Budget Statement
Baroness Kramer Excerpts(9 years, 4 months ago)
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Baroness Kramer (LD)
My Lords, my sadness in responding to this Budget is that it begins to unravel the key achievement of the coalition years, which was to restore the economy and fiscal responsibility in a way that is fair and lets the greatest burden fall on the broadest shoulders. The Minister said that no one could any longer call this an age of austerity. But the centrepiece of the Budget is £12 billion in welfare cuts, when no more than £3 billion to £4 billion was necessary to achieve the long-term goals. It hits hardest the working poor, public sector workers such as nurses and teachers, the young and the mentally ill. It strongly favours big corporations over small businesses and it heavily advantages homeowners at the expense of renters. Frankly, if you are earning £100,000 and own a £1 million home, you love this Budget. If you earn a modest wage and have children, you need to start tightening your belt hard.
Perhaps the most cynical step in the Budget has been to hide the impact. The Treasury has for years issued a detailed distributional analysis to show honestly and transparently where the blows and the benefits fall. This year, that has been curtailed. Key years and key income groups have been excluded. The Government have that data. Will the Minister publish them or will he continue the sleight of hand?
I am particularly concerned about the impact of this Budget on the young. They lose in every way. Children with working parents on modest wages will really feel the crunch as any tax and wage benefits are more than off-set by cuts in tax credits and the changes to universal credit, especially the change in income thresholds and work allowances. Children in future large families—and such families are always few—will seriously suffer from the benefits cap. We say that we are concerned about children’s nutrition and well-being, so how does this make sense?
Young people who have grown up in areas of unemployment and who get on their bike to find an apprenticeship or job in another part of the country can no longer get housing benefit. Whose floor should they sleep on? When in work, the under-25s are excluded from the new minimum wage. We have all lauded the number of youngsters from poor homes now going to university. However, the key to this—the maintenance grant scheme—has been abolished. What is BIS’s estimate of the impact on student numbers from poor homes?
The Government talk about parity for mental health, but they have eliminated the employment and support allowance, a scheme largely populated by people with depression, bipolar disorder or schizophrenia—people with episodic illnesses who will now be given no additional support. How do the Government even attempt to justify this?
What of public sector workers, the nurses, teachers and police who carried on despite severe pay constraint through the recession? How can they possibly cope with severe pay restraint for another Parliament? When I hear the Minister say that this is not an age of austerity, is he saying it to them?
With this Budget, the Government have confirmed their bias towards big corporations rather than small businesses. We are pleased to see the increase in the minimum wage, although it is another sleight of hand to call it a living wage. However, the tax breaks to off-set this through reduced corporation tax benefit big companies, which frankly can already manage the change, and not the small and medium-sized businesses that tend to pay little corporation tax anyway. SMEs are the backbone of our future; surely the benefits could have been targeted at them, whether through NI or another mechanism—not at the big companies but at the small businesses.
The Minister has talked a great deal about productivity, which is a vital subject and on which I hope we will have a proper future debate. His paper Fixing the Foundations is in large part a reaffirmation of existing programmes and policies that we support, although in notable cases, such as the level of capital investment and devolution, it is far less daring than the measures we pushed for. However, let me just put down a marker on two issues on which we will fight what are outrageously retrograde steps.
The first is the right to buy from housing associations, aggravated by rent reductions. It is just wicked, at a time when we have a severe shortage of homes with affordable rents. It disrespects generations of work by dedicated charities, but it also destroys our cities. I have talked to estate agents, who of course will not go on the record, but who are rubbing their hands and telling me with great confidence that iconic properties—currently owned by charities such as Peabody in city centres, especially in London—will be available in five years to market to foreign buyers. Our great urban centres are already losing their mixed communities. How is productivity enhanced by diminishing them even more?
The second is the decision not to proceed with the zero-carbon homes scheme. We struggle to retrofit our historic stock of homes, which consume too much energy and leave thousands of people in fuel poverty, and now the Government ensure that even more homes are built below modern standards. Zero-carbon homes may cost marginally more to build—though that is arguable, because under the pressure of this coming regulation, construction companies have found new ways to be able to achieve that target—but homes built below those standards are certainly far more expensive to run for the homeowner or tenant than a zero-carbon home would be. I recognise that the Government pride themselves on using phrases such as “green crap”, but now they show themselves to be completely uninterested even in energy conservation.
If we talk of productivity and economic growth, why does this Budget choose to gut key support for renewable energy, an area in which British companies were just beginning to reach world competitive standards? Green industries are the future and our foreign competitors are glowing with this Government’s ideological destruction of rising key UK firms—how backward-looking and, now I must understand, how typically Conservative.
There are, obviously, measures that we support in this Budget: the increase in the tax-free personal allowance, a keystone Liberal Democrat policy, initially resisted by the Tories; devolution; increased childcare; apprenticeships; and other key Lib Dem policies. We support the move towards a better minimum wage. We support the tightening of tax rules for non-doms, though it is sadly slight and we would like more. There has been some action on pension relief and tax evasion, encouragement for R&D and investment in infrastructure. However, the truth is that the Financial Times got it right: on the basis of this budget the Tory party can,
“be seen as a lobby group for the already prosperous and propertied”.
What an opportunity lost.
Income Per Capita
Baroness Kramer Excerpts(9 years, 4 months ago)
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Baroness Kramer (LD)
My Lords, I am pleased that the Liberal Democrat plan to help to close the gender pay gap has been reannounced by the Government. Will the Minister join me in congratulating the former coalition Minister, Jo Swinson, who pushed through the relevant amendment on corporate disclosure? Will the Government now take steps to close the pay gap between older people and the under-25s, who will not be eligible for the new minimum living wage?
Lord O'Neill of Gatley
I would like to make reference to the presentation of the Budget and the policies included, which, I think I am right in saying, considered many ideas from many people in undertaking its commitments to raise the living standards of everyone in the UK.
Economy: Productivity
Baroness Kramer Excerpts(9 years, 5 months ago)
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Lord O'Neill of Gatley
My Lords, as your Lordships can tell, I am not yet very familiar with the exact procedural formalities. I apologise, as I should be. I have been immersed in studying issues to do with productivity for a large part of my adult life. It is dangerous to associate productivity improvements with a so-called focus either on austerity or on some other particularly cyclical fiscal policy stance.
We are living through a moment in time when a very large number of diverse developed countries are all apparently showing a dramatic slowing in measured productivity, whether it be Germany, which is generally regarded as successful and whose measured productivity has been even weaker than ours in the past few years, or the United States, which is frequently regarded as a beacon. In my maiden speech last week, as those of your Lordships who were here would have heard, I highlighted a number of factors that will be focused on. When the Chancellor makes his presentation, I think your Lordships will see that those feature highly in the appropriate steps we plan to implement.
Baroness Kramer (LD)
My Lords, does the Minister agree that employee ownership models, such as the John Lewis model, tend to enhance productivity? If so, will he take steps to share that understanding, especially with small and medium-sized companies, and consider tax incentives?
Lord O'Neill of Gatley
The ideas that are being thought about include appropriate incentives to boost long-term investments and greater incentives for both the owners and participants in any company, whether privately owned or otherwise. The role of tax incentives is very important and they will be looked at further.
Queen’s Speech
Baroness Kramer Excerpts(9 years, 5 months ago)
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Baroness Kramer (LD)
My Lords, it is a pleasure to join in the welcome to the noble Lord, Lord O’Neill. There could not have been a more difficult set of circumstances under which to make a maiden speech, and he did so quite brilliantly. He has achieved a great deal in a very distinguished career and he brings great experience and financial expertise to this House.
As he will gather from my remarks, I hope that he will act as a reality check on a Government who show every sign of veering away from the balanced and fair coalition strategy on the economy and finance that has brought us through one of the worst financial crises in our history and advanced the rebuilding of our economy.
When the IMF and the OECD praised the success of the coalition in bringing down the deficit and restoring financial stability, they praised an approach in which everyone contributed—the rich as well as the middle and, indeed, the poor; and with tax increases as well as cuts in public spending. The broadest shoulders took on a significant burden and we were all in it together. That approach not only promoted fairness but bolstered economic recovery and dynamism across the country.
However, with the Liberal Democrats gone, the Tory Government are now clear that fairness and balance have been abandoned. Ideologically driven welfare cuts are at the heart of the Tory strategy and the Government have trumpeted their determination to cut £12 billion from the welfare budget—not to eliminate the deficit but over and above eliminating the deficit. They have not even had the grace so far to name those cuts—only about £1 billion are identified in the gracious Speech. So what are the rest? Perhaps the Government will admit that this is not considered economic policy but is essentially a sop to a Tory right wing that bitterly resented the elements of fairness and balance that brought that success in the coalition years.
The noble Lord, Lord O’Neill, also told us with enthusiasm—which I understand—of the new NIC and finance Bills to enact into law measures to prevent his own Government raising income tax, VAT and national insurance for the next five years. Frankly, the premise that any Government has to pass a law to regulate their own tax behaviour is quite extraordinary. However, the issues go deeper. I suggest to the noble Lord, Lord O’Neill, that, back in the days when he was involved in asset management, if a chief executive had locked his company into paying a dividend no matter what the state of the company, the industry and the country, he would have dumped the stock and called for the resignation of the CEO—and yet he has just announced the government and Treasury equivalent. Do he and the Government really believe that volatility, instability and crises are ended?
Gordon Brown believed that he had ended boom and bust for ever, and consequently the Labour Government made disastrous decisions on public spending that drove a financial crisis into a deep recession. Now we are faced with a string of issues and instability—a Greek exit from the euro; a possible EU exit by Britain, which would surely be a self-inflicted injury on an extraordinary scale; Russia’s ambitions; ISIL; a weakening Chinese economy; and never mind the unknowns—that same arrogance has now returned to the Treasury, and this time it has a Tory face. That is a fundamental threat and I hope that the noble Lord, Lord O’Neill, will use his expertise and experience to temper some of this arrogance before, once again, we are on a trajectory of failed decisions that restrict our ability to respond to and remedy the crises that inevitably will come.
There is some limited reform of the financial system in the Government’s proposals, notably in the Bank of England Bill. Let me suggest that the Government could do worse than enact more completely the recommendations of the Parliamentary Commission on Banking Standards, of which I was privileged to be a member. But yet more needs to be done. We have the return to the private sector of RBS. This is surely an opportunity to look at doing that in a way which will increase the diversity—preferably the regional diversity—of banking in the UK. We need better arrangements to deal with systemic risk, particularly that posed by central counterparties for clearing derivatives—an area in which the noble Lord will have real expertise. We lack a sufficient regulatory framework to deal with abuses in personal financial services, the latest being the behaviour of so-called debt management companies. We will press the Government to address these and a wide range of similar issues.
The noble Lord, Lord O’Neill, referred to the importance of the full employment Bill. I am most interested to know how he reconciles that with the Government’s targets to reduce net immigration to the tens of thousands when, as he knows, it is the import of relevant skills that is absolutely critical as an element of growth.
As a Liberal Democrat, I am obviously pleased that our policy of lifting the starting rate of income tax continues, although I note that when we were part of the Government we did not need a law to make it happen. I am amazed that the Tories trust themselves so little that they need a law to make them do it.
My noble friend Lord Teverson will talk much more extensively on transport issues but obviously I am delighted, after my time as a Transport Minister, that HS2 progresses, as does the devolution of transport powers to cities. The policy owes a great deal to the noble Lord, Lord Heseltine, but perhaps I may also mention that it owes a great deal to Nick Clegg personally—as does the whole process of devolution.
We on these Benches will be constructive, as is our duty and our wont, but our role is to scrutinise and revise. What a tragedy for the country if the hard-earned successes of the coalition years are now squandered to pacify a right-wing ideology.
Financial Services (Banking Reform) Bill
Baroness Kramer Excerpts(11 years, 4 months ago)
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Baroness Kramer
My Lords, on a hot day such as today and so near to Recess, my noble friend Lord Sharkey and I, who will be working together on the Bill, have tried somewhat to divide up the issues between ourselves so that noble Lords are spared at least some degree of repetition—although I have to admit that it will not always be completely appropriate.
I will associate myself particularly with three issues that my noble friend Lord Sharkey will focus on in greater detail. The first is competition, perhaps the most significant long-term reform to the banking system and one which the current version of the Bill virtually ignores. While the regulators and the Government are now open to competition in, frankly, a complete reversal of historic attitudes, it will be a generation before new banks will be in a position to seriously challenge the dominance of the big four if we rely on organic growth alone. I was quite shaken to hear some senior members of the banking world describe the future very much in terms of a bar-bell: there will be the big four, a group of little ones down the other end and almost nothing in the middle. That will be a continuation of the uncompetitive situation that we face today. As I have said, my noble friend Lord Sharkey will come forward with some ideas on how we can try to accelerate that change, which everyone now acknowledges is necessary. It is fundamental to our banking system.
I will address two other issues, the first of them very quickly. In the Financial Services Act 2012, this House seriously tackled the issue of payday and high-cost short-term lenders in what we all name the Sassoon-Mitchell amendment, which gave very extensive powers to the FCA to crack down on rollovers, interest rates, fees, duration—indeed, I would argue, all the powers necessary to prevent exploitation by this industry. Some comments by Ministers in this House have suggested that the Government might have somewhat watered down their position, although I have heard denials from other Ministers. However, before we return in October we will see the draft version of the new FCA rules. If they are not satisfactory to this House we will have the opportunity to use the Bill to provide the strength that we all think is appropriate.
The third issue, which is not often addressed in banking, is absolutely fundamental and, I suspect, the biggest threat to our future; my noble friend Lord Sharkey will address it in more detail. That is, that the issue of the central clearing platforms for derivative contracts will be a huge source of concentrated risk. Some recent articles by Bloomberg say that the greatest security or strength of the protection under these contracts is largely through the collateral that companies are required to post. They suggest that the banks are finding some fairly clever ways for junk to be used, going through the alchemy process to provide collateral under these contracts. Therefore, I am not sure what the answer is, but this House must not duck that issue, and the Bill is an opportunity for that debate.
I was privileged to be a member of the Parliamentary Commission on Banking Standards, and our four reports covered a wide range of issues in the banking system. It was always intended that those issues should be addressed in this Bill. I appreciate that the Government have made a commitment to address them, and will present to us an extensive series of amendments, as is outlined in their response to the report. However, we will all want to see the detail, rather than just the generality.
I am concerned that much of the content of the Bill will, essentially, come in the form of secondary and even tertiary legislation. I join the noble Lord, Lord Eatwell, in supporting the proposal from the banking commission, and I am glad that he has done so. However, so much of the core and the heart of what the Bill is attempting to achieve will be in the secondary and tertiary legislation that we must have some special mechanisms to enable Members of this House to understand fully what the content is, and what that content implies, and to raise challenges at a point when the Government can take them on board and we can come to a satisfactory conclusion.
Many questions hang over the whole process of reform. For example, in response to the commission’s report, the Government have given us a commitment to review whether RBS should be broken up. Until we see that review, we will not know whether it will be a substantial piece of work which this House can accept or one that we shall have to challenge.
The Chancellor has announced that there will be a new regulator to deal with the payments system—the plumbing of banking—which has been one of the huge barriers to bringing in new competition. It is quite right that the Government should focus on that issue, but we need to see what powers the regulator will have, and whether those powers will extend to, for example, changing ownership of the payments system, and to dealing with more technical but still critical issues such as full account portability.
I appreciate that the Government have said that they will act on new rules governing the approved persons regime, the new senior persons regime, criminal sanctions for reckless misconduct in the management of a bank, and the deferral, cancellation and clawback of remuneration—but will those new rules be as strong as intended? I suspect that until we see the actual language, this House will want to reserve its judgment.
I am particularly concerned that the amendments we have seen so far to electrify the ring-fence look exceptionally cumbersome and inadequate. I hope that that is not a foretaste of the other amendments that will come before us. To quote Andrew Tyrie on that one amendment,
“the Government’s amendments would render the specific power of electrification virtually useless”.—[Official Report, Commons, 8/7/13; col.75.]
I am glad that the Government are to go away to think about that and come back with a new version. I ask them to really take that seriously, and ensure that future amendments represent their quality thinking, not their first thinking. The work of this House requires a great deal of trust on all sides in order to tackle a challenge as serious as that of banking reform.
Rather like the noble Lord, Lord Eatwell, I feel strongly that we must consider the recommendation from the parliamentary commission, which has been rejected by the Government, not just to provide powers to separate an individual bank that misbehaves around the ring-fence but to look at separating the entire industry. I am not a particular fan of separating the whole industry, but I believe strongly in the ring-fence, and I am certain that the banking industry recognises that if there is widespread abuse, if there are issues on every front, and if the Government and the regulator have to go after every individual bank through the courts, with all the legal powers that will be thrown up on the other side, it will become almost impossible to enforce the ring-fence.
I regard the reserve power to split the entire industry—in fact it would facilitate Parliament’s taking that action, as it is not a power given to the regulator but one that passes to Parliament—as essential to ensure that the industry not only polices itself but recognises that there is a nuclear deterrent. It is crucial that the industry learns to respect both the regulator and the Government. Historically, we have seen such manipulation of the system by the industry that we have to make it very clear that that is not the pattern that will be permitted.
I very much support the commission’s views, and that of the Vickers commission, on higher capital requirements and on using a leverage ratio, although I recognise that there may need to be carve-outs for particular circumstances nationwide—that is one of the obvious examples. The issue that we have to confront is that, if we allow risky big banks, which can crash our entire economy, to continue to play a major role in our system, as they must, we must make sure that steps are taken to limit their ability to fail. We must make sure that they have adequate capital, in effect to make them safe. There is no other way in which we can protect both the taxpayer and the economy.
The banks will say with justice that if there are higher capital requirements, it becomes harder for them to make riskier loans, so they have choices over which businesses they abandon and which business they focus on. I am frustrated that many have chosen not to focus on small business under those circumstances, but I recognise that those choices are difficult. But the response to that has to be to bring in new players to provide that kind of lending and credit, not to allow the banks to be riskier than they should be for a safe economy. So the focus has to be on developing deeper and broader capital markets that can serve small businesses, to bring on the peer-to-peer players in this arena. Last week, this House passed the relevant orders to provide regulation for that industry. We need to bring in smaller, specialised, non-systemic banks, so that reliance on the big banks to provide the riskier end of credit is significantly reduced and we can require of them that they put their houses in order and are adequately capitalised.
My concerns about allowing a more lax capital measure is enhanced by my suspicion of bail-in bonds, which I understand is not shared by others. It is not that I am opposed to the concept of bail-in bonds, but Governments worldwide are relying on them very heavily to provide security to the banking system. Who is going to hold these bonds? We cannot allow other banks to hold them, or we are back to an interconnected system. Pension funds and insurance funds—and I have started to talk to some of them—may be attracted to hold some of these bonds, but only at the cost of cannibalising their shareholdings in banks, so that gets us no farther forward. Given that this is meant to be a solution to cover every systemically important bank across the globe, I would like to hear from the Government about who they think is going to hold these kinds of instruments and whether it will be a sufficient amount for them to play the role expected in providing safety for the banking system and protection for the taxpayer.
There are two other areas which I hope to pursue. The first is community development financial institutions, which I have talked about in this House before. The big banks are increasingly abandoning lending to disadvantaged individuals and to new and micro-businesses. They lack the capacity to be able to analyse these credits in the detailed way that is necessary, to provide handholding—and, frankly, after a look at the risk involved in these portfolios, many decide that this is not a business that they want to pursue. I am willing to accept that they do not play as much in this market, if we can provide an alternative that can. In the United States, it is provided by a completely separate sector, which serves disadvantaged communities and micro-businesses alone—the community development financial institutions. I suggest that we have to build this; it requires a genuine alliance of the Government, perhaps using a business bank, and the big banks—and, in the US, carrots and sticks have been used to make sure that the big banks provide capital and know-how to these little local institutions. Charities and social enterprises, as well as the Church of England, are potential players in this arena.
Particularly pertinent to this Bill, in order to ensure that the big banks can provide capital to these community institutions, the United States has negotiated a carve-out under Basel III for loans from the big banks to community development financial institutions. The UK is in a position to take advantage of the carve-out, but I understand that we have not done so. I consider that this is an opportunity not to be missed and I hope very much that the Government will address the issue.
I am conscious of the time so, finally, I congratulate the Government very much on the announcement made today on the agreement that they have reached with the big banks regarding the disclosure of lending data by postcode. We pressed for that in the debate on the Financial Services Act 2012. The Government promised it and they have delivered. The data will show lending across 10,000 individual postcodes and we will be able to see where the market has failed and where there is unmet need. Dealing with unmet need in regard to banking surely has to be part of banking reform.
We have a great deal of work ahead, but banking reform is crucial to our economy. I suspect that there will be a lot of agreement on these issues across all Benches as they are not particularly party-political. I also suspect that they are issues on which Members of this House will frequently speak with a single voice. The Bill is our chance to make sure that the legislative framework is in place to provide good banking to support our economy in the future.
Lord Newby
Of course, my Lords. Much of the secondary legislation was published earlier this month. I would like to suggest—both in terms of the secondary legislation and the amendments and how we reconcile the text in the Bill with earlier legislation—that we contact noble Lords between now and the end of the Session explaining our timetable for producing material, if we have not already done so. If we have produced material, we will let noble Lords have it at that point. Specifically, the noble Lords, Lord Higgins and Lord Tunnicliffe, referred to reconciling the Bill with the existing FiSMA. We will make a Keeling schedule available before the end of the Session showing the effects of the amendments in the Bill.
Baroness Kramer
I thank the Minister for giving way. The commission recommended some form of ad hoc committee to try to look at secondary legislation. The problem with secondary legislation is that you vote it up or down, so you cannot actually amend it. Given that it carries so much of the weight of the purpose of this Bill, is there a way in which there could be a more constructive discussion of its contents so that it could come finally and formally in an amended form after that discussion has taken place?
Lord Eatwell
Before the Minister stands up, can I firmly second what the noble Baroness, Lady Kramer, has said? It would be enormously valuable if there were an ad hoc committee which could consider the secondary legislation, write a suitable report and thus inform the House’s debate.
Economic Prosperity and Employment
Baroness Kramer Excerpts(11 years, 4 months ago)
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Baroness Kramer
My Lords, I join in the thanks to the noble Lord, Lord Haskel, for this important debate. Since I have only a few minutes, I am going to follow in the footsteps of the noble Lord, Lord Cope, and focus on small businesses. I think we are all aware that job growth is no longer going to come primarily from large companies opening large factories. Those days are over. Small businesses provide more than half our jobs. Many do not realise that they provide more than half our exports. Some will have heard of the rule of one in three. If one in three small businesses added one additional employee, this would wipe out unemployment. That is pretty much true across the developed world.
All government policy has been very slow to recognise the need to row in behind and provide the necessary support for small businesses. I am incredibly conscious that there is a wide range of programmes, such as EIS and other tax incentives to invest in small businesses, and the removal of stamp duty from AIM so that small businesses can raise public shares. UKTI also has very effective programmes now to provide support for exports, and the Government are reshaping export finance programmes so that they suit small businesses. But most small businesses do not have a clue about what is going on and what is out there and available to them as support.
I want the Government to look at the whole communication channel to this complex world of small businesses. It is certainly worth looking at the German approach, which tells every business that it needs to become a member of its local chamber of commerce—I do not care whether they pay only 50p to do so—so that they are in the system and contact can be made, communication can happen, education can flow through, and exchanges and networks can be built. We have to get serious about communication. If it is done through the structures of LEPs, that is fine with me, but we have to start making sure that there is an effective mechanism to reach out to that wide net of small businesses.
When I ask small businesses what is constraining their growth, the answer is always skills—I suspect that other noble Lords who are better equipped on this subject will talk later—but it still astonishes me that we manage to develop a highly sophisticated educational system at school and university level that delivers people often with extensive qualifications that simply do not match the job demand that is out there. Again, with a mechanism of more locally driven decision-making, local networks can try to counter that, but this surely has to go to the top of any agenda that we deal with.
In the three minutes that remain to me, I would like to focus on funding for small businesses. The major banks have long said that they finance anything—a small business, a large business, whatever else—that is bankable, but to those of us who have talked to so many small business and with various trade bodies it is evident that this is not true. I think that banks are finally facing up to that reality. They give us two reasons. I am interested less in their reasons and more in the actuality. One reason is that to work with really small businesses, highly knowledgeable people with exceptional capabilities are needed, because it is so granular when you work with a small business. The skills that have to be mastered are way too costly, given the structure of our banks. It is just not possible, given the way in which we organise ourselves and where we want our priorities to be.
The second issue is capital requirements. Banks have to be properly capitalised. We cannot give on capital requirements in a general way. Banks tell us that this is highly risky stuff, and that they are required to hold large amounts of capital, which essentially makes it uneconomic for them to offer credit on reasonable terms.
How have other countries that face exactly these problems dealt with them, and what can we learn from them? As I have only a short time, I shall look at the US example only. The US Government made a commitment a long time ago to what they call “the last mile”. How do you get money out to the small people in a community, much as we have the Post Office deliver a letter the last mile? The US Government decided that major US banks were not capable of that activity. You have to set up a different sector to deliver that, and because making sure that that happens is a public good, the US has been willing, through its Community Development Financial Institutions Fund, which sits in Treasury, to put substantial amounts of money into making sure that a sector exists that can deliver that. The US funds it by billions. As partners in that effort, it has drawn in its big banks. It has done it largely through a stick, the Community Reinvestment Act, which most noble Lords will be familiar with, so I shall not go into the details.
The effect of being required to put money into these entities and to provide them with knowledge, support and expertise is that it now seems normal to US banks. I have been talking to those here. They find it astonishing that it is a reflex action of our major banks to say, “This is an area we are not going to serve. It is not right for us”. It is exciting to be able to get in there with relatively small amounts of money and do it. I ask the Government to look at those opportunities.
Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2013
Baroness Kramer Excerpts(11 years, 4 months ago)
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Baroness Kramer
My Lords, I shall comment on three aspects of these orders, of which I am very supportive. First, I welcome the elements of the order that create a regulated environment for peer-to-peer lending platforms. While most industries have spent their energies saying, “Remove red tape”, this industry has been coming to the Government and the regulator saying, “Please can we have proper regulation”, because it knows that without proper regulation, rogue players can come in from the outside, undermine the credibility of the industry and probably provoke a regulator to come in with inappropriately heavy regulation as a consequence.
Can the Minister reassure me that the industry has been involved in negotiating and structuring these regulations? It looks to me as though they meet the test, but can he assure me that they reflect the kind of safeguards that that industry has already outlined in its code of conduct, established under its trade association? I think that that code was to be the basis of most of the discussions. It is a real way forward because, as we know, the banks have been very challenged over providing the credit we need in our economy, and peer-to-peer lending is increasingly coming in to fill that gap to provide both competition and additional resource, which is useful and positive.
Secondly, I pick up my noble friend’s comments on payday lenders. I share many of his concerns about this industry. Indeed, the whole House did so, as the Minister will remember, during the passage of the Financial Services Bill in 2012, when an amendment that we colloquially called the Sassoon-Mitchell amendment put very effective powers into the hands of the FCA. When it takes over supervision of this industry in April 2014, the FCA will have powers to regulate, manage and supervise it.
The powers were written with an eye to some of the regulation that has been put in place in Florida—I believe 13 states use this kind of regulation—which includes the ability to limit the amount of borrowing to $500 outstanding at any one time, to limit the number of outstanding loans, to cap interest rates and fees and to provide for a grace repayment period. It also has various other characteristics. I would like assurance that the order does not compromise the wide range of powers sought by the House in the legislation and in the amendment.
Like my noble friend, I am concerned with the impression the industry is giving of marketing energetically and raising its interest rates above and beyond what most of us already regard as high levels. I hope the FCA will be able to hit the ground running. That means going through the consultation process and deciding how it will manage that regulation.
It is also a systems issue. As the Minister knows, the various US states that have regulation have systems that allow them to see on a real-time basis what applications are taking place, what the amount is, what the interest rate is, unauthorised rollovers and so on, and they are able to manage the process. This not only allows the regulator to look at the data and intervene in retrospect, but enables it to set up systems so that if the rules are contravened an automatic decline shows up and an offending loan cannot be made. While it needs time to put such a system into place, I wonder how likely it is that the FCA will be in a position to deliver it as early as April and, if not, what the thinking is around it.
I am afraid my next question comes from my lack of understanding and my difficulty in reading my way through orders. It concerns social impact investment, the financial promotions order and its relationship to the FCA. The Minister will know that if, for example, a social enterprise attempts to create a new community hall, it can turn to members of the local community and ask them to donate. However, it cannot ask them to invest without offending Finprom unless it has become a qualified investment, which is financially impossible for any kind of small project.
We raised this issue during the passage of the Financial Services Bill and the Government expressed their desire to deal with this problem and enable a project to turn to individuals with small amounts of money and allow them to invest. Will the FCA have the necessary power to make those changes under Finprom without having to come back for new primary legislation? I assume that, in the end, we will see a kind of materiality clause that will state that if you want to make an investment of less than £500, or whatever, you will not have to go through all that incredible palaver and you will be able to do so. Will these orders affect that, or will it fall outside their scope?
Baroness Hayter of Kentish Town
My Lords, I thank the Minister for his clarity in introducing these orders. Very often we are not wholly behind what the Government are doing but, on this one, we are. We welcome the move to the FCA and these SIs. I have supported the policy behind them for a long time, but I do not know for how long my party has done so. We particularly welcome the powers they give to the FCA. As the Minister implied, they will be its enforcement tool kit for consumer credit and will strengthen its powers to punish misconduct. We also welcome the Government’s decision not to exempt small businesses, as that might have weakened, rather than strengthened, consumer protection.
Finance Bill
Baroness Kramer Excerpts(11 years, 4 months ago)
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Baroness Kramer
My Lords, it will surprise no one that, in my mind, the most significant measure in this Finance Bill is the lifting of the tax threshold to £9,440, shortly to rise to £10,000. More than 23 million people are now paying £700 a year less in tax—that is cash in their pocket—and 3 million of the lowest paid are out of income tax altogether. It has led to a fairer society. I was very pleased to read the ONS study, which named this as one of the key elements in income now being shared more equally between households than at any time since 1986. That is a very significant achievement.
I was also exceedingly pleased by the change in capital allowances—the temporary uplift in the capital allowance from £25,000 to £250,000. From my work with small businesses I am very aware that one of the competitive deficits in the UK is small businesses which have not invested in new technology in their production lines. This gives them a real incentive to do so and to do it now. The timing of that, as we begin to emerge from recession and companies have new opportunities to grow and expand, is absolutely essential and will be an important element in the economic growth that we are all seeking.
I was very privileged to be a member of the Finance Bill sub-committee. I thank the noble Lord, Lord MacGregor, for his fair but effective chairing of that committee. It has been one of the most enjoyable committees in which I have participated; that was shown by the work we achieved and the consensus that existed right across those from different political parties and on the Cross Benches. Like the noble Lord, Lord MacGregor, I emphasise that the work we looked at, particularly on the GAAR, does not cover international and multinational tax abuse. It does not cover issues such as forms of avoidance by deferring income from one year to another, as that is not its purpose. We have to emphasise that, as so often friendly politicians fall into the trap of thinking that the GAAR fulfils that role. It does not and should not. Christian Aid and others asked for clauses to be introduced into the Finance Bill that might do some of that work, but that is not appropriate as this has to be an international effort. I understand that they want a study—which seems right—on the impact of UK tax structures on developing countries. However, that is outside the scope of the Finance Bill.
Ironically, if the GAAR is a success, in a sense we may almost never see it used. Its role is very much one of deterrence. It makes the judgment as to whether a GAAR works quite difficult. However, the review is absolutely crucial. If it turns out that general rules—the noble Lord, Lord Wakeham, spoke eloquently on this issue—are far more effective in partnership with specific rules in managing the constant attempts of companies to find mechanisms around attempts to get them to pay their fair share of tax, we will need to start to think through whether or not we should consider an anti-avoidance GAAR. Like many others—I notice that the noble Lord, Lord Haskel, who spoke eloquently on this issue, is not here today—I note the importance of including a clearing system, which has been discarded as being too expensive at this time.
I am one of those who are somewhat concerned by the narrowness of the GAAR, not because it is anti-abuse but because we have the double reasonableness test. I understand where the Government are coming from in introducing such a test, but I have two concerns. One is that there is quite a lot of deference by the Government to the accounting profession. It would be wise sometimes to be more cynical and challenging to that profession around these issues. Also, if it is taken to its extreme so that nothing is ever an abuse because somebody can always come up with a reason as to why it has some economic basis, this whole exercise will have been in vain. Therefore we need to look at the application; that is a very particular vulnerability, and one in which we have to have an ongoing watching brief.
I will move quickly to the issues around stamp duty, land tax avoidance and the annual residential property tax which we also examined. I know the legislation is complex, but I believe that it is a crucial step. For many people the unfairness of watching those with very large and expensive properties avoiding the stamp duty and the inheritance tax that they bear on their smaller properties has tended to undermine the sense of common bond that is necessary in our tax system. My concern is less about what is in the legislation than the fact that, as yet, it does not capture some of those opportunities for abuse—for example, the use of the Cayman Islands for trusts and companies that have also been used by those seeking to avoid those kind of taxes. If I am wrong, I should be glad for the Minister to correct me. There are still loopholes and none of us wants to see them exploited.
I also found myself defending the Chancellor over his cap on income tax relief. This is not an approach which is palatable to everybody. For many years, I lived in the United States where the alternative minimum tax plays this kind of role. No matter how people choose to invest—whether or not it is in economic growth—on the basis of fairness, I believe that everyone should participate in the income tax system, and the tax on reliefs gets us much more into that territory. Fairness matters, especially in a time of austerity—we are all in this together.
This issue has been widely debated and there is little else that I can add to the speeches that came before mine, except to say that I think this has been an important Finance Bill which helps to position us for a fairer society, as well as one that is growing economically.
Banking: Regulation
Baroness Kramer Excerpts(11 years, 4 months ago)
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The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford)
Forgive me. If we could hear from the noble Lord, Lord Pearson, then we will hear from my noble friend Lady Kramer.
Lord Newby
My Lords, the basic assertion that the noble Lord makes, that the Government are unable to put in place a satisfactory regulatory framework for banks in the UK, is, frankly, simply not true. We have taken a wide range of measures to strengthen the regulatory structure and the provisions with regard to remuneration and capital, and in all those areas what we have done is compatible with what has been happening at EU level.
Baroness Kramer
My Lords, while many of us in this House will be working to strengthen banking regulation based on the commission’s report, and I was privileged to be part of that commission, is it not also true that what is remarkable from the evidence we received from the European Union is the common ground shared by the regulators, both in their definition of the issues and the areas in which they are seeking solutions? Is it not true that the key issue of dispute between the two is in fact whether or not there should be a cap on bankers’ bonuses—on which, ironically, the British public are with the EU?
Lord Newby
My noble friend is clearly right in that respect. The previous Government started a process with regard to remuneration for senior bankers, which has been strengthened in several respects. One of the more encouraging developments in recent years is that as a result of that—and as a result of public pressure—the level of bonuses at RBS has fallen by 70% between 2010 and 1012, and at Barclays by 40%.
Government Spending Review 2013
Baroness Kramer Excerpts(11 years, 4 months ago)
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Baroness Kramer
My Lords, I want to thank my noble friend Lord Deighton, who has done the heavy lifting in this debate by providing us with the details of the spending review and summarising them for us, so I will not try to repeat that. However, I want to confirm that I find myself very much in support of the general thrust of the two Statements, first on the spending round and then on infrastructure, because what lies beneath them is essentially a strategy of reducing revenue spending in order to allow a shift into infrastructure investment. That surely is what we need to achieve the growth that we require for this country.
I know that the Labour Party now buys into austerity, so I will be very interested to hear its comments, but I am still not clear whether Labour understands why austerity has been so necessary. We have seen the build-up of debt over more than a generation, but during those years Labour spent and borrowed as if we were at the bottom of an economic cycle when we were in fact at the top of one. When the inevitable bust came—it is always caused by one event or another, but cycles happen—the economy found itself so heavily overborrowed that many of the tools that would have been available in more rational circumstances were not available, leaving the Government with no choice but to cut sharply into structural revenue spending.
However, the coalition is also having to rebuild an economy that, in the view of many now, had been neglected for more than generation. It is hard to believe that manufacturing fell from 26% of GDP in 1979 to a low of 10.5% in 2009. The service industry grew but manufacturing did not grow alongside it as it should have done. However, that is only part of the imbalance that was allowed to develop. We became a largely public sector-driven economy, and it has to be excellent news that for every job that has been lost in the public sector, three have been gained in the private sector. Those are now sustainable jobs, which is what we need in order to build. How did we lose so many apprenticeships in the Labour years? How did we take so many young people through education but find that when they finished they lacked the skills needed to get a job? This spending round, again, has supported apprenticeships and protected, in real terms, spending on schools and the pupil premium, which surely is an investment in the future of our most disadvantaged youngsters.
How did we end up with a Government, although this concerns more than one Government, with a procurement process that simply is not fit for purpose? I congratulate the noble Lord, Lord Deighton, for bringing sense, skill and proper planning into government purchasing. I now understand that the infrastructure programme that he has laid out represents a steady rollout, year by year, which is exactly what we need in order to deliver infrastructure. Perhaps he could tell me whether I am correct in my understanding that the order of play of this rollout of infrastructure is to have an early focus on opportunities for fairly quick wins, such as broadband, school places and affordable housing, with the longer-term projects that need much more planning and preparatory work, particularly in transport, coming out over the longer term. We now have a path for that.
We are holding this debate just as increasingly positive news is creeping out; we are moving, as the Chancellor said, from rescue to recovery. Both the manufacturing and service sectors are growing, according to the PMI and the Bank of England. Very encouragingly, the headline small business index rose to 15.9 in the second quarter, up from 6.3 in the first quarter. Mortgage approvals are up and confidence is improving. The position with the silver pound, which is rarely talked about, is interesting. Projections show that spending by the over-50s—a group of people who have been far less hit than others in the population, especially younger people—is increasing steadily. We know that it is a group of people with the capacity to spend. Their spending was up from £250 billion in 2007 to £317 billion in 2012. The forecast according to Age UK is for a bigger number to be delivered this year. That seems to be an affordable place to go to see that kind of consumer stimulus.
I am particularly encouraged that exports are rising markedly. The BCC—the British Chambers of Commerce—reports that the growth in exports is at its fastest since 1989. The Government have taken on a really tough target of doubling exports to £1 trillion by 2020. Much of that will have to come from SMEs, which provide over half our exports today. I give credit to the noble Lord, Lord Green, but also very much to Vince Cable, for turning UKTI into an effective tool after a generation of neglect. This spending round provides more money for our embassies to work with UKTI and for increased export finance, especially to small businesses, which is surely vital. This is an area where scaling up has to continue. It must surely be one of the primary focuses now of economic policy.
The welfare changes in this spending review are, frankly, modest. That must be right, as we have to manage austerity in a fair way. I want us to monitor the impact of the delay in paying jobseeker’s allowance to see whether that has an untoward impact, albeit one that is unintended. As I say, the changes on the welfare side have been very modest. However, I have a point of clarification for the noble Lord, Lord Deighton, on the so-called welfare cap, which strikes me as less a cap and more a sensible management tool to capture key parts of annually managed expenditure: programmes such as incapacity benefit, which spiralled completely out of control under Labour even though there seemed to be no particular increase in either disabled or injured people. Will the Minister confirm my understanding that the cap is the OBR forecast of the cash cost of the included programmes? Does breaking the cap trigger a report to Parliament but not necessarily an automatic curtailment, unless there turns out to be an important need for underlying change?
I will talk briefly about infrastructure because the noble Lord, Lord Shipley, will focus his remarks on that issue, especially on housing. However, I take this opportunity to repeat a plea to the noble Lord, Lord Deighton, for increased flexibility for tax increment financing to allow local authorities to pick up the pace of investment in small-scale infrastructure. The very case that he makes for large infrastructure, involving the orderly rollout of schemes, certainty of funding and tapping into external financing applies just as much to the small and local. We have accepted that small is crucial in business and commerce; we now need to accept that small as well as big is vital in infrastructure.
All this has consequences for our financing system. The business bank is an important beginning, but long-term patient capital is still hard to find in the UK. I hope we will try to develop the capital markets to provide that capital. The noble Lord, Lord Davies, the noble Baroness, Lady Noakes, and I all attended a talk given by Robert Peston not long ago in which he pointed out that in the US, 80% of small business funding comes from the capital markets rather than the banks. The opposite is the case here. Therefore, when a bank is compromised, we are in a very difficult position. The major banks are going to be seriously challenged to meet lending demand, despite Funding for Lending, as growth picks up and firms chew through their cash reserves.
It is good news that RBS has asked Sir Andrew Large, former Bank of England deputy governor, to look at its lending practices, because when it says that it has £20 billion that it would love to push out of the door tomorrow morning but cannot, we all find that a fairly extraordinary statement. However, something is holding our banks back. I suspect that it is not the usual argument about capital but is much more about capability, and it would be interesting to find out more. The Government have done much to enable recovery, and this spending round is an illustration of that. However, we cannot let a weakened banking system derail these early beginnings for which the public have waited and worked.
Lord Davies of Oldham
My Lords, I was making a point that the noble Lord ought surely to take into account. Far from there being an environment in which foreign investors will necessarily find a place to invest in the future, as long as we are extremely uncertain about our relationship with the biggest market that we service, Europe, it is bound to cause anxieties among investors.
I also noted what the noble Lord, Lord Higgins, said—he is also my noble friend when we are on the golf course. He was very concerned to address some real points to the Minister with regard to the future of interest rates and the assumption made about future public expenditure. The Minister must address that point in his reply.
I appreciated the point that the noble Lord, Lord Shipley, made about local authority finance and being able to identify local resources. One product of the debate on Scottish independence and the referendum will be to identify those issues as far as Scotland is concerned. That is bound to give a stimulus to the broad argument that the noble Lord is putting forward about the resources available to the various localities of the United Kingdom and the needs that may be identified. I would have thought that that is bound to take a significant step forward as a result of the debate on next year’s Scottish referendum.
The noble Lord, Lord Flight, entertained us all with the Hayek versus Keynes debate. Although the noble Lord said that growth before the Second World War was considerable, he may have noticed that full employment in this country did not return until we went into wartime defence production. It is quite clear that under the Hayek principles you can certainly run an economy with a considerable level of unemployment. However, that word has not been manifest in this debate at all because the fact that we have significant levels of unemployment is a limited consideration for all those on the Conservative Benches concerned with how to manage the economy. We have people coming out of our colleges and universities who are highly qualified by any standards and who, in the past, would have expected to find a choice of jobs. They are facing a situation where the market is such that there are no jobs available. That is why I was grateful that the noble Lord, Lord Flight, identified the thinking behind the Conservative position and, to a more limited extent, the Liberal Democrat position with regard to what the Government are doing at present.
It took the right reverend Prelate to introduce morality into this debate. Why is it that the only person who is prepared to talk about those people who suffer the real costs of what is being carried out in the name of austerity is the right reverend Prelate? He identified the shock we all felt in the Chamber yesterday when it was suggested by a Conservative Minister that food banks are supply-driven and nothing to do with people’s needs. People’s needs have occasioned the development of food banks, which are necessary, but our great shame. Nor is there any understanding on the Conservative side about what it is to lose one’s job at present. It is quite okay to say, “We will cut public expenditure by making sure that there is a week in which one cannot claim jobseeker’s allowance”, but what do noble Lords think the morale of a family will be when someone loses his job against a background where the chances of getting a fresh job are very limited indeed? Why is it that, within that framework, it is thought that a really effective cut is to make sure that an application for support cannot be made until a week has elapsed?
Baroness Kramer
Can the noble Lord, Lord Davies, confirm that, during the years of the Labour Government, job centres were prohibited from referring any client to a food bank?
Lord Davies of Oldham
I am not well enough equipped to answer that question, nor am I quite sure of the point of the question.
Baroness Kramer
I shall try to be helpful. Like many people, I take the view that we live in a country where food banks should not be necessary, but unfortunately they have been necessary for a long time because the same issues of delays over benefits and various kinds of crises have affected those at the bottom. As I understand it, during the Labour years, job centres were not permitted to refer clients to food banks. As noble Lords know, you can go to a food bank only with a reference from an appropriate person: a job centre, a doctor or a limited number of other people. You cannot just turn up and make a claim. Today, job centres offer vouchers where they think there is need, but that need is not very different from the need that existed before. Food banks were just not announced.
Lord Davies of Oldham
Food banks are developing in almost every constituency in Britain because the so-called supply-driven factor has been occasioned by the demand of real necessity at present. It is a vastly different situation from that which obtained a decade or even five years ago.
I would ask the Minister to take on board the very important points that have been made by his noble friends today in supporting the coalition. Will he also, at some point in his remarks, address the question of morality? Why is it, for example, that his supporters are concerned to promote a bedroom tax that ensures that there is a desperate issue for impoverished people as to whether they will be forced to move but that when a mansion tax is proposed by the Liberal Party, there are all sorts of anxieties that people who are reasonably well off might be obliged to move and about what an affront to fairness that would represent? The mansion tax would be aimed at properties of very considerable value and at people who know they well might come under attack rather than the very large numbers of people who, under the bedroom tax, are being forced to move from their homes, the schools which their children attend and even the localities in which they have lived for very many years. I hope the Minister will address some of those points.