Independent Banking Commission Report
Andrea Leadsom Excerpts(13 years, 2 months ago)
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Mr Osborne
Yes, perhaps there are too many kitchen metaphors. The point I was making is that we are trying to clean up the mess.
We should not just assume that banking crashes happen every 70 or 100 years. We must hope that they will never happen at all, but we need to put in place the regulatory arrangements, capital requirements and structural changes that will ensure that the person who is in the hot seat the next time it happens, and has to do the job that the right hon. Member for Edinburgh South West (Mr Darling) had to do, will have more tools available to him than the right hon. Gentleman had as Chancellor.
Andrea Leadsom (South Northamptonshire) (Con)
Regulation in the banking sector has already changed beyond all recognition. In my view, the best bit of that regulation is giving accountability back to the Bank of England. There is no doubt, however, that yet more regulation will have a cost. We can see from bank share prices now that investors already think that the future of the banks is not as glowing as it was. Does my right hon. Friend agree that in order for small and medium-sized enterprises and personal current account customers to benefit in the future, we need a more diversified banking sector and we need to encourage more competition and to go beyond what the Vickers commission is doing by promoting it through the Financial Conduct Authority as well as through our implementation of the Independent Commission on Banking proposals.
Mr Osborne
I hesitate to read out bank share prices, as they might have changed in the 45 minutes I have been on my feet The reaction from the banks today has not dramatically affected the prices of UK bank shares. There has not been a dramatic fall, nor indeed a dramatic rise. They have remained broadly flat—unlike those of French and German banks, which are very substantially down today. What that also suggests is that John Vickers—and, I would argue, the Government—did a good job in trying to price the proposals into the share price by giving clear signposts about the way in which we were going, so that it did not come as a big surprise. I completely agree with my hon. Friend about the Financial Conduct Authority. As a member of the Select Committee, she can look at some of the Vickers’ proposals potentially to change the FCA’s remit. We need to consider that, as do Members who are looking at the Bill.
Early Intervention
Andrea Leadsom Excerpts(13 years, 4 months ago)
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Mr Graham Allen (Nottingham North) (Lab)
Early intervention not only requires no new net public expenditure, it is also the biggest deficit reduction programme that we have. If we implement it properly, it will produce results beyond the Chancellor’s wildest dreams. We need to change our default public expenditure culture, which is one of late intervention, to one of early intervention. Late intervention is expensive and not very effective. Early intervention, by contrast, is inexpensive and highly effective.
I shall give the House an example. Delivering the intensive health visiting service of the family nurse partnership to 115 teen mums and their babies in my constituency costs about the same as putting three 16-year-olds in a secure unit for a year—an average of two of whom, incidentally, will reoffend. Family nurse partnership services delivered in the first years of life can reduce the number of arrests at the age of 15 by 80%. So dealing with several hundred individuals and doing so effectively costs roughly the same amount as failing to deal effectively with three young people, 16-year-olds, later on in life.
Andrea Leadsom (South Northamptonshire) (Con)
The hon. Gentleman and I are in huge agreement on this subject. Does he agree that more than 80% of long-term prison inmates suffer from problems that stem back to early infant attachment?
Mr Allen
Indeed, and the costs are absolutely enormous and continuing. They continue through the generations, whereas one effective early intervention costs only for the one occasion, does not need to be repeated and proves to be very effective.
I make many recommendations in my recent report for Her Majesty’s Government, “Early intervention: Smart Investment, Massive Savings”. The ones I would particularly like to talk about tonight involve the Treasury. I ask the Minister for her first thoughts on these recommendations. I am very grateful for the assistance I received from the Chancellor, the whole Treasury team and, indeed, Treasury officials—and, above all, from the Minister herself. She helped me in various ways—although the faults in the report are entirely my own—to make the second report a practical and pragmatic programme of work rather than a flight of fancy.
There are no magic bullets. This is all about a practical, long-running and consistent effort to try to bring social and emotional capability to our babies, children and young people, which will repay us over and over again throughout the life cycle, as we avoid the costs associated with drink and drug abuse, teenage pregnancy, a lifetime on welfare benefits, educational underachievement, and so on and so forth. That benefit can come from just a little bit of early investment.
The key relevant recommendations to the Treasury concern the comprehensive spending review; rebalancing central Government spending from late to early intervention; a Whitehall task and finish group, which I shall talk about; a serious proposal for departmental payments, introducing a payment-by-results system effectively across Whitehall; liberating our local authorities so that they can be our partners in pursuing early intervention policies; and using the 2012 Budget to incentivise early intervention investment. I propose to look at each of those in turn.
First, I have suggested that the Treasury consider theming the next CSR around early intervention. The usual cross-departmental effort that goes in ahead of every CSR should be directed at early intervention across all Departments. That includes the research programme and the evaluation, which should be used to assess what is being spent on early intervention by Departments, thus providing a baseline from which we can judge the costs, benefits and potential savings to taxpayers from early intervention policies and programmes.
This CSR preparation should also include commissioning long-range surveys, studies and longitudinal programmes so that we can add daily to the evidence base for early intervention and its role in saving massive amounts of taxpayers’ money from being captured by the long-term costs of failure. Above all, doing this in the CSR will symbolise the Government’s approach and the switch in philosophy to give strong signals to Departments throughout Whitehall and indeed in local areas. We will thus be demonstrating that we are moving from talking the talk to walking the walk.
I want to put on the record that it is evident from the discussions I have had with all parties and with all party leaders, including the Prime Minister, that there is a very strong desire to move—incrementally, admittedly—across this divide between our typical, traditional late intervention policies and early intervention. This is not just to save money; it will also help to make good many of the social failures that arise because we do not tackle problems early enough and let them get rooted before we start to invest money in them—often too little, too late.
The second issue is the rebalancing of funding in Departments. It is easy to demand big switches of financing from one place to another, but that is a pipe dream that we did not entertain in the report. What we did consider was the fact that we have spent billions of pounds, decade after decade, often with only marginal impacts on, in particular, the social and emotional capabilities of babies, children and young people, especially those in poorer areas and constituencies such as mine. We discussed how we might push back the spending and personnel juggernaut of late intervention, and start to invest, gently and incrementally, in early intervention.
A great deal of evidence was given to my inquiry. One of our proposals is a gentle shift—within departmental budgets, and involving no extra money—from late to early intervention. Following discussions with Departments, I propose—modestly, I hope—not a top-slicing of budgets to a pooled early intervention fund run by one Department or another, but a slow, incremental migration of funding, within existing budgets, from late to early intervention. I proposed that it should amount to just 1% a year, which is incredibly modest. It would be possible to move such spending slowly and relatively easily, and no additional spending by Departments would be required.
In education, for instance, an obvious way of using an existing function, organisation or budget head would be through the early intervention grant itself, which currently amounts to £2.2 billion. That would be a good home for the start of a transition from late to early intervention. Similarly, £55 billion is spent on children and children’s services in the United Kingdom. A minor adjustment, in percentage terms, made incrementally on an annual basis could begin to shift us from the costs of failure to investment in the success of our babies, children and young people.
The Department of Health, the Home Department and the Ministry of Justice already have machinery for such an incremental change. They run prevention programmes of various sorts, all of which could be steadily and progressively geared up. Such a reorientation of internal spending could also provide some of the resources needed to pay investors for the outcome-based contracts to which I referred in my report, and about which I shall say more later. It could be described as payment by results.
I also propose the establishment of a task and finish group. This may sound an internal, dry subject, but in preparing my report I discovered that although tremendous work is going on throughout Whitehall in different Departments, it is not always joined up; it does not always connect. People do not always know what the next Department is doing, for one reason or another. That is not a criticism of anyone working in those Departments or on those programmes—on the contrary, I was very impressed by the way in which all Departments set about their work—but it is a criticism of the fact that no Governments have co-ordinated such action to the level that I would like to see, a level that would add value if people all worked together.
I have suggested that the existing Cabinet Social Justice Committee should be given more teeth, and that it should have a task and finish group—perhaps with an independent chair, but that is a matter for Government to decide—which could offer an independent eye, and promote Government change via the Committee. Through consistency, long-termism and progress-chasing, it could achieve, through Whitehall, some of the important objectives and milestones that the Government may choose to set in the early intervention strategy that I proposed in my report.
Such a group should, as a matter of course, report to all party leaders to maintain what I hope is the helpful benchmark that has been set of establishing this as a non-party issue. I am delighted to pay tribute to those Members of all parties who have taken this issue so seriously, and the fact that the three main party leaders have kindly said good things about both the first and second reports underlines my belief that this is a non-party issue. Indeed, they have supplied quotes, expressing embarrassingly kind sentiments about the philosophy of early intervention, for the back page of each of the reports. What we now need to do is make a practical proposition, and I hope we can put into effect my recommendation of establishing an effective task and finish group.
Another Treasury-oriented recommendation is our proposal about the Treasury, Departments and local areas introducing a proper payments-by-results system, so that benefits can accrue to central and local government for investing in the right package of policies and getting external investors interested in this field. Central Government need to play a role in co-commissioning, or co-paying for, the outcomes set by local areas. Her Majesty’s Treasury and other Departments would therefore need to work at putting in place methods of accounting to ensure that future payments based on successful local outcomes are honoured. It is obviously a matter of great concern that local authorities feel, rightly or wrongly, that if they are successful they will be penalised by the withdrawal of other grants or financial assistance. When drawing up the contracts and talking to local authorities about this issue, we need to make it clear that their payments will be honoured when they reach the endgame of the payment-by-results exercise.
In my report I have outlined a number of areas where local authorities have an important role to play. I do not have time to go into them now, but one that would bear examination is the possibility of looking again at issuing a capitalisation directive to councils that will perhaps allow up to £500 million of early intervention spending to be capitalised, provided that it is funded through the local bond market. If one accepts, as the Government and the main political parties now seem to, that early intervention represents an essential investment in human capital for future generations, there is a strong case for allowing local authorities to finance that by using money in the same way as they would to finance a bridge or a building.
The final recommendation that the Treasury may want to think about now that my report is in the public domain is to do with the 2012 Budget and whether the Treasury can assess properly the possibilities of incentivising early intervention investment. It was clear from my review that tax incentives would be a popular and effective way of incentivising early intervention and social investment more generally. The possibility of creating a market in social investment and social finance is a prize indeed, and if we manage to create a social finance market within, perhaps, 10 years, that will be a measure of our success.
Of course everyone would like to have an incentive. I did not see it as my role to provide a set of demands to which Government had to say yes or no. However, I would like there to be a serious exercise before the Budget, so that the Government examine all possible ways of sucking into early intervention investment philanthropic, ethical business and retail investors and wholesale investors. That would be extremely helpful. I will say no more than let us learn from the creativity in other countries, such as tax credits in the Netherlands and Australia, and money to contribute to social impact bond payments in the USA. The US President has introduced rule changes so that money can be committed over longer periods than is commonplace in public contracts.
In conclusion, the Treasury often says, rightly, that having less money can drive us all to be more creative and to challenge the old ways and the old rules. One of the threads in the report is that this should apply equally to Government thinking, and to Treasury thinking in particular. Money is scarce, so ideas on how better to spend existing public funds should be encouraged and new sources of funding should be incentivised. Due diligence, which is commonplace in the private sector, should now be used at all levels of government to question the comparative costs of wasteful, late intervention versus early intervention alternatives. Levels of savings to be achieved should be an integral part of all public investment calculations. Short-term cuts that jeopardise massive long-term returns should, of course, be avoided. Rules and methods of working established in a different era, in a different public expenditure environment, need to be reviewed.
If we can do that, and if our friends in the Treasury can take some of these proposals seriously—as I know they would, as they made a strong contribution to my review—we will be on the verge of changing the spending culture in our country, moving from wasteful, expensive spending when problems are deep-seated to pre-emptive and preventive spending to help babies, children and young people develop the social and emotional capability that will see them realising their potential in the same way as we want to see our children realising theirs. This is an important field. In many ways, it is a slow burner, not one that heralds dramatic change. This is a field in which there must be a serious commitment to change public policy on behalf of all parties. If we do that, not only will the benefits to those children be immense, but the repayments to the taxpayer will be massive.
Finance (No. 3) Bill
Andrea Leadsom Excerpts(13 years, 4 months ago)
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Mr Hoban
We have one of the most transparent disclosure regimes for banking salaries anywhere in the world. The measures we introduced as part of Project Merlin were more transparent and provide more information than in any comparable regime across the world. The Government have made real progress on tackling that issue.
We decided that we would lead the international debate and act unilaterally if necessary on the bank levy. Since we made our announcement, France and Germany have joined us in announcing such levies, and others have followed, including Hungary, Austria and Portugal. The hon. Gentleman made reference to the fact that the Dutch had announced a similar thing. Apparently, they believe that our design for a levy should be followed.
The hon. Gentleman talked about international comparisons. Even allowing for the larger size of the UK banking sector, the UK levy is larger than that of France or Germany. Different levies cannot be compared by looking just at headline rates; for example, the UK levy is focused on balance sheet liabilities, while the French levy is on risk-weighted assets. Furthermore, unlike the UK levy, the French levy does not apply to branches of foreign banks. Consequently, the French levy is expected to raise between €500 million to €1 billion a year, much less than the £2.5 billion we shall raise in the UK, a difference that cannot simply be explained away by the different sizes of our banking sectors. Moreover, unlike the UK, the French levy is deductable from their corporation tax liability. The hon. Gentleman said that the Government will not review the banking levy. If he looks carefully at the documentation, he will see that we are committed to reviewing it in 2013.
The levy is not the only tough action we have taken to ensure that banks pay their fair share of tax. The right hon. Member for East Ham (Stephen Timms) was a member of the Treasury team when the previous Government introduced the code of practice on taxation for banks, but they utterly failed to get all the banks to sign up to it; only four of the big 15 banks had signed up to it by the time they left office.
While the previous Government talked a good story about tackling tax evasion and avoidance, we acted. By the end of November, all the top banks had adopted the code and by the time of the March Budget this year, 200 banks had adopted it. We have taken tough action to tackle tax planning issues and to ensure that banks pay a fair share in taxes to recognise the contribution they should make, given the risk they pose to the UK economy.
With amendment 13, tabled by the shadow Chancellor, the Opposition seek to reintroduce the bank payroll tax, which was introduced in the previous Parliament as a one-off interim measure ahead of changes in remuneration practices from corporate governance and regulatory reforms, and the previous Chancellor conceded that it could not be repeated. The net yield for the tax, accounting for the impact it would have had on income tax and national insurance contribution receipts, was £2.3 billion, which is less than we will raise from the bank levy this year, and less than we will raise from it next year, the year after and the year after that.
Andrea Leadsom (South Northamptonshire) (Con)
Does my hon. Friend agree that the unintended consequence of the payroll tax was to push up salaries versus bonuses in the City, which is something that no Member wants to see?
Private Finance Initiative
Andrea Leadsom Excerpts(13 years, 5 months ago)
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Andrea Leadsom (South Northamptonshire) (Con)
The PFI is one of those incredibly important, but unutterably dull subjects, that make an awful lot of people’s eyes glaze over. It is rather astonishing that the hon. Member for Walthamstow (Stella Creasy) is the only person, other than the shadow Minister, who is representing the Labour party here. I do not know whether that is because Labour Members are embarrassed about their hand in the mass of PFI projects that have cost the taxpayer so dearly, but it is interesting that only the hon. Lady and the shadow Minister are here from the Opposition, while so many Government Members are present.
I am a bit of a stuck record on this issue, but we have a complete lack of competition in the PFI world. Like others, I congratulate my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) on being so diligent and tenacious in putting forward the taxpayer’s interests in the PFI debate. He and I have met a number of PFI providers together, and it was apparent that there was complete denial of the fact that there was anything resembling a lack of competition or that there might have been oligopolistic profits.
In his campaign, my hon. Friend has been careful to suggest a voluntary rebate—there is no compulsion. The hon. Member for Walthamstow would need to think carefully about trying retrospectively to change taxation rules or doing anything that smacked of changing the game for existing PFI deals, notwithstanding the need to ensure that we get better value for the taxpayer in deals going forward.
In my home county of Northamptonshire, we have what is believed to be the biggest schools PFI project in Europe, which incorporates 74 schools. At the time that the project was entered into, it really was the only game in town. However, it is incredibly important, albeit rather dull, to understand why PFI has been such a contentious subject and why it has resulted in unintended consequences, such as charges of £1,000 to change a power point.
The important thing to understand, which many taxpayers do not really understand, is why PFI contracts are so inflexible and expensive, and I want to take a moment to explain that very simply. PFI may involve a local education authority deciding to build a new school. The LEA will invite one of what turns out to be a fairly small group of builders to bid for the project. The building firm will go to a group of banks, which will look at what they can fund over perhaps 25 years. The banks will come back to the builder with a specific contract for delivery of the school and offer funding for the project, with the expectation that the LEA will start repaying the debt incurred in building the school only once the school is delivered and inhabited by children. Effectively, a special purpose company has been set up to build the school. The bank funds it, the building company organises it and the LEA takes it over on day one and starts repaying the debt. Inevitably, without a specific debt on the general obligations of the local education authority or on the UK, the beauty of the project was that it did not consolidate into our national debt picture. Of course, bearing in mind the dreadful mess of our economic situation left by the previous Government, there is no chance that we could now begin to consider only normal, conventional procurement. The potential for making loans against such projects, secured on the project itself, must remain—so we must get much cleverer about it.
Dr Julian Huppert (Cambridge) (LD)
Can the hon. Lady perhaps help with something that I have never understood about Labour’s obsession with the PFI? In general the Government can get lower rates for borrowing than private companies can, or than are available elsewhere, so what is the advantage in not just proceeding by Government borrowing at the cheaper rate?
Andrea Leadsom
I was coming to exactly that point. The point is that funding the project through a special purpose vehicle means that it is not consolidated into the national debt picture. In other words, it is an off-balance sheet form of financing. Therefore, for a Government who want to spend a lot of money on capital projects without blowing up their national debt picture, it is the perfect opportunity.
Stephen Barclay (North East Cambridgeshire) (Con)
Further to the point made by the hon. Member for Cambridge (Dr Huppert), is it not a central claim made by the industry that part of the advantage is the management of construction risk? One of the issues, however, which my hon. Friend the Member for Hereford and South Herefordshire referred to, is the bundling of contracts. The construction risk and the design are bundled with the management service charge, and that drives some of the complexity, which drives some of the cost.
Andrea Leadsom
I think that my hon. Friends are reading my speech, because that was to be my next point. They have obviously been given advance notice. That is exactly the point: the builder, in theory, takes the risk on a project such as building a school, and the LEA only ever starts to repay the debt when the school is built and everything is in place. Theoretically, the builder takes the project risk. However, as my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) says, in reality there is bundling, and because there are sometimes unique risks to a project, often those revert to the LEA. The perceived advantages from the fact that the builder takes the project risk are therefore not always as clear cut as they might appear. In the end the major advantage has been that of not consolidating the debt on the national balance sheet.
George Eustice (Camborne and Redruth) (Con)
On that point, is my hon. Friend aware that, as well as being poor value for money for the taxpayer, PFI contracts have caused problems with the restructuring of certain elements of the public sector? For instance, several schools that have become academies have had all sorts of problems with their PFI contracts, causing tensions between them and the local authority. Sometimes those problems have been a block to a school’s moving to academy status.
Andrea Leadsom
Again, my hon. Friend takes me to my next point: the other side of the equation is the very apparent disadvantages of PFI, the primary and key one being the lack of flexibility. The reason for it is that often a special purpose vehicle sets up the project, and therefore the project is inexorably linked to its financing. For example, you may build a school and decide you want an extra classroom or two. A PFI school in the constituency of a member of the Treasury Committee built its hockey pitch 2 feet too short for internationals, so it tried to extend it by 2 feet, but therein lay a can of worms. It was impossible to do it other than at exorbitant cost, because the contract and its financing are inextricably tied together within the special purpose company. What happens, and the reason hon. Members have spoken of money being made out of the contract as it proceeds, is precisely that if you want to change the spec—which of course you do—
Mrs Anne Main (in the Chair)
Order. The hon. Lady has on occasion referred to my wanting to do many things. I do not want to do any of them, but I am listening with interest.
Andrea Leadsom
I am sure that, privately, you might be interested Mrs Main, but thank you for keeping me in order.
What you—[Hon. Members: “One!”]—or rather not you, Mrs Main, but an LEA wanting to build a school, would need would be to have the entire specification for the school for the subsequent 25 years up front. That is clearly impossible, and the banks make their money by charging enormous arrangement fees and ongoing charges as schools change their requirements. That is how the money continues to come in from those projects.
David Mowat (Warrington South) (Con)
The point that I believe is at issue is procurement failure. To take the example of the hockey pitch, if it is built 2 feet too short, that is a procurement failure. It is not necessarily a specification issue—there are such words as “fit for purpose”. The real issue with all the stuff we are talking about is that the public sector is incapable of procuring projects of such complexity. That is what happens, and that is why so much money is made in change requests. It is not principally to do with financing.
Andrea Leadsom
My hon. Friend makes a good point, and many of the problems arising from PFI have happened because the private sector saw the public sector coming. There have been all sorts of issues with poor public procurement, and where two PCTs in neighbouring counties have both commissioned a hospital, one has not learned the lessons of the other. Everyone comes at the thing afresh, and they all have the same problems and run into the same weaknesses. Nevertheless, there is an inherent lack of flexibility built into the projects, which cannot be overcome. It is therefore incredibly important to consider that the PFI on its own, even if it were the cheapest option, and even though it does not at the moment have an impact on our national debt picture, has an inherent weakness in its structure.
The other massive weakness in the structure, which has been exacerbated since the financial crisis, is the cost. As my hon. Friend the Member for Hereford and South Herefordshire said, the reality now, with Government gilts at about 3% to 4% long term, is that direct Government procurement would be much cheaper than a bank trying to fund a project itself over five to 25 years and make a profit, where the net cost to the taxpayer ends up at 8% or 9%. There is an enormous difference between the costs of direct procurement and PFI procurement. That is exacerbated by the financial crisis, and makes things almost unaffordable. We must begin to look at alternatives.
I want to float an idea that I have been trying to put to Ministers—and will be doing in the near future. That is the possibility that the green investment bank could provide some necessary competition to the PFI market. As I said earlier, there is a serious lack of competition. The Treasury Committee heard from PFI providers that often they bid only for perhaps one in three deals. Since there are only six or seven major PFI providers, that means there are probably only two, or at most three, serious bidders for any deal; that suggests an enormous lack of competition.
However, we are now thinking about the green investment bank—a brand new idea for this country, whose time has come. That bank will be looking to fund many of the low-carbon, high-tech and potentially economic infrastructure projects of the future, such as offshore wind farms—I shall not talk about railways, but others might; hon. Members will appreciate my personal sensitivity there. Offshore wind farms, roads and all the rest require long-term financing. That is a big challenge, and the green investment bank could address it.
Lorely Burt (Solihull) (LD)
I totally agree with the hon. Lady about the green investment bank. Does she think that that could prove to be a model for types of investment other than green infrastructure—things more along the lines of some of the PFI issues that are causing a problem at the moment?
Andrea Leadsom
Yes, I think that that is right. The green investment bank will have the specific remit of promoting green investments, and that is right and proper; but alternatives could be talked about.
What I propose is specific: it is that the green investment bank should be a bank in its own right. It should be listed on the London stock exchange and the Government should have perhaps a 10% shareholding in it. The UK high street banks should have the offer to purchase up to a 15% shareholding each, and the final 15% to 20% shareholding should be offered at a highly discounted rate to the British taxpayer. We would therefore have a bank with an undoubted triple A credit rating that would be able to fund itself extraordinarily cheaply—somewhere between Government gilts and triple A bank finance—and access the international capital markets, including very long-term funding.
That would kill many birds with one stone because there would be instant competition in the PFI market, which is something we desperately need, and an instant and huge threatening competition to the UK banking sector, about which we on the Treasury Committee are extremely worried. With its green remit, there would also potentially be a big competitor in the small and medium-sized enterprise market, about which I think all colleagues are concerned. I strongly ask my hon. Friend the Minister to consider the prospect that the green investment bank could provide a realistic alternative to PFI.
The Economy
Andrea Leadsom Excerpts(13 years, 5 months ago)
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Ed Balls
I will give way in a few seconds.
The test for the Treasury is not whether it can eventually get back to growth, but where it will make up the lost ground in jobs and living standards.
In this debate, I challenge the Chancellor to agree with me on three propositions: first, his plan is not working; secondly, he has the opportunity to change course; and, thirdly, there is a better and fairer alternative economic policy for our country—better for jobs, better for living standards, and a better, fairer way to get the deficit down.
Ed Balls
I have plenty more; we will come to them in a second. Just think, “Good publicity, good publicity, it’s all good publicity.” It did not do the hon. Member for West Suffolk any harm; it did not do him any good either.
We do not hear much from the Chancellor these days about snow being the explanation for the contraction of the economy at the end of the year, because as he knew at the time, it also snowed in America, Germany and France, and they all posted stronger growth. In fact, Denmark, Ireland, Greece and Portugal were the only other countries with falling output in the last quarter of 2010. The Chancellor of all people, a regular skier on Europe’s slopes, should have known that even in winter it does not snow in Greece and Portugal. Instead we hear a new weather-related line. He blames the global headwinds, factors outside his control—rising oil prices, food prices, the eurozone, the Japanese earthquake, all reasons why prudent Chancellors should always be vigilant and choose caution over complacency. It is ironic to hear the Chancellor and the Prime Minister blame the rest of the world for Britain’s economic difficulties, as they did the opposite for their last four years in opposition.
Compared with other countries facing the same global headwinds, we are doing worse. We have gone from being in the top half of the EU economic league, to fourth from bottom in the past few months. It is no wonder that the OECD Deputy Secretary-General said a few weeks ago that
“we see merit in slowing the pace of fiscal consolidation if there is not so good news on the growth front”.
Even the IMF has said that
“there are significant risks to inflation, growth and unemployment”.
The excuses are not working, and the Chancellor is starting to be rumbled.
Andrea Leadsom
Does the right hon. Gentleman recognise that when the Government took office, our country was on credit watch for a downgrade? Does he welcome the fact that this country’s borrowing rates are similar to those of Germany and nowhere near those of Portugal and Greece? Does he further recognise the impact that his proposal effectively to reduce VAT rates right now, unfunded, would have on our current national deficit?
Ed Balls
The irony of a Conservative MP opposing tax cuts in VAT for families while allowing a tax cut, compared with last year, for the banks, is almost overwhelming. As everyone who studies the figures and not the political spin knows, we went into the crisis with lower national debt than France, Germany, America and Japan. Every country had a rise in its deficit, so of course we did. The fact is, however, that our gilt yields were very low and falling month by month before the general election, even as the opinion polls narrowed—
Ed Balls
It is fine for the hon. Gentleman to be thinking of his intervention rather than listening to the answers, but the fact is that we had a lower budget deficit and lower national debt than we inherited in 1997. The IFS, in its report, “The public finances: 1997 to 2010” said:
“By 2007–08, the public finances were in a stronger position than they had been when Labour came to power in 1997.”
That entirely disproves his point.
Mr Osborne
Let me conclude now.
The scales have fallen from the eyes of Labour MPs. They realise that they have a shadow Chancellor who has to spend the next four years defending his record, and they are completely silent as they realise that they are going to be talking about the past, not the future.
Scotland Bill
Andrea Leadsom Excerpts(13 years, 5 months ago)
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Andrea Leadsom (South Northamptonshire) (Con)
If that debt must be consolidated with the UK’s national debt, it should surely be considered as quasi-UK Government debt. Does the Minister therefore agree that if the Scottish National party goes ahead with its vote on independence, it will need to consider very carefully the increased cost of borrowing that would ensue?
Mr Gauke
The decision on whether to put a toll on the Forth road bridge will be one for the Scottish Government. The Treasury has therefore not considered that proposal. Perhaps my hon. Friend should ask Scottish National party Members what consideration was given to such a toll. I suspect that the answer will be, “Not a lot.” The expression on the face of the hon. Member for Dundee East (Stewart Hosie) is probably confirmation that no consideration was given to my hon. Friend’s suggestion. Asymmetry is inherent in such devolved matters.
The UK Parliament has an interest in ensuring that Scottish Ministers can borrow efficiently and sustainably, because although interest paid on any loans will be funded from within the Scottish budget, it will be included in the UK fiscal aggregates.
Andrea Leadsom
For the sake of clarity, the Minister tells my hon. Friend the Member for Warrington South (David Mowat) that the decision on whether there will be a toll on the Forth road bridge is a devolved matter, and yet also says that any Scottish Government borrowing would be included in the British national debt. How can that toll be a devolved matter? The UK is involved in keeping the cost of funds to the Scottish Government down so that they can afford to fund a bridge that people in England are unable to afford without charging a toll.
Mr Gauke
We must remember that any debt service will be financed by the Scottish taxpayer—that is the context.
We should move on. As I said, any loans will be funded from within the Scottish Budget and included in the UK fiscal aggregates. The Bill therefore continues to give Scottish Ministers the power to borrow in the most efficient and sustainable way—from the national loans funds, as recommended by the Calman commission. In addition, should Scottish Ministers choose to do so, the Bill gives them the power to borrow by way of a commercial loan when that represents value for money.
The Government continue to believe that Scottish Ministers should be able to borrow only by way of a loan, but because overall macro-economic policy will continue to be a reserved matter, and because Scottish borrowing will impact on the UK fiscal position, it is right that this House agrees the limits and conditions of borrowing. I therefore ask Opposition Members not to press amendment 2 and amendments 26 to 29 to a Division.
Eurozone Financial Assistance
Andrea Leadsom Excerpts(13 years, 6 months ago)
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Andrea Leadsom (South Northamptonshire) (Con)
I stand here as a big fan of Europe but a big enemy of the European Union, and I want to share a few of my passions with you, Mr Deputy Speaker. First, I want to share my anger at the Opposition for their failure to give us the referendum on the Lisbon treaty that they promised. I also want to share my fury at the former Chancellor for signing us up to the EFSM that has caused so many problems—the reason we are having this debate. Finally, I would like to share my gratitude to the former Prime Minister for not taking us into the euro.
I want to spend a moment talking about our friends the Europeans who find themselves in an extraordinarily difficult position. At the moment, 10-year Government bonds in Portugal are trading at around 64 cents in the euro, while in Ireland they are trading at around 66. In Greece they are trading at around 51—that is about 51 cents in the euro for Greek 10-year Government bonds—which basically means that when our European friends have to lend them money, as they will undoubtedly have to do, it will effectively be half a gift and half a loan. We in this country are extraordinarily lucky that our Front Benchers have enabled us to withdraw entirely from the bail-out mechanism from June 2013. We should praise the Prime Minister and the Chancellor for arranging matters so that we will not, over the longer term, have to suffer the price that will undoubtedly be the case for our European friends.
Amendment of the Law
Andrea Leadsom Excerpts(13 years, 7 months ago)
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Mr Campbell
No, I am not going to give way; I do not have time.
What happens when the Conservatives are in the pockets of the banks? Where does the bill for the bankers’ crisis fall? Yes, you’ve got it: it falls on the working people of this country. We are seeing that now, with sackings all over the place and wages cut.
Andrea Leadsom
I thank the hon. Gentleman for giving way. Does he recognise the fact that 1 million people in this country are employed by those banks in one way or another, in financial services, accounting for 3.5% of employed people in total? Is he blaming all those individuals?
Mr Campbell
I am blaming the bankers for the way they invested their money in the crisis that they caused. They caused it—they knew what they were doing, and they will all say that. They all came to the Treasury Committee and apologised, if the hon. Lady remembers.
As I was saying, the bill for all this falls squarely on the working people of this country, with the sackings that we have seen and the wage cuts. Wages are 2.2% below the average. That is what they are: they are not above. In fact, we had to take a pay cut ourselves last week. We all did it, and most of them on the Government Benches are in the pay of somebody—some board or some consultancy—so they will be all right when they get a pay increase from them.
What else is being cut? Pensions are being cut. Look at the furore. I am sure that hon. Members have had letters from servicemen, policemen, teachers and local government workers about their pensions. The Government are murdering their pensions, and what are they doing about it? Absolutely nothing. The Government are going to sink them with their pensions—[Interruption.] Never mind looking at my lot: your lot are in power. They are in charge, and they have to deliver the pensions that those people are entitled to have.
We can go even further, because we can look at those who are in their pockets—the pockets of Government Members—who also evade tax. There is £16 billion out there in evaded tax, with people running off to the Cayman islands, or some island where they can put their money under a sack and hide it. That is what is happening today. What are the Government doing about it? Absolutely nothing. They will tax the people of this country, but they will not tax those who run away to another country to put their money in a sack. That is what they will do, and they always have.
Then there is the argument that there was no money. That’s funny—we had £7 billion to give to Ireland when Ireland went under. Why, we saw the Chancellor jumping up at that Dispatch Box and saying, “Not a problem, Ireland. We’ve got plenty of money—there’s £7 billion,” yet we kept being told that there was no money. Now what have we got? We have got this Libya crisis. Not a problem for Britain. Tomahawk missile? Not a problem, even when one Tomahawk missile costs £900,000, and we are firing them left, right and centre. That is another expense for the British people. Ministers are not saying anything about that at the Dispatch Box, but I am waiting for it, and it may come.
Andrea Leadsom (South Northamptonshire) (Con)
The measures our coalition Government have taken in the Budget make something of a silk purse out of the sow’s ear left by the previous Government, and I was very reassured by the letter published in today’s The Daily Telegraph today from venture capitalists about the fact that these measures will be very attractive to business start-ups. Some 99.9% of enterprises in this country are small and medium sized, 60% of private sector employment comes from that sector, and there are 500,000 new start-ups each year. In my constituency, there are many small businesses, some focused on motor sport or high technology, and they are exactly the sorts of businesses this coalition Government are determined to support. I welcome the many measures we took in the Budget to try to encourage the development of such new businesses.
I recently had a meeting with my Northamptonshire business club, at which business people told me that the single biggest problem they face is funding. Bank finance is still not being made available to them at prices they can afford. The figures show that between 2009 and 2010 small businesses with a debit account turnover of less than £1 million per year suffered a 19% drop in total lending made available by banks. The problem is not just the lack of availability of funding, however; it is also the terms, such as the time scales, which have been much shorter—sometimes just a year—and very difficult to achieve for small businesses. The arrangement fees have been much higher too, and the margins have increased by an average of 60 basis points. Funding for small and medium-sized enterprises has therefore been extremely difficult, and remains so in spite of the excellent Project Merlin agreement this Government put together, which I thoroughly welcome.
I want to make the following suggestion to Ministers. United Kingdom Financial Investments Ltd, which holds the taxpayers’ investment in the banks, should look at the shares we own and consider whether it might restructure some of the shareholdings in Northern Rock, Bradford & Bingley, RBS and Lloyds HBOS with a view to creating new banks out of the bank shares. In other words, it should consider restructuring some of those shareholdings to create, at a stroke, new competition in the high street and particularly in the SME lending area. While we remain significant shareholders in those banks, I believe there is a huge opportunity to improve funding availability and banking competition.
The Treasury Committee recently took evidence that showed that up to 90% of SME finance comes from just five banks in the UK. It is absolutely true that conservative lending is the way forward, and banks will not be able to afford to make loans at such cheap rates as in the past, but there is plenty of evidence to suggest that these enormously concentrated market shares are creating enormous pressure for SMEs. Indeed, Mervyn King told the Treasury Committee that
“we should try to encourage new entrants into the banking system because they will not have the same problems of legacy balance sheet difficulties.”
He also said:
“We have to make sure there are other sources to which those SMEs can turn for finance.”
This Government have been incredibly generous and creative in their support for SMEs, and I urge Ministers to consider this idea, because it is only through revitalising our private enterprise in an SME-led recovery that we will put our economy back on track.
Amendment of the Law
Andrea Leadsom Excerpts(13 years, 8 months ago)
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Mr Redwood
My hon. Friend is quite right. Improving the quality and cost-effectiveness of our purchasing is crucial in Government. There are many opportunities; PFI and public-private partnerships provide some good examples, but so does general purchase. It would speed up the deficit reduction if there were a stronger moratorium on purchasing items and supplies where there are already stocks. Any company undertaking the kind of radical turnaround that the country is trying to achieve would immediately freeze all unnecessary purchases and make people run stocks down to save money.
Where I have had answers to my questions on this subject, I have found that the current rate of natural wastage of staff in core Departments is running at about 6% per annum; it was about 4% in the first eight months. Quite a number of those posts have been filled by taking on new people from outside. I urge my friends on the Front Bench to get more of a grip on that, because the easiest way of reducing the administrative overhead on the scale that they want—the least painful way for their staff, who need their morale to be up—is to not replace people who leave and not to make others redundant. We cannot afford the redundancies. If we make greater use of natural wastage, Ministers can say to their staff that it means better opportunities for promotion and a change of job. If the post vacated is not essential, it should be removed; if it is essential, we should appoint someone from inside and remove some other, less important, post. That surely is the civilised, sensible way to tackle the necessary task of cutting the administrative overhead. If the Government can cut their administrative overhead by the very large 30% that they are talking about, it takes the pressure off cuts in the areas where none of us wish to see them—in the schools and hospitals, the front-line services that matter so much.
The question that I was about to ask before the interventions was about the international context. How easy is it going to be for the Government to have the three or four years of above-average growth which are so crucial to the strategy? I must warn those on the Front Bench that I fear that the world background will get more difficult going into 2012 and 2013 than it is at present. There has been a prolonged boom in the emerging market world, and we now see China, India and Brazil lifting their interest rates to very high levels. They are desperately trying to squeeze inflation out of their system, so in a year or so we must anticipate some fall-off in demand and spending power growth rates in those big emerging market economies.
The United States economy will have a good year this year, by the looks of it, on the back of a lot of money printing, low interest rates and other matters. That comes to an end in the middle of this year, so by next year we will see a slower rate of growth in the United States of America as well. Were the situation in the middle east to get worse, and the damage from politics to spread into oilfields outside Libya, we could have another unpleasant external shock on the oil price, which would also serve to impede the growth of the world economy.
The conclusion that I take from this is that the world economy does not look as though it is going to go back into another deep recession—we are not going to have that kind of impossible situation—but the world economy is not going to provide the impetus that it is currently providing. It may not feel that great, but it is providing quite a bit of impetus at the moment. It will provide less impetus next year and beyond. That means that the Chancellor must intensify his pursuit of measures that make the UK that much more competitive and that much more successful.
Andrea Leadsom (South Northamptonshire) (Con)
Will my right hon. Friend comment on the importance of improving our export position vis-à-vis the BRIC countries in particular—Brazil, Russia, India and China—and how important a part that could play in our recovery?
Mr Redwood
Of course I agree that if there is a solvent and enterprising business and it is not getting proper banking facilities, that is very bad indeed. It is particularly bad if it is a state-owned or state-influenced bank that is responsible.
My final points are about banking, as time presses and many others want to speak. Of equal importance to the weighty matters covered by the Chancellor today will be the Vickers report and the Government’s response to it. I believe that we will have interim conclusions from Sir John Vickers on 11 April. We are not going to have fast, sustained, above-average growth in this country unless we sort out the banks a little more than we have done so far. All colleagues in the House are united in having individual cases where they feel a company could have been saved or could have grown more rapidly if only there had been more sympathetic or understanding bank managers and facilities. There is a problem with British banking serving the SME sector town by town, county by county. There is a lot of talent in the banks, concentrated at the national level and in the big national accounts. Many hon. Members like to knock those people, but they made an important contribution to the growth rate under the previous Government and to our economy.
Andrea Leadsom
In the last quarter of 2010, lending to the SME sector dropped by 38% from the last quarter of 2008. One of my big concerns is that this reflects the incredible concentration of SME lending among the four or five largest banks, which are responsible for around 90% of all SME lending. Does my right hon. Friend agree that the work of the Vickers commission and the Treasury Committee should focus on breaking up the oligopolistic positions of some of those big banks?
Mr Redwood
I certainly hope that when we see the Vickers report and have a proper debate on it we will be able to find sensible ways of promoting much more competition in the domestic banking market. We need more competition on the high street for individuals and families and more competition in town centres for SMEs, which in previous generations probably had better and more direct relationships with local bank managers, who had a bit more authority to grant loans and make money available on judgment than is currently the case through the box-ticking, centralised computer systems.
Oral Answers to Questions
Andrea Leadsom Excerpts(13 years, 8 months ago)
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Mr Osborne
Of course, the very sharp rise in the world oil price has posed a challenge to lots of economies—all but the oil-exporting economies. That is one of the headwinds currently facing the global economy. Specifically on fuel duty and other issues, the hon. Gentleman will have to wait for the Budget.
Andrea Leadsom (South Northamptonshire) (Con)
Will my right hon. Friend undertake very carefully to consider improving the diversification of financial services provision in the way that United Kingdom Financial Investments Ltd divests itself of taxpayers’ shareholdings in the banks?
Mr Osborne
I am very happy to consider a number of ideas that have been put forward, but we have not yet reached that stage. If we sold the bank shares today, we would still be making a loss as a nation. That is an indication of the scale of the banking crisis. When we come to put those banks back in the private sector, I am sure that there will be a healthy debate in this Parliament and elsewhere about how we treat the proceeds.