Autumn Statement

Baroness Burt of Solihull Excerpts

Tuesday 29th November 2011 Commons Chamber

[Mr Osborne]

We absolutely want to support carbon capture and storage technology in this country. I confirm that we are still committed to a £1 billion investment, which is a very significant investment in a technology, but it cannot be on an unrealistic time scale. [Interruption.] Well, the previous Government—indeed, the Energy Secretary in the previous Government, who of course is the Leader of the Opposition at the moment—made all sorts of promises about getting carbon capture and storage demonstrations up and running, and that did not happen. We are operating on a more realistic time frame, but we are committed to a £1 billion investment in that technology.

[Lorely Burt (Solihull) (LD)]

There is so much to welcome in this statement, and I especially welcome the £1 billion increase in the regional growth fund and the infrastructure changes to the A45. Will the Chancellor set the record straight and say that our youth jobs fund is nothing like Labour’s future jobs fund, under which only 2% of the jobs in the west midlands were in private companies, and that our scheme will create real jobs for young people?

[Mr Osborne]

Not only was the future jobs fund primarily aimed at the Government employing people in the public sector, which of course was unsustainable with the very large deficit that Labour was running, but actually it did not work on its own terms, because 50% of the people who used the fund were unemployed within 12 weeks. The youth contract that the Deputy Prime Minister has worked on, which he presented last week, will make a real difference.

Oral Answers to Questions

Baroness Burt of Solihull Excerpts

Tuesday 1st November 2011 Commons Chamber

[Miss Smith]

This has been one of the deepest recessions on record, and it is no wonder that times are very hard for people. The hon. Lady must take note of the fact that overall, more than two jobs have been created in the private sector for every one lost in the public sector, which is very clear progress on what her Government left behind.

[Lorely Burt (Solihull) (LD)]

I know that VAT is a somewhat sensitive subject in this place, but has the Minister made an analysis of the costs and benefits and the jobs that would be created by reducing VAT on building refurbishment materials?

[Chris Leslie (Nottingham East) (Lab/Co-op)]

A very good question!

Independent Banking Commission Report

Baroness Burt of Solihull Excerpts

Monday 12th September 2011 Commons Chamber

[Mr Osborne]

I have already talked about how the Merlin agreements try to protect and indeed increase small and medium-sized business lending at a time when many of these banks are shrinking their balance-sheets, which were over-extended. We have talked a lot about timetables. The Lloyds divestment and the creation of a new challenger bank are things that have to be got on with this year. The offer has to be put to bidders this year and it must be completed by 2013—and, hopefully, sooner. In other words, we are encouraging the creation of a new presence on the high street, which should give the hon. Gentleman’s constituents greater choice and competition.

[Lorely Burt (Solihull) (LD)]

This report is warmly welcomed, as, indeed, is the Chancellor’s response. It has to be said, however, that 2019 is a long time away. Will the Chancellor reassure the House, business and the public by publishing as soon as possible the specific route by which these recommendations will be implemented?

[Mr Osborne]

As I have said, the 2019 back-stop is the considered view of John Vickers and his commission. They have spent an enormous amount of time thinking about this, about trying to get the balance right between getting the rules in place, getting the rules right, and ensuring that they do not damage credit supply in the short term, about which many Members have asked. The report contains other milestones—some of the changes that he wants to see put into place by 2013, for example. John Vickers has done a good piece of work, and given a lot of thought to the issues, and I do not want to second-guess them just hours after he has published his report. We will produce a full, detailed response to the report by the end of the year.

Finance (No. 3) Bill

Baroness Burt of Solihull Excerpts

Monday 4th July 2011 Commons Chamber

[Chris Leslie]

Yes, payday lending is indeed a facet of the broader problem. I am not sure about the trends and how things have been moving—the hon. Gentleman may have other statistics that it would be worth sharing if he makes a contribution to this debate—but there is no doubt about the trajectory of that growth, which has been quite marked, which I know is a concern for all Members, in all parts of the House.

[Lorely Burt (Solihull) (LD)]

Government Members share Opposition Members’ concerns about this issue, and we want to do the best that we can. However, new clause 11 asks for a report on the impact of all tax and non-tax measures on the cost of high-cost lending when we have not yet heard the response to the Government’s call for evidence. I am hopeful, as are many Members, that this will address the issue and provide further help, so does the hon. Gentleman not feel that his new clause might be a little premature?

[Chris Leslie]

The hon. Lady makes an interesting point, because it is important that we engage with the Government properly on this agenda. We are still waiting for that report, although I hope that new clause 11 has been framed in such a way as to be pretty harmless and to command widespread support. Ultimately, all that we are looking for is a review of the circumstances; and indeed, some of the tax measures that may need to be included—although they may not—would not currently be part of the arrangements that I understand her hon. Friends are reviewing. New clause 11 is simply about ensuring the widest possible capability for those policy levers that the Government would be able to consider. There are so many measures necessary to help protect the consumer. They include not just action on payday lending or interest rates, for example, but the support needed for financial literacy education—something to which the Government have regrettably taken the axe, by terminating the £26 million financial inclusion fund. That decision is a particular regret, given that it will hit citizens advice bureaux up and down the country, along with other face-to-face advice agencies. Indeed, the financial inclusion fund was an essential bit of seedcorn funding, so I would be grateful for the Minister’s clarification about its future.

--- Later in debate ---

There are cases when taxation of demerit activities might be appropriate, to discourage punitive charges and rates. We need detailed regulation to protect not just the percentage interest rate charged, but the admin fees and product fees that put such a squeeze on the unsuspecting consumer. One of the best ways to look at the regulation of high-cost consumer lending is to consider time limitations on the use of payday lending. Should we say that such lending is absolutely for emergency circumstances and it should have only short-term availability? Unfortunately, we see people go back to payday lenders month after month, and even year after year. Excessive long-term dependency on payday lending needs to be addressed.

[Lorely Burt]

I entirely agree. I had a meeting with Wonga the other week. The company advocates a maximum of three rollovers. It is in nobody’s interest, not even the lender’s, to have people in a cycle of debt, because they are less and less able to pay it off. Perhaps something like that could be included in the regulations.

[Chris Leslie]

The sector itself ought rapidly to produce suggestions for self-regulation. I hope the new clause will make the sector aware of the seriousness with which the House takes the issue. We have had enough of people in desperate circumstances being exploited. The House of Commons passed a motion in February. We should pass the new clause, simply to ask for a review and a report on the range of regulatory and financial powers that the Government ought to take to stamp out some of the worst practices.

Customers need a fair deal from financial services generally, but our duty is to start with the people who are most at risk—the vulnerable and the exploited. If Parliament cannot stand up today to protect those most in need, who will?

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[Neil Parish]

The hon. Gentleman is right that the advertising and promotion of these products is a great concern. These products can seriously damage someone’s financial health, because they not only get them into huge debt, with huge interest to pay, but can often prevent them from securing mainstream credit, which can affect them enormously.

I am not greatly in favour of regulation, but I do not think that we can stand idly by and let some of the most vulnerable people in the country be exploited. They are desperate for money, and people knock on the door and offer them it. In fairness, many of them do not look at all the details or consider the fact that they will have to pay such high interest if they do not repay the loans. They do not realise that they will probably be charged even more interest if the loan is renegotiated, and that if they do not pay on time the loans company is likely to impose huge fines. That is unacceptable in this day and age and we must do something about it.

About 50% of the population in Ireland are involved in credit unions. In the US and Canada, the figure is about 40%, in Australia and New Zealand it is about 25%, but in the UK it is only 2%. I know that the Government are looking into increasing the availability of credit unions across the country, but we need to act much faster. In the meantime, we have to act against these companies, the loan sharks, because people who take out the loans sometimes have to pay back 10, 20, 30 or 100 times as much as they originally borrowed.

If the loan sharks’ argument is that they lend on those terms because the people to whom they lend are a security risk, we must question whether they should lend the money in the first place, and certainly at such massive amounts of interest. They must take the view that if 25 of the 100 people to whom they lend are forced into bankruptcy they will make enough money from the other 75 to make a profit. Is that moral and right? The answer is certainly not. Regardless of one’s political persuasion, that cannot be right in this day and age.

I have mixed views on the new clause, but I do not want Ministers to wring their hands and say that there is nothing they can do. In fairness to the Government, I should point out that the Opposition cannot hold their heads high, because they had 13 years in which to do something about this issue. It is right for the coalition Government to take the issue on. Instead of wringing our hands and saying we can do nothing, let us do something.

[Lorely Burt]

My hon. Friend is talking, almost interchangeably, about loan sharks and high-cost credit lenders regulated by the FSA. The Government have put even more money into the loan shark operation to clear them from the streets. It is important that we do not mix the two, because whatever one thinks about high-cost credit loan companies they are at least regulated and we are doing things to improve them. Loan sharks are totally unacceptable in this country.

[Neil Parish]

I agree with the hon. Lady to some degree, but I say to her bluntly that charging 4,500% interest, whether it is done legally or not, is theft. As a farmer, perhaps I have slightly jaundiced views about bankers, who offer an umbrella when the sun is shining and want to take it away when it starts to rain. We cannot go on letting vulnerable people be exploited—it does not matter whether it is being done legally.

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[Stella Creasy]

My hon. Friend is exactly right. It is not just evidence; the companies have specifically said that the lack of regulation in the UK compared with other countries makes it a target market for them.

We know that borrowing is becoming a problem for people. More than four in 10 people are worried about their current debt, and in recent months 4 million have taken on more debt than they ever have before. One third of families say that they have no emergency savings whatever. However, this debate is not about a lack of rainy-day money. The number of people who say that they are likely to exceed their overdraft limit has more than doubled in the past year, and the number of people who say that they are likely to use an unauthorised overdraft this month has nearly doubled since July last year, from 900,000 to 1.6 million.

That means that more people are getting into financial difficulties. In recent years, personal insolvency in the UK has reached a record high. On average, there are more than 160 personal insolvencies every year in each constituency, which is a dramatic increase since the start of the last decade.

New clause 11 covers not only those who are formally in financial difficulties but those who are affected by debt and who have not sought help. The proposal reflects the growing inequality in our society between those who can borrow affordably and those who cannot. Research by the Department for Business, Innovation and Skills shows that most households have a debt-to-income ratio of 10% or less, but that one in five households have debts worth more than 100% of their annual household income. There is growing evidence that such households are using multiple forms of unsecured credit—a mixture of high-cost credit and credit cards. Thirteen per cent. have four or more types of debt.

The question for many of us is this: who is borrowing? Eleven per cent. of lone parents use non-mainstream loans compared with just 3% of households overall. The Consumer Credit Counselling Service tells us that one in eight people who contacted it during the first half of 2010 were claiming jobseeker’s allowance. However, one thing that might concern many hon. Members is the growing evidence that the people who are suffering in this market are not just those whose incomes have always been fragile, but many middle-class families. Experian data show that the biggest increase in insolvency is among those with suburban mindsets—people who are in work, married and have kids, and who are trying to make ends meet.

[Lorely Burt]

Is it a matter of regret to the hon. Lady that the previous Labour Government presided over the greatest expansion of consumer credit in the history of this country? In their 13 years, the previous Government tried to do a number of things, but rejected the proposal in new clause 11. Does she agree that this Government, one year in, should be given the opportunity to finish their consultation and make proposals of which she might approve?

[Stella Creasy]

I am interested in the hon. Lady’s impression that consumer credit is a bad thing, because I do not agree. I would also be interested in her views on research by the Office for Budget Responsibility, which shows that as a direct consequence of the Government’s Budgets an extra £10,000 of debt is being put on to households. Perhaps she would like to comment on the implications of that for family finances. No? Then I will continue.

The problem is not just the high-cost credit industry but the nature of the industry and the way in which it operates, which is causing so many problems. What most worries many Opposition Members is that so many families are struggling. Indeed, we know that 46% of families say that they do not earn enough in a month to pay all their bills. Crucially, of that 46%, 10% say that the reason they are struggling is the repayments on high-cost credit. It is those very products that are pushing them into financial difficulty.

For the avoidance of doubt, I say clearly that I am not trying to put Wonga and the other companies out of business. I do not hold with the constituent of mine who argued that we should learn a lesson from Dante and put them in the seventh circle of hell, but we can make the credit market fairer for all concerned. It is important to set out, therefore, the kind of companies we are talking about and just how quickly this industry is growing in the light of recent economic circumstances.

Many people know about payday lending—the form of credit whereby a borrower gives a creditor a cheque or an authorisation to make an automatic withdrawal from their bank account. That is used as security for a short-term loan to be repaid, supposedly on the next payday. It is a long-established form of credit in other countries, but it is relatively new to the UK—and it is growing rapidly. By 2009, the payday lending industry was worth more than £1.2 billion, and the figures I have gathered from the Department for Business, Innovation and Skills, which were released under a freedom of information request rather than being put in the public domain, show that it is now worth £1.9 billion. Indeed, in its “Keeping the Plates Spinning” report, Consumer Focus estimates that payday lenders are expected to quadruple the scale of their operations in the UK in the next few years alone.

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[Mrs Jenny Chapman (Darlington) (Lab)]

I congratulate my hon. Friend the Member for Walthamstow (Stella Creasy) on initiating and devising this new clause. The UK is a long way behind other countries in its regulation of this sector. Action is being taken in the United States and elsewhere in Europe, and therefore increasing numbers of companies are seeing the UK as the ideal place to operate because they know we are behind in respect of regulation. Indeed, as they do not anticipate regulation any time soon, they also do not anticipate leaving the UK in the near future, and they consider now to be a good time to invest in the UK market. Therefore, BrightHouse says it will triple its number of high street shops here in the UK. That is not only a worry for consumers, who are, by and large, exploited by these companies; it is also a threat to our high streets, because I for one do not want my high street to have signs saying “Cash for gold” and shops such as BrightHouse; I do not want what I would call unscrupulous companies populating our high streets.

The high-cost lender lobby is lobbying within an inch of its life. It is inundating those of us who are speaking out on these issues with documents, offers to meet, conversations and phone calls about why it is right and we are wrong. However, Members who represent places such as Darlington see the effects week in, week out in our surgeries, so we know the impact that these companies are having. They are not doing what they do for the benefit of the consumer, as they would lead us to believe; they are doing it because it is a pretty good business for them. I do not have an issue with their having a good business and making money, but I do have an issue with people who are least able to make such financial decisions being exploited in this way, and that is what is happening.

I am not a big fan of Jeremy Kyle, but in the interests of research I have sat through a bit of morning television, and I was disgusted at what I saw on our screens. Such companies are deliberately targeting people who are at home during the day and who they know are on low incomes. They are making their products look affordable, easy and cheap, which they are certainly not, and, most disturbingly, they are making them look the norm. They are making these products appear to be an everyday solution of which people from all walks of life throughout the country are taking advantage. That is the single most concerning aspect of this market.

[Lorely Burt]

I must confess, somewhat ashamedly, that I have also seen Jeremy Kyle’s show and the advertisements that accompany it. I want to pick up on the fact that Labour Members do not feel it appropriate to meet short-term loan companies. I do not tweet, but it is my understanding that the hon. Member for Walthamstow (Stella Creasy) says that Wonga has refused to meet her. That is not the case, however. [Interruption.] This is my understanding; I am just going on a letter from Wonga, and I do not want to get involved in the dispute. My point is that we must fully understand the situation. The hon. Lady knows it intimately; I do not deny that.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. This is supposed to be an intervention, not a speech. I call Jenny Chapman.

--- Later in debate ---

[Mrs Chapman]

The new clause does not only address taxation. The hon. Gentleman should read it thoroughly, as it talks about other measures too. I do not think there is any one measure alone that will address this problem; there will have to be a package of measures.

There is no real competition in this market, as there are only a few companies in it. On Friday my attention was drawn to a company operating in the north-east called Provident. I was very disturbed to hear that last Christmas Provident representatives were going door to door deliberately targeting single mothers—as members of political parties, we all know that can be done. Its representatives were knocking on doors just before Christmas, saying, “We can offer you £500 and you don’t have to pay it back until after Christmas.” They were saying it could be paid back in a number of easy payments, thus making it seem attractive and ordinary. That is completely exploitative, and it will happen again this year unless the Government do something about it; indeed, it will happen Christmas after Christmas after Christmas. This House should neither accept nor tolerate that.

All Opposition Members are big supporters of credit unions.

[Lorely Burt]

So are we.

[Mrs Chapman]

Yes, Members on both sides of the House are, of course. The people behind the credit union movement are hard-working and honourable. I work somewhere where everybody is honourable, but these people really are hard-working and dedicated—many of them are volunteers—and they work in our communities to promote low-cost credit to people who are left out of mainstream credit. However, even with the best will in the world credit unions are not going to be able to compete with Wonga and Uncle Buck and so forth, because they lack the high street and web presence.

--- Later in debate ---

[Jon Ashworth (Leicester South) (Lab)]

May I commend my hon. Friend the Member for Walthamstow (Stella Creasy) for her tenacity in pursing this issue and say that her speech was a tour de force? Equally, I commend her for getting this issue discussed on Twitter, as this must be the first new clause on a Finance Bill to have generated this much interest on that site.

I wish to make only a few brief remarks, because a lot of what I wanted to say has been covered by my hon. Friend the Member for Darlington (Mrs Chapman), in particular, and by some Members on the Government Benches. Early on, I want to pick up on one point made by my hon. Friend the Member for Walthamstow in her speech and at business questions last week, which is the suggestion that some funny business is going on and that the Government are deliberately delaying making a decision to help the Deputy Prime Minister at the party conference—[Hon. Members: “Rubbish!] Some hon. Members are shouting from a sedentary position, so I would be grateful if the Financial Secretary, who will, I presume, respond to the debate, could guarantee that the Deputy Prime Minister will not make an announcement on this matter in his conference speech. That would help Opposition Members—[Interruption.] I invite the Financial Secretary to make a few remarks on that point in his closing speech.

There is some consensus on this issue on both sides of the House. I was not a Member of Parliament when it was debated in February, although I have read many of the speeches. Many Members, on both sides of the House, take the issue very seriously—and rightly so. Before the general election campaign, the then Leader of the Opposition took it very seriously. When he was rebranding the Conservative party, he did not only hug hoodies and huskies. The party launched a campaign about resisting—I hope this is not unparliamentary language—your “inner tosser”, which encouraged people not to fall into the trap of personal debt that we have discussed. At the time, the current Prime Minister said that—and I paraphrase—although the campaign was provocative, we needed to do something about personal debt. The Opposition agree.

Today I visited a money advice centre in my constituency to talk about some of the issues faced by many of my constituents who are getting themselves into trouble. I was told stories about how Wonga and quickquid.com target many vulnerable people in my constituency. Members might not be aware that my constituency contains some of the most deprived estates in the country and we have had many examples of such companies targeting people such as single mothers, as in the cases mentioned by my hon. Friend the Member for Darlington, when they have no choice but to sign up to such deals. Such people end up in great difficulty.

Another issue mentioned at the centre, although it does not fall within the narrow confines of the new clause, was illegal loan sharking. The problem is that many people who find themselves in deep trouble through legal loan sharking feel that they have no alternative but to turn to illegal loan sharks. I hope we will be able to debate that in future. I was told many tragic stories about people who have fallen foul of illegal loan sharking. Such people might be in work—it is not always a matter of gangs preying on vulnerable out-of-work people on estates. One example involved somebody who took out a loan from an illegal loan shark for £7,000, which soon became £70,000.

[Lorely Burt]

I agree with the hon. Gentleman about illegal loan sharking, which is a scourge of this country. Does he welcome the fact that despite the cuts the Government have made in other areas, we have increased the amount of money we are using to fight illegal loan sharks?

[Jon Ashworth]

My hon. Friend the Member for Nottingham East (Chris Leslie) tells me that the Government have cut the financial inclusion grant. I always welcome action to tackle illegal loan sharking, so I would be very disappointed if the money going into those funds was cut.

This is an important issue, which particularly affects my constituents. As my hon. Friend the Member for Walthamstow said, it is not just the constituents we would traditionally think of as the most vulnerable in society who are being hurt. Increasingly, the money advice centre I visited today is finding examples of people from lower and more middle income-backgrounds getting themselves into trouble and falling prey to such organisations.

Private Finance Initiative

Baroness Burt of Solihull Excerpts

Thursday 23rd June 2011 Westminster Hall

[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.

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[Lorely Burt (Solihull) (LD)]

I congratulate not only the hon. Member for Hereford and South Herefordshire (Jesse Norman), but everyone who has spoken today. We are having an absolutely first-class debate with some very innovative thinking.

When the PFI was first introduced, I was deeply concerned about it in the west midlands, which is where I am from. I felt that clever companies were running rings around the inexperienced procurers of a lot of our public services. I was worried about it then and I am still worried about it, because everything I have feared has come to fruition. Today, £67 billion-worth of PFI contracts have been signed, and the total payment has been £210 billion, which says it all. In the NHS, the BBC found that £11.3 billion of investment in hospitals will have a total lifetime cost of £65 billion. The average NHS PFI profit is a return of 66%. If we compare that with the 2.8% figure for major construction companies, there is a shocking contrast.

A number of speakers have talked about PFI being the only game in town, the lack of access to capital finance and the need for off-balance-sheet funding. The problems have been very apparent. There are long, inflexible arrangements that are often unresponsive to change. Again, I shall give a health-related example. Hospitals currently do not have the money to keep pumping into these inflexible contracts. Hospitals change their functions and have a need for physical alterations, but PFI contracts are not responsive enough to help. Of course, there are also policy changes. We now have a situation whereby we are trying to conduct as much care as possible within the community. It is very interesting to speculate about what that will mean for the PFI. At the moment, we are facing the spectre of closing beds and sacking staff to balance the books and satisfy the contracts that were drawn up with inexperience a long, long time ago.

The distribution of risk concerns me greatly. Who really takes the risk if something goes badly wrong? Given the statistics that I have quoted, it must be difficult to fail with such profits built in. There is also the issue of the trading of contracts. Once a company has acquired a contract, it goes out into the market and, as the hon. Member for Hereford and South Herefordshire has said, there is sub-contracting and different people take their profit and a cut. The European services strategy unit found that the Treasury’s poor monitoring of the trading of PFI debt was giving companies a licence to print money. It is a very concerning and problematic picture.

What are the Government doing about the issue? Since we have been in government, we have forced Departments to bear the revenue cost of PFI contracts—I bet that has made one or two people think again about further investment. We are also reopening three major contracts as part of a renegotiation strategy and—I hope that this will be a warning to many PFI holders—as mentioned, we are doing a deep-dive investigation into Queen’s hospital, Romford. That will be the first forensic look at the operation of a PFI in 15 years.

We have talked about solutions. The hon. Member for Hereford and South Herefordshire has campaigned brilliantly on the idea of trying to obtain a rebate, and a voluntary code was agreed in 2002 under the previous Government. After several PFI providers made windfalls in refinancing deals, it was negotiated that 30% of gains from existing projects should be returned to the taxpayer. I understand that today that figure is 50%. We need a proper rebate and a proper code of conduct. I am also attracted to the idea of a national asset trust fund and the possible extension of a Government bank, such as the green investment bank, to use the Government’s natural low-borrowing ability to obtain cheaper funding.

I have been very brief, Mrs Main. This gravy train has got to dry up. There is an issue with many, although not all, PFI companies. That point has been made. Some contracts have been well conducted, professionally done and are good value for money. However, a lot of PFI companies have taken advantage and have bled our public services dry. It is time to release the tourniquet before the patient who feeds it bleeds to death.

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[Steve Baker]

I, too, would like to congratulate my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) on securing the debate, and to pay tribute to his leadership, his courage and his intellect. As I listened to the debate, I noticed a strange thing: Conservatives verging on sounding like anti-capitalists.

[Lorely Burt]

Never!

[Steve Baker]

And indeed Liberals seem to have spoken as anti-liberals. I am perplexed by that. I would like to develop one point: how PFI fits into the nature of our society. I am reminded of something that Churchill said, which I think speaks to the third way. He said:

“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk.”

I will come back to how he finished the quote at the end. It strikes me that the third way seems to have turned private enterprise into a vampire squid to be suckered on to the faces of people on normal and low incomes.

I am pleased that my hon. Friend wishes to respect contract. Given that the world contains imperfect self-interested people, and given that we have imperfect knowledge of the world, it is important that we are secure in the institutions that we create and in which we operate. Therefore, I am delighted that my hon. Friend emphasised the need to respect contract and to seek voluntary renegotiation. I was particularly impressed that my hon. Friend the Member for Suffolk Coastal (Dr Coffey) hinted at the need for a moral basis on which to operate in capitalism and society. It is necessary that people do not simply blame procurement processes—much as they are an institutional factor—but look to themselves to behave decently.

There are many questions that we could discuss: who provides, who pays, where risk lies. However, I would just like to develop one point made by my hon. Friend the Member for South Norfolk (Mr Bacon), who said that fat cats are getting fatter at public expense. I believe that is broadly his remark. That reminded me of an old picture of the ancien régime in France, where the bureaucrats and princelings were riding on the backs of the poor. From what we have heard from Members of all parties, it seems that today we have a regime where the state and the clients of the state ride on the backs of everybody else.

It is strange that so much money is being funnelled to firms whose commercial risks are being underwritten by the power to tax. Far from protecting the poor, the state now seems to be an institution for protecting the rich from the risks they take with their own investments. I am a capitalist, and I believe that capitalism requires entrepreneurs and investors to bear their own risks. Somehow, through all this mire and mess that we find ourselves in, we need to recover the principles of a free society and a vision of a capitalism that works, and works for everybody.

The state has become an enormous player in society. It spends about half of national income, and we have ended up with far too many investors and companies looking to the state for its decisions. Where will it spend? What will it spend that money on? Whose risks will it underwrite? And so on and so on. It really is no good. If we wish to call this a free society—one in which people make their own way and flourish—we really do have to end the notion of the state as a giant player in society. My right hon. Friend the Prime Minister, at different times, has declared that the era of big government is over. I think that he is absolutely right, and I am delighted that that is the thrust of the Government’s direction of travel.

I think that the British public have a fantastic sense of fair play—that is one reason why Private Eye sells so well. I would like to share with the Government the final line of Churchill’s quote:

“Not enough people see it”—

capitalism—

“as a healthy horse, pulling a sturdy wagon”.

I congratulate the Government on bringing forward their paper, “Making Savings in Operational PFI Contracts”, but I urge them to go further, to try to recover that sense of fair play and regenerate those institutions of a free and fair society which support capitalism and support human flourishing, but above all, pass that Private Eye test.

The Economy

Baroness Burt of Solihull Excerpts

Wednesday 22nd June 2011 Commons Chamber

[Mr Meacher]

I am afraid that the hon. Lady is behind the curve. The fact is that there has been a major change in the IMF’s view of the balance between cuts and the promotion of growth. I shall say more about that later.

The negatives that the Chancellor ignored are far more numerous than the positives. Let me begin with an important one. The latest figures for public sector net borrowing—which show levels 50% higher than last year, just before the election—are the first clear sign that the Chancellor’s massive cuts strategy is not just in serious trouble, but going backwards. That comes as no great surprise to people like us who have constantly argued that lower growth—and growth has been nil over the last six months—and the prospect of a prolonged period of stagnation will lead to a fall in tax receipts that will swamp the effects of expenditure cuts. That is central to this whole debate, but the Chancellor did not mention it.

Real incomes fell last year for the first time since 1981, and are on course to fall again this year. Inflation is higher, and consumer confidence has slumped to levels that we saw during the depths of the recession. High street retailers are sending out profit warnings and, to cap it all, the Government have been forced to revise upwards the forecasts for the budget deficit. We should not forget that driving down the deficit is the Holy Grail of Government policy, but it is going in the wrong direction.

Where is the evidence that Britain is enjoying what the Chancellor ironically calls expansionary austerity, on the spurious ground that the knowledge that the Government are getting a grip on the public finances will produce confidence and will encourage spending by the public to replace the cuts in public spending? That policy relies on a tighter fiscal policy while allowing a looser monetary policy to remain loose, but if the monetary policy was already ultra-loose—as it was when the Government came to power—there is certainly no scope for it to be made any looser. Any tightening of fiscal policy, let alone the massive tightening that we have seen in the Budget and the comprehensive spending review, is bound to lead to a lower level of aggregate demand in the economy. That is exactly what we are now seeing. Despite two years in which the bank rate has been almost on the floor at 0.5%, there is a marked reluctance to borrow. Mortgage demand is running at half the levels it was in the 10 years up to the financial crash and lending to business is not picking up.

The key question for this debate is: where is the growth to come from? Even Martin Wolf, the distinguished right-wing commentator for the Financial Times has acknowledged that the only plausible source of increased final demand is export growth, but export growth is in effect blocked off, because almost all EU markets are depressed as they all try to export their way out of crisis at the same time. To cap it all, the likely eventual Greek default could severely depress further any prospect of early EU recovery and therefore of UK export markets in the EU.

I repeat the question: where is the growth to come from?

[Lorely Burt (Solihull) (LD)]

Will the right hon. Gentleman give way?

[Mr Meacher]

I have not got time, I am afraid.

Incredible as it might seem, the last straw that the Chancellor is clutching at is a huge increase in personal and household borrowing, which is already at more than £1.5 trillion—well above the level of Britain’s entire gross domestic product. Although it was falling at the last election, the OBR is now forecasting that it will reach £2.13 trillion by 2015—half as large again as Britain’s entire GDP. That is an extraordinary admission. The Government’s only way of imposing massive public expenditure cuts is by pumping up a gigantic financial bubble in the private sector, which can only end in another colossal financial crash. I would be the first to admit that that depends on the private sector’s being willing to load up on hugely more debt, but the other side of that coin is that if households save more, as they are very likely to do because they are extremely worried about their prospects, demand is going to plummet and the economy is likely to hit the wall with an almighty crash. I ask again: where is the evidence for this expansionary austerity that we are being told about? It is not in the balance of payments figures, which are getting worse, not better; it is not in the high street, because consumers would need an increase of about 6% in their incomes to compensate for the price rises and tax increases of the past year; and it is not in the business community, where investment has fallen.

The latter point has an important story behind it. In the commercial private sector there is currently a huge net corporate financial surplus that is almost without precedent. Among the banks and the rest of the financial sector, that now amounts to £44 billion, while for the big corporations in the non-finance sector, it is larger still at £67 billion. Together, the corporates are running an unprecedented surplus that is nearly equal to 8% of Britain’s GDP. Still, however, the banks are not lending—they are already well short of their Merlin targets after only a couple of months—and the big companies are not borrowing. Why? It is because they see little prospect of demand for their products and services to justify their investment. That is the problem and it is not resolved by the current strategy. That is exactly the opposite of what they were expected to do by the Chancellor, who predicted that as the public sector was cut back, the private sector would surge forward to fill the gaps.

It is tragic that the historical evidence that expansionary fiscal contraction has never worked has not been learned. It has been tried three times in the past century. It did not work in the huge public expenditure cutbacks of 1921 to 1923—the so-called Geddes axe, which was very similar in size to the current Osborne axe; it did not work in 1931 to 1935 in the great depression; and it appeared to work in the Howe Budget of 1981 only because it was accompanied by a sharp reduction in interest rates and the major US-driven international recovery of the early 1980s, neither of which applies today. What is not just tragic but deeply culpable is that the same approach is being imposed today, not because there is any evidence that it makes economic sense, but because it is really driven by an underlying ideological motive to shrink the state and to maximise the privatisation of the economy. And it is not working and will not work.

Finance (No. 3) Bill

Baroness Burt of Solihull Excerpts

Tuesday 3rd May 2011 Commons Chamber

[Chris Leslie]

And royal weddings, as my hon. Friend suggests. This is a great place to do business, and the small changes in taxation that the Opposition advocate are certainly not enough to send banks abroad.

[Lorely Burt (Solihull) (LD)]

In the spirit of helpfulness, the hon. Member for Ealing North (Stephen Pound) might be interested to know that in Sweden the banking sector diminished following the introduction of such measures.

[Chris Leslie]

Even the Swedish advocate a bank levy, and we must acknowledge that the alternative financial changes are being made in a number of jurisdictions across the world. Obviously, the more jurisdictions in which such measures are pursued, the better, because that will remove the argument on regulatory arbitrage.

However, it is worth looking at the pathology and history of the bank levy, and at how the Chancellor has tweaked the rate. The Government pull back from a higher rate when they think it is too much, but sometimes the Chancellor gets into hot water and feels the need to change that approach. On the fateful morning of 8 February, at 7.30, the Chancellor went on the “Today” programme and announced a mini-Budget. It just so happened, by pure coincidence, that that was on the day of Treasury questions, when he was struggling with the banks in the negotiations on the damp squib that was Project Merlin. While we are on Project Merlin, we should not let go the opportunity to note that borrowing is increasingly expensive for small and medium-sized enterprises, and that according to the most recent data, there is less and not more availability.

The Chancellor changed the rate again in the March Budget, when, as I said, the Government were forced into a U-turn in the face of criticism of the reductions in corporation tax. That would have been a massive cash-back bonanza for the banks—it could still turn out that way, but we must wait for the final figures. At no point during the design of the bank levy have the Government said why they are capping revenues at just £2.6 billion. What is their fixation with that yield?

--- Later in debate ---

[Mr Redwood]

The hon. Gentleman is right that there are those two sides to the argument, but this is probably not the time or place to argue that through. We may have an opportunity to argue through how the bank shares are sold and the balance in the sale process when we get nearer to that point. The issue before us now is a taxation one. We are discussing the taxation of bonuses and the bank levy—the subject of the clause—and I agree with those who say that if we take too much out in bonuses in a state-owned bank, that detracts from the value that is available to sell.

Of course, the bank levy is not the means by which we can have any impact on bonuses. Interestingly, it was the previous Government who nationalised or bought shares in banks and signed off on all the original agreements for the top directors and executives. I believe that they included generous bonus terms at the time because, they said, they had to in order to have the talent needed. The criticism being made of the coalition Government now is that they took over those inherited contracts and lived with them, rather than broke them and disrupted the management of the banks, which I regard as a lesser charge than the one against the former Government of setting up all those contracts in the first place.

This should not be a party political issue. I regret some of the contracts that were incorporated at the time of the purchase of shares, but I regretted the whole purchase of shares because I thought it neither a particularly good deal for the taxpayer, nor a necessary deal to sort out the banking problem. I would rather have sorted that out more rapidly at the time, with managed administration or something else, than adopt this expensive way of putting all that money in. We are now trying to maximise the returns because we are where we are.

[Lorely Burt]

My right hon. Friend has partly answered the point I was going to make, but I wonder whether he could help me. What did the Labour party do to control the bonuses paid to loss-making banks when it was in government?

[Mr Redwood]

Labour Members would say that they could speak for themselves and that they imposed a bonus tax. However, as the hon. Lady is suggesting, they did allow very generous bonus conditions into the contracts for their state-owned or partly state-owned banks. Perhaps some would have come to a tougher judgment at that time, had they been in a position of power to do so.

The point I wish to make in this debate is simple. I hope that when Ministers are deciding the right level of the levy, they will weigh very carefully the important fact that we are, in part, taxing ourselves. I hope that within a few years, if not within a matter of months, as I would prefer, we will return those assets and get the money back that the taxpayers deserve.

Amendment of the Law

Baroness Burt of Solihull Excerpts

Thursday 24th March 2011 Commons Chamber

[Ed Balls]

I will make a bit more progress before giving way.

Let me return to the Business Secretary, because he was wise to say that those matters should be judged at the time of the Budget, based on the economic conditions. That is why we have argued that the Budget was an opportunity to change course from the reckless cuts. The problem is that the Business Secretary has not been heard. The blinkered Chancellor is ploughing on regardless, oblivious to what happens around him.

The Business Secretary needs to change tack. “Newsnight” is clearly not the way to get his message out. It does not get him on to the front pages; it does not make people listen to him. Why does he not do what he did last time? Perhaps he needs to call in some more young constituents for another candid conversation, another avuncular chat. It worked last time. The Chancellor certainly knew about his views on media ownership and News International. It is a pity he did not also share his thoughts on the risk to growth and jobs from the Chancellor’s reckless cuts.

The Business Secretary knows that the Chancellor is taking a massive and reckless gamble. He knows that it is the wrong thing to do, just as he knows that scrapping the future jobs fund and education maintenance allowances, hiking up tuition fees, raising VAT and cutting benefits for disabled people is wrong. It is one thing to want to be in power, but sacrificing one’s principles and beliefs for power is quite another. They used to call him Saint Vince, the wise economist. He had a reputation for telling it like it is. Why does he not tell us what he really thinks today? He knows that the economic strategy of the Government of which he is now a part is deeply flawed, misguided and unfair.

[Lorely Burt (Solihull) (LD)]

The right hon. Gentleman is right—the Business Secretary is very wise. He warned the right hon. Gentleman when he was a business Minister with responsibility for the City that there was far too little regulation for the banks. Does he now regret the fact that he said at the time that we should have light-touch regulation for the banks, which eventually proved so disastrous?

--- Later in debate ---

[Lorely Burt (Solihull) (LD)]

On behalf of the Liberal Democrat part of the coalition, I would like to make a few remarks on the business, innovation and skills measures in the Budget. Last year, we delivered a very tough Budget—one that members of neither coalition party would have wished to bring in as our first Budget—but it had to be done. Labour Members have conveniently forgotten just what a mess they left: they increased public spending by 5% year on year for 10 years so that the state accounted for more than half of all income; overheated the economy based on borrowing that this country could not sustain when the global banking problems struck; and left behind a deficit bigger than anywhere in the G20. And now they appear to be living in a parallel reality. They said that there would need to be cuts, but they never had the decency to tell the public where the axe was going to fall, and despite all the speeches we have heard this afternoon, they still have not.

We have an Opposition party that continues to oppose everything while proposing nothing. The simple truth is that if we had not taken strong measures, the country would today be in the same situation as Portugal: a whisker away from needing a bail-out and with all the draconian measures of higher taxes and bigger spending cuts that Greece and Ireland have had to endure. Our measures were tough, but they are doing the trick. They were endorsed by the International Monetary Fund, the OECD, the European Commission and, most important of all, the credit rating agencies, which confirmed our triple A credit rating. Today, therefore, families are not paying 12.9% interest rates like those in Greece, or 10% like those in Portugal, but 3.6%.

With this Budget, we need to support the growth that will pull us out of the situation we are in. The first thing we have to do is to start rebalancing the economy. We have arguably the best financial sector in the world—and we need it. We need it for jobs and we need it for tax revenues. Labour supported the financial sector. The then City Minister—now the shadow Chancellor—feted it with soothing words about light-touch regulation, and we all know what happened after that.

While Labour was in thrall to the financial sector, it neglected the manufacturing sector. Shockingly, the previous Government oversaw a decline in manufacturing that was greater than that seen in the days of Margaret Thatcher. My region in the west midlands has the invidious distinction of being the only region to lose private sector jobs when they were on the increase everywhere else, in the so-called good times. What do we have in the Budget to help to redress that imbalance? Not 10, but 21 enterprise zones have been announced. Each zone has a metaphorical “Open for business” sign outside, to attract the inward investment that each area desperately needs. The predicted 1% lowering of corporation tax this April has been doubled to 2%. By 2014, we will have the lowest corporation tax in the G7, which will attract more businesses and jobs to the UK.

For a long time we have been lobbied by small businesses about the burden of regulation. They are drowning under red tape. We have already made a start in that regard, with the one in, one out rule, the introduction of sunset clauses and the establishment of the Cabinet’s reducing regulation committee. I welcome the announcements that will assist local business: no more domestic regulatory burden for micro-businesses—that is, businesses with fewer than 10 employees—for the next three years; 200% R and D tax credits for small and medium-sized enterprises; increased entrepreneurship relief; and the extension of the small business rate relief. I could go on, but I shall not, in view of how many Members still wish to speak. I think the House gets the point, although I would like also to mention that more than £350 million of regulation for the smallest businesses has been done away with. However, we will need to look at equality legislation, which embodies rights that should be available to every working person, regardless of the size of the company for which they work.

Much mention has been made of young people. We need to encourage and develop our skills agenda. We have announced a further 50,000 traineeships and 80,000 work experience placements. We have also had the welcome doubling of the number of university technical colleges.

Fuel and transport costs—a tough area for the Treasury—are clearly things that business has lobbied about. However, business is suffering very badly, and although Opposition Members may mock the 1p reduction, let us not forget that their plans were for a 5p rise in the cost of fuel. At today’s prices, that would have increased the cost of filling up an average-sized car by more than £200 a year. I am glad that we have scrapped it.

However, it is important that we do not lose sight of our desire to be the greenest Government ever. That is an agenda that the Liberal Democrats are particularly keen to promote. The green investment bank will receive treble the capitalisation and be able to facilitate investment of £18 billion by 2014-15. It will also act like a real bank, able to borrow and invest from 2015. We have also set a carbon floor price, which will drive investment in low-carbon industry.

There is a lot more in the Budget that I would like to talk about, but I am conscious that other colleagues wish to speak. Together with all the other measures already announced, I am sure that the Budget will not only give business a helping hand, but put the “Open for business” sign up clearly outside the door of Great Britain plc.

Amendment of the Law

Baroness Burt of Solihull Excerpts

Wednesday 23rd March 2011 Commons Chamber

[Dame Anne Begg]

What I have said is based on a cursory glance at the Red Book, but the evidence from the Welfare Reform Bill, which states that those in residential care will not get higher-rate mobility DLA, and from the Red Book makes it appear that the Government still intend to take the mobility element away from such people, albeit two years later. Those of us who said that the proposal was unfair thought we had won the battle, but it now appears that we have not won it at all. I am grateful to the hon. Gentleman for his intervention, because I know that Members of all parties objected to the proposal. I hope that he will put pressure on his Government to reconsider the matter.

I wish to say a wee bit about the merging of national insurance and income tax. It was trailed slightly in the press, but we needed to find out what it meant in reality. The Chancellor said it would not be the end of the contributory principle, but it is very hard to see how it cannot be. There needs to be a debate about the future of that principle, because other measures that the Government have taken have undermined it. People are quite shocked about what is happening, having paid their national insurance all their lives thinking that they were paying into an insurance scheme and that they would get money out of it when something went wrong. People get only six months’ jobseeker’s allowance of £65 a week as a result of their NI contributions when they are unemployed. Under the Welfare Reform Bill, people will get only one year’s sickness benefit under the new employment and support allowance as a result of such contributions. Most people assume that they get the basic state pension because of their NI contributions. That is the big one, because people are quite happy to pay their NI contributions for that, but the Government plan to introduce a flat-rate, £140 a week state pension. Such contributions pay for the basic state pension state and the earnings-related pension scheme as well as pension credit, and everything then gets divided out.

It is difficult to see how pensions can be based on a contributory record, as the Red Book says they are, if everybody gets the same. The Work and Pensions Secretary said a couple of weeks ago that he will introduce the flat-rate pension, and that that will help women, but it will do so only if it is not dependent on contributions. The Government cannot have it both ways. Either people get the flat-rate pension based on their working record and NI contributions, which will be part of income tax, or they get it because they have fulfilled other criteria, such as residency. The country and all parties in the House need a proper debate on how we fund welfare, the basis of our welfare system, and the future of the contributory principle.

[Lorely Burt (Solihull) (LD)]

The Liberal Democrats take pensions very seriously. I acknowledge that a lot of consultation and working out must be done, but does the hon. Lady welcome a basic state pension of £140 a week?

[Dame Anne Begg]

I advocated a universal or citizens pension as a Government Member for many years, but one strong argument against such a pension is that many people are very attached to the contributory principle. That came out in the original discussions, when the Government of the day decided to reduce the state pension qualifying years down to 30 for both men and women.

Part of the problem in this country is that we have no means other than NI contributions by which to determine who should qualify for a state pension, because we do not keep residency records, which is how the judgment is made in, for instance, New Zealand. The problem in this country is more complex than it may seem.

The state pension age is about to go up to 66 for men and women by 2020. This was meant to be a Budget for growth, but the very first thing the Chancellor spoke of was the downgrading of the growth figures. I am worried about where all the jobs will come from given the increased number of people in the workplace. The numbers in the work force are expected to increase because of the new work obligations on jobseeker’s allowance claimants; because lone parents will be expected to look for work when their youngest child is five; because 30% of incapacity benefit claimants will be assessed as fully fit for work and expected to go into the workplace; and because another 30% of such claimants will end up in the work-related activity group of employment and support allowance. Huge numbers of people are expected to go into the workplace. It is difficult to get figures on how many more people will be looking for work because the Department for Work and Pensions could not give them to us, but on top of those, the raising of the state pension age means that even more people will be looking for work.

Bank Bonuses

Baroness Burt of Solihull Excerpts

Tuesday 11th January 2011 Commons Chamber

[Mr Osborne]

Bonuses amounted to £11.5 billion when the right hon. Lady was in the Cabinet, although that has not been recognised by any Labour Member who will stand up and ask a question today. What we are trying to do is persuade banks to make a greater contribution to communities, business and the regional economy, which we want to be supported.

[Lorely Burt (Solihull) (LD)]

On 1 September last year, the last Chancellor said that the bankers’ bonus tax had failed to change the City’s attitude to pay. He said that the tax was likely to be a one-off, and would not be reinstated by the coalition because it had failed to change bankers’ behaviour. Does my right hon. Friend agree with that?

[Mr Osborne]

The last Chancellor of the Exchequer has directly addressed the question of whether the bonus tax in the form in which he introduced it last year could be repeated this year. He thinks that it could not, because behaviour has changed. Indeed, we have seen base pay rise in response to the bonus tax. However, as I made clear in my statement, we are seeking a new settlement with the banks, and nothing is off the table if they cannot agree to that.