Class 4 National Insurance Contributions

Debate between Baroness Kramer and Lord Davies of Oldham

Wednesday 15th March 2017 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I am fairly sure that the House will not be taking the Statement in quite the positive way in which the Minister clearly hopes. Conservative Party Budgets and U-turns seem to come hand in hand these days, but this is one of the outstanding ones. Scrapping the centrepiece of the Budget in less than a week is going some, even by Conservative Chancellors’ standards. When Chancellors make really egregious mistakes they are always compared with Hugh Dalton, who was fired almost immediately on the spot for the leak to the lobby correspondents as he walked in to deliver his Budget. When I think about other errors that Chancellors have made, this one comes pretty close to that. As the Chancellor has obviously been in close contact with the Prime Minister, I imagine that his hair has stood on end these last few days—brushed well though it normally is.

The changes announced today amount to a £325 million revenue loss in 2018-19 and a further loss of £645 million in 2019-20. They raise a number of questions, not only about the obvious gaping hole left in our country’s finances but also about the critical relationship between the Prime Minister and the Treasury. After all, we all know there is a connecting route between Nos. 10 and 11; they are adjacent properties. It therefore seems that the Prime Minister is bound to have been consulted on the Budget.

What we need to know is this. In his letter to Conservative Back-Benchers, Philip Hammond said:

“The cost of the changes I am announcing today will be funded by measures to be announced in the Autumn Budget”.


That is not good enough. At a time of already considerable uncertainty over our future relationship with the EU and the terms that we will obtain, and the impacts that that will have on trade and the whole issue of business confidence in this period, this is just about the last thing we need—a mess-up on a Budget.

If past Budgets or Autumn Statements are anything to go by, waiting for months only to hear that welfare spending or local council funding has been cut even further is not acceptable, yet we know both of those have been in the Government’s firing line in recent months. Furthermore, can the Minister assure this House and the public that the £2 billion announced for social care will be safeguarded? Informed opinion thought the emergency needs of social care were £2 billion a year, so we were already critical enough about the Chancellor’s decision to award it £2 billion over three years—that is, about one-third of what is necessary. The House will want an assurance today that that money at least is to be safeguarded.

The Prime Minister has said it was the Government’s decision to U-turn on national insurance contributions, but whose decision was it to put it in the Budget in the first place? In the consultation, were people not aware of the manifesto commitment? Surely the Government are not seriously saying that the Chancellor spoke to no one except officials before the Budget was produced. What about these other significant figures, his Treasury Ministers, who line up with their boxes in photographs and take pride in the Budget? No one among them appears to have recognised the manifesto commitment, leaving the public suspecting that it was the Prime Minister who put the Chancellor right. There will probably be consultations over a number of issues in the future and if they are at the informed and perceptive level of the construction of this Budget then we are all in for a rather bumpy ride.

This after all was one of the Chancellor’s major announcements in his first Budget. Surely he must have consulted people. We and indeed the country are at a loss as to why no one recognised what is now regarded as an important block—namely, that at the last general election the Conservative Party made a series of promises, not all of which have been fulfilled, though the ones that have been fulfilled are the ones that we on this side of the House find most onerous. It turns out that as far as this Budget was concerned this promise was the critical one, yet the Chancellor went blissfully on to deliver the Budget.

As the IFS has made clear with regard to self-employed people on low incomes, the NICs uprating was only ever small in comparison with the more significant changes that the Government are making to universal credit, yet this is the one that has shaken the Chancellor. I hope the Minister recognises that the self-employed will remain worried about what they will be taking home at the end of the month following this fracas. On the abolition of NICs 2, which the Chancellor has today confirmed will go ahead, how will the rights previously obtained by class 2 contributions be ensured?

There is now a gaping hole in the Budget and the Chancellor needs to reassure the nation that he will cope with the financial problem represented by this blunder. Finally, if no action on NICs 4 is to be taken in this Parliament, what on earth is the purpose of Matthew Taylor’s work? If there is such a block on action on this one crucial area—the Government have after all emphasised how crucial it is in terms of changing patterns of work—until after the next general election, we are all left to wonder just what will be the purpose of that work.

[Baroness Kramer (LD)]

My Lords, what a climbdown. And what a spat between No. 10 and No. 11. The Chancellor has always had a tin ear, but did the Prime Minister not recognise that the NICs change was, in effect, a tax increase on the plumber, white van man, the entrepreneur and women working from home because of children—people who are typically “just about managing” and whose income fluctuates, is low and is often unreliable?

Yesterday, in the Budget debate, the noble Lord, Lord Willetts, spoke of the now discarded NICs change as a way to combat companies that, to benefit from tax arbitrage, push people out of employment into less certain self-employment. I suggest, as I did then, that if the NICs changes had been focused on those companies seeking that tax arbitrage, rather than on the self-employed—manifesto pledge or no manifesto pledge—the response would have been very different. Were the Tory Government following their usual pattern of protecting big companies and big business and hitting the little people?

It is crucial, as I think everyone in this House would agree, that the increase of £2 billion for social care remains, inadequate though it is, being spread over three years. How will the Government fill the gap in the public finances when the Chancellor is so constrained by expected blows from hard Brexit? Can the Minister give us today a guarantee that it will not be filled by more severe spending cuts parts of the public sector already under extraordinary pressure? Do the Government agree that the whole Victorian structure of business and employment taxes needs re-examining? The former BIS Secretary, Sir Vince Cable, is chairing such a review for the Liberal Democrats. Will this Government, among their many reviews, take on frankly a review of similar scope, because it is vital?

When spreadsheet Phil decides to shoot from the hip, we surely have a Government puffed up in hubris. I am afraid that this exactly reflects the arrogance that led the Government to hard Brexit. If they have a tin ear over their own self-employed, how bad is the tin ear that they will take into EU negotiations?

Bank of England and Financial Services Bill [HL]

Debate between Baroness Kramer and Lord Davies of Oldham

Tuesday 3rd May 2016 Lords Chamber

[Baroness Kramer (LD)]

My Lords, perhaps I may pick up on the point made by the noble Lord, Lord Flight. The FCA is one regulator. We understand that there is great pressure to move on this issue now because the FCA had lost so much confidence and so many people have questioned whether it is genuinely an independent regulator. However, the PRA, turning into the PRC, is an equal, if not more critical, regulator of our banking system, and of course appointments to the Bank of England—particularly that of governor—are also crucial. Therefore, can the Government tell us why they have not broadened out this change in approach, which is surely just a modernisation and a recognition of the significant interest that Parliament and the country have in these appointments?

[Lord Davies of Oldham]

My Lords, after those contributions I can keep my own fairly short. However, like the noble Baroness, Lady Kramer, I would have thought that this change would have applied in the whole approach of this Government and would have been taken into account when the Bill was drafted. Not only have the Government had strong representations from the Official Opposition and the Liberal party—we debated this matter very vigorously in this House—but it is clear that the Treasury Select Committee had very strong views on this. Ministers are all too well aware of the fact that the Treasury Select Committee contains members of all parties, several of whom enjoy very high reputations indeed—not just the chairman, although he too deserves his high reputation. How is it, then, that the Government should have thought that they could ignore the proper position of the Select Committee in relation to this appointment?

Of course we welcome the sinner who repenteth, and the Minister, I have no doubt, will indicate in a moment how carefully he has considered all issues. But it does somewhat surprise me that it needed such a weight of parliamentary opinion, to say nothing of opinion from outside too, before the Government recognised that they could not possibly put forward this appointment without there being a substantial degree of parliamentary scrutiny.

Bank of England and Financial Services Bill [HL]

Debate between Baroness Kramer and Lord Davies of Oldham

Tuesday 19th January 2016 Lords Chamber

[Baroness Kramer (LD)]

I very much join in the thanks, particularly to the noble Lord, Lord Bridges, for the way in which he conducted the work of the ministerial Front Bench. He was always open to meeting and kept us incredibly well informed—frankly, above and beyond the usual. I extend those thanks to the noble Lord, Lord Ashton of Hyde, and to the whole of his Bill team for the generous way in which they handled this piece of legislation. The Government listened, particularly on one key issue which these Benches were concerned about—oversight of the Bank of England —and the Bill will now be stronger for that.

I have to say, very briefly, that there were areas where the Government did not listen, and we will all live to regret two of them. One is the decision to end the reversal of the burden of proof, which would have had a big impact on the culture of banking, and for the better, and the other is the concern we raised over the independence of the FCA. Both those concerns have been very much underscored by the recent disclosure that the FCA has cancelled its review of the culture of banks and by the timing of the way it did so, just a few weeks after the Bank of England parachuted an executive director into the FCA to supervise this area. So we have concerns, which I am sure will be picked up in another place and by the Treasury Select Committee. But I very much thank those who worked on the Bill and who did so with great graciousness.

[Lord Davies of Oldham]

My Lords, I, too, thank the Minister and his colleague, the noble Lord, Lord Ashton, for the way in which they have conducted the progress of this Bill. We particularly appreciate that the Minister was concerned to arrange meetings at which we could discuss fully, outside the processes of the Chamber, crucial aspects of our anxieties. We were greatly exercised over the issues of the court and its powers and the oversight committee, so we also particularly appreciated the fact that a meeting was arranged for us by the Minister with the chairman or chief officer of the court. That was extremely helpful and it aided us in our consideration of the Bill. So I thank him and his team for their work on the Bill.

I also indicate to the Minister that, as a Lords starter, the Bill has further scrutiny to undertake. He will be well aware that my colleagues in the other place will subject the Bill to intensive scrutiny and will seek to find areas where perhaps the Government can be persuaded to think again, not least on the reverse burden of proof and their position with regard to the court. But this has been a constructive exercise. I suppose that it is the Minister’s maiden Bill and I congratulate him on his achievement as the Bill is about to pass.

Bank of England and Financial Services Bill [HL]

Debate between Baroness Kramer and Lord Davies of Oldham

Tuesday 15th December 2015 Lords Chamber

[Baroness Kramer]

My Lords, our one concern with this amendment was that it could in some way compromise the statutory objectives of the FCA as laid down by Parliament. The Government wrote to us with an assurance that that was not their intention. Today, the Minister read into the record the text of the letter. He said that the recommendations would not compromise, modify or override the FCA’s statutory objectives in any way. Given that a Minister’s statement in Hansard is a weighty commitment, we are satisfied with the amendment.

[Lord Davies of Oldham]

My Lords, I was going to make almost exactly the same contribution and my question was exactly along those lines, so I am happy to endorse what the noble Baroness, Lady Kramer, said and look forward to the Minister’s response.

Spending Review and Autumn Statement

Debate between Baroness Kramer and Lord Davies of Oldham

Wednesday 25th November 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I am delighted to see the Minister in his place making one of his more constructive speeches in the House. I will give him a chance to answer a few questions, but before I get on to that I shall put the Statement into some kind of context.

The Chancellor was obviously buoyed by, as he saw it, some successes in recent months. However, I shall ask the first obvious question: whatever happened to the long-term plan? For years we heard nothing but Conservative Members of Parliament talking about the long-term economic plan. We all know what the conclusion of that plan was meant to be: the elimination of the deficit during this year. The deficit has not been eliminated this year; in fact we are £69 billion in debt. It is quite clear that the Government have jettisoned the long-term economic plan in favour of a second version, which is that we will have a surplus of £10 billion in 2020. Even the Institute for Fiscal Studies gives the Government only a 50:50 chance of hitting that target, so we wonder what credence we should give the Chancellor following his speech in the Commons today.

There were two significant climbdowns: one was no further cuts to the police force—here, some credit is due to the Opposition, who made it clear to the Government that further cuts were quite unthinkable in the present context—and the other was a credit to this House and a direct reflection of its holding the Government to account and asking them to think again. Having thought again, they jettisoned that original totally unfair and improper policy. We very much welcome both climbdowns in the Chancellor’s Statement.

We still need to consider a range of fundamental economic failures, though, and I shall be addressing those in specific questions to the Minister. Is not the productivity gap between the UK’s performance and the rest of the G7 countries’ at its widest since 1991? That shows this country in a very poor light, and of course the Government must take responsibility for a great deal of that against a background of what is recognised as an absolutely chronic balance of payments position under this Government. That can be remedied only if we invest in the development of skills and begin to export more successfully.

Every hour worked in Germany, France or the United States is worth one-third more in terms of achievement than an hour worked in Britain. This must be because the Government have been so content over the past five years to see wages fall—we all know how dramatic and persistent that fall has been over this period—and have neglected skills development and run, essentially, a low-wage, low-skill economy, which cannot be the future of the United Kingdom.

The Government are always negative about public sector investment. In the railways, for example, even a successful public sector-run franchise, the east coast main line, was jettisoned in favour of a free and open competition—as long as no British public institution could compete. However, state railways from France and Germany were welcome to take over part of our railway system. Of course, the same is happening with our nuclear power stations—we are making ourselves dependent upon investment from the People’s Republic of China. It is interesting to see that the Conservative Party now finds itself in cahoots with a very significant state-run society.

Public sector net investment in 2009-10 was at 3.2% but is now down to 1.5%. It is therefore not surprising that certain aspects of public work and investment are at a very low level. That is shown, for instance, in the quality of our roads. Are the Government comfortable with the fact that our roads are rated below the standards of Spain, Portugal and—wait for it—little Croatia? The only areas in which the Government have shown a commitment to investment are projects they inherited: Crossrail and HS2. It will be noted that although they sustain these projects, the Department for Transport is to take its 30% cut, which will be effected by cuts in “administration”. If one believes that, one can believe most things.

Overall, investment in skills has been woeful. It is clear that the business department is being cut to the bone. The number of jobs lost there is very significant, and it is clear that training and development is to be vested solely in the enterprise of private industry, to which the state has very little to contribute. Yet industry is crying out for the skills of young people. That is particularly true in the construction industry, which of course enjoys the reputation of translating investment into jobs quickly, and can meet a need in circumstances where our housebuilding programme is at its worst peacetime level since 1920. What a record the Government have on housing our people!

Then of course there is the whole question of the National Health Service. We are delighted that the Government have indicated that they know they need to increase investment in the National Health Service. We are also pleased that they recognise that alleviating pressure on hospitals can be achieved through increasing social care places. However, 3,000 beds have been lost in recent years and there is no indication that they will be replaced quickly. Of course, the promise that local authorities can increase council tax provided that they spend the money on care homes is to be welcomed.

As for the police, I can find no reference to what the Government will in fact do about the police, except that that there are 17,000 fewer officers since they came to power. They have indicated that they will not put any further pressure on police by cuts, but there is no indication of what money will be devoted to the police force and where it will come from.

I therefore want the Minister to answer three questions. First, if the Government wish to promote infrastructure, does he accept that public sector net investment has halved as a percentage of the GDP under the Government? Can he accept such a deplorable state of affairs? Secondly, we know that we need to boost productivity. Is the Minister concerned that the gap between productivity per hour worked in this country and in the rest of the G7 is so very wide? Thirdly, the Chancellor said that he has balanced the books, yet the deficit is set to be very substantial this year.

Finally, the Government are ending their onslaught on tax credits, for which we are duly grateful, and this House takes a great deal of credit for that achievement. The House acted constitutionally and properly and caused the Government to think again. However, this spending review and Autumn Statement indicates that only a £3.385 billion saving will be rendered in respect of tax credits. In fact the Government have always maintained that £4.4 billion would be saved. Are the public to find that other billion in this next year?

[Baroness Kramer (LD)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Davies of Oldham, but I confess that he disappointed me today. He did not throw anything, so we have missed out on the drama of the other place. I was also somewhat disappointed in the Budget. It is less generous than it appears on first viewing: we still have a £12 billion cut in welfare. If I understand it correctly, that will now happen as people transfer into universal credit. I am sure that the Minister will advise noble Lords about that—it would be good to understand how it will work. Of course, I am absolutely delighted that the Chancellor reversed his plans to cut tax credits for poor working people. I think, with some interest, that had the Chancellor been a Member of this House a couple of weeks ago, when the relevant statutory instrument was debated, he would have supported neither the Conservative nor the Labour Motion, but the Liberal Democrat fatal Motion.

We are also pleased with the upfronting of money for the NHS in this Budget, especially the investment in mental health. That is welcome, but can the Minister confirm whether that £600 million is new money for mental health and does not contain any former promise within it? We are supportive of stamp duty on buy to let and very supportive of the increased spending on infrastructure. We note that the Chancellor partially explained that that was because borrowing is now cheap. That is what we have been saying for weeks, so we are very glad that he has listened to that argument.

However, if I lived in a deprived community, I would be exceedingly concerned today. Perhaps the Minister can help us. Although the Government have said there will be no cuts in the policing bill, I am somewhat confused. Does that mean that the grant levels for policing will continue to be the same from central government, or is part of the money to be replaced by a precept raised locally, by police and crime commissioners? I did not follow that and therefore do not understand what might be happening. If I am in a deprived community and find that I have an additional bill on my council tax for policing, I am almost certainly going to have an additional bill on my council tax for social care, because, as Members of this House will know, the most vulnerable elderly tend to live in the most deprived communities, with the narrowest council tax base. Therefore, paying for social care through an additional precept on council tax will be very tough for those communities. I would indeed be worried.

I would also be worried in another sense. The Chancellor significantly slashed the revenue side—that is, the operations budget—of the Department for Transport. Immediately in my head went up the warning sign that much of that is spent on bus grant. Again, with local authorities under great financial pressure, are we looking at either losing a lot of our bus services outside the big urban centres, where the systems can wash their face themselves, or are we looking at additional council tax being raised to pick up bus services?

The repatriation of business rates is something that we have always supported in principle, but I did not quite follow that; again, perhaps the Minister can help us. If I understood the Chancellor correctly, the equalisation will disappear. As this House will know, business rates have been centrally collected and then redistributed on the basis of need. As that is eliminated, will we again find that our most deprived communities, with the least capacity to generate new business and new business rates, will be the ones that suffer, while somewhere such as Kensington and Chelsea or Westminster will be in heaven? I hope very much that the Minister can support us, because one knows that, with Budgets, the devil is very much in the detail.

Perhaps the Minister can help us also on further education. What I heard was a real-terms cut in the further education budget, which will be protected only in cash terms. In this House, we have all discussed—indeed, the Minister himself has discussed—the significant problem of the lack of skills that is holding back economic growth. Especially now, as we are constraining migration, it is really important that British people have lifelong learning. Apprenticeships and universities have a huge role to play, but the underpinning in our ever-changing world, where people constantly need to update their skills, means that further education is absolutely critical. Have we just heard a cut in that sector?

Perhaps the Minister can help us with this policy of equalising per pupil spending in schools. It sounds on the surface not to be an issue, but does this mean that schools, for example, in London, in some of our most difficult communities and which have delivered outstanding success, are about to have a cut in their per pupil spend based on this equalisation? We really need to know and understand the detail of that.

I will make just two more comments. Although there were many measures to support new ownership, the private rental sector was ignored. We have 1.6 million people on the waiting list for social housing who will obviously not be helped, and so many in generation rent, who spend half their income on rent, have not been helped either.

My last point is that this Budget relies on a £27 billion find by the OBR in increased tax receipts and low interest rates. I point out that both could change or disappear. Given the constraints of the fiscal charter, what are the consequences for this Budget if that should happen?

Bank of England and Financial Services Bill [HL]

Debate between Baroness Kramer and Lord Davies of Oldham

Wednesday 11th November 2015 Lords Chamber

[Lord Davies of Oldham]

My Lords, I shall also speak briefly and, largely, to endorse the arguments put forward by the noble Lord, Lord Sharkey. The impact assessment does not give a rationale for why the Government have made this decision, which we seek at this point. It would be useful to understand the reasons for the decision having been taken; without such information, we are not quite clear as to the advantages. Who was consulted on this, and what are the benefits to consumers and regulators? Surely it would put more pressure on the regulators to identify wrongdoing. Have the Government conducted investigations that take any of this into account? The Minister has a chance to reassure both of us who have spoken in this short debate on the reasons for the Government’s position.

[Baroness Kramer (LD)]

My Lords, I shall say a brief word. My noble friend Lord Sharkey and the noble Lord, Lord Davies of Oldham, have both been very calm on this issue, but I shall admit that, frankly, I am outraged. The obligations that exist for so many people in the public sector to report misconduct—on teachers, police officers and members of the NHS—are taken as absolute requirements. There is no question of whether they are costly; it is understood that the importance of propriety and integrity in all those activities is crucial. I suggest that, after the years that we have been through following the financial crisis, no one should doubt that integrity in this sector is absolutely vital.

When we sat on the Parliamentary Commission on Banking Standards, we discussed whistleblowing extensively. Every single institution that we talked to and everyone we could identify had in place mechanisms for whistleblowing; the problem is that none of them was effective. The kind of issues that were reported through whistleblowing systems were situations such as when someone had noticed someone sliding a £5 note out of a cashier’s desk—they were on that kind of scale. So none of the major abuses, whether it was PPI, the LIBOR scandal, the mishandling of credit issues or money-laundering, came to the surface through any kind of whistleblowing system. This measure—the statutory requirement to report a breach when someone sees or recognises that it is happening—is one of the few mechanisms that we could conceive of to try to counter that particular set of problems. Without exception, everybody who gave evidence to the parliamentary commission talked about the importance of making whistleblowing much more effective. So far as I can see, there is no replacement to this requirement that is effective, that has been proposed—and, frankly, if there is a burden, surely any burden is significantly smaller than living with the consequences of sustained and ongoing abuse.

--- Later in debate ---

[Baroness Kramer]

First, I thank the noble Lord, Lord Naseby, for allowing me to put my name to his very fine amendment, and also for drafting it in such a way that I could arrange the conversation beyond just the matter of mutuals. I very much support his comments on mutuals. They are important to our past, our present and our future.

The noble Lord commented on the regulatory scope available to the PRA in dealing with the sector, which I believe is governed by CRD IV, the relevant European directive. He will know that there is a great deal of scope for flexibility under that directive precisely to recognise the various needs of mutual—and similar and smaller—institutions across quite a wide range of facets. It is a flexibility of which the PRA has essentially not availed itself. Since those flexibilities were largely negotiated by the UK with the domestic variety in mind, it seems a little extraordinary that we have not taken advantage of them. I recommend to the Government that they might want to have an appropriate conversation with my soon-to-be noble friend Lady Bowles, who will shortly be coming to this House. She was a member—in effect, chair—of ECON, the Committee on Economic and Monetary Affairs within the EU. She can provide some helpful advice and direction on this issue.

I have said many times in this House, and I shall repeat it again today, that in the UK we are missing a layer of banking. In Germany, regional government—the Länder and municipalities—are able to sponsor banking institutions. The financial institutions provide the backbone to Germany’s small and medium-sized businesses, the Mittelstand. During times of recession that banking layer provided ongoing support to those companies because they understood them and their remit was such that they had to find their routes to profit from within that scope of geography and companies. It has been a very successful model and we have no equivalent here in the UK.

In the United States, which we also very much recognise as a competitor, local community and regional banks also play a much more significant role in supporting both individuals and small businesses. The community development movement in the US, which is very much local, has something in excess of $30 billion of assets under management. It is highly significant. It comes out of the US history of local banking, strengthened by the Community Reinvestment Act which was introduced in the late 1970s, largely as a civil rights measure, to deal with the red lines that major banks had drawn around ethnic minority communities, as they were not lending into those communities. That has been balanced out by the Community Reinvestment Act. It provided the Obama Administration with a very significant route to channel funds to small businesses during the recession in the US and again played a very significant role in making sure that those small businesses could be resilient.

By contrast, following the financial crisis, the major mainstream banks in the UK largely withdrew from SME funding. The Government tried to support various programmes and schemes, including the growing but still small P2P industry, to fill something of that gap and vacuum. However, that does not overcome the fact that we still do not have the appropriate layer of banking to provide the community and local perspective which enables companies to rely on ongoing support from financial institutions in both good times and bad.

I think that if you spoke today to the Federation of Small Businesses, it would say that even though we are in recovery, most of the mainstream banks have not returned to lending to SMEs and, where they do, it is frequently property lending, or at least property is required to provide collateral for what should be cash-flow loans, and that the banks are still fairly slow to come to decisions. Having been on this House’s sub-committee on SMEs and export finance, I know that it was evident that small businesses found it extremely difficult to source any kind of financing for exports. Even when they had a long history of exports and were well established, it was still very difficult and very expensive to find that kind of financing in the UK. Therefore, it is reasonably self-evident that we are missing a layer of banking. Frankly, the regulator has never addressed that issue but has always waited passively for the market to come forward rather than taking positive action itself.

A combined report from Newcastle and Coventry universities was recently published and states:

“In 2013, the unmet demand of individuals and businesses excluded from mainstream finance (‘the finance gap’) was estimated at around £6 billion per annum”.

That is a huge figure and it seems to me that the regulator must begin to pay attention to it.

During the passage of the Financial Services Act 2012, the noble Lord, Lord Sharkey, and I proposed a measure to require the banks to disclose their lending practices in detail and by postcode. That led to a voluntary framework for the disclosure of bank lending which came into effect in December 2013 and was supported by HM Treasury and BIS. According to a recent letter sent to the Treasury from the Community Investment Coalition, it is starting to have a real impact. The letter states that in 2014,

“Coventry University and Newcastle University were commissioned by Big Society Capital, Citi, the Community Investment Coalition and Unity Trust Bank to analyse the data and assess its value in supporting increased market competition and interventions to overcome financial inclusion”.

That is a very interesting report. It is supported by a sibling report, as it were, from the University of Sheffield, which looked at mortgages.

The only conclusions one can come to from reading those reports is that lending across the UK is incredibly haphazard. The data do not yet allow sufficient fineness of analysis, if you like. I hope very much that the Government will look at whether or not more measures are necessary to provide appropriate data to the degree required to enable proper analysis to take place. However, it is very clear that different parts of the country have very different experiences as regards access to lending. Strangely enough, in the London area, for example, access to lending for small businesses seems to be very much less than one would expect compared with other parts of the country. It will be very helpful when we finally have those data because they will expose where the system continues to fail. Regardless of that, I hope the Government will see that there is a role that must be played by the regulator as well as by the Government in ensuring that the patchiness and inadequacy of banking facilities for small businesses and individuals is countered. I ask the Government to look seriously at the amendment moved by the noble Lord, Lord Naseby, because it begins to tackle that particular set of issues.

[Lord Davies of Oldham]

My Lords, I congratulate the noble Lord, Lord Naseby, both on his amendment, for which he has secured widespread support, including from this Bench, and on the way in which he detailed the key arguments behind it, which I know the Government will take seriously. It is somewhat unnecessary for me to fill in any of the interstices that the noble Lord, Lord Naseby, may have left—which were not many—because the noble Baroness, Lady Kramer, has certainly emphasised the significant point, which is that British banking needs to be a good deal more diverse than it is at present.

After all, the Competition and Markets Authority disclosed its findings last month from its review of competition in the retail banking market and found—predictably—that the four largest banks had long dominated the British scene, stifling competition that would give consumers and businesses a better deal. We all know the limited success that has been obtained by the various reforms to make the switching of accounts easier. The British people, I am afraid, are somewhat inured to minor blandishments when it comes to their bank accounts, so there is a need for much more imaginary thought at the centre on how we can make our financial provision more diverse.

We have support from the Treasury Select Committee. The chair, Andrew Tyrie, has written to the CMA to ask it to report back before the Budget in March next year regarding the 8% surcharge on bank profits. He wants to know what impact that has had on the big four and what implications it has for the wider banking sector. It is clearly the case, he believes, that one size does not fit all. That phrase has obtained throughout this short debate and is one to which I entirely subscribe. The Minister will be all too well aware that the Building Societies Association has made it clear that the problems encountered by financial mutuals in recent years almost certainly would have been fewer if there had been greater diversity in the sector.

I think that the case for this amendment has been made strongly. No doubt the noble Lord will be withdrawing it on this occasion but the purpose of this debate is to give the Government the chance to show a constructive response to what we all recognise is a real issue with regard to British banking. The noble Baroness, Lady Kramer, cited the German position. Is it not somewhat extraordinary that even under the so-called northern powerhouse, our great cities do not have individual banks? They no longer have individual building societies, either. That says something about the structure of finance in this country, which surely the Government should address in the context of a Bill about the most significant banking structure of them all—the Bank of England.

Greece

Debate between Baroness Kramer and Lord Davies of Oldham

Monday 29th June 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I thank the Minister for repeating the Statement made by the Chancellor in the other place. I think that we can dispense with those last few remarks comparing the British economy with the Greek position and suggesting that it is government action in the past four years that has prevented our position from being the same. We all know the particular and extremely difficult circumstances of Greek society and its economy. These are very serious times for Greece and for the eurozone, of which of course it is a member, and there are risks for Europe and indeed for our country if urgent resolution cannot be found.

The main immediate fact is of course that the Greek banking system is now closed. I shall focus my response, first, on the impact on British citizens and, secondly, on the implications for our economy and financial system. Understandably, exporters, pension funds and the many British visitors to Greece need to know that the UK Government have a thorough contingency plan. I must say that in the Statement today there is a fair amount of wishful thinking rather than clear evidence of a plan.

I turn first to the impact on British citizens. As the Minister has indicated, some 150,000 British citizens would have been expected to go to Greece in July, although of course that number may now reduce. However, it will still be a very large number because people have made their plans. How will people travelling to Greece this summer be able to obtain full information and updates about the best way to plan and proceed with their arrangements? An obvious piece of advice the Government can give is this: “Go there absolutely loaded with euros and make sure that you look after them carefully”. That is wise advice, I am sure, but it is not much solace to the British traveller. What we want to know is what discussions have British officials had with the Greek authorities and banks to ensure that UK citizens are able to withdraw sufficient funds. What is the Minister’s assessment of the number of British citizens with resources deposited in Greek banks who will be anxious about what this means in terms of their ability to access their funds? For many, the British embassy in Athens and the consular staff will be the first port of call. Can the Minister give us an assurance that the embassy is sufficiently staffed and has the resources to cope with what inevitably will be a flood of anxious calls and representations?

I turn now to the impact on our economy and financial system. What discussions have the Treasury and the Bank of England had with financial institutions both here and across the European Union about the implications for our financial system, and what structures are in place to monitor closely any emerging risks? It is clear that if there are wider ramifications for the eurozone economies in the months ahead, there will be greater risks for UK business, trade and, of course, our economy. What assessment have the Government made of the number of British firms and the volume of exports that are potentially at risk? Billions have been invested from eurozone economies in bailouts and considerable hardship has been felt by the Greek people, who are facing economic distress. Does the Minister agree that it is important that the institutions should continue to seek opportunities for a negotiated settlement with the Greek authorities during the week ahead? Time is of the essence. Does he also agree that it is important for the Greek Government to accept their part in charting a course towards a long-term resolution?

This is surely a time for all parties to pursue a responsible approach for Greece and for the wider European economy, for much is at stake.

[Baroness Kramer (LD)]

My Lords, watching the events in Greece is like watching a car crash in slow motion, and we on these Benches hope very much that steps will be taken over the coming days and weeks to avert what is undoubtedly a lose-lose outcome for essentially everyone involved. I have a few questions for the Minister.

Everyone in the House will be concerned for British citizens who are travelling in Greece. For tourists, the advice is to carry cash. I understand that that seems to be the most obvious solution, but I do not think that anyone would recommend it for themselves or their family because it exposes one to extraordinary risk. What conversations are taking place with our consular officials in Greece to see if they can provide some better advice, and if this continues beyond a few days, on looking to work with financial organisations? American Express and Thomas Cook are organisations that come to mind in terms of going back to some of the older methods of payment like travellers’ cheques, which were used before the days of credit cards.

Can the Minister give an assurance that the UK banks have passed stress tests which look not just at the immediate fall-out of the impact on the Greek banks, but on banks in other parts of the eurozone which might be the victims of knock-on effects by predatory financial traders, and indeed of the normal actions of the market looking for other weak spots? Can he also assure me that conversations have been held with the bank regulators? At times of volatility, and this crisis could lead to one, there is an obvious opportunity for misbehaviour in the financial system. We have another burgeoning crisis in the US swap market and one would hate to see those bad behaviours use the opportunity to take advantage of the volatility that may result from this crisis.

Does the Minister agree with the Financial Times that this,

“is a soluble problem merely cloaked in an aura of impossibility”?

Although the British Government have pointed out that they are not directly involved because they are not members of the eurozone, surely this is the time for the Government to make strenuous efforts and urge all parties back to the table. Does he not also agree that this crisis in Greece offers up some broader lessons, one of which is that EU Ministers and Governments will not put up with endless game playing? As a consequence, as he looks at the EU’s own negotiations on reform, will he ask the Government to make sure that they do not focus on synthetic issues—quite frankly, like whether there are phrases about ever-closer union—but on real issues such as the standing of non-eurozone countries and whether they are on a par with others? Perhaps he will speak to members of his own Cabinet who think that playing with a no vote in a referendum is a way to strengthen Britain’s negotiating hand. That is the kind of childish behaviour that we have just seen get Greece into extraordinary difficulties. This is a time when everyone needs to act like a grown-up.

RBS

Debate between Baroness Kramer and Lord Davies of Oldham

Thursday 11th June 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I am grateful to the Minister for repeating the Statement. He could have spared us the reference to the long-term economic plan, which seems to vary and inflate almost from day to day in terms of the length of time that it occupies and the objectives that are set for it.

I am pleased that the Statement recognises that the taxpayers who bailed out RBS during the global financial crisis want value for their money and are somewhat suspicious of any rush to sell. That is why they will be suspicious of the Government’s actions at this time. RBS is still restructuring its business and it is very difficult to see the outcome. It is still awaiting a US settlement for the mis-selling of subprime mortgages. In case noble Lords have forgotten, the global crisis started with subprime mortgages in the United States. Banks started to collapse long before a Labour Government were ever considered to have overspent as the basis for the global crisis. I hope that we will have no references to that in this short debate on the Statement.

The Chancellor said two years ago that he would countenance the sale of RBS only when,

“the bank is fully able to support our economy and when we get good value”.

Does the Minister really think that these tests have been met? While we have always supported the eventual return of RBS to the private sector, it is surely essential that the Treasury gets back as much money as possible to help pay down the national debt, and therefore to limit the impact on the wider population of the costs involved. RBS of course had to be bailed out with great urgency but it does not have to be sold off at the same speed. It is not the case that the Governor of the Bank of England is telling Ministers that the price is right now. He makes it very clear in his letter that questions of valuation are entirely for the Government; it is their judgment which is, rightly, at stake.

On the specifics, can the Minister clarify exactly what the Government accept as a break-even share price for the bank? A potential £7.2 billion loss might be understating things because the Rothschild calculation, which is the basis for that figure, has netted off the fees that the Government have received from the bank since 2008.

When it comes to Lloyds, the Treasury has already pledged that shares sold through the Government’s trading plan will not be sold for less than 73.6p—the price the Government paid for them. That is the red line for Lloyds. What is the equivalent red line for this premature sell-off? Why cannot the Minister give us more detail about precisely when the sale will commence? What impact does he predict that that will have overall on the debt reduction?

It is important that we do not allow the Government to state that RBS losses can be put against the gains that will potentially be made in other areas such as Lloyds. RBS was purchased by the public in dire circumstances and taxpayers have every right to insist that the Government get their money back. But we are not too confident that the Government can do this; we saw their recent effort regarding the first part of the sale of Royal Mail, and look what a mess they made of that, with a loss for the public purse.

Finally, it may be noted that the Chancellor made his statement to the banking community last night, and the Minister repeated constantly in his contribution what the Chancellor said to the bankers. They are an important section of the community, but I do not think it does this Government any credit when Parliament is treated in such a mean fashion: when a junior Minister—a junior Minister—speaks in the other place and a Whip speaks in this place. Much as I have regard for the talents of the noble Lord who is addressing us, he will recognise that this Statement deserved a Treasury Minister speaking here, and that the Chancellor ought to have spoken in the other place earlier today.

[Baroness Kramer (LD)]

My Lords, I have been away from the markets too long over the last two years, at the Department for Transport, to know whether this is the right time to be selling off either RBS or Royal Mail. However, first, although I only skimmed it, I did not find that Rothschild’s report to be terribly enlightening. Secondly, if this is a fire sale to fill holes in the budget because the Government are foundering on trying to find that impossible £12 billion in welfare cuts, and have handcuffed themselves in terms of raising taxes through their commitment to a law to prevent them from doing so, that is absolutely the wrong answer. This should not be used to fill other holes in the bucket unless we are getting the best possible value for these two assets.

I want to make a final try to persuade the Government to take a much more constructive approach to returning RBS to private hands. The Government should be breaking this bank up, into either regional or community banks, to begin to remedy a critical missing layer in our banking system. The Government carried out a half-hearted review—I know how much they resisted even doing that review—of alternatives to simply passing this back as is, as it were, to the public. They used an investment bank to do the review, which was exactly the wrong choice—an institution which cannot understand the dynamic. This should go out to the public: there should be a discussion with small businesses and a general consultation to try to decide how we can best return RBS to the private sector.

Small and medium-sized companies find it difficult still to access credit, and that credit is vital to economic growth and absolutely vital for productivity, which the noble Lord, Lord O’Neill, has often talked about. On Monday, we had the debate on trade and investment, and noble Lords brought out the difficulties for small and medium-sized companies in raising export finance. Leading economies that successfully grow their small businesses, such as Germany, the United States and Switzerland, have some form of regional and community banking. We are missing this layer, and here would be a great opportunity. Of course we have new players—challenger banks and peer-to-peer lending—but RBS, broken up, would really shift the landscape. Surely keeping RBS as it is continues the too-big-to-fail and too-big-to-manage problems that we all bemoan. Although it is guilty of plenty of scandals, RBS largely failed the old-fashioned way by making appalling loans.

The taxpayer is not going to make money on this sale, so why not use it to achieve something much more important than immediately money—a shift in the banking landscape that would underpin growing prosperity? Once this opportunity is lost, it will never return.

I will make one last comment, on the fair and effective markets review. I need time to go through that in detail, but the RBS losses are a reminder of the depth and the consequences of the banking crisis. We all always knew that when the crisis itself passed, the banks would begin their special pleading, sweetened with a little blackmail, to reverse both the penalties and levies that they faced and the regulation that has now been introduced. I ask the Government not to go wobbly on us. We need the Government to stand tall and carry through on the recommendations of the Parliamentary Commission on Banking Standards and others to give us a secure banking system.