Fuel Duty

Andrea Leadsom Excerpts

Monday 12th November 2012 Commons Chamber

[Andrea Leadsom (South Northamptonshire) (Con)]

rose—

[Cathy Jamieson]

I will give way to the hon. Lady if she can give that commitment.

[Andrea Leadsom]

Does the hon. Lady acknowledge that it was her Government who put in place the fuel duty escalator, which is the whole problem facing British motorists today? Does she accept that?

[Cathy Jamieson]

The hon. Lady must also recognise that it was in her Government’s Budget. What we are asking the Chancellor to do is listen. We have heard a great deal about how he is in listening mode, but I do not know how long he must listen before making the decision. According to the House of Commons Library, the cost of delaying the fuel duty rise again until April 2013 would be around £350 million, and we think that could be paid for through a clampdown on tax avoidance. I am conscious that the right hon. Member for Wokingham (Mr Redwood) wishes to intervene.

Oral Answers to Questions

Andrea Leadsom Excerpts

Tuesday 6th November 2012 Commons Chamber

[Mr Gauke]

We have to take action to try to deal with the deficit that we inherited, and let us not forget that. The hon. Gentleman mentions fuel. Because of the steps that we have taken on fuel duty, petrol pump prices could be as much as 10p lower per litre than they would have been had we stuck with the fuel duty escalator that we inherited.

[Andrea Leadsom (South Northamptonshire) (Con)]

16. What recent steps he has taken to reform banking and to redirect banking fines to the public purse.

[The Financial Secretary to the Treasury (Greg Clark)]

The draft Banking Reform Bill outlining fundamental reforms to the banking sector was published last month and is undergoing pre-legislative scrutiny. We have tabled amendments to the Financial Services Bill which provide for fine revenues net of enforcement costs to go to the public purse in future. The Bill is being debated today in the House of Lords. Some £35 million of those fines received so far this year will be used to support armed forces charities.

[Andrea Leadsom]

Does the Minister agree that one of the best ways to ensure good practice in future is through more transparency and competition in the banking sector? Does he further agree that full bank account portability could be a great way to achieve that?

[Greg Clark]

I do agree that we need much more competition in the banking industry, and account portability can play a major role in advancing that. The Vickers commission looked at it, and my hon. Friend has been very vigorous in proposing ways in which she thinks it can be implemented. My hon. Friend the Economic Secretary and I will meet her to discuss how we can advance these proposals.

Banking Union and Economic and Monetary Union

Andrea Leadsom Excerpts

Tuesday 6th November 2012 Commons Chamber

[Andrea Leadsom (South Northamptonshire) (Con)]

Like all Members here, I urge the Government to consider renegotiating Britain’s relationship within the European Union as a full member but using every opportunity that presents itself to get a better deal for British taxpayers. I firmly believe that that is entirely possible and that the establishment of the European Banking Authority may give us one of the greatest opportunities yet to negotiate not just to defend British financial services but to get something back that enables us to expand our financial services activities.

The hon. Member for Nottingham East (Chris Leslie) talked about the Luxembourg compromise, which was proposed in 1966 following General de Gaulle’s refusal to take part in European Council proceedings. It urged the EU to recognise nation states’ vital interests in particular industries. For example, the French have a veto over the common agricultural policy and the Spanish have a veto over fisheries policy. The automotive industry is as important to the Germans as financial services are to the UK, but they are able to use not only qualified majority voting but competition legislation to defend their industry, which is much less flighty than financial services. We in Britain have less protection than any other member state for this strategically vital industry which produces 1 million jobs directly within it and represents 10% of our GDP and 10% of our annual tax take.

I applaud my hon. Friend the Member for Stone (Mr Cash) for his work on looking at the legality of European banking union, but I urge that instead of focusing on that aspect, which is a given—I do not for one moment believe that our Government would sign up to something that is illegal at EU level—we should instead focus on what we can get in return for our consent. Of course, European banking union is in all our interests; it is absolutely crucial for our economic growth because if the eurozone collapses, we are in big trouble too. Nevertheless, financial services are core to us as well. As the Prime Minister showed by using his veto last December, he is not afraid to stand up for this most important sector.

I would like the Government to negotiate three things. The first is a legal safeguard for the single market so that no other eurozone caucusing can put up protectionist barriers and prevent British financial exports from being sent into the rest of the European markets. That is a basic key point. Secondly, I believe that in the culture and honour of the Luxembourg compromise, the rest of the EU needs to recognise the strategic importance of the financial industry to Britain, and give us the ability to impose an emergency break at European Banking Authority level if we believe that a proposal from the EU directly harms that industry.

Under qualified majority voting we have an 8% vote at the EBA, yet Britain represents 36% of EU wholesale financial services markets. We are therefore greatly under-weighted in what we can do to defend our financial services sector, and I urge the Government to make that case strongly in negotiations with the rest of the EU.

The third point is more proactive. The EU focuses its attentions on negotiating free trade agreements mainly for goods, and there is little intra-EU service trading. In spite of British UCITS—undertakings for collective investment in transferable securities—being the most successful financial export ever, that is only within the EU and not externally. The future for growth in financial services lies in big emerging markets such as Brazil and China, and involves not Government bond trading, but basic things such as mortgages, life insurance policies, health insurance and so on. I hope the Government will urge the EU to commit—in return for our consent—to promoting free trade agreements with emerging economies in services, and specifically financial services.

British success in financial services generated more than 1% growth in GDP per annum across all key EU member states during the financial boom. We now need to solve the financial crisis together, but Britain is in the uniquely strong position of being able to gain something back at the same time.

--- Later in debate ---

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

In some respects, this is a modest debate compared with last week’s, although it is worth reflecting that employment in the City, as reported by City AM, has collapsed by more than 100,000 since the peak of 2007. Some of that was self-inflicted, but much of it was inflicted by increased regulation. The Centre for Economic and Business Research reports that employment in the City is set to fall much lower. Most of the jobs are highly paid, high-taxpaying jobs, on which the economy in general and the economy of London and the south-east in particular depend very deeply.

I commend the sincerity of my right hon. Friend the Minister’s approach. He is in a difficult position. The difficulties he is confronting are a microcosm of the conundrum of the UK’s place in the EU. We are not in the room, so we cannot function as a positively engaged member of the EU on our current terms of membership, but we are also not negotiating the alternative terms of membership that would protect us from the effects of the treaties we have already signed.

It needs to be pointed out that banking union simply was not envisaged in the Lisbon treaty. We now find ourselves confronted with a new institution and a reform that simply was not regarded as necessary when the Lisbon treaty and its predecessors were signed. The treaty is not fit for purpose for a banking union.

The problem is that no arrangements that nibble at those problems will protect the UK’s interests—a wholesale change in our relationship is the only way to protect them. Sadly, the motion represents the Government yet again passing up a substantial opportunity to start laying the foundations of a different relationship and to start leveraging the renegotiation of our terms of membership. That is a matter of great significance.

[Andrea Leadsom]

Will my hon. Friend give way?

[Mr Jenkin]

I give way to my hon. Friend, who made a very able speech.

[Andrea Leadsom]

I am grateful to my hon. Friend, but I have to challenge him, because I think that the Government are absolutely committed to renegotiating. Why does he think that they are not?

[Mr Jenkin]

Unfortunately, our party’s leadership does not intend to start substantive renegotiation of our relationship until after 2015, long after this particular opportunity will have passed us by. If we attempt to remediate this measure and its effects on our interests, we will not succeed. This is happening in case after case—the fiscal union treaty is another example.

Multiannual Financial Framework

Andrea Leadsom Excerpts

Wednesday 31st October 2012 Commons Chamber

[Chris Leslie]

I would like to make progress as we have a limited amount of time.

The next seven years of the EU budget should prioritise jobs, growth, infrastructure and practical programmes that rejuvenate fragile economies. Building up those elements, however, means reducing EU spending elsewhere. Savings can be made on the common agricultural policy, which currently costs European nations £45 billion with the UK contributing about £1 billion a year. The common agricultural policy is a distorting barrier to trade liberalisation, a wasteful programme that is in need of further reform, and it is astonishing that the Government motion does not refer to it.

Savings can be made on aspects of EU structural funds that represent 35% of the budget and are too often committed in a haphazard manner and depend on outdated commitments rather than future priorities. Unless structural funds contribute to positive economic development, they cannot be justified. Savings can also be made on subsidies for tobacco growers, which will be discontinued, on outdated practices such as relocating the European Parliament to Strasbourg for a week each month—that costs €200 million each year—on non-essential projects such as the House of European History museum, which cost a reported £137 million, and on export refunds, which cost millions and disfigure fair trade.

Savings can and must be made, and delivering a real-terms reduction in the EU budget requires a relentless focus on the justification behind detailed expenditure. That is why we need a more effective and independent EU auditor who is able to examine the impact of programmes on the EU economy. The auditor must also improve the accountability of spending on pro-growth activities, which will require the bringing together of disparate Commission priorities under the auspices of a single commissioner for growth, persistently and single-handedly concentrating on that overarching concern.

How capable is our Prime Minister of delivering real reform in the EU budget? Can he come back with a deal that sees the contribution from the UK Exchequer reduced in real terms? Those are the tests he must now face. We know that his phantom veto last December placed the UK in the margins of influence, just when it mattered most, but today’s debate must be about more than the frailties of the Prime Minister. It boils down to how much we care about taxpayers’ money—money that is hard-earned and needs to be safeguarded.

For every 1% that the Government concede in additional spending on the multiannual financial framework, nearly £1 billion will transfer from UK taxpayers to the EU budget over the seven years of the spending review period. If negotiations fail because a member state walks away from the talks, we will simply see last year’s settlement rolled forward and supplemented by an automatic 2% inflation upgrade which, as I said, will cost our taxpayers at home an extra £310 million in 2014.

[Andrea Leadsom (South Northamptonshire) (Con)]

Perhaps the hon. Gentleman has not realised that trying to negotiate in a calm way on a deal that was agreed two years ago by our Prime Minister is the most sensible way to proceed. If he looks into it, he will find that new member states also have a lot of skin in the game, and they will not want us to use our veto because they will also lose out. This is not just about Britain and Britain’s veto, but about dynamics across the whole EU membership. Using our stated policy over two years in a consistent and calm fashion gives us the best chance of achieving real reductions in cost for the British taxpayer.

[Chris Leslie]

I have a lot of respect for the hon. Lady and she made a calm and persuasive point. The difficulty is that the Prime Minister has not been calm in these negotiations; indeed, he has deployed the veto almost three weeks before negotiations have even started. It is important to have a consistent and calm strategy, and the window of opportunity must surely be to persuade nations across the EU that their taxpayers also want a spending reduction in real terms. If the Prime Minister ends up at the November summit writing a cheque for hundreds of millions of pounds more, he will surely send an unpalatable message to millions of hard-pressed taxpayers across the country.

--- Later in debate ---

[Chris Bryant]

As you know, Mr Speaker, I love apologising to Government Members, and I apologise to the Minister. The point I am making is a serious one, however. He referred to some of the small-ticket items in the EU budget, but the big-ticket item is the common agricultural policy. If we do not address that issue in this next round, we will manifestly have failed to deal with the gaping moral and ethical hole at the centre of the European Union.

[Andrea Leadsom]

rose—

[Harriett Baldwin (West Worcestershire) (Con)]

rose—

--- Later in debate ---

[Chris Bryant]

The hon. Lady praises me far too much. I was Minister for Europe for about 2.5 seconds. In those 2.5 seconds, however, the one thing that I argued aggressively with my socialist friends and with my European People’s party friends—with whom her party used to be friends—was that the next multiannual round had to be lower than before and should not have an inflationary increase. I am afraid that the hon. Lady is pitching at the wrong person in this particular round.

I believe that there is a role for the EU budget and it should relate to growth, research and development. There are some things where we can do more together as a continent and add value. Unfortunately, however, those are not the issues that grab the attention of the French, the Germans, the Italians and the Spaniards. That is why we have to, and have always had to, build alliances with other countries, particularly the smaller countries.

[Andrea Leadsom]

rose—

[Chris Bryant]

I saw the hon. Lady attempting to intervene earlier. I will give way to her, but then no more.

[Andrea Leadsom]

I am grateful. Does the hon. Gentleman agree, then, that in order to be able to negotiate successfully on the big-ticket items as he says, we need a sound basis on which to go forward? Supporting an amendment that would simply trash all negotiations with other EU members, such as calling for a cut that is nigh on impossible, would not be the way to progress any decent negotiation on structural reform in the future.

[Chris Bryant]

To be honest, I do not agree with the hon. Lady. If I take her back to the last debate I had with her on this issue, I do not think that that is the position she was advocating then. In her heart of hearts, she would prefer Parliament to give a strong single voice today, so that the Government have a negotiating position whereby they can go to Brussels, Strasbourg or wherever and say, “Look, we have the whole of Parliament behind us saying, ‘We’ve got to cut’.” That is why I hope she will vote for the amendment today.

I know that some hon. Members do not like structural funds at all—perhaps this was the issue that the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), who has already left the Chamber, wanted to raise—but I believe structural funds have a role to play in trying to make the whole European Union far more competitive in the world economy. That is certainly true for places like the valleys in south Wales. Sometimes the money is not particularly well spent, but if we did not have structural funds and cohesion funds, the danger is that each individual country would end up abusing state aid to protect specific businesses in their own country, thereby undermining countries like our own that choose not to go down that route.

I ask Government Members this: how could we possibly go back to our constituents and say to teachers, fire officers, police officers and all the rest, “We want to give more money to the European Union, but you’ve got to live with a pay freeze, and you’ve got to live with less money, with 19% cuts year on year to local authority funding for the building of hospitals, homes and so forth.”? I just do not see how I could possibly argue that.

--- Later in debate ---

[Stephen Williams]

This is about a debate we are having now on a budget from 2014 to 2020, not about a position we took in 2009 before any of us knew we were going to be in a coalition Government. This is a position we can decide for ourselves, knowing the circumstances we are currently in. They are entirely different situations.

We are essentially discussing a comprehensive spending review of the European Union from 2014 to 2020, for which the European Commission has asked for a budget of €972 billion. That is roughly €100 billion above what would be a real-terms freeze. That is completely unrealistic at a time when EU member states are under real budgetary pressure, and some more so than others. It would be unacceptable for the United Kingdom to agree an increase of that magnitude, because it would represent roughly £10 billion in extra contributions. Therefore, it is absolutely right that the UK Government are going into the negotiations, in concert with many other member states, asking for a real-terms freeze. That is what is important: the position our Government are taking is in agreement with that of many other member states. It is a position that has a realistic prospect of achieving the success that most of us actually want. Undermining the United Kingdom’s position today will blow a hole in that negotiating position and make it much less likely that we will get the outcome many of us wish to achieve.

[Andrea Leadsom]

Does my hon. Friend agree that it blows a hole in our credibility with our European colleagues regarding not only the budget but other reforms where we have a significant, perhaps once in a lifetime, opportunity to create real structural reform of the EU?

[Stephen Williams]

I absolutely agree, and I will come to that shortly.

The negotiating position of arguing for a real-terms freeze is agreed right across the coalition Government. There is no one more Europhile than the Deputy Prime Minister, who tomorrow is going to make a speech in which he highlights several of the reasonable differences that exist between the coalition parties on our relations with the European Union and makes it absolutely clear that he fully agrees that a real-terms freeze is the right way forward.

My hon. Friend the Member for South Northamptonshire (Andrea Leadsom) mentioned the case for reform. The European Union spends 33.8% of its existing budget, as negotiated in 2005, on the common agricultural policy and 5.7% on a very bloated central administration system, with the caravan moving between Strasbourg and Brussels, and it could make cuts in those areas. Yet it spends only 9.2% of its budget on the competitiveness agenda—on supporting research and development and small and medium-sized enterprises. That is where we want the European Union to spend whatever its agreed budget is in future.

The Government are right to argue against what the European Union calls its “own resources”—in other words, tax revenues directly hypothecated for the EU—and to say that we do not want that to happen with VAT. They are also right to argue against a Europe-wide financial transactions tax. My colleagues and I think that there is a good case to be made for a financial transactions tax across all the global financial centres, but many of those are outside the European Union, most obviously in Switzerland. It is not for the European Union to make the case for an FTT, and it certainly should not be the recipient of any revenues from an FTT should one be imposed in future, because it would then be taking on the personality of a state and a Government, and that is not the vision of the European Union that the Liberal Democrats wish to see. It is also right that the Government should argue for the retention of the British rebate.

Labour’s position is quite extraordinary. The hon. Member for Bolsover (Mr Skinner), who is no longer in his seat, gave the game away by alluding to the Maastricht votes of 20 years ago. Its position is a marriage of genuine Euroscepticism—I accept that—and naked opportunism. We in the coalition Government have waited two and a half years for Labour Front Benchers to tell us which of the cuts that the coalition Government are implementing they agree with, and, if they disagree with all of them, which has been the position thus far, at least to suggest alternatives. There has been total silence. The only cut that they are brave enough to suggest is one that has to be imposed by 26 other member states—they show no bravery at all in suggesting cuts in our own budgets. That is incredible, and for those Labour Members who are Europhiles, it is an embarrassing position in which to find themselves. I can only assume that they have been put there by their more senior Front-Bench colleagues who are not with us at the moment.

Labour Members should know that it is not possible to achieve a real-terms reduction in the MFF. They did not manage it in 2005, when they negotiated an increase. The current leader of the Labour party, the current shadow Chancellor and the current shadow Foreign Secretary were leading members of that Government. Liberal Democrat MPs and Conservative MPs voted against an increase in November 2007. In recent years, our Members of the European Parliament, Liberal Democrat and Conservative, have consistently voted against a real-terms increase in the European budget. Labour Members of the European Parliament have voted against a freeze in the EU budget; all they voted for was extra money for the trade unions. We want the EU to spend more on measures that grow the European economy, deepen the single market and make the EU globally competitive.

Public Service Pensions Bill

Andrea Leadsom Excerpts

Monday 29th October 2012 Commons Chamber

[Rachel Reeves]

I thank my hon. Friend for that intervention. We also believe that this Bill should not pre-empt or cut across ongoing discussions—this builds on the point that he raised, as did my right hon. Friend the Member for Rother Valley (Mr Barron)—between the Department of Health, NHS employers and NHS workers about the implications of working longer for some staff groups, especially those, such as paramedics, in physically demanding roles.

We think that the Bill should reflect Lord Hutton’s recommendations that the link between public service pension ages and the state pension age should be kept under review and that this should be conducted by a properly independent body, with public service employees and employers represented and consulted. The Chief Secretary to the Treasury said in his speech that that will happen, but it is not guaranteed in the Bill—indeed, it is unclear whether it is even compatible with the Bill. These are all issues that we will be raising in Committee to get the commitments that public service workers deserve and thought they had been given during the negotiations behind the Bill. These are also issues that we will have in mind as we look to any future increases in the state pension age itself.

For our finances to be sustainable, and for decent pensions to be affordable, it is right that retirement ages rise with longevity. However, as Malcolm Wicks, the late Member for Croydon North reminded us in some of his most recent work, many people doing manual jobs started work at 16 or 18, with some doing so even earlier, and find it harder to continue work into their late 60s. We should be mindful of people’s capacity to work later and later, especially if support is not in place for them in the workplace.

Secondly, there are real worries that the Bill fails to take due account of the special characteristics of the local government pension scheme. Members will know that it is a fully funded scheme administered by local authorities and we should welcome the hard work of local councils and trade unions, who have made very valuable progress in negotiations on a mutually agreeable agenda for reform. The Bill threatens to unravel the agreements that have been reached and destabilise financially the local government pension funds by forcing a disruptive and potentially disastrous closure of existing schemes instead of facilitating a smooth transition to the new scheme design. That extension of Treasury interference into aspects of scheme valuation and design could prevent local authorities from delivering on the deal they have agreed with their work force. Indeed, the view of the pensions manager at the Chartered Institute of Public Finance and Accountancy is that the relevant provisions in the Bill represent

“a major shift in the governance of local authority pensions and”

raise

“questions about future local democratic accountability for those pension funds.”

Again, we expect those concerns to be addressed in Committee.

Thirdly, on the question of good governance, the Bill must underpin and not undermine high standards of scheme governance. As Lord Hutton stated in his final report,

“there is a powerful case for…much stronger governance of all the public service pension schemes. This should keep government, taxpayers and scheme members better informed about the financial health of these schemes. There should be minimum standards set for scheme administration. There is also a proper and legitimate role for representatives of the workforce to be formally involved in these new governance arrangements.”

The Bill fails to include key recommendations from Lord Hutton’s report, such as the inclusion of member-nominated and independent members on pension boards; the establishment of pension policy groups to consider major changes to scheme rules; the need to ensure that pension boards are responsible for the oversight of financial management and, in the case of funded schemes such as the local government pension scheme, for investment management; and the commissioning of a review into how standards of administration in public service pension schemes can be improved. Those measures would improve the efficiency and cost-effectiveness of scheme administration and would ensure that public service pension schemes matched best practice in the private sector.

Finally, we must ensure that the Bill adequately reflects and reinforces the progress made in negotiations. We should give public service workers a system they can trust and pensions that they can save towards with confidence, ensuring protection against retrospective or arbitrary detrimental changes. We also have concerns in this regard, which some hon. Members have already mentioned, and we will seek to address them in Committee. For one thing, the Bill subjects many aspects of public service pension provision to unilateral Treasury control. Although it is right that mechanisms should be in place to ensure that costs to taxpayers are contained, public service employees also have a right to know that critical changes will be consulted on and that their pension savings will not be vulnerable to arbitrary interference and opportunistic cash raids.

Furthermore, Lord Hutton has stated that

“there must…be full protection of accrued rights”,

but the Bill does not rule out retrospective changes that reduce benefits already accrued, going against the fundamental principle that pension benefits accrued are pay deferred and must therefore be honoured. The Government have reiterated their commitment to maintaining defined benefits in the public sector, and the Chief Secretary reaffirmed that to the House last year. He said, as he has on a number of other occasions, that his commitment was that

“public sector schemes will remain as defined benefit schemes, with a guaranteed amount provided in retirement”.—[Official Report, 2 November 2011; Vol. 534, c. 927.]

Clause 7, however, provides for the creation of new schemes that are

“defined benefits…defined contributions…or…a scheme of any other description.”

That should not be a means to drive a coach and horses through the commitments the Government have given and allow another round in the race to the bottom on pension provision.

In addition, the Government have made much of their promise of

“no more reform for 25 years”.

In his foreword to the Treasury’s document on new scheme designs, published last December, the Chief Secretary wrote that

“we need a long term solution that will last a generation”.

Clause 20 specifies “protected elements” of scheme design that cannot be altered for the next 25 years without clearing a “high hurdle” of comprehensive consultation and a report to parliament.

We think it is right that public service workers should be given an assurance that their pension savings will not be vulnerable to further arbitrary and unfair changes without adequate scrutiny and debate, but the Bill seems to be riddled with loopholes, excluding a number of important scheme features from the list of “protected elements” and stating that the “high hurdle” can be bypassed in order to meet a cost cap that is in turn set by the Treasury with no such requirement for consultation and report. Furthermore, it was a critical part of the agreements reached with employee representatives that protection should be provided to staff transferred to alternative providers as a result of public service outsourcing —the so-called fair deal policy. The Chief Secretary told the House last year that

“we have agreed to retain the fair deal provision and extend access for transferring staff. The new pensions will be substantially more affordable to alternative providers, and it is right that we offer workers continued access to them.”—[Official Report, 20 December 2011; Vol. 537, c. 1203.]

Yet there is no guarantee in the Bill that public service workers transferred to new employers will be able to keep their public service pensions. We will seek to address all those issues in Committee to improve the Bill and the protections granted to public service workers.

In conclusion, we think public service workers with understandable fears for their financial futures deserve better than being treated as pawns in this Government’s political games, with the consequence that it has been harder to reach agreement on reasonable reforms that control costs to the taxpayer. Indeed, perhaps the best case for the Bill is that it should ensure that never again can an opportunistic Government create unnecessary conflict and disruption by imposing unfair and arbitrary changes without adequate consultation, scrutiny and accountability. Let us ensure that it fulfils that objective.

Finally, let us remember that the real pensions crisis is not in the public sector but in the private sector. It is right that we should ensure public service pensions are sustainable and affordable for the taxpayer, but we should not allow that to distract us from the unacceptable inadequacy of pension provision in the private sector. Too often, it has sounded as though the Government’s answer to disparities in pension provision across the public and private sectors is to level down, not level up. Indeed, we have seen more than a million lower paid workers excluded from automatic enrolment when we should be ensuring that the National Employment Savings Trust can deliver low-cost, high-quality pensions to all who could benefit.

[Andrea Leadsom (South Northamptonshire) (Con)]

Does the hon. Lady accept that in the 10 years since the previous Prime Minister decided to get rid of advance corporation tax relief on pensions, that decision has destroyed £100 billion of private sector pension savings? Does she accept that that was the fault of her Government?

[Rachel Reeves]

I look forward to the hon. Lady’s private Member’s Bill to restore that relief. The real crisis is that some people are not saving at all for their retirement and are not in any type of occupational scheme.

[Andrea Leadsom]

rose—

[Rachel Reeves]

I shall take another intervention so that we can hear about the hon. Lady’s private Member’s Bill.

[Andrea Leadsom]

How on earth does the hon. Lady think that anyone can put right £100 billion wiped off the value of private sector pensions? How does she expect anybody to right that wrong today? It has been done; it is too late.

[Rachel Reeves]

It could be reversed so that dividends were not treated in such a way in the future, but the Government have no intention of doing that. I do not think the hon. Lady understands the real crisis: some people are not saving at all for their pensions and have no occupational pension to save into, and the 20% of people who earn less than a living wage do not feel that they can put money aside every month. That is the real crisis we face and the Government excluded 1 million people from automatic enrolment and have done nothing to tackle the excessive fees and charges automatic enrolment schemes can charge. The Government should be focusing on that challenge to bring up the quality of pension provision for everybody so that nobody risks retiring into poverty and having to rely on means-tested benefits.

Improving governance and reducing costs across private pension schemes while cracking down on the excessive fees and charges that erode pension income should be the Government’s priority, but it is not. Instead, to address disparities they want to level down the pensions enjoyed by those who work in the public sector.

--- Later in debate ---

[Andrea Leadsom (South Northamptonshire) (Con)]

I was rather delighted by the Bill. I think it is an unmitigated good news story, so it is rather depressing to follow the hon. Member for Blaydon (Mr Anderson) who, more than any other contributor today, is talking down an extraordinarily fair, logical and sensible settlement. I would draw to his attention the comments of his colleague the shadow Chancellor, the right hon. Member for Morley and Outwood (Ed Balls), who told the TUC annual congress on 11 September this year:

“We must be honest with the British people that under Labour there would have been cuts, and that on spending, pay and pensions there will be disappointments and difficult decisions from which we will not flinch. Because the question the public will ask is: who can I trust?”

It is a great shame when Opposition Members deliberately talk down a settlement that is extraordinarily fair to both the taxpayer and our public sector workers.

This is an unmitigated good news story, of course, because we in Britain have some of the best public service sector servants in the world and the best public services in the world. Is it not fantastic that we are all living longer—that we can now expect to live a good 10 years longer than in the 1970s? That is an unmitigated good, but it has enormous consequences for public policy.

One of the consequences is that people will need to work for longer. It is ridiculous for people to be retired for a third of their lives. That is not only unaffordable; it is nonsensical for those individuals. It is appalling to think of people spending 20 or 30 years fully retired with nothing to do but tend their garden and look after their grandchildren. People do not want to do that. It is completely ludicrous to suggest that people should continue to retire at the age of 60 when they are going to continue to live for another 20, 30 or even 40 years. That is completely unsustainable and illogical. The Bill makes sense of such points in a way that is completely fair to the taxpayer and the public sector workers. I congratulate the Government on producing such an extraordinarily fair Bill.

I want to disabuse the Opposition of a couple of the myths. They say that the unions claim that average local government pensions are just £3,800, and that for women they are less than £2,800, but they fail to point out that that includes people who have worked for only a very short time in the public sector. They should be talking about what people would be retiring on if they were to spend their entire career in the public sector. The fact is that many women will be far better off than is claimed. Members on both sides of the House have been very concerned about lower paid women in both the public and private sectors retiring in poverty. Under our proposals, women will be far better off because the Bill safeguards the lowest earners’ pensions. They will not face increased contributions to their pensions, and they will be better off than they previously were. That is very good news.

[Dr Whiteford]

One misleading aspect of the pensions contribution debate is the claim that people earning under £15,000 will be protected. It is often overlooked that these figures are calculated on a full-time equivalent basis. Many women work part time, and they will find that they have to pay high pension contributions even though their salaries are very modest.

[Andrea Leadsom]

I think what the hon. Lady is saying is that somebody who would be on, perhaps, £60,000 a year but who is working a day a week and is therefore taking home about £12,000 a year will have to pay higher contributions. Is that what she is saying?

[Dr Whiteford]

I am thinking of nurses or teachers, whose salaries would be more in the average earnings category. If they work half-time, they will find that their pensions contributions increases will be calculated on the basis of a full-time equivalent so this measure will not help women on low incomes.

[Andrea Leadsom]

That is a rather extraordinary point. Public sector pensions will be paid and calculated on the basis of a full-time equivalent salary, so our approach is entirely consistent. Moving to career average schemes will also make things much fairer for women. It will mean that high flyers who are promoted late in their career and then earn a significantly higher salary will no longer retire on an extremely generous pension. Those who have spent their career sometimes doing part-time work and sometimes doing full-time work will have a career average pension, which will be much fairer.

It is also right that we link public sector pensions to the normal state retirement age—that is a matter of fairness. If the state retirement pension kicks in at 66, it is right that, with exceptions—notably those who have armed forces, firefighter and police pensions—people start to draw their public sector pension at the same time as their state pension. That is all about fairness.

[Chris Leslie]

The hon. Lady will know that in the past—I believe this was in the Pensions Act 2011—people were given short notice about changes to the pension age. Does she agree that, ideally, a good 10-year notice period should be given so that people can plan ahead? If this is pegged to the state pension age, people should have sufficient opportunity to plan with enough forethought.

[Andrea Leadsom]

The hon. Gentleman will recall that the Government made great efforts to ensure that the cliff edge affecting certain women born in a certain couple of years disappeared. He will also be pleased to note that the pensions of those with less than 10 years until retirement will not be affected by this measure, which provides the ring-fencing for those with not long to go until retirement age. I would have thought that he would welcome that—again, on the basis of fairness between those workers and the taxpayer.

Of course, two thirds of private sector workers are not members of a pension scheme. We have heard hon. Members from all parts of the House say that we do not want a race to the bottom. We are proud of our public sector pension provision, and nobody would wish to see it brought down to the abysmal level of private sector pensions. However, it would be pleasing if Opposition Front Benchers were to concede their part in the destruction of private sector pensions, which has made a significant contribution to putting us into this pitiful position; private sector pensions have been decimated by the actions of the previous Prime Minister.

An important point of fairness is involved in the fact that the taxpayer contributes three times more to a civil service employee’s pension than the average private sector employer pays in. The employer contribution rate to the civil service pension scheme is 19%, whereas the average private sector employer contribution rate for a defined contribution pension scheme is only 6.4%. To get the same pension in the private sector, someone would have to contribute about a third of their salary.

[Sheila Gilmore (Edinburgh East) (Lab)]

There is something extraordinary in what the hon. Lady has just said, which several of her colleagues also said. They say, “We don’t want to compare with the private sector. We don’t want to have a race to the bottom.” They then say, “But” and come out with a long string of comparisons about employers not paying as much. If this has nothing to do with comparisons with the private sector, they should stop comparing.

[Andrea Leadsom]

The hon. Lady makes an extremely good point. I am not advocating that we reduce public sector pensions to the private sector level, but this does, of course, absolutely bear comparison. This Government are not reducing public sector pensions to the pitiful state the Labour Government left private sector pensions in when they left office. That is precisely the point I am trying to make. We are proud of the fact that our public sector pensions will remain among the best in the world. That is something to be very proud of, and the Opposition should be congratulating the Government on having achieved that at this extraordinarily difficult time.

Let me disabuse Members of one final myth. The Opposition like to say that private sector workers earn more, so private sector pensions make up for the shortfall in salaries. That is not the case. The Institute for Fiscal Studies calculates that on average hourly public sector wages are 7.5% higher than hourly private sector wages, even when we take into account an individual’s education, age and qualifications. That is a very important point. Public sector pensions do not subsidise lousy working rates—quite the opposite, in fact. Those in the public sector rightly have a good deal in their employment and in their pension. That is what we wanted to achieve and I commend those on the Front Bench for doing so.

The most important aspect is sustainability, because what we had was unsustainable. Over the past decade, public sector pension costs increased by a third in real terms. Between 1999-2000 and 2009-10, the amount of benefits paid from the five largest public service pension schemes increased by 32% in real terms. In five years’ time, we are set to spend £33 billion a year on public sector pensions—more than on police and transport combined and 1.8% of GDP.

[Richard Fuller]

On that point about overall fairness and sustainability, does my hon. Friend believe that the Government could have gone further in ensuring sustainability by looking to move towards a fully funded form of public sector pension scheme? There is still an exposure for the public purse in the future. and although the Minister is putting in some cost control, we could have gone further, could we not?

[Andrea Leadsom]

Of course, my hon. Friend is quite right: we could have gone much further. Across Europe, public sector pensions and terms are being cut with immediate effect to deal with the appalling debts that countries have run up, whereas this Government are putting in place measures that are entirely fair and sustainable both for the taxpayer and the public sector worker.

Let me conclude by saying again that it is an unmitigated good thing that people are living longer, healthier lives, and that we should celebrate our public sector workers and the job they do. They do a fantastic job for us of which we are very proud and we want to ensure that they are fairly rewarded, in a way that is sustainable for the public purse for many decades to come.

--- Later in debate ---

[John McDonnell]

There was always a link with earnings or inflation, and pensions went up accordingly. Why did the previous Government not replace it? I sought on every Budget to enable that to happen and I wish we had done so.

[Andrea Leadsom]

rose—

[John McDonnell]

Let me press on with the points that I am making.

What the Government are now doing is exactly the same as they did to private pensions, but we were told by the Chief Secretary that this is a settlement for a generation—that it will restore stability and predictability to public sector pensions for the next 25 years. No, it does not. As has been said before, the Henry VIII clauses in the Bill not only have the potential to undermine future benefits but are retrospective. I urge Members to look at the BMA’s legal advice on clause 3 and the vast remit that that gives future Governments to undermine future protections. Under clauses 3 and 21 and other clauses, public sector pensions do not even get the protection afforded in the private sector. In the private sector, if an alternative benefit is proposed, it must be actuarially evaluated as a viable alternative and one that does not undermine an equivalent benefit.

I agree with my right hon. Friend the Member for Wentworth and Dearne (John Healey)—we all agree on this—that pensions are deferred earnings, something people invest in and, therefore, something they should have some say in, but the Bill will take away all participatory control by the members who contribute. As he said, the Treasury will now control the design of the schemes, the revaluations and how they are undertaken, and the cost cap and what is included within it. There is a lack of commitment in the Bill, contrary to all that Hutton said, to ensuring that any future changes or reforms are made on the basis of agreement or at least joint engagement.

I am now secretary of the Fire Brigades Union parliamentary group and wish to circulate the evidence the FBU provided to Ministers on the physical work firefighters now do. Under the new pension scheme the retirement age in the fire services has been lifted to 60. The previous Government argued that there would be preventive measures to enable firefighters who could no longer undertake the physical rigour of the job to undertake lighter duties, as the hon. Member for Bromley and Chislehurst (Robert Neill) said. This year, 16 posts in the whole the country have been offered for redeployment alone, so that is unreal. Frankly, I do not believe that a 60-year-old firefighter can cope with the rigours of the job, no matter what improvements there have been in technology.

The hon. Member for Banff and Buchan (Dr Whiteford) mentioned the briefing from the Prison Officers Association. There are five physical tests that every prison officer has to undertake in order to be able to continue doing the job. If they fail in any one, they cannot do the job. The POA therefore predicts, quite rightly, that the cost of medical retirements will outweigh any savings gained as a result of the increased pension age. The same information came from the Royal College of Nursing with regard to nurses and paramedics and from the National Union of Teachers with regard to teachers teaching at 68.

The Government said that they would set up the longer life review. Its first meeting was held in September and the results will not be out for at least another six months, yet this Bill allows no flexibility. My right hon. Friend the Member for Wentworth and Dearne was right: even if the money is there and the employer agrees with it, the Bill provides no flexibility in any of the proposed schemes. It is lunacy to bind the hands of negotiators in that way.

There is no legal requirement on the pension boards to consult or negotiate, contrary to what Hutton recommended, and we can see no representation from the work force. There should at least be some assurance in the Bill that there will be an element of representation on the boards. With regard to the closure of the existing schemes, some protections are being put forward, but there is none on ill health or redundancy. I find clause 23 almost sinister. It will enable employers to offer benefits as an alternative outside the schemes, which is another way of using private sector schemes to undermine the public sector overall.

I am worried about this Bill, which is why I want to vote against it. I think we will look back on today as the day when public sector pensions started on a downward slope, with the erosion of benefits and increasing contributions leading eventually to the undermining of the schemes and their closure. I think it will result in many people being impoverished and greater inequality being created in our society. That is why I will oppose the Bill tonight.

Infrastructure (Financial Assistance) Bill

Andrea Leadsom Excerpts

Monday 17th September 2012 Commons Chamber

[Danny Alexander]

Again, I do not agree. By looking at the way we use capital moneys across Government, the decisions we took in the 2010 spending review have enabled us, for example, to devote more capital moneys to the Department for Transport for investment in our transport infrastructure over these four years than our predecessors were able to devote over the previous four years. The same could also be said of communications and broadband infrastructure. This Bill is a major development along that road. Labour could have put in place a guarantee scheme at any point in the previous 13 years, but it chose not to.

[Andrea Leadsom (South Northamptonshire) (Con)]

I have a business breakfast club in my constituency. A group of business people told me recently that the big challenge for them is not being able to move into decent premises so that they can expand and the inflexibility of the system. Can my right hon. Friend tell me whether there is anything in the Bill for those businesses? Surely they are the real engines of growth, operating at the sharp end of our economy.

[Danny Alexander]

By offering guarantees to a wide range of infrastructure projects that might otherwise be delayed because of lack of access to finance—thereby bringing those projects forward, or in some circumstances accelerating them—the Bill will, I hope, help to ensure that the businesses my hon. Friend is describing can access the quality of infrastructure they need to deliver their growth plans. In that sense, I think the Bill will make a big difference.

Oral Answers to Questions

Andrea Leadsom Excerpts

Tuesday 11th September 2012 Commons Chamber

[Mr Osborne]

I can write to the hon. Gentleman providing a specific jobs total for this year, but I can tell him now that the national infrastructure plan is already seeing the development of the trans-Pennine electrification, which we discussed earlier, the creation of 700 jobs in the north-east as we spend £600 million on new inter-city trains, and the huge Crossrail development across London, which, as I have seen, is employing many hundreds if not thousands of people. The plan is not just a plan for this year; it is also a plan for the future, and it shows that making difficult decisions about things such as welfare enables us to spend on things that will help the private sector to create jobs.

[Andrea Leadsom (South Northamptonshire) (Con)]

I congratulate the Financial Secretary on his new post. Would he be willing—when the dust settles, and in the wake of the LIBOR scandal—to look again with fresh eyes at the possibilities of full bank account portability, which could be a game-changer for British banking, and try to get our economy going again once and for all?

[The Financial Secretary to the Treasury (Greg Clark)]

My hon. Friend is a distinguished member of the Treasury Committee. The Independent Commission on Banking has considered the matter, and has made some proposals for easier transfer between accounts. It has said that that should be under review, but I shall be happy to meet my hon. Friend, and I understand the case that she is making.

Banking Competition

Andrea Leadsom Excerpts

Thursday 12th July 2012 Westminster Hall

[Andrea Leadsom (South Northamptonshire) (Con)]

What an astonishing few weeks it has been in the banking sector. It is a pleasure to serve under your chairmanship today, Mr Chope. I am sure that my colleagues my hon. Friends the Members for Wyre Forest (Mark Garnier) and for Mid Norfolk (George Freeman), the hon. Members for Strangford (Jim Shannon), for Erith and Thamesmead (Teresa Pearce) and for Wells (Tessa Munt) who supported the application for this debate with me will be feeling, as I do, that the debate could not come at a more important time for such a key British industry.

Banks are incredibly important to Britain’s economic well-being. Financial services employ more than a million people in Britain and generate more than 10% of our annual tax revenue. The vast majority of those who work in the sector are doing an honest day’s job every day for an average salary and, if they are lucky, a modest bonus at the end of the year.

Banking is a vital industry that could lead us back to economic recovery. However, that will not happen on the back of what we have heard about the fraudulent and corrupt practices of the small number of massive earners who have done so much to destroy the image of our banks. It is vital that we re-establish banks as calm, measured and instinctively cautious guardians of the trust and confidence that account holders place in them. For a long time, I and many others have believed that more competition in the banking sector is key to that turnaround, and the events of the past few weeks have brought that sharply into focus.

I know it is annoying when people say, “It’s not like it was in my day,” but that is honestly how I felt after hearing Bob Diamond’s evidence to the Treasury Committee last week. For 25 years before becoming an MP, I worked in finance, including in Barclays’ dealing room just after the big bang in 1987. It was a different world. In those days, asking the treasury team what the LIBOR setting was would be a bit like asking you what the time is, Mr Chope; I would not expect you to tell me anything other than the facts.

However, that was in the late ’80s, when there were about 45 major banks in the UK. In the past 10 years, according to the British Bankers Association, that figure has halved to just 22. Not only that, but five of those banks have between them 80% of the personal current account market and the small and medium-sized enterprise market. I feel sure that the scandals of the past few years simply point to the disastrous consequences of the mergers and takeovers that took place during the 1990s. We now have a small group of vast institutions, where the culture has been shown to be, “Heads, I win; tails, the taxpayer loses.” That is a far cry from my day when “my word is my bond” was the ruling mantra in the City.

British people across the country are furious about the behaviour of the banks and they have every right to feel that way. Banks—already seen as greedy and arrogant— have stooped to a new low of corruption and fraud. The inquiry into wrongdoing, how widespread it may be among banks, and how many other areas of finance could have been manipulated has to run its course. However, we also have to think long and hard about the future. People are quite rightly asking, “What are the Government doing about it?” The answer is, “A lot.” Since 2010, the coalition Government have put forward radical proposals to ditch Labour’s appalling tripartite regulatory regime that enabled almost every regulator off the hook for the financial crisis. We have instigated the Vickers commission and accepted the retail ring-fencing proposal, as well as faster account switching. We have also proposed a new responsibility for financial stability for the Bank of England.

However, we could do more. In light of the Commodity Futures Trading Commission and Financial Services Authority judgments against Barclays, as well as investigations into other banks, we should be re-opening the debate in three key areas. The first is regulation. There is an old saying that investment bankers operate under equal measures of fear and greed. However, for years now, there has been vast greed with no fear of consequences. Regulators in the future will need extremely sharp teeth, so that if criminal behaviour is taking place in a financial institution, all those responsible go to prison like any other thief, and there should be new criminal negligence tests for bank boards.

The bizarre evidence from Bob Diamond that he found out only one month ago about the corruption and fraud that had gone on at Barclays since 2005 should not be an acceptable excuse. Enormous earnings require enormous accountability. And I say to those who think we will never find another bank chief executive, that I do not believe for one minute that banks will struggle to find people willing to take their shilling in return for that responsibility. I would be delighted to hear from anyone who thinks that they would not give it a go for a couple of million a year. There would be plenty of takers.

The Government should be returning to the objectives of the new regulators—the Financial Conduct Authority and the Prudential Regulation Authority. They should both be given a specific objective to reduce barriers to entry and promote competition. Only one new high street bank has launched with a full banking licence in the past 100 years; that was Metro Bank. Or was it in the past 300 years—[Interruption.] Sorry, 100 years. Other recent new entrants have tended either to be backed by one of the big five, such as Marks and Spencer financial services which is backed by HSBC, or have benefited from Government sell-offs, such as Virgin buying the good bit of Northern Rock.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Before the hon. Lady moves on from the point about greater competition for banks, will she welcome the discussions between Lloyds bank and the Co-operative bank about a possible sale to the Co-operative bank, which would create one challenger bank in the marketplace?

[Andrea Leadsom]

Absolutely. I agree with the hon. Gentleman. That is a very good move. Personally, I think that a reversal of the Lloyds-HBOS merger would be better.

Secondly, the issue of a complete separation of retail and investment banking should return to the agenda. It is right that the Government should be the ultimate guarantor of retail deposits, but that guarantee should not extend to high-risk transactions. If an investment bank goes under, the losses should be borne by those who were happy to take the profits in better times, something to which the Government are already committed. Vickers has proposed ring-fencing already, but we should be examining again the prospect of a total separation.

Thirdly, the key issue is that of competition. The Government need to take further steps to inject greater competition into the banking sector. People have lost faith in the banking industry. Small businesses are finding credit hard to come by, taxpayers are furious at the billions spent on the bail-outs, pay for bankers is too often unrelated to performance, and customer service levels are, in many cases, utterly appalling.

[Mr Sam Gyimah (East Surrey) (Con)]

I congratulate my hon. Friend and her colleagues on organising the debate, which is long overdue. I thank her very much for that. On the issue of competition, one of the challenges, especially from the business banking perspective, is that 90% of the market is held by the five major banks. That means that if a small business is looking for a loan, it will find it incredibly difficult to get one if it has been turned down by its main bank. Also, if someone is offered a loan, they often have to agree to switch their account to the new bank. That lack of competition is a serious problem in terms of getting lending to businesses in the market. However, does my hon. Friend agree that such competition should be about not only having more banks but the diversity of provision in the sector? It does not have to be a bank that lends to a business.

[Andrea Leadsom]

My hon. Friend is absolutely right. We need far more diversity of financial service providers. Some of the issues I am about to discuss will address that because bringing down barriers to entry will, by definition in a capitalist society, encourage new entrants of all different sorts.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

I share the hon. Lady’s view and that of the hon. Member for East Surrey (Mr Gyimah) that more diversity in the financial markets is essential. Does she accept that it was a missed opportunity on the part of the Government to reject an amendment requiring the new regulators to have regard to promoting diversity in the financial markets?

[Andrea Leadsom]

I am not aware of the specific amendment that the hon. Gentleman is talking about. However, I certainly think that the Government will be wanting to promote diversity, and I am very much aware that they want to promote the diversity of financial service providers. I can tell him that, at a recent hearing with the Treasury Committee, the Governor of the Bank of England assured us that he, too, was very interested in promoting more competition and greater diversity. We unanimously agree on that point.

The best way to shake the banks out of their complacency is to allow new entrants into the market, bringing with them the high standards of service—including IT that works—that customers believe they should be able to take for granted. One significant step in that direction would be to break up and sell off the state-owned banks. That would create overnight potential new challenger banks in Britain, and I urge the Government to look at it again. The market concentration of the big five is appalling. Lloyds, the Royal Bank of Scotland, HSBC, Santander and Barclays have an estimated market share of 85% of the personal current account market and 67% of the mortgage market. That is a classic oligopoly, and they do behave like one. We can see all over the place barriers to entry, not least of which is the fact that those banks own, among them, the Payments Council and VocaLink—two crucial entities that enable the financial services markets to operate.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

In an earlier Westminster Hall debate this week on the Royal Bank of Scotland, I heard from one of the hon. Lady’s colleagues what was essentially a call to mutualise RBS. Does she agree that that would be one option? Is she proposing that?

[Andrea Leadsom]

I am grateful to the hon. Lady for intervening. Not specifically, no. My point is more that we need the market to decide on diversity. I do not think that the Government, in any area of our economic life, should be the ones who pick who should be doing what. What Government need to be doing is facilitating greater competition and greater diversity so I would not be prescriptive in that way.

The key point that I want to focus on is that a real game changer for competition would be for the Government to introduce full bank account portability. We take that for granted with our mobile phones. Why should our bank accounts be any different? I have been pressing for it, along with various colleagues, since becoming an MP. If people were able to switch instantly between banks without having to change their bank account number, bank cards, standing orders, direct debits and all their online shopping, that would remove a massive barrier to entry that is currently constraining new, innovative banks.

Bank account portability has five basic benefits. The first, obviously, is that it creates greater bank competition. That is because a new bank can say to its customers, “Come and give us a try. If you don’t like us, you can move back to your old bank tomorrow.” The enormous inertia on the part of customers, who do not want to move bank because of the hassle and aggravation for them personally, would be removed instantly. They could switch between banks every day of the week if they chose to do so.

Secondly, personal and business customers would be able to force banks to compete for their business. New banks would therefore be putting forward innovative ideas—perhaps paying customers to move to them at one end and giving particular services to business account customers at the other end. That would completely change the choice available to consumers, and the consumer choice argument is a very strong one. At the moment, with the big banks, most people feel that there is no choice.

The third benefit is better regulation. The regulator would be able to shut down a failing bank while avoiding the risk of a run on the banks. With account portability, all personal and business accounts could be switched immediately to a survivor bank.

Fourthly, there would be a reduction in fraud. The highly overestimated costs of account portability need to be set against the significant reduction in bank fraud. I was talking to Intellect, the IT trade body, which reckons that bank fraud could be reduced by up to 40% if we had full account portability, because one of the major reasons for fraud is the poor legacy systems in some of the big banks.

The fifth benefit would be support for SMEs. It is crucial that we have that in our economy; we have to get businesses going again. Funnily enough, if banks had a single system, they would also have a single customer view, so they would be able to evaluate, calculate and assess their small business customers far more accurately, enabling them to meet the needs of small businesses far better.

Making it easier for people to switch bank account provider is not a new concept. Don Cruickshank, who led a review of the banking sector and whose report was published in 2000, has long been committed to the idea. In 2000, Halifax launched the stand-alone telenet bank Intelligent Finance, with the express aim of making it easier for consumers to switch bank accounts. In March 2001, the Competition Commission identified reluctance on the part of small and medium-sized businesses to switch banks as a major problem. Later that year, the Bank of Scotland announced its intention to capture business from what was at the time the big four with a new “Easy to Join” service, which would assign a staff member to oversee the account switching process and to deal with direct debits, standing orders, international transfers and the like.

In June 2002, James Crosby, then chief executive of HBOS, said that he was concerned by delays to greater account portability and that the move was vital for competition. More recently, the Independent Commission on Banking, led by Sir John Vickers, called for a system that would make account switching easier. However, the ICB’s proposals stopped short of full account portability.

This year, Virgin Money has added its support for full bank account portability. It has said that it is happy to support the ICB proposal that a current account redirection service should be established by September 2013, but that it is

“not sure that it will be sufficient to overcome consumers’ inertia, and their concerns that switching may be difficult.”

In its submission to the ICB, it expressed a preference for full account number portability.

The ICB published its final report in September 2011, following an interim report that April. The Treasury Committee took evidence in relation to both reports, and several bankers said that account switching was important. Mr Horta-Osorio, chief executive of Lloyds Banking Group, told the Committee:

“There has been progress made in terms of customers being able to switch effectively and without risk, but more progress can be made. We are proposing a seven-day automated redirection of direct debits whereby customers in seven days can be sure that their account and their direct debits are automatically redirected to the new account without any risk. All banks have now endorsed that solution and the Payments Council as well.”

At the weekend, Jayne-Anne Gadhia, Virgin Money’s chief executive, said that

“banking doesn’t have to be remote, distant and just transactional. There can be a new and different future where customers are at the centre of the banking experience…For too long, banking has been more head than heart. We want to put more heart into it.”

The ICB reported that there was a switching rate of just 3.8% for personal current accounts in 2010, that three quarters of consumers had never considered switching their current account, that 51% of SMEs had never switched their main banking relationship and that 85% of businesses surveyed by the Federation of Small Businesses had not switched their main banking provider in three years. Which?, the consumer focus group, estimates that people are more likely to get divorced than change their bank account. Those switching rates compare very unfavourably with those in other industries. In 2010, 15% of consumers changed their gas supplier, 17% switched electricity supplier, 26% switched telephone provider and 22% changed insurance provider.

Jayne-Anne Gadhia of Virgin Money says that

“retail banking has been underinvested in. When retail banking becomes the focus of senior banking executives again, which the splitting of retail and investment banking would bring about, bank customers will get a better service. If that happens, then I would be delighted.”

I agree with her. Making it easier for consumers to switch provider would be a boost to new entrants in the market and therefore to competition, because consumers would know that if they did not like the bank they had moved to, they could always move again.

[Mr Love]

The question that I am about to ask is one that I have some feeling about, as I have tried to shift my bank account in the recent past. The industry would argue that it is shortening the process and making it more secure, and that we should give that an opportunity to bed down in order to see whether it works. The industry also claims that it is very expensive. How does the hon. Lady respond to those concerns and how important does she think it is that we create a fully portable system?

[Andrea Leadsom]

I am grateful to the hon. Gentleman for asking that question. If people consider the cost to the taxpayer of the financial crisis and if people believe, as I do, that the reason for the financial crisis was that banks were too big to fail, it makes sense that if banks were no longer too big to fail, the taxpayer would no longer bear that massive liability. We need to consider the costs of achieving competition in the context of what has happened in the recent past, but yes, it would be expensive to achieve it.

The likes of VocaLink and Intellect, the IT trade body, have advised me that the costs are not in creating the centralised account-holding system required for fully transferable bank accounts, but in the big oligopoly banks changing their systems of sort codes, cheque books, bank account numbers and so on to fit in with a new system. The ultimate irony is that the challenger banks, such as Metro Bank, Virgin Money and Aldermore, would love account transferability because it is a minor cost to them; it is a major cost to those banks that, by dint of having legacy systems, have a lousy ability to feed in to a single system, so would find it very expensive.

You will be pleased to know that I am coming to a conclusion, Mr Chope. Now is not the time for timidity over reform in our banking sector and nor is it the time for false economies. We need to focus on enabling new entrants into the market, taking the steps that will be good for the consumer and for small businesses, and beginning the long process of restoring the reputation of our banking sector.

--- Later in debate ---

[Steve Baker (Wycombe) (Con)]

It is a pleasure to serve under your chairmanship, Mr Chope. I congratulate my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) on securing this debate with particular serendipity. She called for more heart in banking, and tonight there will be a documentary on TV that I expect will be wonderful. “Bank of Dave” is about David Fishwick, an entrepreneur who sought to start a bank. It is a remarkable tale, and I hope the Minister will take a look at the programme because it speaks very much to the problem of barriers to entry.

Mr Fishwick is a successful entrepreneur who sells minibuses. He owns a Ferrari, a helicopter and a nice pad. He is a self-made man. He discovered that his customers could no longer get finance to buy his minibuses, and so his own business was endangered by the lack of credit. He therefore began to lend them the money himself. It seemed straightforward enough, and he thought, “I could do this, and serve my local community.” He set out to establish a bank, and his documentary, which is a series, talks about the difficulties he had. He is legally forbidden to call his institution a bank, so he does not take demand deposits but instead takes people’s life savings, personally guarantees them with his own wealth, and then lends them to productive businesses based on trust and relationships. That speaks very much to all the calls we have had from Members on both sides today for a new kind of banking. It is super local, personally guaranteed and based on trust and relationships, so I very much hope the Minister will watch Channel 4 at 9 pm to see Dave Fishwick and “Bank of Dave”.

I want to talk about the personal guarantee in particular. Members have talked about the loss of faith, and Mr Fishwick is restoring faith by knowing the people from whom he is borrowing and those he is lending to, and personally guaranteeing the finance. I introduced a private Member’s Bill in the last parliamentary Session to give directors of financial institutions strict unlimited liability for their banks’ losses, and to require them to post personal bonds to be used as capital and to place the bonus pool into capital for five years. That might seem a harsh measure, but it is based on the idea that without moral hazard, people will behave well.

[Andrea Leadsom]

That takes me back to the old days—I sound very old. Before the big bang, most small banks and financial institutions were run on a partnership basis and people ate what they killed. If they had a good year they took a huge bonus, but if they had a bad year they gave back the car, the house and the children’s school fees—I do not quite know how they would have done that. That changed when the institutions all became plcs and it was one-way traffic only, so I have a lot of sympathy with what my hon. Friend is saying.

[Steve Baker]

My hon. Friend demonstrates that the accusation of inexperience that is often levelled at this House is wholly false. Both she and my hon. Friend the Member for Macclesfield (David Rutley), who is sitting next to me, have extensive experience in the City and understand the changes and how things have moved on.

Historically, there were three ways of restoring trust in an industry—taking deposits—that has always been risky: mutuality; the historic trustee savings bank model, in which the directors were not able to take any personal reward; and unlimited liability. Some of the greatest bankers in history—the original J. P. Morgan and Nathan Rothschild—operated with unlimited liability, so everyone understood what they would lose if they got a deal wrong, and there was trust.

The implications of my private Member’s Bill would be, first, that banks would have a much better culture and people’s interests would all be aligned to the banks’ success. Secondly, if we gave directors sufficient warning that they would shortly be accepting unlimited liability for their banks’ losses and that the losses would come out of their personal possessions—their pensions and homes, and forgone school fees—we would soon find that they would break up the banks for themselves, because they would not wish to try to manage unmanageable behemoths. That would stimulate a natural diversity across the banking system, as directors created institutions that they could manage and understand. Similarly, as someone is hardly likely to keep retail and investment together if it is not in their interests, I would expect them to separate them.

Thirdly, if directors and staff stand to lose, there is a good case for lowering barriers to entry. If we can expect good behaviour from bank staff, and responsible lending, it is legitimate to lower barriers to entry, and a virtuous circle could be created. It might well be that going for strict, unlimited personal liability for directors would be a step too far as a first measure, but I invite the Government to consider it as an alternative way forward, which could lead to a more self-regulating banking system that served society more positively.

I think I am well known for believing that the state is the problem and that there should be less intervention, but if we must have intervention the suggestion of account portability made by my hon. Friend the Member for South Northamptonshire is a good one, because it promotes competition. We just need the banks to move accounts into.

I urge the Government to be cautious about the idea of a state investment bank. Whenever any Government—not necessarily this one—get into lending, it is to ensure that loans are made that would not otherwise be made because they would be bad loans. There is no kindness in encouraging a small business man to put his home at stake by taking on a loan he will never repay, because small business men, in all practical terms, often take unlimited liability. It would be better if they were employees. I urge the Government not to intervene too excessively in credit markets, although I realise that there are some elements they will proceed with.

Finally, I have some questions for the Minister. To what extent have the Government considered how their policies, such as the national loan guarantee scheme, promote big banks? We have all seen examples of officials being institutionally better at dealing with large companies, including banks, be it risk aversion or the simplicity of dealing with a small number of contacts to achieve a big result. Does current policy promote a small number of large institutions? That is the antithesis of the direction we want to go in.

--- Later in debate ---

[Andrea Leadsom]

Thank you, Mr Davies, for calling me to speak.

First, I thank my hon. Friend the Minister for providing what I thought was an extremely helpful round-up of what the Government are doing. As I said in my own remarks, it is certainly true that this Government have taken huge steps to put right a lot of the problems that have given rise to the financial crisis and the later problems of fraud and the issue of banks being “too big to fail”. I am grateful to him and the rest of the Government for that.

I also pay particular tribute to my hon. Friend the Member for Wyre Forest (Mark Garnier), because he and I have been a kind of two-man whirlwind in trying to get to the bottom—acting on our own and in private—of the issues for those organisations that would like to set up a bank and indeed for those small banks that do not reach a critical mass. We have found evidence that there are some significant barriers to entry, both regulatory barriers and barriers erected by the big banks that are trying to shut them out. I hope that the Minister recognises that we have tried to share that evidence with him today for his information.

It has been an extremely helpful debate today. I am very grateful to all hon. Members who have contributed to it. Some interesting suggestions have been made, and I would just like to summarise what I think are the “highlights” of the debate. First, of course we need many more new entrants to the financial services sector. Secondly, diversity of providers is absolutely key; we need not only “one-stop shop” banks but all sorts of other providers. Thirdly, we want to see far greater transparency, so that customers know what they are getting. Fourthly, access to banks and to branches is vital. Finally, the barriers to entry put up by the big banks need to be broken down, and issues such as the ownership of VocaLink and the Payments Council need to be examined.

I will end with the words of Jayne-Anne Gadhia, of Virgin Money, who said that banking needs less head and “more heart”.

Question put and agreed to.

LIBOR (FSA Investigation)

Andrea Leadsom Excerpts

Monday 2nd July 2012 Commons Chamber

[Mr Osborne]

We are not diluting the Vickers proposals; we are putting them into law. The House will have the opportunity next year to ring-fence retail banking and separate it from banks’ investment banking arms. When I was the shadow Chancellor, I proposed changes to the structure of banking, and they were completely rejected by the former Prime Minister at this Dispatch Box. We now have an opportunity to change the structure of banking, and I hope that I will have the hon. Gentleman’s support when the law comes before us.

[Andrea Leadsom (South Northamptonshire) (Con)]

In the early 1990s, we had around 45 major banks; we now have about five. One of the key reasons why there is so little new competition is the lack of ability to switch. Does my right hon. Friend agree that now is the time to look again at the proposals that the Vickers commission made on switching, and to think again about moving to account portability?

[Mr Osborne]

My hon. Friend will know, as we discussed this in the Treasury Committee, that the Vickers commission specifically recommended—indeed, insisted on—the ability to change bank account easily, and that from 2013, the banks should have in place a mechanism that enables people to do that within a week. As Vickers said—I agree with him—let us see that that happens; if it does not, we can take alternative measures, but we have in place plans to make it much easier to switch bank accounts from next year.

Green Economy

Andrea Leadsom Excerpts

Thursday 28th June 2012 Commons Chamber

[Mr Lilley]

I do not know which industrial revolutions the hon. Gentleman is referring to, but they certainly did not rely on our subsidising the use of more expensive energy to replace less expensive energy.

There are perfectly respectable, if not entirely convincing, arguments for saying that we have to replace cheap energy with expensive, less reliable energy to reduce carbon emissions, and that that is a price worth paying, to coin a phrase. However, the premise of this debate is that we can generate economic growth by introducing fiscal measures to subsidise and promote green energy. Let us be clear what that means: it means subsidising the replacement of comparatively cheap and reliable energy from fossil fuels with more expensive and intermittent energy from renewables.

[Andrea Leadsom (South Northamptonshire) (Con)]

Does my right hon. Friend agree that the debate should really be about whether we want to switch from higher-emitting to lower-emitting sources of energy, rather than having this complete confusion all the time about its being a question of carbon emissions or renewable energy? Renewable energy is very expensive, but there are plenty of sources of non-renewable energy that would be far less carbon-emitting.

[Mr Lilley]

My hon. Friend is quite right. We could halve our emissions by switching to gas from coal, but that does not please the greens.