble friend thinks that I mischaracterised her argument. My interpretation of the words,
“The Treasury and the Financial Policy Committee must agree … a set of indicators”,
is that effectively the Treasury would have a veto over the set of indicators. What would happen if the Treasury and the FPC did not agree? It states in the amendment that they must agree. They would therefore have to find some common ground and it would be difficult if the Treasury dug its heels in and said, “We believe that this and that should be in the indicators”. Our starting premise here is that the FPC is the expert body and it should be left to define the indicators. As I have tried to indicate to the Committee, the Bank and the FPC are already on the case, providing a high degree of transparency, and there will be a series of draft policy statements available in time for consideration of the passage in the relevant secondary legislation. There will be appropriate scrutiny, but we would be going into pretty dangerous territory if we were to hard-wire the Treasury into the set of indicators that should be for the experts to set. Appropriate parliamentary and public scrutiny is allowed for in the Bill in the way that I have described.
Amendment 73, which would require the financial stability report to include the FPC’s predictions about the likely future state of the UK financial stability, is unnecessary. Subsection (3)(d) of new Section 9T, which appears at the bottom of page 11 of the Bill, already requires the report to include an assessment of the risks to stability that is very similar to the suggestion of the noble Lord, Lord Eatwell, that it includes a “range of … possible scenarios”. Subsection (3)(e) of new Section 9T already requires that the report includes the committee’s view of the outlook for the stability of the UK financial system. The interim FPC has already published three financial stability reports since its establishment. As I am sure the Committee is aware, the most recent report, published just last week, contains a whole chapter devoted to the committee’s outlook and the actions that the FPC felt necessary to tackle risks that it had identified.
I move on to Amendment 74. It is important that we learn from the mistakes of the previous system of regulation. In that system, the Bank was given responsibility for maintaining financial stability but no means of achieving that objective. That is why it is vital to give the FPC effective and proportionate powers to use certain macroprudential tools. However, the use of those tools will need to be monitored carefully. That is why the Bill already requires that the financial stability report includes an assessment of the extent to which the committee’s actions have succeeded in achieving its objectives, including its new secondary objective for economic growth. That is also why the FPC is required to publish and maintain policy statements for each of its macroprudential tools. We expect these statements to include estimates of their impact on both financial stability and growth. As we will discuss in due course, other amendments will require the FPC to produce explanations of how its actions are compatible with its objectives, including the costs and benefits of those actions. I do not therefore think that Amendment 74, which would require the financial stability report to include an assessment of the impact of each of its macroprudential measures on employment and economic growth, is needed.
Lastly, on Amendment 76, the smooth and efficient functioning of financial markets is a key requirement for financial stability. As such, the FPC’s objective to protect and enhance the resilience of the UK financial system extends to the functioning of markets. As I have mentioned, the Bill already requires the FPC to include an assessment of its actions as part of the financial stability report. The amendments that I have made require the FPC to explain how its actions are compatible with its objectives with regard to financial stability and supporting the Government’s economic policy. I therefore regard Amendment 76 as unnecessary because the same ground is already amply covered by the Bill.
I hope that on the basis of those explanations and reassurances noble Lords will withdraw or not move their amendments.
Lord McFall of Alcluith
My Lords, this was the gentlest of amendments ever. The genesis of it was the tripartite authority, and how the link between the Bank and the Treasury did not work as well as it could. Here we have an ill-defined term—financial stability—for which there is no definition whatever. On that basis, in getting the balance right between the two institutions, the Joint Committee at the time recommended—and I promoted, because I did not want anything prescriptive—that they should agree indicators. That is a very general term, so that people knew what the Treasury was expecting, and what the Financial Policy Committee was asked, and tasked, to do. That was the genesis of it. If we do not get that balance right we could find, in a few years time, someone saying in this very place—if it still exists—why did they not come to some agreement, so that there was a general consensus on what was happening?
Far from it being dangerous territory, I think it is nothing more than plain common sense. I hope that the Minister will look at this again, particularly when we come back to the Report stage, but I do not intend to move the amendment tonight. I beg leave to withdraw.
Lord Sassoon
“9CA Specification of matters relevant to economic policy
(1) The Treasury may by notice in writing to the Financial Policy Committee specify for the purposes of section 9C(1)(b) what the economic policy of Her Majesty’s Government is to be taken to be.
(2) The Treasury must specify under subsection (1) the matter mentioned there—
(a) before the end of the period of 30 days beginning with the day on which section 9C comes into force, and(b) at least once in every calendar year following that in which the first notice under that subsection is given.(3) Where the Treasury give notice under this section they must—
(a) publish the notice in such manner as they think fit, and(b) lay a copy of it before Parliament.”
Lord Sassoon
“( ) the responsibility of the Committee in relation to support for the economic policy of Her Majesty’s Government, including its objectives for growth and employment;”
West Bank
(12 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Brinton
To ask Her Majesty’s Government what is their assessment of access to water in the Palestinian territories of the West Bank.
Baroness Brinton
My Lords, although it is not a formal interest, I want to say that I am a member of the Watford Friends of Salfeet, an informal gathering of concerned residents in and around Watford, who have been working with the Salfeet municipality on the West Bank for the last five years.
I am grateful for the scheduling of this debate, on a vital issue, but one that is not well publicised. Access to water is a fundamental human right. Without it, people cannot survive; they cannot grow crops or livestock; they cannot dispose of sanitation and effluent safely. We in the West take water for granted, rarely thinking about how it is provided: merely turning on a tap, even when we have a hosepipe ban.
In 2010, for the first time ever, the UN Human Rights Committee addressed the difficult area of denial of access to water and sanitation in Palestine. The report found that Israel was in violation of its commitments under international law—which included denying Palestinians access to safe drinking water and sanitation—and said that this was a violation of the right to life and the right to equal protection under the law.
Specifically, the most serious water and sanitation problems lie in Area C, controlled by the Israelis, but where services are provided by the Palestinian Authority. However, the Palestinian Authority has such limited control over water in the West Bank that it cannot fulfil its duty. This is important, because Israel frequently tries to lay the blame at the door of the Palestinian Authority, without recognising that its job is impossible without access to the water that the Israeli state holds back for its own use.
I want to illustrate the problem with reference to two villages that I visited in the West Bank in February this year. The first is the village of Faqu’a, on a hill, right on the edge of the north-eastern line of the 1948 green line, south-east of Nazareth. Faqu’a means “bubbles”, and the village is rightly named. It has more than 50 natural water springs and wells, and sits on an aquifer. It is part of the beautiful area of citrus groves and wheat fields that are key to the local economy.
Despite its name, Faqu’a is a community in crisis. It no longer has the right to access its own natural resource. Their water is siphoned off by the Israeli Government over the boundary—or, I should say, under the boundary—and locals are not permitted to use the natural wells. Any attempt to do so results in the wells being filled with cement, and the farmers or users punished. Farming citrus crops without irrigation is fruitless—literally—so family incomes have dropped.
With no natural access to water, this village has to rely on buying back its own water from Israel. The nearest tap standpoint is kilometres away and transporting it by tanker to the villages increases the cost to the villagers. Worse than that, contamination of water increases the more it is handled, and the children of Faqu’a now have a high incidence of water-borne disease, such as dysentery. A recent research study showed that there are now a number of hospital cases of infection caused by faecal contamination.
The World Health Organisation says that water resources for communities must be within one kilometre of the village. Faqu’a has been fighting in the Israeli courts for five years to have a standpoint brought to within seven kilometres. The result of this is that the average use of water per capita per day in Faqu’a is a shocking 25 litres, brought to the village every day by tanker.
In Palestine the average use per capita per day is 80 to 90 litres. For Israel it is 250 litres. I stood beside the 1948 line, and saw arid fields on my left in Faqu’a, beside the lush green fields, on the right, of Israeli farmers, just the other side of the wire fence: a very strong visual image that demonstrates the inequality that these West Bank residents face every day. The residents of Faqu’a are among nearly 200,000 Palestinians who live without running water.
Other West Bank communities face a range of difficulties. The illegal industrial area of Broqeen sits above Kefra Diq and other villages that make up part of the Salfeet area. The plastics factory there—which proudly advertises that it makes goods for Pilkington glass—puts its chemical waste directly into the local water source, polluting the only access to water that the Palestinian villages below them have.
The pollution of water is one of the subtler mechanisms used to cow the Palestinians, and sits alongside the better publicised confiscation of land, demolition of houses, cutting down of olive trees, and settler and army incursions into the villages. Residents also suffer from toxic fumes as the polluted water travels through their villages in the river, causing concern about birth deformities and other illnesses following long-term exposure to chemical effluent.
The Ariel settlement stretches across the hillside above these Salfeet villages, housing 30,000 people. This very large illegal settlement takes first access of the water resources, and their sanitation effluent goes into the water before it goes down the hill to the Palestinian villages.
In a report published this March, the UN Office for the Coordination of Humanitarian Affairs said it had surveyed 530 springs in the West Bank and found that 30, mostly in areas where Israel retains military control, were taken over by settlers. It added that Palestinians currently had limited access to 26 other springs where settlers had moved in and threatened to take control. The area round Kefra Diq is one such. The olive groves have been there for thousands of years, but without clean water to irrigate them, the chances of the trees being able to produce a good crop are reduced. So, reduction in access to water becomes tool of economic oppression.
Of the water available from the West Bank aquifers, Israel uses 73%, the West Bank 17%, and illegal settlers 10%. While staying with families in the Salfeet area, we saw how they manage to survive day to day with very little water. Their cooking practices, flushing of toilets and turning on of taps are all severely curtailed and carefully thought about.
Finally, as if all these examples of unfair practices were not enough, the state water company has differing charging levels for water. It will come as no surprise, given what I have said, that the Palestinians on the West Bank are expected to pay a significantly higher unit price for water than are Israeli citizens, even though much of the water comes from natural wells and aquifers in Palestine.
I welcome the Government’s clear message to the Israeli Government about illegal settlements and other illegal acts such as house and olive tree demolition. Will they make strong representations to the Israeli Government to address these issues and accept the findings of the UN Human Rights Committee; immediately cease these violations under international law; end the differential level of water charging between Israel and Palestine; prevent the poisoning of water sources on the West Bank, whether industrial or domestic, by settler communities; give the people of Faqu’a access to a tap standpoint within one kilometre of the village rather than seven kilometres; and allow them to use their own water resources? Will the UK Government also raise this abuse of water provision and access to water with the United Nations, the United States of America and other countries that are able to help influence Mr Netanyahu and his Government?
Access to water is one of the most fundamental human rights. Now is the time for the United Kingdom, the EU and the UN to put pressure on Israel to ensure that all the people of the West Bank are given access to their own clean water, at a fair price, and that those who oppress them through polluting or restricting water are brought to justice.
Lord Warner
My Lords, I congratulate the noble Baroness, Lady Brinton, on securing this debate. I will use my six minutes to speak about the related and linked issue of access to water in Gaza, where there is a very similar situation and lack of water is being used as an oppressive measure. In doing so, I declare my interest as a trustee of the Council for European Palestinian Relations.
I have been to Gaza twice in the past two years and seen at first hand the parlous state of the water and sewerage systems, and the impact on people’s health and on an already totally inadequate healthcare system. More than 90% of water from Gaza’s taps is unfit to drink, according to the World Health Organisation. This is in a population half of whom are children and young people aged under 18.
However, I will not speak from my own experience but will use the recent report by Save the Children and Medical Aid for Palestinians, the launch of which I had the privilege to chair last week. This report reveals some devastating things about water and its pollution in Gaza today. It found that Gaza is not a safe environment for children or adults because its water supply and land are contaminated with pollutants. A September 2010 assessment found that, “1.1 million Gazans”, out of a population of 1.6 million,
“are at high risk of consuming biologically contaminated drinking water from private vendors, the source of water for most Gaza residents”.
Concentrations of chloride and nitrates are as much as 10 times the safe levels established by the World Health Organisation. According to the WHO, ingestion of nitrates in drinking water has been linked to anaemia and some cancers. Some 70% of Gaza’s children are anaemic. The new report states:
“The most recent studies from 1998 and 2002 of infants and children indicated 48% prevalence of nitrate poisoning. Many more children are thought to be at risk today”.
A UNICEF report of March 2011 suggested that in five to 10 years’ time, Gaza’s already depleted aquifer, the sole water source, will stop producing water suitable for human consumption. Seawater has already penetrated the aquifer and the pollution has been compounded by Gaza’s inability to dispose properly of its sewage. Much of the sewerage network has been destroyed or is in a state of acute disrepair. According to the new report, 60 million to 90 million litres of untreated or partially treated sewage have been dumped in the sea every day since 2008. This has an impact not just on Gaza but on neighbouring areas. The report also points out that air strikes in 2011 destroyed $1.3 million- worth of water and sanitation structure, including a new sewage pumping station connecting 130,000 residents of Gaza.
Despite this appalling situation, the new report points out that.
“Sixteen internationally-led projects to address Gaza’s water and sanitation needs, valued at $75 million, continue to await facilitation following the easing of the blockade in June 2010. Only one-fifth of the materials required for these projects have been allowed to enter Gaza, with the remainder sitting in warehouses. No progress has been made on large-scale desalination projects addressing the lack of drinkable water”.
In conclusion, I will mention one of the five key recommendations of the Save the Children and MAP report. It states:
“Given the direct relationship between a supply of clean water and deteriorating water and sanitation systems, on one hand, and child mortality on the other, all planned water and sanitation projects should be implemented immediately, and a clear timetable provided by the Israeli authorities for their completion”.
What action will the Government take, in conjunction with EU partners, to press the Israeli Government vigorously to implement this very sensible recommendation?
Lord Alderdice
My Lords, I join the noble Lord, Lord Warner, in expressing appreciation to my noble friend Lady Brinton for securing this debate and for the knowledgeable, passionate and well informed way in which she presented a very moving case. It did not come merely from other people’s understanding; she has been involved. She has gone to the places she speaks about and met the people she talks about, and therefore can speak with great knowledge and passion.
The noble Lord, Lord Warner, in speaking about the situation in Gaza, also outlined the urgency of this appalling situation. I recall that in Northern Ireland, while we disagreed on many things, one thing on which all communities came together was the question of water. This is true everywhere; we simply cannot live without it. It is a fundamental human right. For it to be used in any way as a source of political pressure is not only morally wrong but profoundly dangerous, because people will not only react but remember. Some things involving water that are happening in the region concern me deeply.
In October 2011 I brought to your Lordships’ House a debate on the question of water in the Middle East, and how it might be turned from a potential source of great conflict to one of co-operation. I thank my noble friend the Minister, who responded to the debate. She ensured in her preparation for it that there was a constructive and positive response from the Foreign Office. That work continued and continues still, and I hope that a little later in the year it will be possible to have a round-table conference addressing those questions. It is not easy to put these things together, particularly from a distance. We often press our Ministers to do things, and when they are done it is very much appreciated.
This area will not be easily resolved. First, there is a profound difference in the standing of the Israeli and Palestinian water commissioners in the Joint Water Commission. The Palestinian water commissioner does not have the power to implement almost any of the decisions that he may take, whereas the Israeli water commissioner must be consulted and has the final say on all these matters. There are considerable differences in understanding some fundamental data in regard to water and water distribution, and almost endless arguments about pollution, its distribution and so on.
I was a little encouraged in February of this year when I spent some time in Israel and talked to both sides about this question, including the Israeli water commissioner’s office. An appreciation is beginning to develop, among not just NGOs but technical experts, that it is simply not possible for Israelis—Jewish or Palestinian—to isolate themselves from issues of pollution of the aquifers, for example. The disturbing question is whether this is being done to drive Palestinians off the land in order to have a one-state solution that excludes them. As someone who has supported the two-state solution for some time, there is a real question in my mind as to whether the two-state solution is becoming a non-viable proposition. We have to understand the dilemmas we are talking about in that wider political context.
I have to say that the Palestinians have not always reacted wisely in their handling of some of these issues. For example, some young Palestinians told me when I was there this year that one of the mistakes was that Israelis changed the facts on the ground and argued about the politics subsequently, while the Palestinians wanted to solve the political questions while the facts on the ground were changing all around them. I think that many young Palestinians realise that strategic mistake and want to engage in changing the infrastructure to the benefit of their people and discuss the politics subsequently.
If I said positive things about the Minister, I also want to say that I think our ambassador in Israel has also understood the importance of this question and has been pressing it and trying to get people to the discussions. Through the medium of your Lordships’ House, it would be appropriate to indicate our support for what he is doing to enable those in politics, in government and in NGOs on both sides to get together and address these questions. Whatever we say in your Lordships’ House, and whatever the Government try to do, unless we can engage those in the Israeli Government and in the Palestinian Authority, we will not achieve the kind of outcome that we all want to see in your Lordships’ House. We must therefore encourage those initiatives that are taking place, properly funded and properly encouraged, as best we can, and not simply make demands that we all know will not be achieved in the next six, 12 or 20 months.
Lord Winston
My Lords, I am sure the whole House is deeply grateful to the noble Baroness, Lady Brinton, for introducing this debate on a most important subject. It is good to hear the noble Lord, Lord Alderdice, praising Matthew Gould, the British ambassador, for his work in Israel and for his trying to cement relationships and do good diplomatic things for our country.
There is a huge amount of vilification of Israel, and often that vilification is expressed in the way certain statistics are presented. Sadly, we have heard some pretty misleading statistics this evening. It turns out that the Palestinians have 125 cubic metres of water per year, which is 351 litres per head per day. Given that the average American family needs between 200 and 300 litres, that is quite a lot of water. It is slightly higher in Israel at about 421 litres per day. More water will be used where there is industry and increasing agriculture, as the noble Baroness, Lady Brinton, pointed out, will also increase water usage.
Israel has had a legal agreement with the Palestinians since 1995. It was signed in Washington and was also signed by the European Union, Norway, Russia and the United States. It is interesting to point out that on 13 June Alex Kushner, the representative of the Israeli water authority, met with Dr Shaddad Attili, the Palestinian representative. The meeting was held in a very co-operative, pleasant and agreeable fashion and it was clear there was a lot of agreement between them. The problem is that, whatever might be said at this level, the situation that we should like to see with the various authorities in Palestine does not always follow. Unfortunately, disorganisation means there are huge problems with water. For example, none of the speakers has mentioned that some 6,000 wells have been illegally drilled in the country, which has resulted in the sewage that is referred to.
I find it difficult to understand how anybody could accept that Jews are poisoning wells. This almost sounds like the medieval blood libel. There is absolutely no reason for Israelis to poison wells and poison the aquifer; there is nothing to gain from that. The problem is that most of the sewage in Gaza certainly comes from Gaza. Israel has offered all sorts of help to Gaza, including pipes, technology and so on. Certainly, desalination would be expensive at around $400 million, and there is the issue of how you get that and continue it with the lack of power in Gaza. None the less, there is a total failure by anybody else to help the Gazans in their situation at present. It is shocking that the pollution that affects Israeli water by spilling over the border is so often seen as something that Israel has caused; it is something that is very much at the feet of the Palestinians.
I want to say only this in this very short debate. If we really want to see a peaceful solution, and a two-state solution to which the noble Lord, Lord Alderdice, has referred as being one that we can promulgate and support, it is crucial that we make certain that we do not vilify one side or the other. While we allow ourselves to be persuaded by inaccurate and often misleading statistics, we reduce the cause of peace. We make it more difficult for there to be an accommodation between the two sides. It is extremely important at this time that we are careful and accurate in our assessments of what is happening in the Middle East.
I was in Israel only a few weeks ago; I will be there again this coming weekend. I am there rather more frequently than my noble friend Lord Warner. I have been on both sides of the divide, and I have to say that Israel is trying very hard to make certain that the water supplies are kept intact, that the sewerage issues are controlled and that the damage is repaired.
Lord Wright of Richmond
My Lords, I also congratulate the noble Baroness on introducing this important debate and I thank her for her very moving personal account of her visit to Palestine.
I first point out that access to water in this part of the Middle East, as elsewhere in many parts of the world, is a critical issue for all the countries of the region, and has been the subject of dispute between many of them for years. For instance, there are problems between Turkey and its Iraqi and Syrian neighbours, let alone the problems around access to water for Israel and Palestine, much of it flowing from countries that are still at war with Israel. Indeed, it has often been said that water may be the cause of the next serious conflagration in the region. One of the tragic consequences of the present crisis in Syria and the so-called Arab spring is that it has diverted the world’s attention from the problem of water supplies.
I turn to the subject of this debate and, in stark contrast to the points made by the noble Lord, Lord Winston, the statistics available to me from international sources are truly horrendous. At the risk of repeating some of the points that have already been made, one crucial fact behind many aspects of this problem is the continuing illegal settlement of the West Bank by the Israeli occupying power. The settler population continues to grow, in spite of ineffective attempts by the Government of the United States and the European Union to persuade the Israeli Government at least to freeze their growth, if not to reverse it. At approximately 500,000, the growth rate of Israeli settlers on the West Bank and in east Jerusalem has averaged 5.1% a year, compared with an Israeli population growth as a whole of only 1.9%. What is called the mountain aquifer on the West Bank is hugely overexploited by the Israelis, who take 80% of the water, thus leaving only 20% for the Palestinians. More than 190,000 Palestinians live in 134 West Bank villages without any running water. In recent years during the summer months, the Israeli army has stepped up pressure on Palestinian border communities to force them out of the Jordan valley by confiscating their water tankers and depriving the villagers and their flocks of water at the height of the hot season.
Others will no doubt disagree with these facts and figures, but surely we cannot dispute the illegality of the Israeli settlement policy on the West Bank. What we have, in effect, is 500,000 Israelis who, under international law and the Geneva Convention, should not be there at all, using 80% of the available water and leaving only 20% for the indigenous population. For a Government who pride themselves on being not only the sole democracy in the Middle East but one who accept the rule of law, this is a shameful story. Even if, as it appears, the United States is unable or unwilling to do anything about it, surely the European Union should be doing something to correct this flagrant injustice. Mr Netanyahu may not have blood on his hands, to quote a frequent accusation against the Syrian regime next door, but he should certainly have water on his conscience.
Lord Turnberg
My Lords, I too am grateful to the noble Baroness, Lady Brinton, for introducing this debate. I should express my interest as a member of the Labour Friends of Israel. It is obvious to anyone who has looked at the condition of the Palestinian water supply and the terrible state of the sewage disposal facilities, particularly in Gaza, that the situation there is increasingly intolerable. Noble Lords have spoken eloquently about these difficulties, and I resonate in particular to the analysis made by the noble Lord, Lord Alderdice, and not least that of the noble Lord, Lord Wright, who it always seems to be my problem and privilege to follow. I differ hardly at all in my recognition of the problems for the Palestinians, but I differ in my view of the causes and possible cures. The prime cause, of course, is the stand-off between Israel and the Palestinians, and the cure for the water conditions would follow a peace treaty, but we are where we are.
I shall start with Gaza because that is where the problems are undoubtedly most acute. According to the United Nations, Gaza has a desperate shortage of pure drinking water. Between 90% and 95% of Gazan water is polluted and a threat to health. If ever a place desperately needed a desalination plant, Gaza is it. Recently, UNICEF came in with a plan to do just that, but it came up against a Hamas Administration that, I am afraid, put their politics ahead of their population’s health. UNICEF wanted to purchase at favourable rates all the equipment that it would need from Israel because Israel has all the necessary expertise in desalination that could be wished for. Moreover, Israel was ready to help. But unfortunately all hell broke out. Hamas absolutely forbade any Israeli involvement. The Palestinian contractors’ union condemned UNICEF and announced a boycott of the agency, which then had to shut down its offices.
This episode is just one example of why it has been so difficult for Israel to influence the development of clean water and a proper sewage disposal system in Gaza, both of which have been Gaza’s own responsibility since 1995. Hamas just will not have anything to do with Israel, even when it offers to help. If it is said that Israel has prevented the transfer of necessary materials, while that may have been true, it is no longer the case. All the pipes, pumps and chemicals that are needed for water purification are now going across.
On the West Bank the situation is far from perfect, but it is much better than in Gaza. My figures—we all have different statistics, of course—suggest that 95% of the population is connected to a clean water supply and that the people have access to almost as much water as the Israelis. We can argue about the data. The problem in the West Bank is again one of a lack of willingness on the part of the Palestinians to collaborate on water and sewage projects with the Israelis. From what I hear, the relevant experts in water treatment meet and talk on friendly terms, but any agreements reached are quashed by the politicians. I fear that the Palestinian Authority is at least as much to blame as the Israelis. It does not want to be seen to be collaborating with the enemy in Israel.
A couple of years ago, Israel agreed to an American proposal to hold joint hydrological workshops with the Palestinians, but again that has been put on hold by the Palestinians. Water and sewage management in the small area of land in which Israel, the West Bank and Jordan sit closely together demands a co-ordinated approach on which they all work together. Placing all the blame on Israel or on any one of those countries is unhelpful. We in the UK must focus hard on how to get the parties together, if not in a total peace agreement —that is probably asking too much—at least on water, which is vital to them all.
In debates on the Middle East in your Lordships’ House I always try to bring out the possibility of what we in the UK might usefully do that is positive, rather than the usual constant carping and criticism. In that light, will the Minister consider inviting representatives with expertise in water management from those countries to meet on the neutral ground of the UK, where, perhaps, they can work something out far away from the scenes of conflict?
Lord Liddle
My Lords, on behalf of the opposition Front Bench, I would like to say how much we welcome the fact that the noble Baroness, Lady Brinton, has got us this debate. It is a vital but not very well publicised issue, and she is certainly right that questions of water supply are about human rights. She has pursued this with her typical determination, which I admire, as well as her personal diplomacy through her twinning efforts between Watford and the Palestinian territories. I therefore have the greatest respect for what she is trying to do in highlighting these issues.
All noble Lords who have spoken in this debate accept that there are serious issues at stake here. The noble Lords, Lord Warner, Lord Alderdice and Lord Wright of Richmond, also spoke passionately about the problems. I agree with my noble friends Lord Winston and Lord Turnberg that certainly we have no wish to vilify the Israelis, and I am sure that many ordinary Israelis are horrified by these facts as much as anyone in this House. I also fully accept that the politics of the Palestinian Authority and of Hamas are not always the most constructive.
However, when you research the reports written by a number of international organisations and reputable NGOs on these issues, as I did briefly for this debate, one can only come to the conclusion that the Israelis have a serious case to answer. The most recent report I looked at was produced by the World Health Organisation last month. In that report the WHO says that the average supply of water to the Palestinians is only 50% of what it regards as a reasonable daily requirement, and that it is much worse in some parts of the territories—in Gaza and the so-called Area C—than in the rest. It also says, as did the noble Lord, Lord Wright, that Israel dominates the take of water from the aquifer on the West Bank—over 80% of it is taken by the Israelis—and similarly of the underwater aquifer in Gaza. Settlement building has made the problem worse: they are building deep wells, the building of which affects the water table and makes life more difficult for the Palestinians. The greatest injustice of the lot, in a way, is that the Israelis then sell a lot of the water back to the Palestinians, at quite a hefty profit. One estimate is that 50% of water in those parts of the territories has to be bought from Israel.
What is the Government’s view of this? This is something on which the British Government ought to have its own independent assessment of how serious these problems are. I hope that the Minister will be able to tell us that at the conclusion of this debate. We ought also to know what representations and what action the Government are taking to pursue this issue. I picked up in my researches an interesting report on these issues produced by Amnesty International in 2009. One of its suggestions, which seems perfectly sensible, is that there should be much closer co-ordination between the international donors who are trying to help to resolve these problems; a system of transparent reporting of difficulties and obstacles that they encounter, whether they are on the Israeli side or the Palestinian side; and a proper mechanism for reporting what is going on. That transparency and reporting mechanism seems to me to be an important part of trying to resolve the difficulties. What are we doing through our own aid efforts and the EU to try to ensure that that is done?
I have been passionately pro-Israeli all my political life but when one hears about some of the problems that the Palestinians encounter, it makes one wonder about the seriousness of the present Israeli Government’s commitment to a two-state solution. There are steps that the Israelis could take. As the noble Lord, Lord Wright, eloquently said, if they do not want to have blood on their hands, they should not have water on their consciences.
Baroness Northover
My Lords, I congratulate my noble friend on securing this debate on this very important issue. As the noble Lord, Lord Liddle, has noted, she and other noble Lords have spoken with passion and a great deal of knowledge about a challenge for the region that in itself reflects the huge political tensions of the area. We are indeed very concerned about the issue of access to water in the Occupied Territories and Gaza. I can assure the noble Lord, Lord Liddle, that we regard this as very serious indeed.
It is clearly very important that Palestinians have equitable access to the dwindling water resources in the area. The Palestinian population is allocated an average of 60 litres per capita per day, well below the World Health Organisation’s recommended level of 100 litres. In communities without water infrastructure, consumption dips to 20 litres per person per day. As the noble Baroness, Lady Brinton, indicated, not having regular access to water has a serious impact on the daily life of Palestinians, including their ability to tend their crops and therefore to provide for their families.
As noble Lords have indicated, there are various factors at play. There has been a lack of rainfall in recent years, the population has grown and the management of water resources could be improved. However, the main reasons why the Palestinians have inadequate access to water are political: the inequitable distribution of water resources compounded by Israeli restrictions on building and movement.
Less than 1% of Area C has been planned for Palestinian development by the Israeli Civil Administration. This kind of restriction does not lend itself to the creation of infrastructure that makes it easy to tackle this issue. As scientists, the noble Lords, Lord Winston and Lord Turnberg, are right about the misuse of statistics, which is why I am glad that we have independent analysis of this. Palestinians have access to only 20% of the West Bank’s water resources, the lowest access to fresh water in the region. The Office for the Co-ordination of Humanitarian Affairs has calculated that the average Palestinian receives 60 litres per capita per day. In comparison, Israeli settlers receive on average 280 litres per capita per day. This huge difference in allocation is unacceptable and indefensible. To help address this inequity, the UK is funding a project working with both the Palestinian and Israeli authorities to help improve co-operation on water issues to the benefit of all.
Of course, this is only one of the many problems associated with the illegal settlements, as the noble Lord, Lord Wright of Richmond, made so very clear. The Government’s policy on settlements is clear: they are illegal under international law and undermine the possibility of a two-state solution to the Israeli-Palestinian conflict and those working for a sustainable peace. I can assure my noble friend Lady Brinton that we have repeatedly condemned Israel’s announcements to accelerate settlement building in the Occupied Territories.
Another cause of the water shortage is the restrictions imposed on Palestinians, particularly in Area C, to develop their household and communal infrastructure. Based on the provisions of the Oslo agreement, both sides agree to co-ordinate the management of water and sewerage resources and systems during the interim period, as has been referred to by noble Lords. Development infrastructure projects in the water sector require the prior approval of the Israeli-Palestinian Joint Water Committee and subsequent construction permits and licences from the Israeli Civil Administration. The complex Israeli requirements and approval processes are an obstacle to the tangible development of the Palestinian water sector and to the Palestinian economy as a whole.
The demolition of Palestinian properties continues in the West Bank. Cisterns and water wells have been demolished. This has meant the loss of primary coping mechanisms in times of water scarcity. Such demolitions cause unnecessary suffering to ordinary Palestinians, are harmful to the peace process and, in all but the most limited circumstances, are contrary to international humanitarian law.
On 14 May this year, the EU Foreign Affairs Council called on Israel to meet its obligations regarding the living conditions of the Palestinian population in Area C by accelerating approval of Palestinian master plans, halting the forced transfer of the population and the demolition of Palestinian housing and infrastructure, simplifying administrative procedures to obtain building permits, ensuring access to water and addressing humanitarian needs. The Foreign Ministers further reiterated the EU’s joint commitment to provide financial assistance for Palestinian development in Area C.
While this debate deals with the West Bank, water is also a serious issue in Gaza, as the noble Lord, Lord Warner, made very clear, where 90% of drinking water does not meet international standards. The Israeli blockade and restriction of the import of goods and equipment into the Gaza Strip have resulted in significant delays in implementing major water-related development projects in the strip. Water and sanitation projects worth over $70 million are still awaiting Israeli approval for access of materials, the implications of which the noble Lord, Lord Warner, highlighted.
We continue to call for the full implementation of the relaxation of access restrictions for Gaza. We welcome all suggestions to improve the deeply worrying health situation in Gaza. We are very carefully reviewing the Save the Children report. In recent years, there has been some limited movement towards the easing of the restrictions, which we welcome. However, more remains to be done. We hope that further easing of the restrictions will follow.
Water scarcity is a major issue not only for Israel and the Palestinians but for other countries in the region, too. Water has been a scarce resource in the Middle East since early civilizations, as the noble Lord, Lord Wright of Richmond, indicated. Rivers in the region are few. Water demand is increasing as populations grow. Underground reserves are shrinking. The current water usage in the Middle East is unsustainable. Shortages are likely, unless Governments take action to solve the impending crisis, which is why we very much welcomed the work undertaken by my noble friend Lord Alderdice.
The UK funds the Global Water Partnership, which has supported a regional water partnership for the Mediterranean. Partners have included Israel, Jordan and Lebanon among others. These independent regional partnerships have promoted the concept and implementation of integrated water resources management as a vital approach to managing the world’s water resources. Following on from this, we very much welcome the work that my noble friend Lord Alderdice has been doing with the Strategic Foresight Group, which the House debated on 27 October 2011. I am glad that the initiative that he called for then is being taken forward; I wish him well with it and thank him for his kind words.
We supported the Negotiations Affairs Department of the PLO in developing improved data on water issues in order to promote effective negotiations with Israel on water sharing and co-operation. However, strengthened dialogue and co-operation between the Israeli and Palestinian authorities on water issues do not need to wait. I noted what the noble Lord, Lord Turnberg, said; we would like to hear more about the noble Lord’s suggestion about bringing those Israelis and Palestinians who are involved in this area to the United Kingdom to discuss it. I will ask FCO officials to follow up on it and see where we can take it.
The UK regularly discusses access to water in the Occupied Palestinian Territories with the Israelis, including the urgent need for Israel to ensure fair distribution of water in the West Bank and Gaza. We call on both parties—and, as the occupying power, particularly Israel—to take urgent, practical and immediate measures to improve this unacceptable situation, which has been so well described in this debate.
International interest in this area is keen. What happens between Israel and Palestine has a knock-on effect within the region, which has a knock-on effect far wider than that. The noble Baroness, Lady Brinton, and others have asked what representations we are making to the UN, the USA and others on this matter. We work closely with international partners, including the EU and the US. We will raise this issue in our discussions with them, as we have done. As I mentioned, the EU Foreign Affairs Council addressed the issue of access to water in its conclusions of 14 May.
The noble Baroness, Lady Brinton, asked about the village that she visited. I make the commitment that we will ask the British consulate-general in Jerusalem to visit the village and see how Her Majesty’s Government might be able to assist the villagers in gaining access to clean water.
The noble Lord, Lord Liddle, asked about the independent assessment of the situation. As he probably knows, the United Nations Office for the Co-ordination of Humanitarian Affairs conducts regular assessments of access to water in the OPTs. Many have quoted from those assessments here today.
Water is one of several important issues for negotiations between Israelis and Palestinians, and anything that can be done to bring the sides together is very welcome. With this resource being so limited in the region, effective co-operation is required from all parties to manage it to ensure enough for all. This evening’s debate only reinforces the urgent need for negotiations to resume and for a final status agreement to be reached between the Israelis and the Palestinians. Such an agreement must include a just solution on shared water resources.
Financial Services Bill
(12 years, 4 months ago)
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Lord Eatwell
Lord Eatwell
My Lords, this is another of those bran-tubs full of amendments, to jump us around various aspects of the functions of the FPC as set out on pages 5 and 6 of the Bill. Let us deal first with Amendment 42. I do not know whether this is a slip in drafting—although I know those never occur in the Treasury—but with respect to the need to understand or support the objectives of the FCA, the strategic objective of the FCA is left out. Since the FCA very emphatically has both operational and strategic objectives, it is interesting to know why the FPC does not have to avoid prejudicing the strategic objective of the FCA. According to this drafting, the FPC can readily prejudice the strategic objective that markets should function well. That is a mystery. We are going to have the FPC being able to ensure by its measures that markets do not function well. I think if it got up to that, it would rapidly get short shrift from the Treasury and, indeed, from Parliament, so I presume that this is just a slip and that the strategic objective of the FCA will be added to the operational objectives.
In Amendment 47, here the issue is knowledge collection for the FPC, in the sense that it is important that the FPC has knowledge of levels of leverage, as we discussed earlier this afternoon. Knowing levels of leverage is a vital part of systemic risk analysis so the amendment ensures that the FPC will have access to that information, either from the FCA or from the PRA, divulging levels of leverage as defined clearly in the Basel III agreement. You could take other definitions but the Basel III agreement is a perfectly reasonable definition of leverage and that is why my noble friend and I have used it here.
Amendment 51 is a probing amendment, tabled because I did not understand the issue of a “publication”, as referred to in new Section 9G(10) of the Bank of England Act 1998. Describing directions issued by the FPC, it says:
“The direction may refer to a publication issued by the FCA, the PRA, another body in the United Kingdom”—
so any other body, such as my local sports club—
“or an international organisation, as the publication has effect from time to time”.
I am sure that “publication” in this sense must be a term of art and I am missing something. I would be grateful if the noble Lord could elucidate the issue both of what a publication is in this context and what is “another body” in the UK. Does it include my local sports club, and if not, why not, since it is another body in the UK?
Amendment 53 is one of the standard openness amendments, which have been encouraged by the Treasury Select Committee in another place, requiring the chairman of the Treasury Select Committee to be informed and given reasons if a copy of a report on a direction is not laid before Parliament. A persistent problem that we are going to face in the workings of the FPC is that it is going to be using powers that have traditionally been those of the Executive or of Parliament. There is therefore always going to be this tension of accountability between the FPC and the Executive and Parliament until, after a few years, the process has settled down, we hope. In these circumstances, it seems important that if for some reason a report on a direction is not to be laid before Parliament, the chairman of the Treasury Select Committee should be informed and given reasons.
Amendment 64 is rather more important, particularly in respect of some of the discussions we have had over the last few days, including this afternoon, and relates to the definition of “regulated persons” and the scope of exemptions. We know from the whole LIBOR debacle that one of the problems was that this particular market did not come within the scope of regulation. I am sure the FPC would have been quick off the mark last March, when the Treasury first knew, or presumably even earlier when the FSA knew what was going on, and would have included the setting of benchmark prices within the definition of regulated persons or dealt with it under the scope of exemptions. The recommendations that the FPC should make on the scope of financial regulation are enormously important and it is vital that the FPC has the powers to keep these matters under review. Amendment 64 is, if anything, the most important amendment in this whole group. We have to give the FPC the power to make recommendations with respect to the scope of regulation as it affects financial stability and systemic risk.
Amendment 65, which applies to page 9, line 34, is one of these amendments to which I have already referred where the committee is given discretion over its own action, even though the action seems to be firmly defined in the particular new subsection of the Bill, which reads:
“The Committee may make a recommendation under subsection (2)(e)”—
with respect to additional persons who may be required by the PRA to provide information, so this is very important indeed—
“only if it considers that the exercise by the Treasury of their power to make an order under section 165A(2)(d) of FSMA 2000 in the manner proposed is desirable”.
It is only “if it considers” that. Why should it be its consideration that limits whether it makes a recommendation? Either this is just trivial—in other words it would not have acted if it had not thought it should act—or this is limiting the scope of any legitimate limitation on the recommendations that the committee might make. If we took out the phrase “it considers that”, it would read “The Committee may make a recommendation under subsection (2)(e) only if the exercise by the Treasury of their power to make an order under section 165A(2)(d) of FSMA 2000 in the manner proposed is desirable”.
There the test is the desirability of the Treasury’s action, whereas at the moment the test is whether “it considers that” it is a desirable action. How do we want the test to be posed? Should the test be posed that the committee decides to act, or that there is an objective consideration of the desirability of the action under consideration?
Amendment 88 is thrown into this group for reasons which are not entirely obvious, but I will speak to it because again it is a straightforward openness amendment requiring that the chair of the Treasury Committee be informed and given reasons should information concerning a direction not be published.
These amendments are all to do with the very important activity of directions and recommendations by the Financial Policy Committee. We have the need for information derived through directions and the openness issues, which are hugely important. The most important, particularly in the light of what we have seen over the last couple of days, is the question about the scope of financial regulation and the recommendations that the FPC may make about that scope as set out in Amendment 64.
To go back to the beginning of this bran tub-list, let us deal with Amendment 42. I simply want to ask the noble Lord why the FPC can actually, if it wishes, endanger the FCA’s pursuit of its strategic objective of having markets function well. I beg to move.
Baroness Noakes
May I clarify one item with the noble Lord, Lord Eatwell? He said in relation to Amendment 64 that the important thing was the definition of regulated persons and that that would have been necessary to ensure that the events in relation to LIBOR were kept under review. Is it not the definition of regulated activities rather than regulated persons that would have been relevant in that instance? That is to say, the activities were already being carried out by regulated persons but they were not regulated activities.
Lord Eatwell
The noble Baroness has made a very interesting point. I have forgotten the precise names, but you have a person who submits the information, and a person who receives it and then has the responsibility of transmitting that received information into the LIBOR setting. That is the person I have in mind.
Lord McFall of Alcluith
My Lords, I shall speak to Amendment 43. The four main Financial Policy Committee functions have been outlined in the Bill, but I would like the Minister to consider providing clear regulatory statements for both the FCA and the PRA, given that clarity is essential: there is an outside audience here, so transparency and clarity are very important. For both those bodies, that would be a helpful submission from the FPC.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, we are into another bran-tub—not a pot-pourri this time, but a bran-tub, I note; I am not sure what the distinction is. This is a varied group of amendments about the functions of the FPC.
I say to the noble Lord, Lord Eatwell, and all other noble Lords taking part in Committee that if there are definitional difficulties—we have got into one or two tangles about definitions, construction of difficult clauses and the interrelationship between clauses and subsections —I am very happy for the noble Lord or any other noble Lord to have meetings including the Bill team to try to thrash out some of those difficult issues outside the Committee if that would be helpful. Some of these things might more easily be done away from the constraints and formality of the debate. I lay that offer on the table to all noble Lords who are interested.
I will come back to Amendment 42, but let me start with Amendment 43, which would require the FPC to prepare and publish regulatory statements for the PRA and FCA. One of the most glaring flaws of the tripartite system of regulation was a lack of clarity about who was responsible for what. As we know, the Bill will create regulatory bodies with clear and separate responsibilities. Although the FPC will have the power to direct the FCA and the PRA, that will apply only in the case of actions required to address systemic risk. The Bill makes it clear that the FPC cannot make recommendations or directions that relate to specified persons—that is, individual firms. Decisions on the policy approach of the PRA and the FCA will be made by their respective boards, not the FPC. As such, the amendment would risk blurring those clear responsibilities of the regulators.
Amendment 47, which would provide the FPC with the power to direct the PRA to require the disclosure of leverage ratios, is simply unnecessary. The Government agree that the disclosure of leverage ratios would be beneficial. That is why we supported the Basel III proposals to require its calculation from 1 January 2013 and its disclosure from 1 January 2015. The Government have pushed for full implementation of Basel III.
The interim FPC recommended in November last year that the FSA encourage UK banks to disclose their leveraged ratios from 1 January 2013, and an update on the progress of that recommendation was included in the financial stability report published last week. I will not, but I could quote extensively from that report. It is clear from reading that FSR that the FPC is already using recommendations to address disclosure issues effectively, so I suggest that Amendment 47 is unnecessary.
Lord Eatwell
I do not want to delay the Committee, but will the noble Lord elaborate a little on “addressing effectively”?
Lord Sassoon
Perhaps the best thing is to quote what was written by the FPC in its most recent financial stability report, which was published last week. It states:
“Following FSA discussions with chief financial officers earlier this year, the major UK banks and building societies are expected to disclose leverage ratios, calculated according to the fully implemented Basel III definitions, in their end-2012 annual reports. Thereafter, UK banks and building societies will report on both a half-year and end-year basis”.
That is an example of the FPC in interim form, already using recommendations to address disclosure issues to pointed effect.
Lord Eatwell
I should have been clearer at the time about what I had in mind. Would it, for example, include a speech made by, say, the Governor of the Bank of England, if that speech had not actually been printed somewhere or issued on a website, but the governor had made a statement about some matter relevant to the FPC?
Lord Sassoon
First, it would be difficult to define the governor as a regulator or other body. If the governor had made a speech that had not been published, it would certainly not be a document. Even if it is a published speech, it is unlikely to be a document in the sense of what I am suggesting—rules, codes, guidance or formal statements. The situation which the noble Lord postulates would not be one that would fall within what we are talking about here; there is no question of that.
Amendment 64 is identical to one that was debated in Committee in another place. They debated a number of amendments, although they did not spend as long as we are going to spend, quite rightly, on all this. However, this was one that debated in another place. I should start by repeating what my honourable friend the Financial Secretary made clear there, which is that the FPC’s responsibility to monitor the perimeter of regulation is not only for the outer perimeter covered by Amendment 64. It also has responsibility for the inner perimeter, between those firms regulated prudentially by the PRA and those that fall outside the PRA’s regulation; that is one of the FPC’s most vital roles. To do this effectively, the FPC must monitor whether activities outside the perimeter of regulation or outside the PRA’s scope are being undertaken in such a way that could cause systemic risk or sufficient risk to other firms or consumers that they need to be made subject either to regulation or to a different style of regulation. When the FPC believes that the perimeter of regulation needs to be changed to bring such activities within regulation or within PRA regulation, it can make recommendations to the Treasury under new Section 90. The Treasury can then use its powers to modify the perimeter of regulation accordingly.
I do not agree that the way to ensure that the FPC undertakes the role effectively is to place it under an inflexible and bureaucratic requirement to produce an annual report on the matter. In particular, it seems unrealistic to expect the FPC to produce recommendations within 30 days of coming into formal existence. We need to allow it to use its own judgment and discretion to decide what activities might pose a risk and how and when it should investigate them.
Amendment 65 would amend the FPC’s power to make recommendations to the Treasury to extend the scope of the PRA’s ability to obtain information from unauthorised persons. Given its expertise in systemic financial stability, new Section 90 gives the FPC a power to make recommendations to the Treasury if it believes that the ability of the PRA to obtain information from those outside the perimeter of regulation is needed for financial stability reasons.
Lord Eatwell
If I may interrupt the Minister, for the information of all noble Lords, he is referring not to new Section 90 but to new Section 9O. He lost me for some moments.
Lord Sassoon
I am very grateful to the noble Lord. I should have been referring to new Section 9O in the previous amendment as well. What can I say, other than that the hour is late? I was thinking, “Why is there a typo in my speaking notes?”. I probably have a flood of notes coming from the Box on the matter, but the noble Lord got there first—in fact, I see I have only one.
As I was saying, new Section 9O gives the FPC a power to make recommendations to the Treasury if it believes that the ability of the PRA to obtain information from those outside the perimeter of regulation is needed for financial stability reasons. Removing the words “it considers that” from subsection (4) of new Section 9O —O for orange—would defeat the purpose of the recommendation power, which is to allow the FPC to make its own expert judgment about the need for the PRA to be able to obtain information that is relevant to financial stability from the wider class of person and make recommendations to the Treasury accordingly.
It is important to note that the decision to extend the PRA’s power still lies solely with the Treasury and is subject to approval by both Houses. It will be for the Treasury to look at the recommendation from the FPC alongside other information from the PRA and others and make a call on whether the power needs to be extended.
I shall now address Amendments 53, 87 and 88, all of which deal in some way with transparency and publication requirements around the FPC’s direction-making powers. Amendments 53 and 88 would require the Treasury to inform the chair of the Treasury Select Committee if the directions by the FPC were not laid before Parliament or published. The Government do not believe that it is necessary to make a restrictive legislative provision to provide that Parliament is informed in all cases when the publication of information or documents is deferred for public interest reasons. There is a well established principle that where public money is used to resolve threats to financial stability, the chairs of the relevant parliamentary committees are informed, in confidence if necessary. There are formal and informal mechanisms for this to happen, although I would point out that they are non-legislative mechanisms. I do not believe that the case has been made that it would be necessary, reasonable or proportionate to extend this principle to sensitive material that does not involve the use of public funds. The Bill already provides for the FPC to keep any decision to defer publication of information or documents relating to FPC decisions under review and to publish that material as soon as the threat to the public interest has passed—something we discussed in the previous Committee session. The Bill also requires that a copy of any direction included in the record of an FPC meeting must be laid before Parliament. Given these extensive requirements for the publication of FPC decisions, I do not believe that Amendments 53 and 58 are necessary or appropriate.
Turning briefly to Amendment 87, the provision which the noble Lord, Lord McFall, is attempting to amend already has the effect he desires. New Section 9W(3) reads:
“A direction under Section 9V must be in writing and may be revoked by a notice in writing”.
What the second part of this means is that a direction may be revoked as long as the Bank sends a notice in writing to revoke it. The Bank does not have any discretion to revoke a direction without sending a notice in writing. The Bank cannot revoke a direction orally. I hope that provides reassurance on why Amendment 87 is unnecessary.
I return briefly to Amendment 42, where we began, and an important question asked by the noble Lord, Lord Eatwell, about why, in his interpretation, the FPC can endanger the FCA’s objective of making sure that markets function well. I hope I have got his key question right, because it is an important one. I will try to explain why I believe that it is a misunderstanding and how it actually works. The strategic objective is an overarching umbrella objective to provide a common goal for the regulator and, in that sense, it acts as a mission statement. It is an objective which has been amended in line with the recommendation of the Independent Commission on Banking; it was endorsed by the Joint Committee and now reads “ensuring that markets function well”. Legally, actions taken by the FCA in discharging its general functions need only be compatible with the strategic objective but must advance one or more of its operational objectives. As such, it is the operational objectives which provide the crucial mandate for the FCA to act in these areas. The Treasury Committee states that the case has not been made for the strategic objective. The Government believe that the strategic objective will act as a high level mission statement that brings together the diverse aspects of the FCA’s work and, as such, it will serve a useful purpose in focusing the new, regulatory culture of the FSA. It will also operate as a check and balance on the operational objectives and help to ensure that the FCA does not pursue any single operational objective in a manner that undermines the overall functioning of the market.
It might also be worth adding that effective mission statements commonly clarify an organisation’s purpose. They usually set out the aims of an organisation and its key target for shareholders. They do not go into detail of an organisation’s goals or targets and the approach taken in achieving them. The FCA’s strategic objective clearly meets these criteria. It gives an overall purpose or aim to the FSA, which is to ensure that markets function well, and it clarifies that this only refers to the relevant markets as defined in new Section 1F in Clause 5.
Lord Eatwell
I wonder if I have got it right. The noble Lord’s argument about the position being somehow at a different level does not work. What works in the definition of the FCA’s general duties is the following: the Bill states that the FCA must discharge its functions to,
“act in a way which … is compatible with its strategic objective, and … advances one or more of its operational objectives”.
Consequently, the only way in which the FCA can pursue its strategic objective is via one of the operational objectives. Consequently, if you do not prejudice the operational objectives, you do not prejudice the strategic objective. It therefore has nothing to do with higher levels, but simply relates to the word “and” at a relevant point that I had missed—for which I apologise—in the general duties of the FCA. Is that correct?
Lord Sassoon
My Lords, I believe that the drafting is fine. I reiterate that in discharging its general functions, the FCA must act in a way that is compatible with its strategic objective but which advances one or more of its operational objectives. The drafting is, I believe, appropriate, but I will of course have another look to see whether the “and” is appropriate. The noble Lord’s colleague in another place was, I am sure, given a clearer explanation by my colleague the Financial Secretary on exactly this point. Of course I will look again, but my belief is that the drafting works. If, on reflection, it does not, I will, in the customary way, write to all noble Lords who have taken part in this discussion.
Lord Eatwell
My Lords, I am grateful to the noble Lord for working through this particular bran-tub. The point that I was trying to make on the amendment is that the drafting is right, but not for the reason he gave. That was why I apologised for not having spotted the relevant “and” in the drafting of the responsibilities of and pursuit of objectives by the FCA.
Perhaps I may comment on a couple of the other amendments in the group. The issue raised by Amendment 47 has not been satisfactorily dealt with by the piece that the noble Lord read from the Financial Stability Report. There was a meeting, and a willingness to provide information was expressed, but no requirement. The issue here is the requirement because it is imperative that the FPC has knowledge of the leverage ratios of regulated persons, and Amendment 47 ensures that it will. I urge the Minister to have a look at that amendment and see whether I am not right and it is perhaps a good idea to have this requirement rather than the informal relationship which he described earlier.
I am grateful to the Minister for the elucidation on publications and other bodies. I suppose it really means other relevant bodies, but then people would have a great debate about relevance. I hope that my research centre at Cambridge University is included, since it is devoted to financial regulatory issues. That is just a commercial.
Amendment 64 was about the scope of financial regulation. I would like to go away and consider the words of the Minister, and think about the issue of the scope and boundaries. As he said, it is enormously important and we have got to get it right. I am not at all convinced that I have got it right here, so it would be helpful for me to have a think about it, look it over again, and come back to this issue if necessary on Report.
In the mean time, since I now know that Amendment 42 is unnecessary—not for the reasons advanced by the noble Lord, but for other reasons—I beg leave to withdraw the amendment.
Baroness Noakes
Baroness Noakes
My Lords, in moving Amendment 42A, I shall also speak to Amendment 62A in this group. These are probing amendments. Amendment 42A deletes line 38, on page 5. New Section 9F of the Bank of England Act 1998 sets up the functions of the FPC, and subsection (1)(c) creates the function of making recommendations. Amendment 42A deletes this function.
Amendment 62A deletes a lot of lines, but in practice deletes the whole of new Sections 9N to 9Q, inclusive, which detail the functions created by new Section 9F. The purpose of tabling these amendments is to probe why the FPC needs the power to make recommendations, and what the legal significance of this function is in practice.
When I first saw the Bill, I was mystified by the need to create a statutory power to make recommendations. I was not familiar with that being a requirement, so I did a little research. I seemed to find that this statutory power of recommendation-making is a relatively new phenomenon in legislation, with similar provisions in a handful of laws, all of which have been created since the Government came to power in 2010. I am beginning to think that this might be one of those constitutional innovations for which we have to thank our colleagues on the Liberal Democrat Benches, although I may be wrong on that.
The Minister wrote to noble Lords with an interest in this Bill yesterday, following the first Committee day, which I was unable to attend. In the letter he said that the Treasury has a common law power of recommendation, but that bodies created by statute need a specific power. I find that pretty odd, given that bodies created before 2010 managed perfectly well without a statutory power of making recommendations. Indeed, the Bank of England has managed perfectly well for over 300 years without any kind of power to make recommendations.
It may be just a matter of legislative fashion. One has to go with the times. The main purpose of my amendment is to probe what is meant in practice by the ability to make recommendations.
New Section 9N allows the FPC to make recommendations within the Bank. I found it difficult to get my head around making recommendations within the Bank. The FPC is a committee of the Bank’s court, and that is under Section 9B. Under new Section 9N, this committee can tell the corporate body in which it is housed what it thinks that body should do. What is the purpose of that? More to the point, what is the effect? The Bank, which acts through its court, fulfils its own function, and as far as I can see, those functions do not include paying any particular attention to what one of its committees says. I do not believe that the functions of the Bank or its court are changed by the Bill in this respect. If I am wrong on this, I know that the Minister will correct me. However, I am completely mystified about what making recommendations within the Bank means in practice. The Committee discussed the circularity of this in the context of the financial stability strategy under proposed new Section 9A, which covers the FPC making recommendations to the court. I must say that I was no wiser after reading both Hansard and the Minister’s letter on this point.
Proposed new Section 9O—9 Oscar—would allow the FPC to issue recommendations to the Treasury. However, while the FPC has to take notice of any recommendations made to it by the Treasury and has to respond to them—that is set out in proposed new Section 9D—there does not appear to be any reciprocal provision requiring the Treasury to respond to the FPC’s recommendations. If that is the case, why on earth do we have to provide in legislation for the FPC to make recommendations to the Treasury?
Proposed new Section 9P covers the FPC making recommendations to the FCA and the PRA—and does contain requirements for the FCA or the PRA to comply or explain their non-compliance. This seems to be the only part of the Bill dealing with the FPC’s recommendations that makes sense and has any real-world impact.
Will the Minister explain why, in drawing up the functions of the FCA and the PRA, no reference is made to their duties in respect of the FPC recommendations? If it is necessary as a matter of law to set up a power to make recommendations, why is there no requirement to set up a reciprocal duty or requirement of compliance with the recommendations?
Finally, proposed new Section 9Q allows the FPC to make recommendations to the whole world. The justification for this is that it may make recommendations to bodies such as the Financial Reporting Council. However, since the recipients of these recommendations can—as far as I am aware—do what they like with them, I fail to see the point of the provision.
I looked at the June 2012 FSR, which has been referred to already this evening. The executive summary makes either six or seven recommendations, depending on how one interprets “recommendation”. In six instances it states that the committee “recommends” that other people should do things, but in one instance it states that banks “should” continue to do something. I have no idea whether that constitutes a recommendation. In any event, most of the recommendations were addressed to the FSA—which will be the PRA and the FCA in due course—and two or three, depending on one’s interpretation, were addressed to banks. That is interesting because making recommendations to banks was not mentioned at all in the extraordinary recommendation-making powers, although clearly this will be an important part of their activity.
Perhaps I ought to be less worried about the scope of the recommendation-making power that is not bounded by space or time, because it appears to be of little substance. If my noble friend tells me that it does have real substance, we would look to constrain it in some way so that it did not include the ability to tell the whole world how to act.
In summary, this is a set of largely one-sided recommendation-making powers that might amount to something of importance—or alternatively, not much more than window dressing. We should be told. I beg to move.
Lord Hodgson of Astley Abbotts
My Lords, I have some sympathy with my noble friend’s amendment. When the Minister replies, perhaps he will focus some remarks on proposed new Section 9Q, which is the declaratory piece about the whole world. It seems that either the parliamentary draftsmen are saying, “Because you said certain people were included, you must include everybody else”, or it is otiose.
It would also be helpful to have some suggestions about the sort of events and recommendations that might fall under new Section 9Q, so that the Committee gets some understanding of the purpose behind this clause, if it is anything other than declaratory, to avoid, for parliamentary draftsmen’s reasons, the view that, because certain parties have been suggested, by definition they could make recommendations to nobody else.
Viscount Trenchard
My Lords, I also support my noble friend’s amendment. In particular I think that this whole section is unclear and muddled. It is extraordinary to state that a committee of the court, which is the board of directors, may make recommendations within the Bank. The Financial Policy Committee is clearly a committee of the court. That has been stated. It is strange that it is asymmetric and different from the MPC. This is a recipe for muddle because if it is a committee of the board—that is, the court—it has no authority beyond the court. Any authority that it has is the authority of the court. To state that a committee of the board—the court—may make recommendations within the Bank seems weird.
Similarly, in making recommendations to the Treasury, if it is a committee of the court, it should be the court that makes those recommendations. We are getting very confused. The difference between the FPC, dealing with macroprudential regulation as a committee of the Court of the Bank of England, and the PRA not as a committee but a different body, but again within the Bank of England, is strange. I just think it all needs to be clarified a bit more.
Lord Eatwell
My Lords, I first address the amendment moved by the noble Baroness, Lady Noakes. I am now very puzzled by the status of recommendations, given that a recommendation is not necessarily something which needs to be followed. Given that there seems to be no indication, as the noble Baroness, Lady Noakes, pointed out, about the reactions to recommendations, it is difficult to assess the status of this concept within the structure of the Bill. My Amendment 69 simply deals with the offending new Section 9Q and deletes it. It states:
“The Financial Policy Committee may make recommendations to”,
the world. I am sure the world would be very grateful, but we should not expend public money on making recommendations to the world, and especially not on confirming them in writing. It would be interesting to know who these “persons other than those” are defined to be when we are talking about the context of macroprudential regulation; we are not talking about relationships, say, with individual firms or whatever. The noble Baroness, Lady Noakes, has picked up on some important and valuable obscurities in the Bill and it would be helpful if the Minister could elucidate them.
A sort of bran-tub of my amendments has again been grouped together. I am sorry about that but I am not responsible for the groupings. I could ungroup them but that would be tedious for everyone, so let us deal with them. Amendment 48 is included in the group, which again has been tabled in the context of directions. It refers to the point made with respect to the nature of directions. The Bill states in proposed new Section 9G(4) that:
“The direction may relate to all regulated persons or to regulated persons of a specified description, but may not relate to a specified regulated person”.
I understand entirely what the drafting is supposed to do, but given the level of conglomeration and concentration in the financial services industry, I do not think that this will work as it is quite possible to refer to,
“regulated persons of a specified description”,
but for there to be only one firm of that description. It is quite possible for that to happen. If this may not “relate to” in the sense that it may not have a relationship to, that would rule out, say, a reference to,
“regulated persons of a specified description”,
if it just so happened that the set of persons of that description contained but one element—just one firm of that type. We can see that there are various niche firms and highly specialised companies in the City. I can think of very highly specialised money brokers of which only one performs a particular role in the money markets. Perhaps my amendment would have been more helpful if it had changed the word “relate” to “refer”, so that the direction could not refer to an individual specified regulated person. That would be inappropriate and would go beyond what the FPC is designed to do. However, I am nervous that the activities of the FPC may be unreasonably limited by the possibility that there might be just one specific regulated person within a given class of persons to which the FPC wishes to issue a direction.
I turn to Amendment 50, which again refers to new Section 9G. Subsection (6) refers to the fact that a direction,
“may not require its provisions to be implemented by specified means”—
I am not quite sure what that means—but then it goes on to say,
“or within a specified period”.
This is very dangerous in the sense that it may be enormously important that a direction should be operational within a specified period. It may be important for the financial stability of Britain that actions take place within a month or six weeks, or whatever the period might be. Being unable to require that provisions be implemented within a specified period seriously weakens the ability of the FPC to pursue effectively the stability objective. I am also a bit worried about the term “specified means”, but again, I am not sure what it means. Perhaps the Minister could help me on that when he replies. I really think that the business of a specified period should be looked at very carefully indeed for fear of weakening the powers of the FPC.
Amendment 63 has been withdrawn, so I turn now to Amendment 66. It refers to the making of recommendations under new Section 9P(2), and states specifically that:
“The recommendations may relate to all regulated persons or to regulated persons of a specified description, but may not relate to the exercise of the functions of the FCA or the PRA in relation to a specified regulated person”.
Again, this is the problem. It is quite possible that a generic description could apply to just one regulated person. Therefore, this is the same point that I made with respect to Amendment 48. The word “relate”—that is, “have a relationship to”—could result in the FPC not being able to make recommendations because the specified activity was performed by only one particular institution.
Finally, Amendment 69 is where I follow on from the noble Baroness, Lady Noakes, and comments that have been made by the noble Lord, Lord Hodgson, and the noble Viscount, Lord Trenchard, about new Section 9Q being very odd. It states that:
“The Financial Policy Committee may make recommendations to persons other than those”,
namely, the rest of the world. With those comments, I look forward to hearing the Minister’s comments on the amendments in the name of the noble Baroness, Lady Noakes, and the various amendments in my bran-tub in this case.
Lord Sassoon
Yet another bran-tub—I am looking forward to another pot-pourri, which will come in due course, no doubt.
On this group of amendments around the levers and powers of the FPC, I will start with Amendments 42A and 62A in the name of my noble friend Lady Noakes, and I will follow with Amendment 69 from the noble Lord, Lord Eatwell. These amendments seek to remove the FPC’s powers to make recommendations. As my noble friend has said, she does not seek to remove those powers but to probe how they will operate and why they are necessary in some particulars, although Amendment 69 is intended to remove the wider recommendation power.
I say at the outset that recommendations will be the primary means by which the FPC will seek to address systemic risks, and I do not think that any noble Lords who have spoken are challenging that. It is a question of how they will operate and whether some of the power is redundant, but I hope that we would agree that recommendations will be at the heart of the FPC’s ability to do its job. My noble friend talked a bit about how it used to work; once upon a time there was, of course, regulation by the governor’s eyebrows, and a carefully calculated arching could elicit all sorts of reactions from the City.
I suggest that recommendations to industry from the FPC will fulfil a broadly similar—if more wordy—role to that of the governor’s eyebrows, by allowing the committee to highlight risks or unsustainable behaviour. However, recommendations, unlike the governor’s eyebrows, will have and need to have legal backing. The Bill allows the FPC to make recommendations to the PRA and FCA. In a moment I will come back to where the reciprocal requirement on those two bodies to follow through on the explanations is—to the Bank, to the Treasury and to other persons.
On the PRA and FCA, the question was: where is the duty? I am slightly puzzled by this, because it seems very clear, in new Section 9P(3), that the FCA and the PRA have a clear duty to comply or explain. They must either,
“act in accordance with the recommendations”,
or explain why not, and that is a firm legal duty.
Lord Hodgson of Astley Abbotts
Just to be clear, the FPC is going to make recommendations within the Bank, so that the governor of the Bank, wearing his hat as chairman of the FPC, writes to himself as governor—is that what will happen? Have I got this right? I presume that the two deputy governors will also join in and send it in one door and walk next door to receive it—is that right?
Lord Sassoon
My Lords, that is broadly right. [Laughter.] We should remember that the FPC will be made up of a different group of people, including independent members, who will be making recommendations. Taking the example I gave of the supervision of payment systems, the FPC, with its independent members and statutory responsibilities, could be making recommendations to the Bank regarding its supervision of payment systems. It would therefore be a mischaracterisation—it really does not matter who signs a letter to whom, it would be the FPC making a recommendation to the Bank. To reduce it to a suggestion that the governor will be writing to himself would be a mischaracterisation of an important power that should have a degree of formality around it, in the same way that the FPC will be required to exercise its powers of making recommendations for other regulatory bodies.
Baroness Noakes
My Lords, I thank the Minister for the explanation that he is trying to provide, but I feel a little as if we are in Alice in Wonderland. Can the Minister give me an example in the real world where people within organisations behave in the way in which we seem to be expecting the Bank of England to behave?
Lord Sassoon
My Lords, I am not sure whether one can distinguish the world in which we are talking about financial regulation from the real world. This is the real world. It is a world in which these are very important powers that go to the heart of ensuring the financial stability of the UK. This is not a frivolous point. It may appear on the surface to be Alice in Wonderland territory but, if the FPC is to exercise the really significant powers in the system that it is being given or the responsibility for financial stability, it must first have the levers. One of the important constituencies that it will be addressing—and it would be totally remiss of the Government and this Bill to leave it out—would be directions from the FPC to another important regulatory body, of which the Bank is one.
An awful lot of things could be left unsaid which one would assume would somehow happen. This is not one where it would be safe in any way to do so because, if we did not have this power to make recommendations, there could be a significant risk that the FPC would not have the powers—the levers—over critical areas of the supervision and the regulation of the financial infrastructure that underpins so much of our financial system. One only has to look at recent events to see how computer glitches and apparently relatively simple IT problems can have very significant consequences. I suggest that the FPC would have a huge hole in this armoury if it was not able to make recommendations also directed at those who supervise the infrastructure.
Lord McFall of Alcluith
On this point, can I remind fellow Peers that I have invited the Governor of the Bank of England along tomorrow morning, so I suggest that they ask him the very important question: “Will he enjoy writing letters to himself in the future?”.
Viscount Trenchard
The Minister just said that the FPC is to be a separate committee with strong statutory powers. I find it very hard to reconcile this with its being a committee of the Court of the Bank of England. This is different from the MPC, which is not a committee of the court but is a committee of the Bank. It would be more logical and comprehensible if at least it were acknowledged—as it clearly is—that the FPC is not a committee of the court but a strong semi-separate body. However, the Bill says that it is a committee of the court, in which case it cannot have any powers beyond the powers of the court.
Lord Sassoon
My Lords, the clear advice on the drafting of the Bill—notwithstanding other constructions that my noble friends are putting on this—is that the FPC should have the clear power to make these recommendations. I remember now that I, almost on a daily basis, am writing letters of perhaps a similar kind when I write to my boss the Chancellor—when, for example, he is wearing his hat as the chair of a Cabinet committee—for clearance or to seek permission for some policy matter. I certainly write letters within the Treasury on a regular basis to deal with formal matters, which is broadly similar territory to what we are talking about.
I have talked about the importance of clarity and transparency. It is perhaps worth underlining that one of the things that this power does is to ensure—because FPC recommendations will be published in the meeting record of the FPC—that the public are informed that, if a recommendation has been made by the FPC to the Bank, it is recorded and is open to public scrutiny.
I think that it was my noble friend’s construction that the FPC cannot have powers beyond those of the court. I correct him on that: if the Bill confers such powers on the Financial Policy Committee, it does indeed have powers that the court does not have.
Viscount Trenchard
In that case, does my noble friend the Minister not think that it would be right to recognise the FPC as a committee of the Bank and as separate from the court, having its own powers as given in the Bill? The position would then be logical. At the moment, it is stated that it is a committee of the court. If I were a member of the court, I would not find it easy to understand any structure where a committee of the court—that is, the board—had powers which were independent of and separate from those of the court itself.
Lord Sassoon
My Lords, that is the situation; my noble friend might find it difficult now. If he or anybody else was appointed—as they have been—to the interim FPC or the formal FPC if and when it becomes established, they will of course receive extensive briefing on all these matters. This is not the right place to discuss how the FPC fits into the architecture of the Bank—that is dealt with in other provisions. Although my noble friend may not like it, the FPC, however it is constituted—I do not think that his construction would alter the point—simply must have these important powers, which are unequivocally the powers of the FPC and not those of the Bank. That is the case however the FPC fits into the architecture. I am glad that we have probed this matter but, without this provision being in the Bill, the FPC would be unable to make recommendations and would not therefore be transparent and open to parliamentary or public challenge.
These are important matters, but I think that I should turn, if the Committee will permit me, to Amendment 69, relating to the FPC’s ability to make recommendations to people other than those whom we have discussed so far. Amendment 69 would remove one of the FPC’s most versatile and useful levers for addressing systemic risks. Perhaps the best way of explaining this is by addressing the challenge given to me by my noble friend Lord Hodgson of Astley Abbotts to provide examples of what we are thinking about and why the power is necessary.
For example, the FPC may wish to make a recommendation to the Financial Reporting Council regarding corporate governance standards, or to the European Banking Authority about a risk to the UK financial system stemming from European banks—that very much links in with our recognising earlier that systemic risks may come from overseas and should not be ruled out. Equally, here is a power taking on board the challenge from the noble Lord, Lord Eatwell, about international linkages. Here is a power that gives an important ability to the FPC to make recommendations to an international authority.
Lord Eatwell
My Lords, I want to refer to that discussion on Amendment 50. First, the amendment would not give the FPC the power to specify a precise time. It could specify a period: by the end of the month, within six weeks, within two months, or whatever it might be. The notion of a precise time is an inaccurate reading of the amended subsection. Secondly, while it is clearly right that the PRA and the FCA may have specialist knowledge at the micro level of the regulatory system, we are giving these powers to the FPC because it has specialised knowledge with respect to macro- prudential measures. If the FPC feels that it is urgent, for macroprudential reasons, that measures be taken within a specified period and it has the specialised knowledge, it seems to me that denying it the ability to require something to be done within a given time seriously weakens its effectiveness.
Lord Sassoon
My Lords, we could discuss at some length what the meaning of a “specified period” might be. Clearly it could, if interpreted as the noble Lord says, be by a certain month end. Equally, it could mean tomorrow, on the day after tomorrow or at the beginning of next month. I did not want to detain the Committee for too long at this late hour but a recommendation or direction dictating that an action be implemented within a certain timescale could have a serious negative implication for the safety and soundness of individual firms or for consumers. The FPC will not necessarily be aware of those negative implications on individual firms or consumers but the regulators themselves will be.
There are scenarios that could be highly undesirable if they led to consumer detriment because the FPC had been specific about the timing of implementation. On the other hand, the arrangements that I have explained at some length, which mean that the FPC could issue the direction on a “comply or explain” basis, would put the individual supervisor or regulator in a position where it had to come back and justify very clearly why it had taken a particular course of action. I believe we have struck the right balance here, which avoids the difficulties to which I have referred.
Turning to Amendments 48 and 66, I will go straight to the critical issue that I was asked about on a couple of occasions in different ways. There may be other points that need to be made, but I will be clear on the questions about whether the FPC can be specific about one firm. The FPC can describe a type or class of firms even if that, in practice, only captures one firm. This is allowed so long as the FPC targets the risk and not the firm. The FPC is not allowed to say: “Do X to Barclays or prevent RBS doing Y”. However, in the circumstances that the noble Lord postulated, where a firm was the only one in a particular area or type of business, the FPC would not be prohibited or prevented from describing a class of one in those circumstances.
Lord Eatwell
I do not see how that can be right. Taking the first of the two amendments, the new Section 9G(4) would read:
“The direction … may not relate to a specified regulated person”.
If the direction is a generic direction and there is only one person who satisfies that generic description, it does relate to—that is, it has a relationship to. I think it is just the wrong verb. If you said “refer to”, you would be entirely right. “Relate to” is wrong. Perhaps later, over a glass of wine, we can turn to the Oxford English Dictionary, but I believe the word “relate” does not mean what the noble Lord has suggested it means. The word “refer” would mean that, but “relate” means “to have a relationship to”, and in the case that I have just described, it would certainly have a relationship to a specified regulated person.
Lord Sassoon
My Lords, my clear understanding of the drafting here—and like these other drafting points that we have dealt with, if I have got it wrong I will of course write—is that a specified regulated person is the key thing, which in the examples I gave would be Barclays or the RBS. We should not be concentrating on the verb “relate” but what we need to be looking at in new Section 9G(4) is the construction on “specified regulated person” and that would be naming an individual firm.
If the FPC were to make a direction related to regulated persons of a specified direction which happened only to be a class of one firm, then I am clear that that is what is intended here. If I have got it wrong, which I do not believe I have, I will clarify the situation. I wish I had the complete Oxford English Dictionary. It would be quite difficult to bring it in to discuss it over a glass of wine, but I have the Concise Oxford English Dictionary at my fingertips and it might help the noble Lord to say that the concise edition defines “relate” interalia as meaning “having reference to”. I do not know whether that helps him, but perhaps we can move on.
We were on Amendments 48 and 66, and I think that that particular point was the major one here concerning the Committee. I would just say more generally that we are absolutely committed to maintaining clarity of responsibilities and distinguishing micro or firm-specific roles from the macro role. We do not want any lack of clarity here, but on the situation which the noble Lord postulates, I hope that I have satisfied him that indeed the drafting is correct. After that long and interesting discussion, I would ask my noble friend to consider withdrawing her amendment.
Baroness Noakes
My Lords, given the hour I shall not prolong any further what has been an interesting debate. I would like to thank my noble friend and the noble Lord, Lord Eatwell, for taking part in 50-odd minutes of discussion. My noble friend says that these recommendations to which my amendments were addressed are a lever, and that they need legal backing. I frankly do not see that. I am going to read with great care what my noble friend has said, in particular about making recommendations within the Bank, to the rest of the world and indeed to the Treasury, none of which seems to have any legal effect and is just simply a way of writing down something that might happen. I will not prolong the agony any further this evening and I beg leave to withdraw the amendment.