Banking: Regulation

Baroness Kramer Excerpts

Thursday 11th July 2013 Lords Chamber

[Lord Pearson of Rannoch]

My Lords—

[Baroness Kramer]

My Lords, while it is absolutely true that—

[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

Wednesday 3rd July 2013 Grand Committee

[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.

--- Later in debate ---

[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.

G8: Eurozone and UK Growth

Baroness Kramer Excerpts

Tuesday 2nd July 2013 Lords Chamber

[Baroness Kramer]

My Lords, the summit also addressed the issue of the international tax regime. Will the Minister recommend to this House the website www.fairtaxmark.net, which ranks companies as part of its campaign for greater transparency and fairness in corporate taxation? It is rather sober reading for the Government to see who pays tax and who is transparent, and it is most helpful to us as consumers, since consumers and the Government need to work together on these issues.

[Lord Newby]

My Lords, I absolutely agree with my noble friend and I do commend the website to Members of your Lordships’ House. However, I also point out that at the G8 summit significant progress was made on tax transparency, whether in promoting the standards of the Extractive Industries Transparency Initiative, promoting a new global standard for automatic information exchange, or making more information available on beneficial ownership. These are big changes on which the UK is taking the lead.

Spending Review

Baroness Kramer Excerpts

Wednesday 26th June 2013 Lords Chamber

[Lord Deighton]

The question of how we unwind QE is a matter for the Monetary Policy Committee. It is not for me to give advice here.

[Baroness Kramer]

My Lords, when it comes to not understanding, I have to say that from the conversations that I have had in the media today with members of the Labour Party and listening to today’s speech, I am unclear whether they want different cuts or more borrowing, but it seems to be one response or the other to this particular spending round. I am very pleased with many aspects of this spending round, particularly the emphasis now on future growth.

Will the Minister confirm that the decision to put more money into schools, thereby protecting the schools budget as well as being a real-terms increase in the pupil premium, is because they have proven to be successful and effective programmes? On the infrastructure area, which is his area of specialty, will he assure me that although there is the Heseltine pot for local areas, the big national infrastructure expenditures will be co-ordinated with local activity so that we can maximise the opportunities that spin off from this very substantial increase in infrastructure?

[Lord Deighton]

I thank my noble friend for her observations about the education programme being a prime example of investing in the success of an effective programme. That is absolutely right. On the local pot and infrastructure spend, it is absolutely our intention to make sure that there is a strong relationship between the regional plans—ultimately, all infrastructure operates at a local level—and that we co-ordinate those at a national level to ensure that we get the maximum leverage from the money that we are spending at both ends.

Taxation: Income Tax

Baroness Kramer Excerpts

Monday 24th June 2013 Lords Chamber

[Lord Newby]

My Lords, there is an awful lot of hype about what may or may not be achieved by reducing or retaining the higher rate of tax. HMRC produced its report on the matter last year and estimated that, in the short term, the cost to the Exchequer was £100 million. It said that the “direct yield” from the higher rate,

“might fall over time toward or beyond zero”.

[Baroness Kramer]

My Lords, since this Question looks at the impact of tax policy, can the Minister give me his assessment of the impact of raising the tax threshold in this Parliament?

[Lord Newby]

My Lords, the effect of raising the tax threshold is that some 2.7 million low-income earners will be taken out of tax by April 2014 and that 23.6 million individuals will benefit by paying less tax.

Taxation: Evasion and Avoidance

Baroness Kramer Excerpts

Thursday 6th June 2013 Lords Chamber

[Baroness Kramer]

My Lords, I, too, congratulate the noble Lord, Lord Foulkes, on bringing forward an important issue, and on giving us an opportunity to discuss it, as it were, in the general. I suspect that there will be many discussions in this House about many specific measures in this area of enormous complexity.

I say to the noble Lord, Lord Foulkes, however, that when I started to make some notes for this debate I had little intention of making more than a passing reference to the history of Labour Governments in this. However, his comments have forced me to do so. This kind of amnesia, wherein what happened in the past is irrelevant, is a very uncomfortable position from which to pass. He talked about “new in scale” as if we are suddenly coming across problems which had not existed in the past, and had now forced themselves on to our attention. I remind him that even his own Labour Party was in 1997 sufficiently aware of tax evasion on the domestic scale to look at a GAAR—a general anti-avoidance rule or anti-abuse rule—which it rejected. This Government have now brought that back into the frame; I will talk about it in a minute. Also, however, the US Senate thought this was such a crucial issue that it started its major hearings in 2001. That put into the public arena so much of the information now being used by all the parties that it is impossible that it was not going across Ministers’ desks and had not been drawn to government attention.

The noble Lord, Lord Browne, drew attention to the culture in which businesses, and those such as the CBI who speak as the trade bodies for businesses, work from the assumption that this issue should not be challenged. I think we all find that offensive. However, surely that grew out of what they saw as a very long period of complacency and a rejection by Government, who had the power to intervene, to make those interventions. Those years of neglect have played a very significant role in the culture that we now have to turn around. In the end, we have to get businesses, as well as government, to take responsibility.

I come from a party that, in conference after conference, debated these issues, put them on the agenda, introduced them into manifestos, and was treated as though it just did not understand the ways of the world and, as a consequence, business. I take some satisfaction in reading, in the coalition agreement in 2010:

“We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals”.

It is right that people should be aware that there has been a loud and pressed voice, but that it has been ignored.

I will talk very briefly about the GAAR. I had the privilege of being on the Finance Bill’s sub-committee, which took a look at the general anti-abuse rule. It is a toe in the water—a first step at looking at a principles-based approach to sit alongside a rules-based approach. I suspect that in future years we will have to look at whether or not anti-abuse is sufficient, and whether we need to move into anti-avoidance. However, I will bring to your Lordships’ attention the first of the conclusions in the summary of the report from that sub-committee. It says:

“Given resource constraints and the need to provide certainty for business and to promote UK competitiveness, we regard the narrowly focused GAAR as a reasonable starting point. However, we think it important that the scope of the GAAR should be reviewed in the light of practical experience of its operation as part of the wider review that we recommend elsewhere in this report. Such a review should consider, in particular, how the double reasonableness test”—

the most constraining part of the GAAR—is impacting on the GAAR’s deterrent capacity.

It is also crucial that we understand that the measures we take that affect our domestic tax framework do not tackle the international, multinational tax issues. I sometimes think that when people talk about GAARs and anti-avoidance measures that can be taken domestically, they create an impression among the public that those measures can deal with the multinational and international problems. This report also reminds us of that, saying:

“We are fully persuaded that the GAAR will not apply to issues involving the taxation of multinational groups or the deferral of bonuses from one tax year to another”.

It is, therefore, reminding us that even approaching anti-abuse in this country does not deal with the wider set of problems.

My frustration, particularly with the capacity of multinational companies to use their offshore reach to avoid or minimise their tax—effectively, not to pay tax—is in part because of the impact on public spending. Other noble Lords have talked about that. It is also because of the way in which it destroys the level playing field for many of our businesses, and in particular our domestic and small businesses. I note that in my own community, Qbookshop, which is one of a chain of three, has a notice in its window reminding the public that the taxes it pays support at least one nurse in the local hospital. The reality is that Amazon, for all its reach, does not do a lot more than that with the corporate taxes that it pays.

As I look for ways to do my purchasing from companies that have a proper approach to tax—as others do—I find that it is extraordinary how few exist. There are times when you are simply forced back to Amazon to carry out a transaction. This basically shows that the advantage of being able to avoid tax payments has subsidised those players in growing and squeezing out the competition that otherwise would naturally occur. We as a country are suffering from the destruction of that kind of level, competitive playing field.

I also note that when small businesses in the UK begin to grow, they are frequently sold to a foreign owner, and sometimes the owner is essentially a Luxembourg-based shell. Once again, it is almost impossible for a company to continue to compete unless it tries to enjoy the tax advantages that others in its field can access. One can see the temptation of many an investor to buy a company and move its activities or quasi-activities simply from a tax motive. I wonder how much the issue that we have often addressed, which is why we cannot get our small companies to grow into medium-sized and large companies based in this country, has a tax motive somewhere at the bottom of it.

I, like many people, have a real frustration that the kinds of rules of which these large companies take advantage were written by Governments on the understanding that it was unfair for companies to pay tax on the same economic activity in one, two or three locations. It is an entirely fair request for a company to say that it should pay tax only once. However, to take advantage of that, to work around it and to use it in order to create an environment where tax payment is in effect zero strikes me as the most extraordinary abuse and contempt, and it is absolutely necessary that we should bring it back under control.

I am looking very much at the G8 to begin to make strides in that direction. We have to advocate the principle that tax is paid essentially where economic activity takes place. There are complexities around that, but it is the principal basis on which we should expect to proceed. We have to look very differently at online companies, which can move their profits, domicile and activities in such a significant way. I wonder whether we should look at whether online companies should pay tax on the basis of revenue rather than profits. We may have to be as radical as that.

Before I finish—I am not going to use my full time—I will say one thing quickly to the Government. I was struck by the fact that one of the important instruments that the United States uses is the Foreign Account Tax Compliance Act, which requires individuals, or corporations as individuals, to report the financial accounts that they hold overseas. It also requires foreign financial institutions to report to the IRS on American clients. The UK is one of the countries that are co-operating with FATCA. It was designed primarily to combat offshore tax evasion and to recoup federal tax revenues. I would like to know whether we could have a UK version of this, because transparency—the kind of exposure that comes with FATCA—can be a very important basis for trying to challenge both tax avoidance and tax evasion.

Finally, I will say that many people, like me, would like to shift their economic activities—their business, their trade—to companies that play by the rules, but it is very difficult to find out which they are. I wonder whether there is any way that the Government could assist us: a way that would enable us to understand, when we walk into a shop, deal online, or, through our corporate lives, look at setting up relationships, whether we are working with a company that, as it were, has the kitemark of paying its taxes in an appropriate way. I admit that my ingenuity on this issue is limited, but it would be very helpful, and it would allow the public to do what they have done on many other occasions, which is to use their spending power. In that way, the Government would not have to deal with the issue simply through legislation and through enforcement by HMRC, but would have the public on their side. I note that Starbucks at least decided to make a voluntary tax payment—I think that we all agree that taxes should not be voluntary—in large part because when it was exposed as a company that paid virtually no corporate tax in the United Kingdom, its customers decided that they could go to a very nice coffee shop just down the road that did actually pay tax.

Economy: Fiscal Framework

Baroness Kramer Excerpts

Tuesday 4th June 2013 Lords Chamber

[Lord Newby]

My Lords, the Government have pushed back the period during which we are going to eliminate the deficit. The rate at which we are doing it, at about 1% of GDP per annum, is exactly in line with IMF guidance to countries that find themselves in the position that we do.

[Baroness Kramer]

My Lords, I have some sympathy with the noble Lord, Lord Barnett, because he put down his Question before Ed Balls did a U-turn yesterday on the Labour policy that his Question reflects. However, would the Minister not agree that the greatest risk to recovery at the moment is the lack of credit as business returns to its growth phase and will need that credit in order to succeed? What is his assessment of the capacity of the banks to fill that need?

[Lord Newby]

My Lords, the capacity of the banks to fill that need is shown by the latest borrowing figures, which are mixed. Of the 40 banks that are participating in the Funding for Lending scheme, 27 expanded their lending and 13 contracted it. There was a small net contraction—much less than in recent quarters. There is evidence that net lending will expand as the year progresses, as a number of banks—such as Santander, which is winding down its mortgage book—come to the end of programmes.

Economy: Growth

Baroness Kramer Excerpts

Thursday 16th May 2013 Lords Chamber

[Baroness Kramer]

My Lords, I join in the congratulations to the noble Lord, Lord Solely, on obtaining this debate. He is absolutely right—there is no more important issue than growth in our economy—and we in this Parliament and the Government have to focus directly on these crucial issues.

However, I would challenge him on his analysis of how we got where we are today. I fully accept that a financial crisis came—some say like a meteor out of the sky; others, who have looked at the banks, thought it was predictable—and hit us hard in 2007-08. This country was in no position to sustain that blow. We were at a point where the former Labour Government had raised public spending and public borrowing to a point where it offered no resilience. I can understand how the Labour Government got there. They bought into the idea that boom and bust had ended and that there would be a constant flow of substantial tax receipts coming from the financial services industry and that they therefore could let loose the leash on both spending and borrowing because there would be a constant flow of money coming into the Treasury. They should have recognised that we were at the top of an economic cycle—we do not end boom and bust; economies cycle—and every Government have prudently to take cognisance of that. So that is the situation in which we found ourselves.

We also found through that process that the underlying British economy was in very weak shape. We had become so dependent on financial services that we had bled much of the life out of our other activities, both in the service industries and manufacturing industries. We had allowed the balance to swing so heavily to London and the south-east that much of the north was being sustained only by having public service activities there—the private sector had not been building and thriving for a long time—and, worst of all, we had failed to recognise for more than a generation that the backbone of the economy is our small businesses. Twenty per cent of all the small businesses in the EU are in the UK. This is a thriving location for small businesses but it has not been receiving the kind of support that it needs to grow, to take risks, to create new jobs and to build its export base.

For the past few years, the rebalancing of that shift has been the work of this coalition Government. I am encouraged by the comments of Sir Mervyn King and the CBI made earlier in the week which suggest that they can finally see that we are going into a modest recovery. It is very dangerous in this current unstable international environment to focus too much on green shoots, but the same verdict is coming back from small businesses, from the accountants who spend time up and down the country with businesses and even from the commercial section of the banks. They identify that the beginnings of a real recovery are under way, in part because of the rebalancing and redevelopment of those abandoned areas. This work will turn out to be absolutely crucial.

I have often said before that the neglect that most appalled me, not only during the Labour years but during the Conservative years before, was in the area of building skills among our young people. The fact that there was a lack of apprenticeships and that the whole apprentice structure had been allowed to collapse was irrelevant in many people’s minds. There has been a turnaround in that area: more than 1.25 million young people are now either in or have gone through apprenticeships in the past couple of years. That will be important.

We all thought that any debate introduced by the noble Lord, Lord Solely, would undoubtedly touch at some point on aviation and I admire his self-restraint in not addressing the issue of Heathrow. I shall therefore limit my comments on this issue out of common respect to his self-restraint.

However, I wonder whether he recognises the inconsistencies in his own position. I agree that regional aviation capacity is the key issue we must look at. As he knows, that is not hub aviation capacity but very much point-to-point. One of the issues that the Davies Commission will have to take on is whether we should try to build a single London-style hub as our primary connection both within the country and outside. Should we have one main hub and a number of minor hubs? Should we build a balance between one hub and a number of point-to-points? We have to come up with a solution that manages and supports the rebalancing necessary for our economy. That means that it must service the north and the west as well as London and the south-east. That is one of the arguments that leads people to think that much of the London hub should now be shifted somewhere between London and Birmingham, potentially alongside an HS2 route, but there are a number of other visions.

The noble Lord also stressed the fact that aviation, usually thought of as passenger aviation, plays a crucial role in freight. I fully accept that. However, you cannot drag those words out of most of the aviation industry because it becomes impossible to argue for the use of Heathrow, an incredibly expensive and scarce resource, when you are doing a point-to-point freight movement. So that issue has to come into the picture and it will be interesting to see where it goes.

There are two issues I wish to address before I sit down. I shall certainly not use my full time today. One is an issue which is sometimes not addressed in the context of economic growth—that is, tax avoidance. I recommend a speech made on this yesterday in the other place by my colleague, Ian Swales, MP for Redcar. As he was discussing the problem that we face—the inherent reality that most multinational companies now effectively enjoy a corporation tax rate of zero because they export their profits to somewhere such as Luxembourg or outside the G20—he said that one of the impacts of that is greatly to disadvantage those very small and medium-sized businesses in our economy that we need to grow for the future. For example, a chain of three book shops within my local community have pasted on their walls that each book shop pays for a trainee nurse through its taxes on an annual basis, whereas Amazon, their great rival, effectively contributes nothing. Yet they face this price differential because, in effect, the international community has provided a taxpayers’ subsidy to the large multinational entities. We have to tackle the tax avoidance problem for that reason in addition to the failure of those companies to contribute as they should to the public spending that, as it were, pays for the society in which they participate and provides the basis for many of their sales. I think that the level playing field argument is an incredibly powerful one.

In my last comments I wish to pick up on the remarks of the noble Lord, Lord Marland, on exports. I agree completely that building the exports of our SMEs is absolutely vital. However, sometimes I disagree with BIS about its focus on saying to small businesses, “Come on, go to China, Brazil and India”. It is wonderful if small businesses can export to those countries and I have no problem with that, but when you talk to these businesses, you find that many of them have had very bad experiences when they have tried to do it. It is quite risky to export to China if you have a patent you wish to protect. It is very difficult to export to the United States because of all its non-trade barriers. I have talked to quite a few small businesses, but I shall not use their names because they are quite hesitant about this, which have found that in the end they had to form a joint venture to sell into the United States and essentially surrender most of the upside of their additional revenues and the exports from their US operations. Instead, they just accept royalty payments because, without a joint venture relationship, it is impossible for them to operate on American soil.

From the small business perspective, the ongoing debate that David Cameron was leading on in the United States in his discussions with President Obama on an EU/UK trade negotiation to tackle many of these non-tariff barriers, is absolutely crucial. There is a real need for an awareness that this is the kind of thing we can tackle only as part of the EU. I lived in the United States for 20 years and I know a lot of people in the Administration. The chance that they would ever waste time on a UK/US debate along these lines is close to zero. I suspect the same for China and, indeed, for the various developing economies of the world.

We are at an exceedingly exciting point where there is great potential. We are starting to see movement in the economy, but it is crucial that we have sustainable growth, not growth created by a sudden surge in public spending that sparks a short-term response and transient behaviours. We need long-term, sustainable growth by getting new businesses off the ground and encouraging them to export. Any discussion is too much to try to include in this speech, but it is also crucial that the banks back up that growth with a credit supply, because it will be in huge demand as businesses begin take off when they see the end of the recession and can move into a much more investment-focused and expansionary mode. We are at a very interesting point at which the decisions and the way we shape this growth must be such as to set us up well for future years.

Queen’s Speech

Baroness Kramer Excerpts

Monday 13th May 2013 Lords Chamber

[Baroness Kramer]

My Lords, I do not flatter myself that so many noble Lords have remained in this Chamber for my speech, but rather for the speech of the noble Baroness, Lady Lane-Fox, who will follow me—and quite right, too. I very much hope that she will address the issues of entrepreneurship in such a cutting-edge industry. That will be fascinating, not just on a personal level, but because it lends itself so much to the issues of economic growth that we are talking about today.

The opening phrases of the gracious Speech indicated that the Government’s purpose is to focus on building a stronger economy and promoting a fairer society. Let me wholeheartedly endorse those two principles, which must go hand in hand. This country has, at times in its history, pursued one but not the other, and that has damaged us as an economy and a society.

Much of the work of rebuilding the economy is already under way. I will pick up on the latest measure that was in the Queen’s Speech, which is extremely positive, namely the commitment to introduce a new employment allowance of £2,000, not least because its simplicity should make it very attractive to small businesses. We have heard again today, from the right reverend Prelate the Bishop of Birmingham, and others, that small businesses are key to the future of this country’s economy. This should be a spur to new hirers.

I commend the Government on resisting the temptation to constantly think up more legislation in the finance area, where we already have crucial banking reform legislation to deal with. I am on the Parliamentary Commission on Banking Standards, and our report will come out in the next few weeks. The Government slightly surprised me today by saying that that Bill will come to this House before the Summer Recess. It is very important that the issues raised in our final report have the opportunity to be properly considered, and, on many fronts, incorporated into that legislation. I therefore ask the Government to take a serious look at the timing.

I agree with one part of the speech made today by the noble Lord, Lord Forsyth: it is sometimes a relief that we have a Government who do not constantly try to address every problem by producing yet another piece of legislation. When we heard the noble Lord, Lord Eatwell, essentially complaining that there were not enough new laws in the Treasury field for this section, I thought, “Labour’s continuing with its old habits of legislation”. I am glad that he finally agrees that implementation and governance are the right answers, but those are not the words that his colleagues have used.

In these uncertain times in which we live, it is unwise to overestimate green shoots in the economy. However, I have been struck by the very positive tone that I now hear from a wide range of those working in small businesses, in business accountancy, and even in the commercial sector of the banking industry. Help to buy is having a very big impact on the housing market; Barratts has reported the highest demand for five years, and now warns of a possible skills shortage in construction, which it is combating by planning for 600 new apprentices and graduates over the next three years. The CBI report also reinforces the sense that there is momentum.

We have seen these signs before. In 2011 confidence began to grow, but was knocked back with the problems in Greece, and in 2012 we began again to see gathering confidence, which was then shaken by concerns over Italy and Spain. This time, however, there is a broader base, with a pickup in the service sector, non-EU exports, manufacturing output and retail sales. I would love to hear from the Government about retail sales, but I understand that much of the pickup comes from the over-45 age group, which, frankly, was much less impacted by unemployment and by wage compression. That group has the capacity to spend, and if it is starting to again, that is a very important message for the economy.

Of course, any return to recovery has its own risks. A few months ago it was fashionable to suggest that many companies in the UK were essentially zombie companies—the walking dead that would collapse in an economic revival. Thank goodness that theory has largely been discarded because it does not fit the facts. However, it is true that as the economy improves many companies will quickly chew through their cash reserves, and it will be absolutely critical that we have a banking sector able to meet the demands especially of small and medium-sized businesses. I confess that this worries me.

The Government’s decision in the Budget to continue and expand Funding for Lending, with much more emphasis on small business lending, was significant and welcome. The big banks have been clearing their balance sheets and trying to retrain their staff to look at the sector, and they should have enhanced lending capacity—although I remain sceptical about the low levels of demand that they insist exist in the economy. However, as the economy recovers we will definitely see a very significant pickup in demand for credit. It will come not in steady increments but in waves of expansion. We cannot afford for the banks to fail us again. If they are correct that only lack of demand has been holding back the flow of credit, we should see that change. In case they do not, I hope very much that the Government are looking at additional contingencies. It would be terrible to lose the opportunity of a rising economy because our banking sector, which has never focused very much on the real economy in the UK, failed to live up to expectations.

In the long run, new banking players and non-banking players will enter the credit market. We must never again depend on just four institutions, as essentially we do today. I am very pleased that we are close to achieving a proper regulatory framework for peer-to-peer lenders, and that they are getting support from the business bank. I congratulate the regulators, the FCA and the PRA, on a complete about-face in historical strategy. They are now setting out to remove barriers to the entry of new banks. Measures such as seven-day account switching will finally let ordinary people change their banks to get a better service, and will open the opportunity for new players to thrive. The Chancellor has proposed that the regulator should take on the payment system—the plumbing of financial services and banking—which has been in a sclerotic state and made it almost impossible for any new players to enter the market. We are moving towards an environment where competition is encouraged.

I am still concerned that waiting for banking and credit markets to grow organically and provide us with new players of any size will take longer than we can wait, and longer than one economic cycle. For that reason, I urge the Government to look closely at RBS, and possibly Lloyds, and consider splitting them up. People talked about splitting RBS into a good bank and a bad bank. That would have made sense five years ago but we are past that point now. Much more interesting would be a split into a number of regional banks that could identify and focus on the needs of each regional business base. For decades we have let the market shape our banking industry. It has been a disaster; we have seen nothing but consolidation and homogenisation. We now need the Government to tackle the failings in the structure of the industry, not just the failings of individual banks, which they are tackling with capital requirements, ring-fencing and other measures, so that it is fit for purpose, and the purpose is serving the real economy.

I know that Lloyds and RBS have had trouble selling off the pieces of their own banks that they have been forced to sell by European law. Two points are relevant here. One is the appalling legacy technology that the institutions are burdened with, which has not been brought up to date. The other is a general expectation that they will simply consolidate into another new big bank rather than remain sustainable as regional organisations. Economies of scale have dropped sharply and dramatically with modern technology. Highly competitive regional banks have proved viable across the globe. If national banks cannot serve our businesses and regional banks can, we should seize the once-in-a-generation opportunity of returning two major banks to the private sector to build the banking structure that best supports our economy.

Banking: Quantitative Easing

Baroness Kramer Excerpts

Wednesday 27th March 2013 Lords Chamber

[Lord Newby]

I do not think that there is any sleight of hand. Since 1998, the Bank of England has introduced a number of innovative measures within the remit and the terms of the Bank of England Act. Quantitative easing, which, in 1998, many of us could hardly spell, far less understand, has happened on a big scale and finance for lending has been introduced. These innovative things have been introduced under the terms of the Bank of England Act. The remit change reflected in this year’s statement by the Chancellor accepts that there have been a lot of changes since 1998 and suggests that the Bank should look at introducing further innovative operations.

[Baroness Kramer]

My Lords, the Minister will be aware of a recent speech by Spencer Dale, the chief economist of the Bank of England, which identifies the constraint on growth, not on the demand side but far more on the supply side, because the banks are not back to normal lending, so does he see monetary activism as a mechanism to return to normal lending or are we relying much more on actions such as the business bank? Is that where the Government’s emphasis should be placed?

[Lord Newby]

My Lords, we need to pursue more than one course at the same time. The Green Investment Bank and the new business bank are one way forward; further innovation by the MPC is another. We need the full range of tools at our disposal to promote growth.