Autumn Statement

Debate between Baroness Kramer and Lord Sassoon

Wednesday 5th December 2012 Lords Chamber

[Baroness Kramer]

My Lords, this may be my only opportunity to pay tribute to My noble Friend Lord Sassoon before he steps down from the Front Bench, so let me do so. As any Minister, he will have expected fire from across the Chamber, but he has also had fire from over his right shoulder on occasion, and he has dealt with it extremely graciously. For many of us, the test of a Minister is how he and his team deal with Back-Benchers. Based on that test, he has been a superb Minister and we will miss him.

The Statement that the Chancellor presented to us today meets the test of being both tough and fair. It is remarkable that, despite the economic conditions that we face, the deficit is still reducing, which will have surprised many of the pundits but I am sure will have pleased this entire House.

As a Liberal Democrat I am most pleased about the decision by the Government to lift the threshold of the starting rate of tax one more time to £9,440. It was utterly unexpected. When this Government came in, that threshold was £6,475. To its credit, the coalition committed to raising it to £10,000. We are only half way through a Parliament, but it is at this point only £560 below its target. The impact is something like £600 more in the pocket of ordinary working people and more than 2 million people taken out of income tax altogether. In this time of economic stress, that is a phenomenal achievement. The Government should be congratulated.

I was pleased that the welfare cuts were well below those that were anticipated; I can see I am being asked to move to a question very quickly, so I will ask one in this way. Growth, as we all know, is now the holy grail that we attempt to achieve for this economy. Does the Minister agree that it now utterly depends on access to credit for the businesses that make up our economy? Will he commit to making sure, when he talks to his Treasury team, that the restructuring of the banks allows a new competitive environment with new entrants and new players that can deliver the kind of credit we need to the small businesses that are the backbone of our economy?

[Lord Sassoon]

My Lords, I am very grateful to my noble friend for her generous remarks and for her support since she has been her party’s spokesperson on the economy. The two parties are joined at the hip when it comes to the key economic work and all the other work of the Government. Importantly, she reminds us of a critical part of the Autumn Statement: raising the tax threshold to the benefit of 25 million people. That is very important.

On credit and access to credit, I draw the attention of the House and my noble friend to the comments of the OBR today. Its judgment is that the funding for lending scheme will lower rates for credit but increase availability. I very much share my noble friend’s concern to see a more competitive banking landscape emerge. In that context, it is interesting to note that the funding for lending facility is being taken up and having a disproportionate effect on some of the new challenger banks. I hope that that continues and that they continue to be able to increase their lending responsibly off the back of that scheme.

Banking: National Savings & Investments

Debate between Baroness Kramer and Lord Sassoon

Wednesday 5th December 2012 Lords Chamber

[Lord Sassoon]

My Lords, there are 26 million savers with NS&I. We take their interests very seriously. They have over £100 billion invested. It is one of the largest savings organisations in the country, and that will continue.

[Baroness Kramer]

My Lords, I would like to challenge the Minister’s comments on NS&I. Funding for Lending is a taxpayer-driven programme which has created the collateral damage of allowing banks to cut the interest rate that they offer on savings products, and NS&I has had to follow by cutting its interest rates on savings products. At this time, when savers are under such pressure, could the Minister consider lifting the best-buy restriction so that NS&I could start leading the industry back into paying decent savings returns rather than following the industry on a downward spiral?

Financial Services Bill

Debate between Baroness Kramer and Lord Sassoon

Tuesday 20th November 2012 Lords Chamber

[Lord Sassoon]

If I ever get to the amendments in the name of the noble Lord, Lord Eatwell, we will get to that point because it is raised by one of them. It is completely clear that the FCA will have the power to act as the administrator of the benchmark in question, if necessary. That is in the FCA’s general powers. It does not need to be written into these amendments, but I will address that when I talk about the noble Lord’s amendments. Within the FCA’s general powers it is absolutely clear that it has the vires to step in and act as the administrator, if that is necessary in a market context.

I should address the scope of the offences. The first question was whether LIBOR should be limited to the UK. What is proposed in these amendments reflects the current approach in Section 397 of FiSMA. It surely must be right that UK authorities can act only where misconduct has some connection with the UK. We have a very clear approach to extraterritoriality in our legislative framework. The amendments take a broad approach within the UK’s normal approach to these matters. There has to be a connection, which may be any of a statement made in or from the UK, a person at whom the statement was targeted being in the UK or a relevant agreement being entered into in the UK. Within the normal constraints about extraterritoriality, in which we would expect certain offences of the sort that the noble Lord postulates to be prosecuted by the US authorities, we have nevertheless drawn the connection with the UK widely as it is currently drawn in Section 397.

The noble Lord, Lord Barnett, is perhaps suggesting that he does not want the offences to be retrospective. I think that raises slightly wider questions, even in the case of LIBOR. We do not need to go into the human rights basics. I am glad if, on reflection, the noble Lord, Lord Barnett, accepts that.

[Baroness Kramer]

On a point of clarification about the offences, I fully understand that with LIBOR, which is a London-set rate—that is its whole point—it is a UK-originating offence. If, for example, one of the contributors providing a misleading statement was the subsidiary—or who knows what the structure is?—in the structure of a holding company incorporated in another country, I assume that what the Minister has described would enable the UK investigation and prosecution to follow that trail through to the originating parent, if that were the relevant party involved in the misleading statement or impression. Is there an argument that says that because this can be applied to many more benchmarks than just LIBOR, it would be appropriate to give the UK the opportunity, where investors in the UK were disadvantaged by a manipulation happening somewhere else—perhaps relating to oil prices, for example—to be able to follow and fine in the way that the US can follow and fine for offences that originate in the UK and are limited to US residents? I am getting extremely muddled about this entire process, but I think the Minister gets the sense of what I am trying to say.

[Lord Sassoon]

I would never accuse any noble Lord, least of all my noble friend, of ever getting muddled, other than accusing myself. The basic construct is that we do not as a general principle take the same approach to extraterritoriality as the US does. The US takes a unique approach to extraterritoriality and that has raised a number of extremely difficult cases in recent years where Members of Parliament in both Houses have raised questions about whether the UK should acquiesce to the US approach. I certainly do not think that we should be using this discussion as a way of opening up the question of whether the UK should take a different approach to extraterritoriality. The fact is that the US takes a different approach, and that is how it is.

What we are doing for this benchmark issue is to draw the offence and the connection to the UK in precisely the way in which it is done for the generality of offences under FiSMA, which by UK standards is a pretty broad definition. I shall not read them out again, but I read out the three different conditions that could apply and that is on the record. I suggest that the House would not want to put some special definition of territoriality and extraterritoriality into this offence as opposed to all the other criminal offences within the financial services arena. I hope my noble friend will accept that general principle. For the moment, I think she does.

Financial Services Bill

Debate between Baroness Kramer and Lord Sassoon

Wednesday 24th October 2012 Lords Chamber

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

My Lords, I will try to address a number of those points. I will stick to the amendments that have been moved or spoken to rather than those that have not.

This group of amendments, as we have heard, relates to two of the mechanisms by which the PRA and the FCA can be held to account for regulatory failures. One of the key lessons learnt from the crisis, of course, is that we need greater openness and transparency about where things go wrong and about what lessons can be learnt. In that context, I think that my noble friend has got it completely right about the circumstances in which an independent inquiry might be called for, as opposed to self-investigation. I will leave that one at that.

I would also just say to my noble friend that Section 14 of FiSMA is being repealed. That is dealt with in Clause 5(1). However, the Treasury can use the new power in Clause 64 to arrange an inquiry into action that predates the Bill.

[Baroness Kramer]

I appreciate the Minister giving way. I request some clarification. He talked about investigations into the FCA and the PRA, but surely the regulatory body referred to in subsection (3)—the clearing house—is actually the Bank of England. Can he confirm that it is included in this rubric, as it were?

[Lord Sassoon]

I believe that that is the case. If it is not, I will clarify things as I reply to my noble friend Lady Noakes.

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[Lord Sassoon]

First, my Lords, these clauses fall properly in the Bill because essentially we are giving powers to the Bank of England to resolve things. I would not like to leave the thought that we were somehow using the Bill as a Christmas tree to add on other unrelated things; this is definitely related to the purpose of the Bill because we are talking about the powers of the authorities.

Secondly, the noble Lord, Lord Peston, could be mistaken for giving the impression that somehow we just discovered these things last week or last month. As I have already said, very important new powers were put in place in the Banking Act 2009. Over a period it was then, partly after seeing the collapse of other investment firms and partly by talking to the market, a consultation process, so this is not something that has just emerged. In this area, we have nothing else up the Treasury’s sleeve, as it were. If anyone identifies any other gaps in the regime, of course we will consult on them and do all the proper things that Parliament would expect us to do.

That leaves one area that my noble friend Lord Flight asked about: the doctrine of “lender of last resort”. Fascinating and important though it is, I am reluctant to get into this area because it does not directly impact on where the lender of last resort doctrine, as he puts it, has now got to. It was the Banking Act 2009 that made sure that the authorities, including the Bank, had the full suite of powers. The Bill further improves those tools and clarifies responsibilities, but of course it does not alter the basic premise that the Bank will continue to be the lender of last resort to the banking sector and to the resolution authority for a variety of firms. As for the precise doctrine of how they operate, that is a matter for the Bank of England and should remain so. I recognise that that is clearly called into question by the events in 2007 and 2008, but I assure my noble friend that it is not affected by the substance of the clauses that we are discussing today.

[Baroness Kramer]

Will the Minister basically send me a note on how the resolution process is going to work with the clearing houses? I have an outstanding concern. In our discussions in Committee last week, he was very keen to assure the House that, in a resolution situation, clearing houses would not turn to their members and ask for additional funds in order to meet their outstanding obligations. He made it clear that the resolution process would contain the liability that would fall on members. However, we have had no discussion of what happens with an outstanding contract entered into in good faith by a party with that clearing house for, say, the future delivery of FX, or foreign currency. What happens to the person with that outstanding contract in a case of resolution? Where do they stand in that process? We need some clarity at some point on who is carrying the liability. Of all the innocent parties involved, they would seem to be the main one.

[Lord Sassoon]

I apologise to my noble friend because I forgot to answer her question. The answer to her question on whether contracts will be torn up is an unequivocal no. Contracts will not be torn up. That is quite clear. In answer to the other question—

[Baroness Kramer]

Can I ask—

[Lord Sassoon]

If my noble friend will forgive me I will answer the other question first. It is an important question about the call on members and shareholders of firms. I thought that I had made the position completely clear last week: there will be no new powers here to call on shareholders and members to put up new funds, except in circumstances where there are already agreements in place for contingent calls or other ways of calling down funds in arrangements that exist before this situation kicks in. I know very well that there are one or two clearing houses and others who do not seem happy to accept that assurance of last week. I can only give it again—that is the position under the clauses that we have been debating. There is nothing here that causes calls to be made on members if it is not under an existing arrangement.

[Baroness Kramer]

I am afraid that the Minister misunderstands where my concern is coming from. I recognise that there are some in this House who are very concerned to give that kind of assurance to the various members of the clearing house—that there will be no further call other than that which has been agreed in their fundamental arrangements. However, that leaves open the question of the open contracts that are left if a clearing house fails. This becomes very serious as we move to a limited number of extremely large clearing houses with a very significant number of contracts in their hands. Who will meet the obligation under those outstanding contracts? If it is not going to be the members of the clearing house, because there can be no further call on them, will it be the taxpayer? If the taxpayer is not standing behind this then we are in a “tear up contract” situation. We really need to understand how that waterfall is going to work rather than end up in the actual situation in life and find that we have lawsuits served from every direction and some real undermining of the whole system. That is what I am trying to get to the bottom of. If the Minister has not really sat down and addressed that question, perhaps somebody in his team could send me a note.

[Lord Sassoon]

My Lords, we have addressed the situation. First, the contracts are the contracts. They need to be enforced by the appropriate mechanisms, whatever they are, which may require legal routes to be gone through. What we are trying to do here is to make sure that, as far as possible, we put in place arrangements and tools which mean that some of the difficult unwinding of contracts, such as were seen in MF Global, for example, can be dealt with more quickly and effectively.

As for who pays up at the end of the day, there are well established procedures to make sure that, first, the shareholders pay, subject to the limitations on shareholders as we understand them—my noble friend is not challenging that. Then, of course, there may be holders of debt. Beyond that, the normal arrangements that exist through the financial services system will apply as regards where the liability falls. Nothing we are doing in these clauses makes any changes to the arrangements that are generally in place about the split between the taxpayer and other parts of the financial services industry to pick up liabilities.

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[Baroness Kramer]

Does the Minister have any sense of when we will have a feel for what these loss allocation rules are? I suspect that that is where my questions have generally been headed.

[Lord Sassoon]

My Lords, I do not know what the timing is but I will find out.

Financial Services Bill

Debate between Baroness Kramer and Lord Sassoon

Monday 15th October 2012 Lords Chamber

[Baroness Kramer]

My Lords, I have not been sure whether to speak to this group of amendments or the following group, or how to organise comments on the clearing houses. I therefore apologise, but given the conversation that has just taken place, I would like to raise a couple of issues. As this process is going forward in terms of supervision, has attention also been paid to Dodd-Frank? Obviously some of the extraterritorial powers that are being sought by the United States on these issues have a very significant impact on the matters that he is dealing with in this and the next group of amendments.

The Minister also said that Europe was being very slow to come to conclusions on how to apply resolution for the clearing houses, but he did not mention that they are also very slow—and appear to have done nothing—to recognise or mitigate the procyclicality impact of the changes he is describing in this move towards centralised clearing houses. We all recognise that the changes stamp down on counterparty risk, but they amplify market risk. Procyclicality is a significant part of that. I think that we have to understand that context if we are to understand the particular measures.

The noble Lord, Lord Flight, raised the issue of co-ordination with other supervisors, but none of these measures seems to address in any way the issue of access to euros for the CCPs, should they require it in another crisis such as the one we saw in 2008. Where are we in the process of negotiating a mechanism that ensures that offshore euro CCPs, such as those in the UK, will be able to access euro liquidity should they need it?

One last issue—and I will try to hold things for the next round of amendments—is that I am unclear as to how these resolutions tie in with banking resolutions or living wills for banks, because the two obviously tie together. If CCPs are placing large amounts of cash and non-cash collateral in banks in the UK as a result of their margin positions, what happens if the bank holding such collateral fails? Is the CCP just one more unsecured creditor? It would be helpful to have some sense of on what side of the ring-fence such accounts would fall for us to understand whether there is a significant risk or a relatively minor one. As I said, I shall hold all comments on the actual resolution mechanism until the next round of amendments.

[Lord Sassoon]

My Lords, my noble friend asks a lot of important questions but there is a danger of overinterpreting what the clauses achieve. They are to cover circumstances that we do not envisage—although we did not envisage any of the circumstances that occurred in 2007-08, but there is no reason to believe that there is a problem here. As my noble friend says, the clearing houses already have a critical role in the financial architecture; that role is getting even more important as more trading is done on exchange and securities are cleared through the clearing houses.

We are trying here to put in place some mechanisms by which the authorities can step in where voluntary arrangements or insolvency are live. I do not believe that in drawing up the proposals or in consultation on them any difficulty has been identified in relation to the Dodd-Frank rules. Of course the question of procyclicality must be dealt with, but the provisions enabling the authorities to intervene in winding-up, administration or insolvency recognise the importance of clearing houses as they are now. As clearing houses are asked to do more, of course other provisions may be needed, but the provisions are not intended to anticipate some future development of the clearing houses’ role, merely to reflect the situation that we are in already and their structural importance.

[Baroness Kramer]

Is the Minister saying that the provisions are completely apart from EMIR and the ESMA rules derived from EMIR and that we will have another round, as it were, at some point encompassing those rules?

[Lord Sassoon]

Yes, I am essentially saying that. This is about clearing houses and recognised investment exchanges that get into trouble, whatever the cause of the trouble. EMIR and related issues raise a whole separate series of questions—including, for example, the question of access to euro liquidity, on which, as I am sure my noble friend knows, we last year started an action against the European Central Bank, which, we believe, is attempting to draw lines across the single market in financial services depending on whether a country is in or out of the eurozone around where clearing houses can operate in the euro. We as a Government firmly believe that the single market requirements are such that a clearing house can operate in the euro wherever it is located in the European Union and that access to euro liquidity and everything else should flow from that.

As to the relationship with the banks, that is not directly relevant to these clauses. An exception to this is where a bank has an important relationship with a clearing house. These new powers mean that the authorities can step in if there are questions of financial stability. We have additional tools in the authority’s kit-bag to deal with a situation which might include the knock-on effect on the banks of their relationship with the clearing houses or vice versa. So it does increase the toolkit.

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[Lord Sassoon]

My Lords, as ever, these things are discussed and agreed through the usual channels. I certainly take my side of the usual channels extremely seriously. The noble Lord can discuss it with his side, but I believe that is where we are headed. I thought we might have got through the previous group of amendments rather more quickly, so I do not know what time we will finish, but in only a moment I have been able to move on to Amendment 176D.

Amendments 176D and 182ZA build on the existing powers of direction that the Financial Services Authority has under the Financial Services and Markets Act 2000, or FiSMA. This group of amendments gives the Bank of England additional powers to direct UK clearing houses to address risks to their solvency, or indeed any other matter. Specifically, the direction could require a clearing house to make changes to its rules or introduce emergency rules, or require rules to be activated. The existing powers of direction provided for in FiSMA can be used only to direct a clearing house to ensure that it complies with the recognition requirements or its obligations under FiSMA. Here, in answer to a point that the noble Lord, Lord Peston, raised, we are talking about powers that go with the previous group of amendments, which were all to do with clearing up a mess when we got there. We are now talking about additional powers to make sure, specifically, that we minimise the chances of getting into trouble.

Providing the Bank with additional powers of direction over UK clearing houses is essential to allow the Bank to manage the considerable risks that may be posed by actions of a clearing house that is nevertheless not in breach of its recognition requirements or obligations under FiSMA. Put simply, the powers will enable the Bank to intervene as required to help to ensure that clearing houses act in a way that is consistent with the maintenance of financial stability and wider market confidence. For example, these provisions allow the Bank to issue a direction requiring a UK clearing house to refuse to accept certain investments as collateral, or to require all collateral in relation to specified types of financial transaction to be provided in cash. They also allow the Bank to require a UK clearing house to alter the rules concerning its operation in order to ensure that certain matters do not constitute events on which specified rights become available—for example, early termination rights—or to require a UK clearing house to take action or to refrain from taking action under its default rules.

Although these powers are wide-ranging, building in essential flexibility to manage new and unusual risks, they may be exercised only where the Bank is satisfied that it is desirable to do so, having regard to various clearly defined public interest tests. With one exception, the Bank of England cannot use this power to require shareholders, members or clients to recapitalise or otherwise fund a failing recognised clearing house. The power of direction relates only to the recognised clearing house itself. The exception is where the UK clearing house already has recapitalisation arrangements and agreements in place with its shareholders. In this instance, the Bank of England could use this power to direct the UK clearing house to enforce those arrangements, provided that the necessary conditions and safeguards are met. This is to ensure that the clearing house acts in a way that is consistent with the maintenance of financial stability and wider market confidence. I beg to move.

[Baroness Kramer]

My Lords, I hope that these amendments will be consistent with EMIR and ESMA rules. It is not as though those are not available to the Treasury, and the last thing the industry needs is continual revision. Can the Minister clarify whether the amendments give the Bank of England a fairly free hand in resolution procedures? As he said earlier, the steps to resolution are, first, to use the collateral margin; and, secondly, to go into, presumably, the clearing house default fund and exhaust that. I am not clear what the next step and fallback is at the end of that process.

To what extent is there the capacity to go back to members or, as implied by EMIR, for the Bank of England to direct or permit clearing houses in effect to tear up their trades where a financial stability issue has been raised? If those are the kinds of powers that are being transferred to the Bank of England as a consequence of this, when will we get some clarity on exactly what the rules are—by whom, how and when those steps might be applied? Will they be comprehensive when we see them, as well as clear? Will they be credible, in the sense that they are the kind of rules that could be implemented in a crisis? There is a lot of concern about all that, because EMIR creates a possibility but has not created the rules. Can the Minister tell us when we will get those rules and be able to look at all this again? I understand that EMIR is to be implemented by the middle of next year. That does not give us much time if we are going to use this legislation, so I remain very confused.

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[Lord Sassoon]

My Lords, I shall try to deal with a number of those points. First, on the general question of “may” and “must”, I have quite a lot of sympathy with the noble Lord, Lord Barnett. I thought that we were going to have a more extensive discussion about “may”s and “must”s in our previous session, but unfortunately and regrettably the noble Lord was not able to be here, so we did not spend as much time discussing it as we could have done. There were some instances last week where I thought that on a first reading he and the noble Lord, Lord Peston, had spotted some rather good examples where those terms should be reversed, although they had spotted one or two others where I did not agree with them. However, it provoked quite a long discussion with the Treasury lawyers and drafting experts. As a general matter, I have asked them to reassure me on all the “may”s and “must”s in the Bill, as I am a bit confused sometimes. However, a general defence of this is that, even though some of us as laymen may think that a “may” should be a “must”, it gives rise to all sorts of difficult potential legal challenges. As noble Lords will know, this is a common feature of a lot of legislation that we discuss. I have asked the draftsmen to reassure me that there are no instances where we could change the language in the Bill. I am grateful to the noble Lord, Lord Barnett, for that.

In answer to my noble friend Lady Kramer, as the Committee will know, EMIR will, in the main, force mandatory clearing of OTC derivatives. That will increase the role of, and risk concentrated in, clearing houses and is part of the driver behind introducing these new powers now. I reassure my noble friend that these provisions are entirely consistent with and complementary to EMIR. The intention is that the EMIR regime will be agreed in full by 1 January 2013, with 12 months thereafter to comply. I believe that that gives enough time to explain to all concerned how these various powers are going to be operated. However, I will take back my noble friend’s specific concern that all relevant guidance, particularly in the area that we are discussing this afternoon, goes out in good time. I will discuss that with the authorities.

On the specific questions that arise from the London Stock Exchange, I confirm to the noble Baroness, Lady Cohen of Pimlico, that I answered the question on the first point directly. On the second point, we need to recognise that there are two rather different sets of trigger conditions. The power of direction is designed to avert situations where resolution is necessary. The special resolution regime itself is to be implemented where there is no realistic prospect of the clearing house continuing to function. While I am happy to debate and take away the noble Baroness’s point—I will read carefully what she said on the record—I believe that there is a fundamental mis-read-across between the appropriate trigger conditions for a power of direction as opposed to a special resolution regime. Of course, if there is anything more I can add on that, I will write to all those on the copy list.

[Baroness Kramer]

For clarification, I had understood the statement of the noble Baroness, Lady Cohen, to be that she was reassured because, under these rules, there was no expectation that the members of a clearing house could be required to top up a default fund unless there were some pre-agreed arrangement or mechanism in place; they would presumably be able to scope out their liabilities. What are the consequences of that for those who are trading and clearing through for the counterparties on the various transactions where the clearing house then has no resource to margin or to a default fund because it is exhausted and whose trades remain open with the clearing platform as the counterparty that should have fulfilled that side of the trade? What are the implications for people who initiate the various derivatives contracts? As my noble friend knows, these contracts often can be open for quite a few years. Are they at risk or is there some other mechanism that provides them with protection, or will they have to very carefully evaluate what they consider to be the financial safety of the clearing houses? If that is the case, will we have credit-rated clearing houses? What mechanism will be used to have some sort of assurance that this is an appropriate platform for them to use to clear trades?

[Lord Sassoon]

My Lords, these are professional markets. We are putting in place additional protections and provisions, which does not mean that you could not put in place in a theoretical world all sorts of other protections. We are going further than the current situation. Currently, all sorts of rules and oversights are in place. We are going further but we do not believe it is appropriate—that is the point on which I was able to reassure the noble Baroness—that the Bank of England should be in a position to order shareholders of these businesses any more than it can order shareholders of banks that fail to put more money in, save only in the prescribed circumstances where there is a pre-existing agreement and where the clearing house itself can trigger it.

I am sure we can all think of all sorts of provisions that we could put in place to make the world a lot safer, but rather sterile, place. We are going further than the current protections. Of course, theoretically, various things could be put in place but we do not intend to do that.

Economy: Deficit Reduction

Debate between Baroness Kramer and Lord Sassoon

Monday 15th October 2012 Lords Chamber

[Lord Sassoon]

No, my Lords, I do not accept for one minute any questioning of the independence of the OBR. It was set up on a statutory basis through a Bill to which the noble Lord, Lord Barnett, contributed. It is set up totally independently under a respected head, Robert Chote, and his team and I refute absolutely any question that it is not independent. All of its meetings with the Chancellor and the dates on which data are transferred over are transparently set out on the Treasury website.

[Baroness Kramer]

My Lords, does the Minister agree that lack of access to reasonably priced credit by small businesses is holding back both those businesses and general economic growth? Does he further agree that with funding for lending now in place there is no excuse for the banks not to make that credit available, especially as they no longer have to put capital on their books to support those loans?

[Lord Sassoon]

My Lords, I certainly agree with my noble friend that the question of funding, particularly for SMEs, continues to be of considerable concern to the Government. That is why we have been able to use the strength of the national government balance sheet which derives from our deficit reduction plans to put in place the funding for lending scheme, to which my noble friend referred, and the UK guarantee scheme of up to £50 billion for infrastructure projects so that we can ensure that credit continues to flow.

Financial Services Bill

Debate between Baroness Kramer and Lord Sassoon

Wednesday 25th July 2012 Lords Chamber

[Lord Sassoon]

I do not think that my noble friend has got it quite right. However, I cannot hide from him the fact that we believe that, because it is right and goes to the heart of the flaws in the present tripartite arrangements, the PRA should have as its single objective the one that I have described. Therefore, the nub of his concern remains, and I cannot pretend that it is not there. All I can say is that we consciously want to have the architecture as I have described it. However, the mitigation—and I think it is an important one—is that the PRA must consult the FCA before taking any steps that could in any way harm the FCA’s objectives, including, in this case, the competition objective. I think it is a reasonable check on the PRA’s action, given the basic architecture which we think is important.

[Baroness Kramer]

One issue that I have raised to which I have never had an answer, no matter whom I have asked, is where the PRA is expected to move in terms of the cost of getting regulatory approval. The Minister made mention of the capital requirements—and there is a whole set of issues around that—but one does not even get to the capital requirements if one cannot get through an approval process without a phalanx of lawyers, accountants and submissions which frankly act as a complete barrier to any potential small and local banking institution. I do not understand where there is any commitment from the PRA to tackle that set of problems.

[Lord Sassoon]

The fact that it has already started on the work which will lead to the document in the autumn and which goes to the most expensive element of getting authorised—namely, the amount of capital required—is a fundamentally important and good start. I do not pretend that that completes the business, but it tackles first the most expensive element: the cost of putting that capital aside. This is a start. It is not before time, but it is happening as we speak.

Financial Services Bill

Debate between Baroness Kramer and Lord Sassoon

Tuesday 10th July 2012 Lords Chamber

[Lord Sassoon]

My Lords, I share many of the concerns raised in this debate. Access to financial services and access to lending for individuals and businesses are vital to our society. The question we have to ask is: who should be charged with tackling access issues? The FCA will be a conduct of business regulator with a clear objective concerned with creating the right conditions in which well functioning markets can meet the needs of consumers. Ultimately, the menu of products and services they offer to whom and at what price is a decision for firms themselves. The FCA is there to regulate the market, not to ensure that the market delivers a particular set of services or products.

Where the market fails to provide the services that consumers need, there may well be a case for intervention in the market to promote consumers’ access to financial services. The noble Baroness mentioned that issue in connection with the previous Government’s drive on basic bank accounts. That is rightly the province of government and action needs to be taken. However, I do believe that it is not a matter of regulation. It is a matter of social policy and it is therefore the responsibility of the Government. It is not the job of the FCA to prescribe that there should be universal provision and who should be required to deliver it. That is for the Government.

I will not detain the Committee with the great detail that I could go into of the actions we are taking to promote and extend access to financial services: to boost lending, particularly to small businesses; to nurture and encourage the mutual sector; and to help increase consumers’ capabilities and work with industry to make access to simple products possible. We have touched on some of these issues in considerable detail in the past. There are some areas which my noble friend Lord Sharkey specifically raised, such as bank charges. I draw his attention to the agreement we announced with the banks last November, under which the major personal customer account providers came forward with a new agreement to send text alerts when balances fall below a certain level, and to provide buffer zones and so on. The action there has been significant.

The provision of data is another area which has needed and continues to need attention. It has had some attention. Information is already regularly published concerning lending and the provision of loans and other services in deprived communities. For example, the banks that are members of the British lending task force have publicly committed to continue to publish subregional lending data on an annual basis through the BBA. I could point to a significant number of initiatives. These are things that the Government will continue to work on but they are outside the ambit of the Bill.

[Baroness Kramer]

Is the Minister aware of the mechanism that has been successful in the United States and how much that is tied to action by the regulator under the Community Reinvestment Act? It is the regulator that has driven that process forward, because only when conditions are met does it give permission for the banks to act in ways for which they need the regulator’s permission. Is he abandoning a tool that we know has been successful?

Financial Services Bill

Debate between Baroness Kramer and Lord Sassoon

Tuesday 10th July 2012 Lords Chamber

[Baroness Kramer]

My Lords, I think that I can be very brief in moving this amendment. Its purpose is to close a gap between the Government’s clearly stated intent and the language in the Bill. I am sympathetic to those who have drafted the language, because the complexities of the Bank of England Act 1998, as amended by the Banking Act 2009, make it quite hard to follow through a single train of thought, and I suspect that that is what has caused a trip-up in the language in this instance.

On the first day in Committee on this Bill on 26 June, the Minister was absolutely clear that the oversight committee—whose existence and procedures he put forward and the Committee accepted—should be made up of non-executive members of the Court of the Bank of England, and that its chair should also be a non-executive member. However, the language in the Bill does not allow that train of thought to follow through. It would permit the Chancellor to appoint the governor or deputy governor to the role of chair of the court and hence see that individual put into the position of chair of the oversight committee. I shall not bore the Committee at this point by trying to track through that but I assure noble Lords that that is the consequence of the current language. I simply say to the Government that I hope that someone can go away and fix this more elegantly than I have been able to do and, on that basis, I shall not be pressing the amendment.

[Lord Sassoon]

My Lords, I do not know whether anyone else wants to come in on this but it may be helpful if I speak now. This amendment in the name of my noble friend Lady Kramer returns us, as she says, to the territory of not only Bank of England governance but nomenclature, which we discussed at some length two weeks ago. As my noble friend says, one of the changes made in the Banking Act 2009 was intended to amend the Bank of England Act to require the court to be chaired by a director, which, as we established two weeks ago, means a non-executive member—again, as my noble friend pointed out. However, she has gone further because it is only my noble friend, with her razor-sharp eye, who has noticed that the relevant provision inserted into the Bank of England Act 1998, while allowing the court to be chaired by a director, does not require that it be so. That is clearly not correct.

Therefore, although I cannot accept the amendment as drafted because it does not cover all the necessary ground to give full effect to this change, I assure my noble friend and the Committee that we will go away and draft the necessary changes. I thank my noble friend for bringing this to the Committee’s attention.

More generally, I am aware from the discussion that we had two weeks ago that there are some irregularities in the terminology in the Bank of England Act which I certainly had difficulties with and I think that other Members of the Committee did too. A prime example of this is that the so-called Court of Directors includes the executive members of the court who are not, and cannot be, directors. This is plainly absurd. To say that this is all justified because the Bank has been in existence for 300 years so we just have to live with it is not the right approach. As I think I wrote following the first day in Committee, I will consider further whether any other changes might be made to the 1998 Act to clarify these terms, making them more consistent with current usage. We cannot proof the legislation against further changes over 300 years but we can at least try to update a few things.

With thanks to my noble friend, I ask her to withdraw her amendment, as she has already indicated she will do.

[Baroness Kramer]

I beg leave to withdraw the amendment.

Governor of the Bank of England

Debate between Baroness Kramer and Lord Sassoon

Tuesday 10th July 2012 Lords Chamber

[Lord Sassoon]

My Lords, the Bank of England is going to have a very large new mandate, and the points that the noble Lord makes are rather important to this. Whether on the MPC, the FPC or the PRA, the governor is going to be very well supported, not only by deputy governors but by a range of internal and external experts. Just for clarification, the governor no longer chairs the court; that is chaired by a non-executive chairman. I do not know how it was in the noble Lord’s day, but I am sure that co-operation with the Treasury is going to be the least of the new governor’s difficulties.

[Baroness Kramer]

My Lords, I regret that in the Financial Services Bill we have not established a mechanism whereby Parliament can have a say in confirming the new superwoman or superman to take up this role. Will the Minister at least give us an assurance that the Chancellor will look for someone who breaks away from the mould of groupthink, which contributed so much to the financial crisis in 2008, and who, while having all the necessary financial and economic background, perhaps comes with some other, different experience so that we can burst the bubble that has been a real problem in financial regulation?

FSA Investigation into LIBOR

Debate between Baroness Kramer and Lord Sassoon

Monday 2nd July 2012 Lords Chamber

[Baroness Kramer]

My Lords, I said last week that there was public outrage, and that outrage has only been growing. Mr Diamond remains in post; he just does not get it. That now raises questions about the fitness of Barclays’ board, which also just does not get it. Does the Minister agree that this matters? I very much welcome the review that Martin Wheatley will lead. Whatever changes are made to the rate-setting of LIBOR will always depend on engagement with the major banks. Therefore, there must be confidence that the banks fully understand their role in providing that information.

The other area of outrage, as I recognise it, is the perceived impotence of the FSA in being able to pursue sanctions for activities that are so widespread that, according to the Telegraph, they have their own technical term—the,

“dislocation of Libor from itself”.

Will the Minister explain why there is no scope under Clauses 397 and 400 of FiSMA, which I can quote if he wishes, to pursue individuals and the officers who supervise them? Surely an amendment could be put into the Financial Services Bill. It would be welcome if there was any way for it to be retrospective. Can he also explain why it was the CFTC in the United States that jumped on the issue in May 2008, based on information from whistleblowers, whereas with the same information the FSA did not become engaged until 2010? Obviously, I am dependent on media reports. Can we please look at the powers, resources and capacity of the FSA to ensure that it is never again in such a position?

[Lord Sassoon]

My Lords, first, I will not comment further on the senior executives of Barclays. Clearly the chief executive is coming before the Treasury Committee later this week and will be asked a lot of questions that will further elucidate those aspects.

On the question of prosecution, the basic flaw is that the setting of LIBOR was not and is not a regulated activity, so the FSA does not have a direct way in. My noble friend is right to be quizzical and shake her head but that is the position as it was under FiSMA and the construct put in place by the previous Government. If the FSA wanted to bring criminal prosecutions, as it has done with the civil settlement, the attempted fixing of LIBOR is an activity that is ancillary to a regulated activity. The construct is difficult and the chairman of the FSA has pointed out the difficulties.

As I said in repeating my right honourable friend’s Statement, most normal people would assume that there was a prima facie case to look at the Fraud Act and false accounting and that is precisely what the SFO was doing. Through the inquiries that are going on, we will look at what needs to be done to plug gaps in the financial services legislation. For the avoidance of doubt, I should tell my noble friend that there will certainly be no retrospective legislation in respect of criminal action because—before anybody else jumps up—it would be against the European Convention on Human Rights. I am sure that my noble friend would not want us to go there—and she acknowledges that.

As to which regulator started work when, I would not rely too much on what the newspapers say. As with all these things, I am sure that in due course the regulators will look into their conduct and the lessons to be learnt. I certainly would not take as gospel the newspaper reports of who started when.

FSA Investigation into LIBOR

Debate between Baroness Kramer and Lord Sassoon

Thursday 28th June 2012 Lords Chamber

[Baroness Kramer]

My Lords, the public are rightly outraged by the manipulation of interest rates and Europe is going to look more suspiciously at London just at a time when we are trying to protect the City. So there are great issues at stake.

Will the Minister explain why the FSA’s fine on Barclays is so small? As far as the company is concerned, £59.5 million is a freckle and far less than the fine in the United States. Surely it is not the senior regulator in this case. Why are there no sanctions at all—we are not just talking about criminal sanctions—against anybody senior? It is one thing to go after the traders but systematic mismanagement and manipulation of the market over four years surely affects senior people and has to engage them. The questions are to be asked by the Treasury Select Committee, which is an outstanding Committee, but surely they should be coming from the regulator with the ability to follow with direct sanctions.

Lastly, it is crucial that the Financial Services Bill is looked at again because, although we have a new form of regulator coming in the FCA, which I hope will be rigorous and effective, we must ensure in this Bill that the regulator has real teeth so that there is fear when that regulator looks again at this kind of mismanagement, and a fundamental change in behaviour.

[Lord Sassoon]

My Lords, I share the concerns of my noble friend. This is the largest fine ever imposed by the FSA. The US comes at this in a different way in many respects so the seriousness of the issue is demonstrated by the size of the fine in relation to anything else that has ever been done by the FSA in this country. It is the largest. The FSA sets the fines and it should do so. This has to be an independent process and I am sure nobody would want the Government involved in it.

As far as the investigations are concerned, my noble friend may be jumping ahead of the ongoing investigations by the FSA and SFO. I do not know where they will come out or who will be involved, but those investigations are going on. As for a powerful regulator for the future that is able to do this, I could not agree with her more. The FSA model completely failed. As I have already explained, the Financial Conduct Authority will be focused and will have as a core objective the integrity of markets. It will be much better placed to deal with these kinds of problems as they come up in future.

Financial Services Bill

Debate between Baroness Kramer and Lord Sassoon

Tuesday 26th June 2012 Lords Chamber

[Lord Sassoon]

My Lords, it relates to the former. I do not think it is fundamental; it just fits in with the construct of the legislation that we are talking about. There is no mystery behind it; it is purely a case of the grammar that the draftsmen have thought appropriate to use in the different lines.

[Baroness Kramer]

My Lords, the Minister has just put forward an argument for retaining the current process, which excludes the Treasury Select Committee from participating in the appointment of the governor. However, has he ever looked at the idea of allowing the Treasury Select Committee to question pre-appointment, even if there is no veto? I think we can all see a potential scenario—one that we hope never to have—where an appointee who is already in position, although they may not have commenced the role, comes before the Treasury Select Committee and does not win the confidence of the committee or the confidence of Parliament. That would leave us in a particularly dire situation and it is one that I think most of us would wish to avoid.

[Lord Sassoon]

I attempted to address the pre-appointment versus pre-commencement issue and I shall not repeat my remarks, other than to say that I believe that, for the market reasons I have given, among other reasons, it would be damaging if there were significant doubt over the clarity of the appointment of a particular individual as governor. One can very easily see how such a situation would be damaging and dangerous in present market conditions. Therefore, I repeat that I believe there is a distinction—

Banking Reform

Debate between Baroness Kramer and Lord Sassoon

Thursday 14th June 2012 Lords Chamber

[Lord Sassoon]

The noble Lord, Lord Bilimoria, makes a very good point about the credit rating agencies. The Bill is about the structure of banking. Credit rating agency regulation is now essentially in the hands of the European Commission. The appropriate sub-committee of your Lordships’ European Union Committee produced an excellent report, which we debated recently, on this subject. Yes, we must keep the subject of credit ratings under discussion, but the competence is not primarily here, and it is not the subject of the Statement we are addressing.

On the lessons of history, Glass-Steagall and so on, this is a different model from the Glass-Steagall model and from the model that the US is implementing at the moment. The commission talked to a very wide range of people and, I am sure, studied the history very carefully. In the knowledge of the current and historical international precedents, that was its fundamental judgment about the high but flexible ring-fence. I believe it has come up with something that takes all those lessons on board, is appropriate for what we need now and is not going to impact significantly on the necessary driver for growth in this country, which is keeping credit flowing this year, next year and the year after.

[Baroness Kramer]

It is with real pleasure that I welcome the White Paper and the Statement by the Minister. He will be aware that my colleagues in both Houses, especially Vince Cable, have long called for the structural separation of vanilla banking from more speculative investment banking. We look at Vickers and the White Paper as a very acceptable and effective compromise. As a result of its structural nature, ring-fencing has far more possibility of resisting erosion over the years as the masters of the universe regain their confidence and begin to attempt to transfer risk back to the taxpayer.

The Minister mentioned the Government’s decision to stick with the 2019 timetable. Is that a really robust measure? He will have heard some of the major banks trying to put a bit of pressure on this. A long-grass strategy is clearly under consideration by those who are resistant to these changes.

I see no reason why the Financial Services Bill should be held up to make way for legislation that comes from this White Paper, but will the Minister and his team take a look to make sure that what is likely to flow from this can find a framework and that there will be genuine capacity within the Financial Services Bill? He will know that I am particularly taken with the section in the White Paper called “A More Diverse Banking Sector”. I am delighted to see that and the whole competition area in the White Paper emphasised so strongly. Will he make sure that the capacity for that exists comfortably within the Financial Services Bill when it leaves this House?

[Lord Sassoon]

I am grateful—

Environment: Green Growth

Debate between Baroness Kramer and Lord Sassoon

Wednesday 16th May 2012 Lords Chamber

[Lord Sassoon]

I am grateful to the noble Baroness for confirming the green credentials of this Government. She raises an interesting point because, on the question of transparency, the Green Alliance report refers to all ISAs—so to a broader suite of savings products than merely green products. Any contribution to the debate about increasing transparency is to be welcomed. Other reports have been written recently about transparency around fees in particular, while this one is more about the transparency of the investments in the portfolio. I note that a number of green ISAs already on the market make a virtue out of the transparency that they offer. Generally this is an important debate but one in which the voluntary approach, backed up by the code that the noble Baroness refers to, is right.

[Baroness Kramer]

Would your Lordships agree that many individuals would like the opportunity to put their ISAs into sustainable investments? Is that not an argument for looking at the green investment bank as an opportunity? Are the Government considering opening up the possibility of investment into the green investment bank for institutions and individuals who could then use their ISAs in this way?

[Lord Sassoon]

First, it is important to recognise that there are at least 16 funds that I have been able to identify in the ISA space that are already green or ethical in their scope and branding. More generally, there have been lots of proposals for tailor-made ISAs, such as big society ISAs, small company ISAs, corporate bond ISAs, social investment ISAs and early intervention ISAs. There are a lot of worthy ideas around, all of which have their merits, but on the ISA brand we intend to keep it as simple and broad as it has always been. As for the green investment bank, as my noble friend knows, at the moment it has its initial capital for the next four years and is actively looking at its 21st project. In time it will be able to borrow, but not for the first four years.

Working Tax Credits

Debate between Baroness Kramer and Lord Sassoon

Monday 14th May 2012 Lords Chamber

[Lord Sassoon]

My Lords, I did not hear that particular case and it is very difficult to comment on individual cases, particularly when one has not heard the details. I appreciate that many of the changes we are making across the tax and spending playing field are painful for very many people in this country. I do not minimise the effect on the 200,000 or so, including couples with children, who we are asking to find another eight hours on top of what they may do otherwise.

We should not play down the prospects for finding employment in this country. Nearly 1.1 million people found a job in the fourth quarter of 2011. Some 600,000 of those had been unemployed and had got into employment, and 459,000 were previously inactive. At the moment, the number of job vacancies is rising. At the last count, it was 464,000. I do not underestimate at all the effect on individual cases but there are jobs out there and more than 1 million people in one quarter found employment.

[Baroness Kramer]

My Lords, I think that a significant number of companies are somewhat fixated around the idea that 16 hours is the gold standard for part-time work. Given that for many people affected by this change, 24 hours becomes the standard number of hours they would wish to be in employment, are there means by which the Government could communicate, through the trade associations and others, to try to change some of the cultural attitudes towards the various shift structures and others that set part-time hours?

[Lord Sassoon]

First, I congratulate my noble friend on her new responsibilities as her party’s spokesman on the economy. I can see that she is not going to give me an easy time. It is an important question. First of all, there are important elements of the present tax credits system, such as the child tax credit, which do not relate to hours worked. Of course, when universal credit comes in, the link to hours worked will go altogether. As my noble friend knows, that change will start with natural migration, coming in from October 2013. Then managed migration will take place from August 2014 in a way that means that nobody loses out in cash terms. So it is a transition that has been carefully thought about by my noble friend Lord Freud.

Economy: Credit Easing Policy

Debate between Baroness Kramer and Lord Sassoon

Thursday 26th April 2012 Lords Chamber

[Baroness Kramer]

My Lords, the noble Lord very kindly gave way and I appreciate it.

Perhaps I may suggest to the Government that they missed an opportunity in this round of credit easing by not including community development financial institutions, which, after all, serve micro and small businesses considered unbankable by the big five. Will the Government reconsider and see if a tranche could be made available under this round, or certainly under future rounds?

[Lord Sassoon]

I am grateful to my noble friend, who rightly comes back to this issue, which is important. We have certainly extended the reach of the present scheme beyond previous comparable schemes. For example, the NLGS includes asset-backed finance, which other schemes have not in the past; we have the non-bank finance schemes, through the business finance partnership; and we have one non-traditional big bank—Aldermore—which is in principle committed to the NLGS. So we are pushing out the boundaries. As to the specific question about CDFIs, as my noble friend may be aware, the banks, under the BBA’s better finance initiative, are putting in place procedures to make sure that banks formally pass customers whom they think appropriate towards CDFIs. That is an important step which the BBA has initiated.

Finance: Credit Rating Agencies

Debate between Baroness Kramer and Lord Sassoon

Wednesday 14th March 2012 Lords Chamber

[Lord Sassoon]

I am certainly very happy to commend again the report, Sovereign Credit Ratings: Shooting the Messenger?, to which the noble Lord, Lord Harrison, referred. It is an excellent report, which said among other things:

“The criticism that credit rating agencies precipitated the euro area crisis is largely unjustified”—

so it offered a very proportionate and measured response to the criticism. I do not think that we should mind the nationality of the rating agencies; it is the competition that we want. In that connection, the Government believe that it would be wrong to create a public European credit rating agency because that would just serve, among other things, to crowd out the competition.

[Baroness Kramer]

My Lords, until the mid-1970s, investors paid the credit rating agencies, not the issuers. The change was driven very much by the awareness of credit rating agencies that they could gouge more money from issuers. Does the Minister agree that there is no evidence that the so-called private conversations that now take place between the credit rating agencies and the issuers because of their relationship have in any way improved the quality of credit rating? Does he further agree that returning to an investor-paid system would take out the key conflict of interest?

[Lord Sassoon]

My Lords, I agree that the conflict of interest question is important. I draw my noble friend’s attention to the fact that in the two rounds of legislation to date since the crisis, one of the things that has been done is to ban credit rating agencies from providing a paid advisory service. So some attention has already been given to this issue by Europe.

EU: Fiscal Compact Treaty

Debate between Baroness Kramer and Lord Sassoon

Tuesday 7th February 2012 Lords Chamber

[Lord Sassoon]

My Lords, the first thing is to be clear that the intergovernmental agreement is explicit that it cannot encroach on the competences of the EU and that the signatories to the intergovernmental agreement must not take measures that in any way undermine the single market. That is set out in the preliminary recitals and in Article 2 of the treaty. It is principally a matter for the signatories to the treaty. We have made it clear that the Government have a number of concerns about elements of this inter- governmental agreement, one of which is the use of EU institutions. Some of the proposed uses of EU institutions in this intergovernmental agreement are already in the EU treaties and others are not. The Government will watch very carefully how this develops.

[Baroness Kramer]

My Lords, in an earlier answer the Minister referred to the recapitalisation of the banks in the eurozone as a necessary step. What action does he think is available if those banks fall short of successful voluntary recapitalisation and is further action necessary at the EU level?

[Lord Sassoon]

My Lords, now that there is a realistic assessment of what capital is required, there is a clear agreement on the timetables and methods for doing that and it is well within the capacity of the eurozone to do it. I do not think we should speculate on what happens if they fail to do it. The eurozone, its Governments and the European Central Bank have all the firepower necessary.

Shipping: Tax Revenue

Debate between Baroness Kramer and Lord Sassoon

Wednesday 18th January 2012 Lords Chamber

[Lord Sassoon]

My Lords, I am not sure how I interpret that question, but I think the relevant bit relates to the original Question, which is to do with the numbers that I gave the noble Lord, Lord Prescott, in my Written Answer. I can assure him that it is standard practice to give numbers based on the liability in respect of years. That is done in innumerable Answers to Questions. The numbers in this case, as is normally the case, will be broadly reflective and close to the actual tax paid. It is simply that the tax paid gets paid at different times according to the individual circumstances of the company.

I am happy to recognise that the noble Lord, Lord Prescott, was Secretary of State for Transport and many other important things at the time that this important tax was introduced. Just to correct his figures, the gross tonnage of British shipping in 2000 was 5.8 million tonnes and, indeed, it has increased to 18.2 million tonnes since then.

[Baroness Kramer]

My Lords, perhaps I can help. One of the motivations for providing the option of a tonnage tax was significantly to enhance the training and safety of the shipping fleet. Has the tax achieved that purpose and are any records kept and tracking done on those issues?

[Lord Sassoon]

My Lords, the tax has achieved an estimated reduction of £45 million of tax which the shipping industry in this country would otherwise pay under conventional corporation tax. It means that we have a more vibrant and healthy shipping industry in this country. Of course there are many other associated issues that my colleagues in government keep under review and discuss with the industry.

Public Service Pensions

Debate between Baroness Kramer and Lord Sassoon

Tuesday 20th December 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am happy to try to clear up any misunderstandings on this. As the DCLG has made clear this afternoon, it is in discussion with the unions to resolve any misunderstanding and reassure them that the intentions of the department and of the Government have not changed. It would seem that the unions have read more into the letter that was issued today than was intended by the DCLG. No new conditions are being imposed by the department. In order to iron out any ambiguity, the department will be issuing a new letter to make clear that there is no ambiguity, there is only one deal and there are no conditions. Therefore, I am confident that this can be resolved quickly, but as noble Lords will understand, there have been many deals with a lot of unions and several departments. We must clear up this ambiguity that has slipped in on one particular aspect.

[Baroness Kramer]

My Lords, the Government and the unions that have signed the heads of agreement deserve congratulations on having achieved this in this day and age, given the immediate financial pressures and the reality that we will all live much longer and therefore need pensions for a much longer period in our lives. They have achieved an agreement that retains defined benefit schemes—when the private sector has essentially abandoned that and gone on to defined contribution schemes—and have provided protection for those approaching retirement and for those on the lowest incomes. That is a real achievement by both sides and we ought to acknowledge it.

However, I wish to ask the Minister two questions. Can he clarify for us where the negotiations now stand with the PCS? The experience that has been described tonight demonstrates that negotiation has to be the way forward, not strikes. The Minister said that the PCS had walked away. The newspapers used the phrase, “not invited to future talks”. Can he clarify what he sees as the progress that can be made in that regard—preferably progress which does not inflict any more strikes on the long-suffering British public?

Secondly, can the Minister expand a little on an area I find most intriguing: namely, the position of staff transferring from the public service to the voluntary or private sectors or to social enterprises who will retain access to a public service pension? I cite the example of the NHS in that regard. Should we see that in narrow terms, or are we moving towards an arrangement which will allow a much more flexible structure for future public services as technology and demand change, creating the opportunity for movement in and out of different organisational arrangements? Is this the first building block of something larger, or is it just something to be seen narrowly within the terms of this negotiation?

[Lord Sassoon]

My Lords, I am grateful to my noble friend for welcoming this deal. She rightly points out that it means that public sector workers have among the best pensions available in this country, including defined benefit schemes which are not now generally available to people entering private sector schemes. Therefore, I endorse entirely her comments in that respect.

The PCS has not agreed to put the final design of the Civil Service scheme to its executives. It is important to remember that the PCS represents fewer than 5 per cent of the members of the public service schemes and discussions will continue without it. We believe that the final deal—it is a final deal—is a good one and that the remaining unions will recommend it to their members. We are clear that what has been set out today is the Government’s final position.

My noble friend asked about the ability of members exiting a public sector employer to remain in the pension scheme under the “Fair Deal” provision. Implicit in her question was the notion that this may have wider implications. I certainly think that this opens up all sorts of possibilities, whether in relation to the mutualisation of services or the ability of people to come in and out of the public sector.

Economy: Private Capital Investment

Debate between Baroness Kramer and Lord Sassoon

Tuesday 20th December 2011 Lords Chamber

[Lord Sassoon]

My Lords, the enterprise zones are not limited to any particular sector.

[Baroness Kramer]

My Lords, the Minister will be aware that the banking industry is not serving this aspect of investment particularly well and that barriers to entry are limiting new banks. Is he therefore observing the growth of peer-to-peer lending and will he give us some assurance that those new lenders entering the market will be appropriately regulated but not to the point of being stifled?

[Lord Sassoon]

My Lords, we are very interested in anything that keeps credit flowing. However, although my noble friend is very good at reminding us of that issue, we are getting a bit far away from fiscal measures.

Economy: Deficit Reduction

Debate between Baroness Kramer and Lord Sassoon

Thursday 15th December 2011 Lords Chamber

[Lord Sassoon]

I certainly agree with my noble friend that we inherited the worst peacetime deficit situation that this Government have ever known, and that getting the budget back into balance is indeed the priority of this Government.

[Baroness Kramer]

My Lords, I am sure that the Minister will agree that access to bank credit for smaller microbusinesses will be essential for economic growth and elimination of the deficit. Will the Government therefore take a look at the extraordinary barriers to entry of new potential banks into exactly this field, the FSA having now become so utterly risk-averse that it has lost any sense of balance?

[Lord Sassoon]

My Lords, it is very important that credit flows to SMEs, which is why we announced a package of £21 billion at the autumn Statement, and it could go higher if the demand is there. I take my noble friend’s point about the importance of diversity and new entrants into our banking system. That is something that both the FSA and the Government keep under review.

Autumn Budget Forecast

Debate between Baroness Kramer and Lord Sassoon

Tuesday 29th November 2011 Lords Chamber

[Lord Sassoon]

My Lords, I can only refer again to the numbers in the OBR’s document. I do not want to detain the House by repeating them all, but they show the cumulative effect of all these measures, including the infrastructure measures. I am grateful to the noble Lord for drawing attention to those measures because they are now more central. The economic infrastructure in particular has become central to the Government’s thinking and planning in a way that it has never been under previous Governments.

[Baroness Kramer]

My Lords, there are some key measures in the Statement on which I congratulate the Government and which completely change the framework for both businesses and infrastructure to access financing. Over the long term, they will create the capacity for accelerated growth that we should all have seen more than a decade ago.

I have two questions for the Minister. First, micro-business is obviously the beginning of the business pipeline. The national loan guarantee scheme works through the banks, which pay no regard to micro-businesses. That does not seem to be a scheme that particularly helps them. They also seem to be too small for the business finance partnership. Will there be, or are there, mechanisms within credit easing to address that particular group of essential businesses?

Secondly, the Minister will guess that I am absolutely delighted that the Northern line will be financed against the community infrastructure levy and that similar powers may be given to various city mayors through tax increment financing mechanisms. Will he look at applying this far more widely, because many small infrastructure projects could come very quickly out of the pipeline, be well managed by local authorities working in co-ordination with each other and give us a much wider distribution of infrastructure as a spur to growth?

[Lord Sassoon]

My Lords, on the first of the questions which my noble friend raises, money will indeed flow through the banks as a result of the guarantee scheme to micro-businesses, although I appreciate that it will always be tougher for them. It is worth noting that there will be banks coming into the credit easing framework that were not there previously—some of the new entrants into the market—so we are maximising the footprint through the banks. I draw attention to one of the other schemes that will be directly relevant to micro-businesses. The seed enterprise investment scheme and the related one-year CGT holiday are to encourage investment in new, early-stage companies. That will commence from April 2012, with a kick-starter of offering a CGT holiday.

On my noble friend’s second question, I well take the point about the importance of locally driven infrastructure schemes, which is why my right honourable friend the Chief Secretary announced the initial £500 million fund specifically for that purpose earlier in the autumn. Beyond that, the use of the CIL is being considered, but I would just caution that we need to think about the fiscal impact of widening that scheme.

Al-Qaida (Asset-Freezing) Regulations 2011

Debate between Baroness Kramer and Lord Sassoon

Wednesday 9th November 2011 Grand Committee

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

My Lords, asset freezing is a vital and necessary global response to the threat from al-Qaeda. It is a tool to disrupt the flow of funds to al-Qaeda, helping to prevent them executing attacks and supporting their networks.

As a permanent member of the UN Security Council, we are committed to meeting our obligations under the UN charter, and we support the UN’s al-Qaeda asset-freezing regime. The regulations before the Committee today will ensure that we continue to meet our international obligations and prevent funds from reaching persons associated with al-Qaeda. In particular, they reflect UN Security Council Resolutions 1988 and 1999, which were agreed in June this year.

I will provide further detail on these changes. First, it is important to clarify that the regulations we are debating today do not apply to the terrorist asset-freezing regime mandated by Resolution 1373. That resolution is implemented in the UK under the Terrorist Asset-Freezing etc. Act 2010 passed last December. The regulations under debate apply only to the UN al-Qaeda asset-freezing regime established under UN Security Council Resolution 1267 and amended by Resolution 1333 and subsequent resolutions. That regime, established in 1999, initially applied an asset freeze only against the Taliban. It was subsequently extended by successor resolutions to apply an asset freeze against Osama bin Laden and individuals associated with al-Qaeda or the Taliban.

The changes we are debating today stem from the latest periodic renewal of the mandate of the United Nations Security Council in June 2011 when it unanimously adopted Resolutions 1988 and 1989. These resolutions split the Resolution 1267 al-Qaeda and Taliban asset-freezing regime into two separate regimes, one in relation to Afghanistan and one in relation to al-Qaeda.

Resolution 1989 provides for the al-Qaeda regime, with which we are concerned today. It maintains sanctions on those individuals and entities associated with al-Qaeda who were designated under the Resolution 1267 asset-freezing regime and strengthens existing due process procedures. The improvements include the introduction of triggered sunset clauses. They will make it easier and more transparent to delist individuals who no longer meet the listing criteria and who are no longer considered to be associated with al-Qaeda. Delisting recommendations by the ombudsperson or requests by the state that made the original designation request will trigger the sunset clause. At that point the person will be delisted after 60 days unless the sanctions committee decides unanimously to maintain them on the list. Resolution 1989 also strengthens the role of the ombudsperson. The resolution recommends increased capacity for the ombudsperson’s office and greater provision by member states of information for case reviews, and encourages individuals to submit delisting petitions to the ombudsperson. The Government believe that these changes represent a very good and very necessary outcome that the UK, together with our Security Council partners, worked extremely hard to achieve.

As your Lordships are aware, the UN al-Qaeda asset-freezing regime is global in its application. All listing and delisting decisions are made by a committee of the UN Security Council, and once individuals or entities are listed, their assets must be frozen by all states as a matter of international law. Throughout the European Union, the al-Qaeda asset-freezing regime is implemented by Council Regulation (EC) No 881/2002, as subsequently amended, and is directly applicable in national law.

To implement and enforce the al-Qaeda asset-freezing regime fully in the UK, domestic regulations are needed to put in place penalties, and licensing and enforcement mechanisms. The key features of the regulations are that they define: the designated persons covered under the al-Qaeda regime; the prohibitions which apply in respect of designated persons; and the criminal penalties which apply to UK persons who breach the prohibitions. There are also provisions for the granting of licences exempting activities from the prohibitions, for the gathering and sharing of information and for allowing closed material to be employed in proceedings that challenge decisions made under the regulations.

These regulations revoke and replace the Al-Qaida and Taliban (Asset-Freezing) Regulations 2010, but I can assure your Lordships that there is no gap in the powers or penalties required to enforce the al-Qaeda asset-freezing regime in the UK. The 2010 regulations continue to have effect until the 2011 regulations come into force.

I know your Lordships understand the importance of the UK meeting its obligations to enforce the UN al-Qaeda asset-freezing regime. The regulations before the Committee are vital to meeting that obligation. Asset freezing is a critical element of the global response to the threat from al-Qaeda, and the UK fully supports the UN’s al-Qaeda asset-freezing regime. At the same time, UN Security Council Resolution 1989 strengthens existing due process procedures, which the UK has been arguing for at the Security Council.

In the Government’s view, the regulations before the Committee today represent an effective, fair and proportionate way of giving full effect to the EC regulation that meets the obligations of the Security Council resolution within the UK. I therefore commend these regulations to the Committee.

[Baroness Kramer]

My Lords, I have no objection to the regulations and I will take only a few moments of the Committee's time to seek clarification on a couple of points. From the perspective of my colleagues, it is clearly necessary to tackle not only terror but the funding of terror. This legislation is part of that overall approach. We are pleased to see the strengthening of due process and the sunset clauses that are part of the regulations.

I will ask a couple of very small questions. Will the Minister clarify that no practical implications of any significance will follow from separating the al-Qaeda regulations from those applying to the Taliban? Is this just a measure to fall into line with EU and UN resolutions? In moving from the umbrella of one set of regulations to the umbrella of another, will the process be seamless? Is there any possibility of a slip between the two? Obviously, we would not wish to see such an opportunity exploited.

My second question is perhaps of more interest to the wider community. Will the Minister give us some reassurance that these regulations will not put an additional burden on ordinary people? He will be very aware that the combination of anti-money laundering and anti-terror legislation has put a significant burden of cost on both individuals and businesses, not least when it comes to the long delays in fund transfers that the banks explain by saying that it is necessary for them to go through security procedures and checks, during which time the banks seem to hold on to the money and benefit from the interest rather than either party to the transaction. One must live with measures such as that, but we would all find it unfortunate to see any increase in the burden. I would appreciate reassurance on those points, but we support the regulations.

Euro

Debate between Baroness Kramer and Lord Sassoon

Thursday 27th October 2011 Lords Chamber

[Lord Sassoon]

My Lords, it really is not helpful for the party opposite to try to paint this completely false picture of a two-speed Europe. As I have already explained, the euro-out countries are integral to the single market—the eurozone understands that—and we will be part of the centrality of what needs to be done to drive forward structural reform of the single market, and so on. The other thing that is completely wrong is to paint Europe now as two-speed. There is a variable geometry EU, as we have it. Remember that other important areas such as justice and home affairs, as the noble Lord, Lord Liddle, recognises, also run in different ways. Therefore the idea that there will be some fundamentally changed, two-speed Europe is again ridiculously simplistic.

[Baroness Kramer]

My Lords—

--- Later in debate ---

[Lord Sassoon]

No, my Lords, that is not the situation. Forty per cent of our trade goes to the eurozone, 50 per cent goes to the EU, and we have to work to preserve the structure.

[Baroness Kramer]

My Lords—

Independent Commission on Banking

Debate between Baroness Kramer and Lord Sassoon

Monday 12th September 2011 Lords Chamber

[Lord Sassoon]

I am grateful to the noble Baroness for pointing out the good sense with which the commission addressed the question of the ring-fence. Clearly it has thought about the arguments that have been put over recent months. In respect of the failure of regulation, on which I completely agree with her, the overhaul of the regulatory structure, which is coming forward in the financial services Bill, is very significant. It puts the primary responsibility for looking at the risk in the entire system where it ought to be: that is, with the central bank. That is a fundamental change. The new Financial Policy Committee of the Bank of England is up in effective shadow mode, ahead of the legislation going through. It is able to address—and is addressing—risk issues as we speak, and I am sure that it will take note of whether there is anything further in the report that it ought to pick up on.

[Baroness Kramer]

My Lords, I join others in welcoming the Government’s enthusiastic acceptance of the report, and particularly of ring-fencing, which is much harder to erode than changes in regulation. However, I am sure that the Minister will agree that those who have suffered the most from the failure of the banks and the depth of the economic crisis that followed have been among the most vulnerable and disadvantaged, along with the smallest businesses. Would he be willing, as he looks to introduce a new bank that will provide more high street competition, to encourage banking services that will address the micro and the very small business, and which will reach out to the economically disadvantaged, who currently get a basic bank account offered with ill grace and very few services?

[Lord Sassoon]

I am grateful to my noble friend Lady Kramer for bringing us back to one of the constituencies most affected by the state of our banking system. That is why I welcome the discussion in the report about issues concerning the ability of individuals to switch accounts. There are important recommendations about the Lloyds Bank disposals, which make the point that this is not just a numbers game, of counting the branches that must be disposed of, but about creating another competitor out there. Therefore the report addresses critical aspects of the challenges that she poses, but in addition—whether it is looking at mutual models, credit unions or all the other aspects of a rich and varied banking system—there are significant other channels which the Government continue to address.

Finance: Off-exchange Trading Venues

Debate between Baroness Kramer and Lord Sassoon

Monday 18th July 2011 Lords Chamber

[Baroness Kramer]

To ask Her Majesty’s Government what assessment they have made of the risk to financial markets of off-exchange trading venues commonly known as “dark pools”.

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

My Lords, the Government strongly support ongoing initiatives at the European and international levels to improve transparency in financial markets. The International Organisation of Securities Commissions, IOSCO, has recently agreed a set of principles for regulating dark pools that will help inform the European Commission’s ongoing review of the markets in financial instruments directive, MiFID.

[Baroness Kramer]

I thank the Minister for that Answer. He will be aware that Andrew Haldane of the Bank of England, in a speech a week ago, pointed out the dominance of dark pools and their high-frequency trading in many financial markets. Does the Minister agree that the lack of transparency, the price differential suffered by small investors, the implications for corporate governance of nanosecond share ownership and, above all, Andrew Haldane’s concern that liquidity could disappear rapidly in times of stress all point to a serious risk to financial stability? Will he continue to follow the issue and look at more action by the British Government, not just at the European level?

[Lord Sassoon]

My Lords, we should distinguish—as I am sure my noble friend Lady Kramer does—between the two issues of dark pools and high-frequency trading, both of which I am sure noble Lords are very familiar with. Dark pools are akin to what used to be called “upstairs trading”—off the floor of the Stock Exchange. We need to make sure that the benefits of being able to trade in such an environment, such as competition and choice for investors, do not impinge in any way on the transparency and the price-discovery ability of markets. The FSA has done work on that and is content that the price-discovery mechanism is not being damaged.

High-frequency trading is a very new and slightly separate area, although I agree that it is related, and it is one on which the Government are doing considerable work. A research project led by the Government Office for Science is looking at the possible evolution of computer-generated trading and its implications, and will produce up to 20 papers on the subject during 2011.

Regulatory and Banking Reform

Debate between Baroness Kramer and Lord Sassoon

Thursday 16th June 2011 Lords Chamber

[Lord Sassoon]

I am grateful to the noble Lord, Lord Eatwell, first, for making a clear admission that the tripartite system failed and therefore something needed to be done about it, and, secondly, for welcoming various of the other aspects of what we are doing, including our approach to bank failure and pre-legislative scrutiny. However, the fact that he starts with bracketing together a recognition of the failure of the tripartite system and then questioning the approach taken by my right honourable friend the Chancellor and others of us who are now in the Treasury and what we did in the past is remarkable. We got on to the case in opposition immediately the crisis hit and started to work practically on learning the lessons.

I completely agree with the noble Lord that fine work of analysis was done by the noble Lord, Lord Turner, particularly in his FSA report, and others, but the previous Government had a couple of years in which they signally failed. If they recognised the failure of the tripartite system, they certainly did not tell us then. They had two years in which they could have established an independent commission to look at banking. They could have done the work to analyse what would be a better system but they did none of that. Instead, my right honourable friend the Chancellor, when in opposition, commissioned work from people, including myself. We did a considerable amount of work that put us in a good position, so that when we got into office we launched the rounds of consultation that have led to today’s White Paper. It is not therefore a question of hindsight being a fine thing but of getting on, learning the lessons and starting down the track of implementing a better system.

The noble Lord, Lord Eatwell, went on to question the powers of the FPC. I appreciate that the White Paper is a long document to have absorbed in the past few hours and point to the discussion in it about the possible tools and powers that the FPC may have. In order to move forward on that, we have asked the FPC to come forward with proposals in the next few months—I expect them in the third quarter—for the tools and powers that it believes will be necessary and appropriate to enable it to carry out its function. For the avoidance of all doubt, I will confirm that the FPC will have no role in setting fiscal policy.

The noble Lord then raised the issue of macroprudential and microprudential risks. I thought that his analysis was interesting. Clearly there is a very difficult issue about where the micro and macro areas stop and start and how they relate to each other, which goes to the heart of the problem with the tripartite arrangement. The Bank of England was clearly responsible for analysis of the macro risks but was not given by the previous Government the tools to deal with the consequences of the problems that it found. On the other hand, the Financial Services Authority was responsible for the micro risks—and never the twain shall meet. I am surprised that the noble Lord does not give the Government credit for the fact that we have brought the macro and micro together under the umbrella of the Bank of England precisely to address the problem that he identifies.

The noble Lord mentioned toxic products. Some of these may have been related to macro factors, but one has only to look at the scandal of PPI—not to mention a string of other products wheeled out by the financial services sector over the past few years—to understand that toxic products are most often generated at firm level, and it is appropriate that the conduct authority should have powers to ban them.

The noble Lord went on to ask about the definition of the ring fence. The question of the ring fence should be left to the appropriate experts. The Independent Commission on Banking, chaired by Sir John Vickers, will in the second phase of its work focus on precisely how the ring fence will work; that is what it is doing at the moment. On the specific question of whether the ring fence will apply to EU-passported banks, the FSA’s and in future the PRA’s full rules will apply only to banks headquartered in the UK. EU bank branches that are passported into the UK have as their lead authority the EU home regulation, not the UK host regulation: therefore, any ICB proposals would be implemented consistent with EU law. That is one of the principles enshrined in my honourable friend's Statement.

The question of Northern Rock was raised. As I said, we want to see a competition and are required under state aid rules to have one that is fair and open to all parties. We would welcome mutuals participating in that bidding process. As to whether a mutual outcome would be a greater buttress of stability, that is open to question. Any bidder for Northern Rock or participant in our banking system needs to demonstrate a level of financial stability that meets the regulatory requirements. I think one should not draw a distinction between different categories of institution on that basis.

The last point raised by the noble Lord was about Basel III and the Government’s support for the higher capital requirements under it, I think pointing out that the capitalisation of the Irish banks exceeded the Basel III limits. That enables me to confirm that the Government’s position on this is that for too-big-to-fail banks a capital buffer above Basel III is appropriate to ensure their resilience.

[Baroness Kramer]

My Lords, I must congratulate the Government on their courage in recognising not just the need to reform regulation and the regulatory system, which certainly was not fit for purpose, but to go beyond that to recognise the need to restructure the banking industry in the teeth of a lot of opposition from the industry itself, although a stronger case certainly needs to be made fully to convince all of us that ring fencing is a better strategy than division of the banks.

I shall ask the Minister two questions arising out of today. He talked a moment ago about a new regulatory system bringing together micro and macro, which is what we all wish to see, but he will be aware of the remarks made today by the Governor of the Bank of England, which were quoted in the Daily Telegraph, about reducing the burden of routine collection and focusing on the major risks to the system. He will know that the system collapsed in large part because securitisation and derivatives were piled on top of mortgage loans that were faulty and very often fraudulent. It was the failure to see the link between the micro and the macrosystemic that led to the crisis that we saw. Will he make sure that we do not now have a swing back in the other direction in regulation to systemic ignoring the relevance of the micro?

On the return of banks to private ownership, which is something we all wish to see, will he give some assurances that serious consideration will be given to schemes such as that proposed by my colleague Stephen Williams, MP for Bristol West, which would involve a distribution of shares in part to the public in order that they may gain some of the upside? The Treasury would still receive its funding, but on a deferred basis. Would he agree that UK Financial Investments, being a very silo organisation, is not likely to appreciate the potential benefits of that much wider engagement with the public, sharing upside reward with people who have suffered from the crisis?

[Lord Sassoon]

I am grateful to my noble friend Lady Kramer for her general support for what we are doing and her recognition of how far the Government have already gone in pushing forward with the structural and regulatory reforms. On the micro/macro link, I refer noble Lords to the full, and very interesting, remarks by the Governor last night at the Mansion House because he talked with great coherence and good sense about what the failure of the previous regulatory regime was, which was to collect a huge amount of detailed data that it was unable to analyse to draw out the conclusions.

However, in the new world, experienced bank supervisors are needed who are able to analyse and draw out the picture, which was never difficult—whether it was on securitisation or on a lot of other matters or funding models—before the crisis. There should be meaningful discussions with the banks in terms of the individual banks that they supervise about what this translates to in terms of the exposure of the individual bank’s business model. If my noble friend were to read the Governor’s full remarks, she would see that the Bank is absolutely where she would like it to be on its thinking on this. I got no sense of swing-back in it.

On ownership of the banks, we are well aware of the proposals that have come in, including that from Stephen Williams on mass retail participation. We and UKFI are actively considering mass retail participation as we think ahead to returning the banks into the private sector, which of course is not the same thing. A subset of it would be distributing the banks’ shares for free or on some other basis, which raises value-for-money considerations and quite a lot of technical market considerations. But I can reassure my noble friend that all these proposals will be given due consideration.

National Insurance Contributions Bill

Debate between Baroness Kramer and Lord Sassoon

Monday 28th February 2011 Grand Committee

[Baroness Kramer]

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

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

[Lord Sassoon]

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

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

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

“‘Relevant earnings’ are earnings paid to”,

an employee who is employed,

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

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

Independent Commission on Banking

Debate between Baroness Kramer and Lord Sassoon

Monday 28th February 2011 Lords Chamber

[Baroness Kramer]

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

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

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

[Baroness Kramer]

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

[Lord Sassoon]

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

Monetary Policy Committee

Debate between Baroness Kramer and Lord Sassoon

Wednesday 16th February 2011 Lords Chamber

[Lord Sassoon]

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

[Baroness Kramer]

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

Banking

Debate between Baroness Kramer and Lord Sassoon

Wednesday 9th February 2011 Lords Chamber

[Lord Sassoon]

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

[Baroness Kramer]

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

[Lord Sassoon]

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