Banks: Cheques

Baroness Kramer Excerpts

Monday 6th June 2011 Lords Chamber

[Lord Lea of Crondall]

My Lords—

[Baroness Kramer]

My Lords, as the Minister will know, Germany has already withdrawn cheques from general use. I called German relatives to ask how they deal with payments that they either do not wish to make online or cannot make online, and the answer was to keep a lot of cash at home and in your pocket. Given the vulnerability of people and our whole desire to move away from cash being in the home or on people who are frail and potentially at risk, will he make sure that the Payments Council understands that this is not one of the answers?

Economy: Government Policies

Baroness Kramer Excerpts

Thursday 24th March 2011 Lords Chamber

[Baroness Kramer]

My Lords, I suspect that when we look back on this Budget in a few years’ time, two measures will stand out: the Chancellor's commitment to raising the tax threshold, a commitment to fairness even at a time of tackling a major deficit and a significant economic crisis; and the green investment bank. The bank will start slowly, but in 20 years’ time when we look back it will be seen as key to achieving a response to climate change, which, as I think almost everyone in the House is aware, is an absolute imperative.

I am very supportive of yesterday's Budget, but in my speech I will raise some of the issues that were not tackled and ask the Government to look at them seriously. As the noble Lord, Lord Griffiths, who is not in his place, said earlier, we have a challenge to rebound to trend growth and then to sustain trend growth. For any developed country, growth at that pace is a significant challenge. We do not have the potential that countries such as India or China have, with relatively low GDP per capita, to accelerate growth beyond trend, and it requires many things being done correctly.

One of the issues that was not addressed in the Budget is capital accumulation. Without that in place, it is very hard to see how we achieve sustained growth. In plain English, capital accumulation is essentially savings. I think that the savings rate in this country—others will correct me—runs at about 2 per cent of GDP, and most economists would say that it needs to be about 10 per cent of GDP for there to be sustained trend growth. I know that that is difficult. People have wrestled with the issue of how to persuade people to focus less on immediate consumption and more on long-term savings. Without that in place, achieving successful growth in the economy over the long term will be a challenge and, rather than duck that, we have to address it head on.

My second issue is about infrastructure, which was hardly tackled in the Budget. There were some measures to invest in various rail improvements and I know that elsewhere transport investments are going ahead. Essentially, one pillar of economic growth that the Government can provide is infrastructure and, traditionally, we have spectacularly failed to do that in this country. We have allowed much of our infrastructure to fall into decay. I raise the possibility that we keep continuing at that pace partly because of the way in which we measure growth. We constantly use GDP, which, as this House will know, has no depreciation in it. Any depletion of resources is not reflected in GDP and gives us a distorted sense of what, in many ways, is happening to our infrastructure.

I have a very quick example, but I am not an economist so others may correct me. If you look at growth between the two troughs of the Thatcher period, you will see that growth was averaging about 1.7 per cent, but I am told by economists that, if you remove from that number the depletion of oil and gas in the North Sea—a non-renewable resource—growth would have looked pretty flat at zero. In other words, we were achieving that by what looked like fundamental growth but it was in fact usage of a depleting resource. We have not included that in the way in which we tackle our thinking. Surely now is the time to make that change.

Gordon Brown attempted to do it in many senses by the golden rule, but that became abused politically. The privatisation of utilities was a mechanism to get around some of that, and PFI, under the last Government, was probably the most expensive way to carry out investment into projects and infrastructure. Again, it circumvented some of the issues. I ask that we consider tackling this issue head on.

The noble Lord, Lord Sugar, raised the issue of credit and said that you cannot ask banks to lend to inappropriate companies and inappropriate projects. I do not think anyone in the House would expect them to do that. I say to the noble Lord, Lord Sugar, that when he began his business and went to British banks and was turned away, I suspect that if he had gone to a bank in Germany or in the United States he would have had a very different response. The high street banks in this country have lost the people, the skill base or the willingness of the institutions to carry out risk assessment, to look at a proposal or a project, to begin to understand a would-be entrepreneur and to recognise whether there is a business there for which they can provide financial support and in which they can participate.

All that has largely been discarded for a much more mechanistic and inexpensive way of assessing any request for a loan from a small business, especially from a micro or a new business, that ticks a number of boxes in a fairly superficial way and does not carry out the kind of skilled risk assessment that there used to be in the past. We have lost our Captain Mainwarings and, to be straightforward about it, it seems to be very difficult to spark the new ventures that everyone here sees as essential to underpin growth in the economy again. Banks will be required to lend 15 per cent more, but we cannot let them get away with lending just to medium-sized well established companies to meet their quota; we have to get them to do the work with the micro and new businesses or make them finance someone else to do it.

As my time is running out, I have one last comment—on localism. It seems to me that one of the best things that the enterprise zones can say to local authorities is, “Ease up on planning regulations and in return any growth in the business rate will go directly to you”. This seems to be the first time that we are reconnecting local authorities with business development within their own communities. The fact that the business rate goes to central government has removed every incentive. In the past, we had local authorities engaging with local businesses and local people who drove forward development, particularly of new and small businesses. We need that re-engagement. I ask again that the Government look at that issue.

Independent Commission on Banking

Baroness Kramer Excerpts

Monday 28th February 2011 Lords Chamber

Asked By

[Baroness Kramer]

To ask Her Majesty’s Government what assessment they have made of the progress of the Independent Commission on Banking.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Government set up the Independent Commission on Banking to consider reforms to the banking sector. We welcome the progress that the commission has made and look forward to receiving its report in September.

[Baroness Kramer]

Does my noble friend agree that strengthened regulation supervision and stronger capital requirements are welcome but that neither of them deals with the underlying structural problems of “too big to fail” or “too interconnected to fail”? Will he commit the Government to act on any recommendations from the ICB for reform in this area, even if it means splitting the banks or ring-fencing activities with functional subsidiarity?

[Lord Sassoon]

I certainly agree with my noble friend that there were two areas that the Government needed to address urgently resulting from the failure of the previous system of regulation and the over-leveraging of our banks. The first one on which we have brought forward proposals is the system of regulation, although I completely agree with my noble friend that that is not sufficient, which is why we set up the independent commission to look into the structure of banking. I am certainly not going to pre-empt either the conclusions that it comes to in its final report or the Government’s response, but I am greatly encouraged by the papers that it put out and by the recent lecture by Sir John Vickers, which indicate that the commission is tackling all the major issues and stimulating a vigorous debate.

National Insurance Contributions Bill

Baroness Kramer Excerpts

Monday 28th February 2011 Grand Committee

[Lord McKenzie of Luton]

My Lords, I beg to move Amendment 3 and to speak to Amendments 8 and 9. The purpose of this group of amendments is to probe a little the boundaries of the national insurance contributions holiday. As I think we made clear at Second Reading, we see merit in the scheme as an incentive to encourage employment by new businesses but wonder whether the parameters of the scheme are driving a bureaucracy that will considerably lessen its impact.

We acknowledge that the wider the scheme is drawn, the further the resources have to go but the level of take-up referred to when this was debated in the other place suggests that the Government are falling far short of their anticipated take-up. Without praying in aid the report that is due to come more officially in due course, perhaps the Minister might give us some update on the take-up to date. The scheme has effectively been under way for something like nine months. Is the expectation that this incentive will still reach 400,000 businesses over the relevant period? By limiting the holiday to new businesses, the complexity of the legislation inevitably increases as it has to address the avoidance possibilities of people recasting an existing business as a new enterprise. We will come later to the validity of the excluded regions but we accept that if they are to be part of the scheme, the boundaries of the non-excluded regions must be secure.

The purpose of Amendment 3 is straightforward: to secure that,

“the principal place at which the new business is carried on … is not in any of the excluded regions”,

not only when it is started but “throughout the period when” the benefit of the holiday is being enjoyed. There is an argument that the requirement should be satisfied throughout the relevant period, but if that were imposed you would not be able to grant the holiday and the benefit of the cash flow until the end of that period.

Amendment 8 seeks to probe why six months has been chosen as the cut-off point in determining whether a business has effectively been recycled. The Minister might explain why that is considered a more appropriate period than, say, the 12 months that the amendment suggests. Perhaps he would also take the opportunity to expand on some of the terms in Clause 5. A business is not a new business for that clause’s purposes if a person has, within the defined period, carried on a,

“business consisting of the activities of which the business consists”.

That might be abundantly clear in many circumstances but not, we suggest, in others. Will a retail business—say, a grocery store—conducted in one part of a non-excluded area consist of the same activities previously carried on by that person if the business were a retail business in a different location selling the same type of products? What if the product range were different—children’s clothing, say—but trading were from the same location and, possibly, under the same name?

The purpose of Amendment 9 is to test whether there is any leakage of the benefit of the holiday where P genuinely starts a new business which is run alongside an existing business of P. In part, that depends on whether it is a single business or there are two or more separate businesses. Organising an expansion as a branch of an existing operation would presumably not be a new business; organising via a separate company or partnership could be. What, in the arrangements in the Bill, would prevent employees being employed by the new business with some recharge to the other businesses? Does Clause 6(1)(a) require employment wholly for the purpose of the new business?

I would not expect the Minister necessarily to respond in detail to all of these points this afternoon. They are raised to highlight the fact that focusing on new businesses and having excluded regions complicates matters—sometimes, I suggest, considerably. It certainly complicates the legislation, notwithstanding the general anti-avoidance provisions of Clause 10, which we thoroughly support. It will inevitably be the case that when boundaries to a scheme are set down, there are those who will seek to circumvent them. I am not sure whether the Government have been wise in offering so many of these opportunities.

[Baroness Kramer]

My Lords, I apologise if my newness to the institution shows in my bobbing up at the wrong time. I wish to make a couple of small comments on the amendments in this group, although my comments are less about the detail and more, in a sense, about questioning the underlying principle.

For all of us, the notion that new business can be stimulated to be a fountain of growth and of new jobs is obviously highly desirable, so an effective take-up of the programme would, I suspect, be met with pleasure on every side of the House. However, given the potential for a review period as we move through the Bill, might it not be good to keep in the back of one’s mind that even new jobs that come from existing businesses can be valuable, even if the take-up does not reach the targets of the initial programme? It strikes me that that would not be a failure, given that economies are volatile and take-up can take time but that jobs are beneficial even if they originate from business that is already under way. It might be important to ensure that this whole category of issues is critical in any review that might come one year after the initiation of the programme so that the Government can consider whether they would be wise to expand the categories in order to achieve the underlying intention of the Bill.

[Lord Sassoon]

My Lord, those two interventions go to the heart of why it is necessary to strike a difficult balance—this is where judgments have to be made—between, on the one hand, providing some tight and suitable anti-avoidance provisions and, on the other, ensuring that we do not make it excessively difficult for people to take up the holiday in the Bill. Of course we need to ensure that the scheme is affordable. That is why it has been targeted at new businesses, with a cap on the number of employees. Yes, we want to stimulate and encourage employment right across the areas of economic activity, but to do so through an across-the-board national insurance holiday would be extraordinarily costly. That is why we have come up with a scheme that is targeted in this way. On the other hand, as has been pointed out, we need to have appropriate anti-avoidance provisions.

When I first saw the amendments in this group, I had considerable sympathy with Amendment 3, which seems to be aimed at ensuring that new businesses that benefit from the holiday must not only have their principal place of business in an area that is not excluded but remain outside the excluded areas for the entire period during which holiday deductions or refunds are claimed. The amendment seeks to prevent a new business that relocates to an excluded area from enjoying any further holiday. The Government certainly agree with that objective. In fact, the Bill already provides that if the new business, having made a successful application for a holiday, relocates to an address within an excluded area the holiday will cease automatically.

The necessary provisions are found in Clause 7, which provides for the appropriate amount of secondary class 1 contributions that a new business can deduct or request to be refunded under the holiday. The appropriate amount is calculated by reference to a qualifying employee’s relevant earnings. Clause 7(3) provides that:

“‘Relevant earnings’ are earnings paid to”,

an employee who is employed,

“for the purposes of the new business, at any time during the holiday period when the principal place at which the business is carried on is not in any of the excluded”,

areas. Therefore, if a new business were to move to an excluded region, any earnings paid to a qualifying employee would cease to be relevant earnings and there would be no appropriate amount to be deducted or refunded, so the protection sought by the amendment has already been provided within the Bill.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I shall speak also to the other amendments in this group. As we discussed at Second Reading, and as was pursued in another place, we have concerns that the national insurance holiday is targeted by crude geographical area and not by any more objective assessment of need. These amendments variously look to remove Greater London, London, the south-east and the eastern region as excluded regions. As we have just discussed and as we shall discuss further under the next grouping, there are practical ramifications and administrative costs in excluding certain parts of the UK from the benefit of the holiday.

The Government’s chosen method of targeting is to look at those areas with the greatest reliance on public sector employment and to do that at regional level. Given that the RDAs are being abolished—that is about to be debated in another place—and that different economic groupings are being established through LEPs, can the Minister say on what basis the analysis has been undertaken at a regional level? We certainly acknowledge that the scale and speed of cuts in public spending will have devastating effects on unemployment, both public and private. If the basis of targeting is reliance on public sector employment, perhaps the Minister can say a little more about how this measure is determined.

For example, does the Minister accept that direct employment in the public sector is only part of the story? Parts of the private sector are as heavily reliant on public expenditure as perhaps those in the public sector that provide direct employment. That can be for a combination of reasons, including previous outsourcing of functions of central or local government and the reliance on public sector construction contracts. For instance, the Building Schools for the Future programme would have provided significant employment opportunities. For example, we know that the Government have been recruiting via agency companies in order to keep head counts down. Perhaps the Minister can say whether those arrangements are included as part of the public sector.

Another issue to consider is the extent to which spending cuts are borne fairly and proportionately across areas. In devising this policy, what analysis was undertaken of how spending cuts are being borne across the country? Have the Government sought to differentiate between front-line and other staff? We certainly accept that levels of public sector employment are one measure of vulnerability to spending cuts, but by taking a regional perspective the Government are averaging out high reliance on the public sector in some parts of the excluded regions. Debate in another place highlighted a number of constituencies in the excluded regions which were in the top 10 for public sector employment. These include Oxford East in the south-east, Lewisham East in London and Luton North in the eastern region. It was highlighted that Newham has a public sector employment rate of 33.6 per cent but is excluded from the holiday, whereas Macclesfield, with a rate of 11.8 per cent, is included. The Government’s approach does not recognise differences within regions and could be giving rise to significant deadweight costs. However, at a regional level, London has a higher employment rate than three regions which are not excluded. It is difficult to see the sense in that.

The east of England is the region that I know best. Currently, the east of England business start-up rate is below that of London, the south-east and some international comparator regions. The region requires a skills base that better meets the needs of regional businesses. It is also underperforming in terms of levels of GVA compared with London and the south-east and has a marked east-west split in economic performance. Workplace earnings vary acutely, with workers employed in Suffolk, Norfolk and Southend-on-Sea being the lowest paid in the region. Despite the region’s overall high employment rate, areas of high and persistent unemployment remain. This has a major impact on levels of deprivation and health inequalities. While some districts in the region are among the most prosperous in the country, 11 districts are rated among the most deprived in England.

The February labour market statistics are very worrying, particularly the 66,000 increase in the unemployment rate among 16 to 24 year-olds. It appears that the benefit of the holiday is simply not available to some of the worst affected areas. Two of the top 15 constituencies in the UK with the highest unemployment rates are denied—both Luton constituencies, ranked 168th and 269th, are excluded. A detailed analysis of deprivation data suggests the same picture. Some areas of greater affluence are included in the scheme ahead of others with greater levels of deprivation.

We accept that public sector employment is in some measure a proxy for vulnerability to spending cuts and that an incentive for private sector businesses can help. It is also accepted that if there are to be geographical exclusions and inclusions, the broader these are the less likelihood there is of displacement activity. However, the scale of the exclusions fundamentally calls into question the fairness of the policy as cast. I beg to move.

[Baroness Kramer]

My Lords, I rise to speak because I grew up and have spent much of my political life in Greater London. Like most Londoners, I would defend to the last any opportunity or benefit that might come to London. However, I recognise that if areas such as Greater London, the south-east and the eastern region—I know the latter region less well—were included in this scheme, they would suck up the overwhelming majority of funds that the Government could make available. At a time of great prosperity that might not matter, but at present those of us who live in the better-off regions have to be conscious of how seriously difficult life can be in other parts of the country, particularly those which are losing a significant number of public sector jobs and are dependent on those jobs.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, to a certain extent the Minister has already pre-empted this and given us a response which will be, I think, that in a sense there is room for part-time workers within the headroom that the count of 10 will provide. Nevertheless, I will seek to pursue the argument.

The technical note issued by HMRC in August adds some clarification on the maximum number of qualifying employees. In particular it makes clear that employees earning below the secondary threshold—that is the start of national insurance obligations—still count towards the 10, even if they are part-time or casual employees. Even if there is no employer national insurance due and no benefit from the holiday, they still count against the number 10.

The purpose of this amendment, which I accept would need some tidying up to be acceptable, is to enable part-time employees to be aggregated when determining the first 10 employees of a new business. It may well be that individual part-time employees do not earn above the secondary threshold so that, irrespective of their employment, a holiday would not produce a benefit for the new business, but it may allow the eleventh or twelfth employee to be counted in and the employer to enjoy the benefit of the holiday. Clearly there would need to be rules about what counts as part-time, and who gets added to whom, as it were, to determine a full-time equivalent, and what happens if a part-timer leaves, but these should be capable of being drawn up fairly simply.

Part-time working has been an increasing phenomenon of the UK labour market in recent years, although it dipped slightly in the last quarter to December 2010. Over the last year, it has increased by some 8 per cent for men and over 1 per cent for women. Nearly three-quarters of those employed part-time are women. Job sharing, especially for women, is an increasing way of balancing caring responsibilities with work, and a removal of the default retirement age, which we thoroughly support, will lead possibly to older people working longer but on a part-time basis.

Taking on part-time workers in the early stages of a new business could help lower risk to the business and increase its survival rate. There is clearly a tension between this and having full-time employees who could generate a benefit from the national insurance holiday. Being able to aggregate part-time employees on this basis would go some way to ameliorating the tension between those two positions. I beg to move.

[Baroness Kramer]

My Lords, I want to speak particularly to this amendment because it is, in a sense, a real request. Part-time working and job sharing are really important. The Government have done a great deal to promote, indirectly, part-time work through, in effect, a pupil premium that now goes down to the age of two. This for many women means that there is a form of very attractive childcare available from the age of two, even for disadvantaged families, making part-time working far more feasible than it might have been in the past. The culture, however, needs to change, and it seems to me that this Bill, because it resists using the language of part-time work and job sharing, falls into that ongoing trap of not challenging the culture and pushing that change forward. Part-time work is often seen as a temporary accommodation, and as the lowest skilled work—that is not always true, but it is the general image—rather than as something that can be embedded permanently into the way that a company functions.

Monetary Policy Committee

Baroness Kramer Excerpts

Wednesday 16th February 2011 Lords Chamber

[Lord Sassoon]

My Lords, first, it is for the Bank of England to make any proposals on quantitative easing if and when it wants to, and the Chancellor will then look at them. I am certainly not going to deconstruct and provide a commentary on the exchange of letters yesterday. However, the noble Lord, Lord Barnett, indeed identifies some of the points made by the governor in the letter, where he clearly sets out the downside risks and refers to questions about the “margin of spare capacity”. On the other side, he refers to possible “upside risks”, particularly in relation to inflation expectations. However, I suggest that noble Lords read the letters, rather than have me interpret them.

[Baroness Kramer]

My Lords, the Minister will be aware of recent remarks by my right honourable friend Vince Cable on the importance and benefits of low interest rates to businesses at this stage of the recovery. Will he comment on that and explain whether it feeds into the decisions made by the Bank of England?

Banking

Baroness Kramer Excerpts

Wednesday 9th February 2011 Lords Chamber

[Lord Sassoon]

I completely agree with my noble friend Lord Risby that at the heart failure of the failure and the heart of what needs to be done is the need to get the British regulatory system back on to an even keel. That is why we came forward with ideas in opposition and consulted widely on them even then. We have also moved fast in government. Only last week the appointment of the prospective head of the new consumer body was announced. We will continue urgently to roll out our proposals on the new regulatory structure. I absolutely take my noble friend's point that in the context of the United Kingdom's standing internationally, the leadership that we have shown in getting a new structure in place has been very much understood and respected by our peer group in Europe and more widely.

[Baroness Kramer]

My Lords, does the Minister not agree that it is absolutely crucial that a significant portion of the new lending should go to small businesses in areas of deprivation and to areas that will suffer severely from job cuts in the public sector? As a consequence, what will he do to encourage the banks to take a more sophisticated view of credit analysis so that micro-companies and new companies, which are the best hope in those areas, have access to funding, rather than just well-established small entities?

[Lord Sassoon]

I am grateful to my noble friend for allowing me to emphasise that the banks have at the heart of their intention on all lending to make sure that there is absolutely universal coverage across the United Kingdom. On the question of how businesses are put in a position to come forward, one of the most important elements of the banking task force is its proposals for mentors for businesses. Whether that is mentoring businesses to put them in a better position to apply for and take up loans or having a much clearer system of principles around lending and appeals processes, there is certainly a package of measures which goes to the points my noble friend rightly makes.