Economy
Baroness Kramer Excerpts(9 years, 10 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Kramer (LD)
My Lords, as the first of those making a winding-up speech, I thank and congratulate not just the noble Lord, Lord Haskel, but everyone who has contributed today. I do not think that I have ever sat through a debate in the House where every single speech has opened my mind in a different way and provided me with such extraordinary food for thought. Really, a very exceptional conversation has gone on with all sides of the House.
We have had, in effect, almost two different debates today: one, if I could turn it around, on austerity—I am going to make a few comments on that—and the other on the challenge that the noble Lord, Lord Haskel, has put before us of the extraordinarily disruptive new technologies that are changing the world in which we live. Such technologies will be the basis of the economy going forward and offer us extraordinary opportunities, as well as present us with real risks. I think the beginning of that debate is absolutely crucial.
Let me go back very briefly to austerity. I say again to the Labour Party and the Conservative Party that I completely agree that the crash was caused by the finance industry. There is no question about that. But the problem was that the ability to respond to that required cutting the deficit because public spending by the Labour Government was predicated on the assumption that we had done away with bust and were into a permanent era of boom. When that disappeared, it was simply unsustainable to continue public spending at those levels. But I also say to the noble Lord, Lord Howell of Guildford, that I believe we are no longer following the coalition’s trajectory, which, by the way, when it realised it was moving too harshly, had the common sense to tack its sails and reduce the deficit more slowly. There has been an ideological decision to try to rapidly move to a surplus situation and abandon the underlying principle of the coalition, which was that the burden should always be shared. In the Budget, we saw people who were prosperous and propertied getting very significant advantages and the cuts falling on the poorest of the working poor, children, young people and those with mental illnesses. That is the key change that I would fundamentally dispute, and it worries me going into the spending review.
Lord Howell of Guildford
My Lords, the noble Baroness mentioned my name, but I think she is slightly attributing to me views that I do not hold. All I was saying was that the concept of “beyond austerity” seems to imply a sort of nirvana where public expenditure can be completely relaxed. That is a delusion. If that line is pursued, it will hurt many working people very seriously. That is all that I am saying.
Baroness Kramer
My Lords, I like the word “prudence”; it is a sensible one to use. As my noble friend Lord Taverne said, in a civilised society taxation plays a key role and there is always a balance between the investment provided by the public sector, support for the vulnerable and the potential that can be brought about by constraining the amount of the economy that the public sector captures.
Let me move on to the more exciting part of this discussion, which will, I hope, be the first of many. During the coalition years, we had a very interventionist Government and an industrial strategy, to which the noble Baroness, Lady Wheatcroft, referred. It was not a free market solution of bringing back R&D investment and rebuilding the technological skills base in this country. It was a working partnership between the Government and business, often through the catapult centres, with a big focus on and support for research, especially the development end of research, and with that a development of the skills base.
Several people have made a key point: apprenticeships are wonderful and every one of us here would support high-quality apprenticeships. I hope the Government will look at how they work, not just in large companies but in small companies, which have been rather neglected. However, the work of the further education colleges in developing skilled people who have the flexibility not just to fill the immediate jobs but the potential to develop new industries and fill the opportunities of the future is absolutely key. I hope the Government keep that very much in mind.
These disruptive technologies are incredibly exciting; to me, that is, in part, because they are so consumer and user-driven. Amazon has become a powerhouse, not because it has been imposed from the top but because people want to change the way they buy. I hate the fact that it does not pay taxes, but we have to solve that problem because it will be a characteristic of so many of the firms of the future. Look at Uber. No matter how we feel about the black cab company, it seems that younger people have found Uber to be effective. However, as people in this House have said, it is a company that does not own a single taxi. I suspect that rather than going to a conventional hotel, many in this House are now looking at Airbnb as a way of booking their summer holiday. In the finance sector, which is rarely discussed in this context, the disintermediation of the big players is phenomenal. Peer-to-peer lending, crowdfunding and small, specialised banks are filling the gap that the financial institutions have allowed to develop, partly because they have hung on to ancient legacy technology—nearly all of them are dinosaurs. One sadness about the return of RBS was that it could have been reshaped into something that matched the new world of alternate finance. Instead, frankly, it has been left as a dinosaur of the old world.
I am concerned about access to financing for SMEs, because the traditional banks are not doing it any better than they were during recession—that is absolutely key; it is being picked up by the alternate world. That world will carry them through the very early days of development with relatively small amounts of finance, but we still have in this country the famous valley of death for companies that are beginning to grow and then cannot get access either to the risk capital or to the lending that they need to make that transition. We live with two consequences that worry me enormously. So many of our brilliant entrepreneurs who start companies have no ambition to grow them to global entities. In the US, their counterparts would do it without question, but they look to sell out. It is partly a cultural attitude, but it is also because that financing to go to a global structure is not available in this country, and it is something that has to be tackled rapidly.
A number of people—my noble friend Lady Miller in particular—talked about the importance of the green economy. It is one of the key economic sectors of the future. I am extraordinarily worried because any conversation now with investors in the green energy sector will tell you that they are holding back because they have been so discouraged by the actions that the Government have taken. Zero-carbon homes were mentioned, as was the withdrawal of support for onshore wind—there is now complete mistrust and suspicion across that sector. Those green jobs are critical to our future.
No one discussed the transport industry, where I have spent the past two years of my life. Ultra-low-emission vehicles together with driverless cars and huge manufacturing change—for example, 3D printing of car parts—revolutionised that industry. The old-legacy companies are scrambling and cannot see a path to the future. We have an extraordinary opportunity to become a leader if we build the market for ultra-low-emission vehicles and driverless vehicles in this country, and allow in the R&D and the jobs that can come with the related manufacturing. I hope that the Government will continue their commitment to that sector which was almost solely driven by Danny Alexander. I know that Oliver Letwin is also a big proponent of it. It is crucial that it continues to thrive because of the opportunities that it presents.
I see that my time is virtually up. I just want to say what an exciting time this, but let me add one very small caveat. It is the European Union. It is critical to us that we remain part of that single market if we are to have this exciting future that potentially sits in front of us. We are seriously at risk of talking this country out of the EU. I direct my comments particularly at the Conservative Benches and ask them, please, to stop the indulgence of the right wing, which is inward-looking and does not understand the dynamics of the market and the new opportunities, and to make sure that Britain is properly positioned as a world and European player with skills and investment and able to welcome and take advantage of those new disruptive technologies.
Budget Statement
Baroness Kramer Excerpts(9 years, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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(10 years, 1 month ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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(10 years, 1 month ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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, 11 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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(12 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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%.