Budget Statement

Baroness Neville-Rolfe Excerpts

Tuesday 14th March 2017 Lords Chamber

Moved by

[Baroness Neville-Rolfe]

That this House takes note of the economy in the light of the Budget Statement.

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, it is a privilege to present the 2017 Budget to the House. As your Lordships will be aware, this will be the last spring Budget before we move to an autumn timetable. It is also the first Budget since the referendum and our historic vote to leave the European Union. We want to provide as much certainty as possible and therefore it is only right that we take a cautious approach in our stewardship of the economy. Further, despite the Government’s success in bringing down the deficit by two-thirds, it is still too high at 3.8% of GDP last year. These are two major reasons for prudence.

Accordingly, this Budget is designed to strengthen our financial position still further and prepare the economy for the challenges and opportunities ahead. It invests in making the UK more productive—the best way to raise living standards in the long term—and in the quality public services that we depend on. In short, it gets us ready to make the most of the opportunities ahead by laying the foundations for a stronger, fairer, better Britain outside the EU and to create a truly global Britain to compete internationally.

It is fair to say that in March 2017 we are in a better position economically than many predicted. Growth in the second half of 2016 was stronger than the OBR had anticipated in the Autumn Statement. In fact, last year the UK grew faster than most other advanced major economies, while employment remains at a record high. That is very welcome, but the OBR continues to judge that in the medium term, growth will slow due to weaker growth in consumer demand as a consequence of a rise in inflation. Business investment is also expected to remain subdued as we begin the period of negotiation with our EU friends and partners. The OBR is, however, forecasting that net trade will make a positive contribution to growth, as the recent sterling depreciation supports exports.

As I have said, the deficit remains too high, and a range of factors in the global economy present potential risks. So it is right that we get ourselves in a position of readiness to handle difficulties of any kind which come our way. Accordingly, putting the public finances in good order will remain vital for the foreseeable future. Our fiscal rules to do so strike the right balance between reducing the deficit, maintaining flexibility and investing for the long term. The OBR predicts that we will continue to make good progress, with borrowing forecast to fall to a two-decade low of 0.7% of GDP by 2021-22. As a consequence, we are within sight of bringing to a halt the increase in the national debt as a proportion of GDP. Debt is forecast to peak at 88.8 % of GDP in 2017-18 and then to fall in subsequent years. So we are on track to bring the public finances under control.

I want to address the calls that we continue to hear for a spending splurge. It is true that the OBR has forecast £16.4 billion lower borrowing in 2016-17 than it did at the Autumn Statement, but with the national debt nearing 90% of GDP, and while we spend £50 billion on debt interest every year, this would be unwise. Also, the reduction in predicted borrowing owes much to one-off factors unlikely to be repeated. So we must maintain the momentum of reducing borrowing, and getting debt down. Hence a responsible and balanced Budget of targeted spending, with modest increases in revenue, which more or less cancel each other out.

I turn now to the proposed revenue-raising measures. It has been wisely said that:

“To tax and to please … is not given to man”.


If we want evidence for the truth of this quotation we need look no further than the reaction to this Budget. Taxation is a serious matter. Our principles are that the tax base must be sustainable and fair. That is the only way we can continue to sustain public services. So it was with those principles in mind that we proposed changes to national insurance contributions and to the dividend allowance.

I start with the proposal which has attracted the most widespread comment, that on national insurance. This is about creating a fairer and more sustainable system, and 60% of self-employed people affected—those on the lowest incomes—will actually gain from our reforms by an average of £115 a year. We will also explore the rights and protections for self-employed workers, including on issues like parental rights and maternity pay. Legislation will not be brought forward until the autumn, as the Prime Minister has said.

It is also a fact that within the current system, the self-employed, who represent 15% of the British workforce, pay a much lower rate. There are historical reasons for this, reflecting the difference in contributory benefits received, but it is telling that the number of self-employed has increased markedly in recent years. Some—I would say not all—of these newly self-employed are motivated by the tax advantages. With that trend set to continue, it is simply not a sustainable way to fund the benefits self-employed people receive, which now, importantly, include the same access to the state pension. Lower rates paid by the self-employed—some of whom are on very high incomes—are forecast to cost our public finances over £5 billion this year alone.

We have also reduced the dividend allowance from £5,000 to £2,000 from April 2018. This reduces the incentives for individuals to work through a company. The OBR has estimated that increases in incorporations would cost the Exchequer an extra £3.5 billion a year by 2021-22. This measure also ensures support for investors is more effectively targeted.

All can benefit from the increased personal allowance, for example, which rises to £11,500 this April. Investors will also benefit from the ISA allowance of £20,000 per annum from 2017-18. General investors, typically only those with a share portfolio outside an ISA worth at least £50,000, will pay more tax as a result of this change. Over 80% of general investors will continue to pay no tax on their dividends.

I now turn to business rates, where we have recognised that for some businesses the 2017 revaluation meant a large change in bills. While the revaluation is itself, by law, fiscally neutral, last year the Government set out £3.6 billion of transitional relief to support businesses with rising bills, capping the increases that businesses could face each year. We have committed to a package of cuts to business rates now worth nearly £9 billion, with 600,000 small businesses taken out of paying rates altogether. And at the Budget, my right honourable friend the Chancellor announced a further £435 million of support for businesses facing the steepest increases in bills, including help for small businesses losing small business rates relief and funding for local authorities to support discretionary relief.

Overall, the changes we have made to the tax system, especially for business, should be seen in the context of the competitive tax environment we have already put in place on corporation tax, capital gains tax and the R&D tax credit regime.

The revenue raised by tax measures in the Budget has enabled the Government to invest more in the public services that people care most about. One of the most significant commitments was on social care and health, where we have taken action to deal with short-term pressures as well as looking to the longer term. We have allocated an extra £2 billion to councils, which will reduce pressures on the NHS and help them provide more social care to people in their communities over the next three years, of which £1 billion will be made immediately available. It is agreed that we face growing pressures for the longer term as populations become older and the costs of complex medical treatments rise.

Noble Lords may recall that the OBR’s Fiscal Sustainability Report in January predicted that without mitigating action, the percentage of GDP spent on social care would double in the next 50 years. We will publish a Green Paper setting out our proposals for dealing with this challenge later in the year, and I believe that this House will play a valuable ongoing role in considering this issue over the longer term. We are also putting an extra £425 million into the NHS for complementary measures to help assess and manage patients waiting in accident and emergency, and to enable local NHS organisations which already have good plans for long-term reform to put those plans into action.

As a nation, we face a major challenge on productivity. It is well established that we lag behind the G7 average by 18%, and we are even more behind leaders such as Germany. Noble Lords who know me know that this issue has exercised me since my very first day in this House. To meet this problem in the Autumn Statement, we announced a new national productivity investment fund, worth over an extra £23 billion and targeted at areas critical to boosting the UK’s long-run productivity, including housing, research and development, and economic infrastructure.

The Budget included further details on how we will use the new fund to make a real difference, improving the UK’s physical infrastructure and keeping up as a leader in global technological progress. I cannot be comprehensive today but examples are the £690 million competitive fund for local authorities in England to unclog the congestion that blocks our urban road networks, and the £113 million to address traffic pinch-points on our roads in the north and the Midlands. Both those measures will help to boost productivity quite quickly. A third example is the £200 million to speed up the rollout of full-fibre broadband and a new 5G mobile technology hub. I am passionate about Britain becoming yet more successful as a digital society. Important allocations were also made to keep Britain at the forefront of global science and innovation, including funding for 1,000 new PhD places.

That brings me to my final point: the importance of investing in people. I know from experience that it is the combination of capital and skills that can transform productivity. Here, perhaps the most important announcement concerned the new T-levels, which will give our students a much clearer system of qualifications and a much more enticing route into skilled careers.

It has long been recognised that our vocational education has been comparatively weak, especially compared with that in countries such as Germany, where I worked as a non-executive director, or Switzerland. It is hoped that the new routes, taken with other measures such as apprenticeships, will finally put us on the right track. We are also helping more people to take their technical skills to the next level, offering maintenance loans to those studying at our prestigious institutes of technology or national colleges, such as the new colleges for nuclear and for high-speed rail. This means that such students can get the same kind of support with their costs that university students can access through student loans.

We have also built on the far-reaching improvements we have made to our schools—improvements that have seen 1.8 million more children in good or outstanding schools than just six years earlier. We are putting an additional £216 million into our existing schools and funding an extra 110 new free schools, which will mean ever more choice for people in finding a good school place for their children or grandchildren.

This is not a large or a flashy Budget but it contains sensible, realistic measures aimed carefully and proportionately at the problems we face. I beg to move.

--- Later in debate ---

[Baroness Neville-Rolfe]

My Lords, this has been a wide-ranging debate. I do not think that I will mourn the spring Budget; my noble friend Lady Wheatcroft said that she would not do so either. This is the last spring Budget and the last Lenten Budget, as the right reverend Prelate the Bishop of Chester reminded us. That I will not mourn it is perhaps surprising because I endorse what the noble Baroness, Lady Kramer, said—it has been a fascinating debate today. As the new Commercial Secretary to the Treasury, I have certainly learned a great deal.

We had a major debate yesterday, and indeed on previous days, on Brexit. I think that we can feel the influence of that debate here today. As has been said, this Budget must provide a strong and stable platform for the upcoming exit negotiations. As the Chancellor has made clear, we must be prepared for short-term economic shocks, so prudence with the public finances is even more called for than usual.

I can agree that in the negotiations with the EU we should avoid a disruptive cliff edge, which would be to no one’s advantage. We will work hard to get the best deal for the UK. We want the greatest possible access to the single market and the minimum possible disruption for business, so we will provide as much certainty as we can. We want the change from being an EU member to our new partnership to be as smooth and orderly as possible. We believe that a phased process of implementation would be strongly in the interests of both the UK and the EU, and it will allow businesses to plan and prepare.

The vote last June to leave the EU was a vote for change—to make Britain stronger and fairer. Although it was a vote to leave the EU, I emphasise that it was not a vote to leave Europe. We want to continue to be reliable partners, willing allies and close friends with European countries.

In these circumstances, we have adopted a prudent approach and given ourselves significant headroom in the public finances—£26 billion—to provide the flexibility to deal with shocks, given the wider global uncertainties, while supporting a fiscal plan to reduce the structural deficit to below 2% of GDP this Parliament. My noble friend Lord Gadhia rightly supported this contingency.

My noble friend Lord Crickhowell and the noble Lord, Lord Monks, talked about Scottish independence. As I see it, Scotland voted decisively to remain part of our United Kingdom in a referendum which the Scottish Government defined as a once-in-a-generation vote. The evidence clearly shows that a majority of people in Scotland do not want a second independence referendum. The Scottish Government should focus on delivering good government and public services for the people of Scotland.

I should add that within the EU we have always been the strongest advocate for free trade. As the noble Lord, Lord Bilimoria, said, we need to continue to invest in exports. He will be glad to know that I shall be speaking at the UK India Business Council this week. As he knows, we will continue to attract the brightest and the best to work or study in the UK, but there must be control. I can confirm that agreement on the future of EU nationals is an early priority for the Brexit negotiations.

In response to the points on customs and tariffs made by the noble Lords, Lord Razzall and Lord Wrigglesworth, I say that we want Britain to have the most frictionless and seamless trading arrangement possible with our European neighbours. We have no preconceived notions about the way in which we can achieve this but what matters is the end, not the means. This whole area is a key priority for my Treasury colleagues. I reassure noble Lords that we are working very hard on this and indeed with the industries that could be affected.

I respond to the noble Lord, Lord Monks, by saying that being out of the EU but a member of the single market would, to all intents and purposes, mean not leaving the EU. However, as I said, we want the greatest possible access to the single market.

The noble Lords, Lord Livermore, Lord Shipley, Lord Hain and Lord Palumbo, talked about our debt and our deficit, and there has been an interesting exchange on this subject. We have made progress in reducing the deficit from 9.9% of GDP in 2009-10 to 3.8% in 2015-16. Government spending as a share of GDP reduced from 44.9% to 40%. To reply to the noble Lord, Lord Bilimoria, I tell him that total government spending is forecast to fall to 37.9% of GDP in 2021-22. Returning the public finances to balance is the most reliable way of getting debt to fall and reducing our debt interest payments.

We have made real progress on reducing our deficit—it is down by two-thirds. This safeguards our economy for the longer term and keeps mortgage rates low. However, Labour left the UK with the deficit at a post-war high, at 9.9% of GDP in 2010, and—in response to the noble Lord, Lord Davies of Oldham—that is why we had to have austerity. The OBR now forecasts that the Government will reduce the deficit by almost three-quarters by 2016-17 at 2.6% of GDP. Therefore, we are making progress, but of course we need our cautious and prudent Budget.

I turn to the need for a fairer Britain. Whatever your background, you should have the opportunity to learn well, to earn well and to live a good life. Many contributions from noble Lords have implicitly supported that point, whether in discussing the challenges of social mobility, raising living standards or combating inequality. This is very much the Government’s objective, and we have taken a range of actions to support working people in their everyday lives. We have introduced the national living wage and will be raising the personal allowance to £12,500 in this Parliament and reducing the universal credit taper. By the end of this Parliament, we will be spending a record amount on childcare support, rising to over £6 billion a year. The statistics show real disposable household income going up. This rose per person in 2015 at its fastest rate in 14 years, reaching its highest ever level, and it is forecast to rise further over this Parliament.

We must also ensure that the tax system is fair. I take the positive points made by my noble friend Lord Lupton, who talked about global taxation. He knows that this Government have led international efforts to address tax avoidance by multinationals through the OECD, and the efforts on BEPS will continue.

Let me tackle head on the charge that changes that we have made to the tax system benefit the wealthiest at the expense of the poorest. The fact is that, as the IFS has stated recently, the highest earners have seen significant tax increases. In fact, the top 1% of taxpayers are expected to pay more than a quarter of all income tax this year.

On NICs, I agree that self-employment is vital to any dynamic economy, but the self-employed are taxed less than employees and the growth in the numbers of self-employed is eroding our tax base. Our proposals are relatively modest and fully justified in terms of fairness. I do not agree with my noble friend Lady Altmann. She said that business was being hit twice. People cannot be hit by the class 4 NICs increase and the dividend allowance cut in respect of the same business. People are affected by the dividend allowance cut if they are working through their own company because they are not paying class 4 NICs—unless of course they have a substantial investment portfolio. I was therefore very grateful to my noble friends Lord Horam and Lord Willetts and the noble Lord, Lord Macpherson, for their support in this matter of NICs. My noble friend Lord Willetts brought the Resolution Foundation’s research to our proceedings, which was very helpful. I also enjoyed the comments of the noble Lord, Lord Macpherson, on the difficulty of raising tax revenue, which I have already discovered in only two months.

My noble friend Lord Flight also warned of the limited scope for increasing taxes and highlighted the value of the self-employed as being vital to enterprise and growth. He is right. They are certainly not all tax dodgers, as I think the noble Lord, Lord Desai, almost began to suggest. My noble friend Lord Crickhowell called for evidence, consultation and continuity, and the changes will be the subject of a Bill that we have said we will introduce in the autumn when associated work has been progressed. We have also cut corporation tax to support businesses. I say to the noble Viscount, Lord Chandos, that this helps the country to be competitive. It has been cut from 28% seven years ago to just 20% today and it will fall to 17% in 2020.

The noble Lord, Lord Lupton, also talked about the benefits of venture capital and business support, of which the British Business Bank, which was mentioned, is part. My noble friends Lord Northbrook and Lord Flight and the noble Baroness, Lady Kramer, will also be glad to hear that we are giving 3.1 million small businesses and landlords an extra year until April 2019 to prepare for keeping digital tax records.

The long-term problem in social care has been widely acknowledged today. Although the Care Quality Commission currently rates about three-quarters of adult social care services as good or outstanding, the system is clearly under pressure, and this in turn puts pressure on the NHS. We have therefore provided extra funding for social care and for the NHS to deal with pressures on A&E. In a rather negative intervention, the noble Lord, Lord McKenzie, supported the extra funding for social care and for skills, as did my noble friends Lord Porter and Lord Horam.

But beyond managing short-term challenges, we are also looking to the longer term. We will set out our proposals for putting the social care system on a more secure and sustainable long-term footing in a Green Paper later this year.

Indeed, long-term planning has been a broader theme of this Budget. For example, we are looking in the medium term at how to find a better way of taxing the digital part of the economy and at how to make our tax system fairer and more certain with a commitment to set out proposals for smoother, more frequent revaluations for business rates in the autumn. I am sure that the noble Earl, Lord Lytton, will be glad to hear that, given the debates that he and I have had on rates on previous occasions.

One of the most important challenges for our long-term economic advance is improving productivity. It is the tide that lifts all ships and something on which the noble Lord, Lord Davies, and I seem to be in strong agreement. The Autumn Statement focused on investment in infrastructure and innovation and the new national productivity investment fund. This Budget outlined further details. We have, for example, announced funding for 110 more new free schools. Some will be selective, as has been pointed out. I see no reason to apologise for that.

I should also say a word about technical education, which I talked about at length in my opening speech, and about apprenticeships, which were mentioned by the noble Lord, Lord Haskel. I know from my own experience that these are valuable to businesses and we are working with employers to make them even better. As he said, better skills and training, and better people, will make firms stay in the UK. The apprenticeship levy is a necessary part of delivering 3 million apprenticeships. Crucially, our system puts control of funding into the hands of employees.

I was also asked about school inspections. Ofsted considers how well prepared pupils are for the next stage of their education, training and employment when it inspects schools nowadays. I think that was a concern expressed by the noble Lord, Lord Shipley, who rightly emphasised the importance of housing investment to productivity. We issued a White Paper on 7 February, setting out ambitious, lasting reforms to get more houses built faster. He and the Chamber have debated that with my noble friend Lord Young, who is on the Front Bench now and has given me such good support during this debate. My noble friend Lord Porter will be glad to know that more than 300,000 affordable homes have been delivered since 2010 and that more than double the amount of council housing has been built in the seven years since 2010 than in the 30 years before.

My noble friend Lord Willetts and the noble Lord, Lord Bhattacharyya, added useful suggestions on how we tackle the productivity dilemma, rightly referring to the work now being done by BEIS and by Greg Clark. My noble friend Lord Willetts also drew our attention to the intergenerational unfairness of younger workers having to pay to plug pension schemes. I will certainly look at the DWP consultation that my noble friend mentioned.

My noble friend Lady Altmann shared the benefit of her experience in pensions and social care. I took her point about pensions and insurance assets being possible vehicles for infrastructure and housing investment. The Green Paper on social care that I mentioned will give us an opportunity to look at some possibilities. I hope noble Lords will contribute.

My noble friend Lady Wheatcroft emphasised the importance of management to better productivity. That is certainly true in the retail trade. Sir Charlie Mayfield, whom she mentioned, is helping us with the productivity puzzle. Under his inspiration there was £13 million in the Autumn Statement to support firms to improve management skills. That work needs to cut through in the industrial strategy.

I have a little more time. The noble Lord, Lord Monks, whom I worked with for many years, talked about investment in people and in businesses. We have published a Green Paper on governance inviting views on how to have better engagement with workers in companies, as he will know. The noble Lord, Lord Skidelsky, gave his own personal perspective on productivity, but I was glad that he welcomed the investment in infrastructure that we are now beginning to make.

The noble Baroness, Lady Burt of Solihull, talked about equality. The Government are committed to fairness and the promotion of equality. That is why the old and disabled will benefit from the £2 billion to councils in England for social care services that we have discussed, and the young from investment in schools and skills. As she said, we have provided some very welcome seed funding for women returners. This is an area that I am very keen on too. I know that it can make a substantial difference.

My noble friend Lord Marlesford asked why the Chancellor had not taken any action on fuel duty. The Chancellor is mindful that fuel prices are a major cost-of-living issue for a very large number of drivers. It is an important input for business.

Various other suggestions have been made, from red diesel for council lorries to better uses for the tampon tax, to help for small shops from my noble friend Lord Carrington.

This has been a very good debate and I look forward to reading Hansard with great care. I say to the right reverend Prelate the Bishop of Chester on the NHS that the Government are supporting those geographic areas with strong cases for transforming the way that services are delivered to provide better care for patients and to put the NHS on a more sustainable footing, including investing a relatively small sum of £35 million over the next three years to back the first set of sustainability and transformation plans, which are so important.

To conclude, this is a prudent and fair Budget, with investment in skills, infrastructure and social care and with the longer-term perspective we need for sustained success. It paves the way for a truly global Britain and a country that works for everyone.

Motion agreed.

Living Standards: Inequality

Baroness Neville-Rolfe Excerpts

Tuesday 7th March 2017 Lords Chamber

[Baroness Lister of Burtersett]

To ask Her Majesty’s Government what policy lessons can be learned from the forecast of growing inequality in the Resolution Foundation report Living Standards 2017.

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, according to the latest data from the Office for National Statistics, income inequality in the UK is at its lowest level since 1986. The key to economic success and to reducing inequality is to improve productivity, which determines living standards in the long run. That is why the Government have established a national productivity investment fund and published a Green Paper on an industrial strategy, highlighting the role of improved skills, infrastructure investment and R&D.

[Baroness Lister of Burtersett (Lab)]

My Lords, the Resolution Foundation argues that preventing the biggest increase in inequality since the 1980s requires a shift in social policy choices, notably the freeze in most working-age benefits in the face of rising inflation. Will the Government now follow the advice of Iain Duncan Smith and reconsider the freeze? He warned that it was never intended that it should have such a “dramatic effect on incomes”—his words. Would that not be the right thing to do, to protect low-income families in and out of work, for a Government who claim to be working for everyone?

[Baroness Neville-Rolfe]

My Lords, I think we have to have a little context. Savings are necessary to reduce borrowing and to put the public finances back on a sustainable footing after the financial crisis. Between 1980 and 2014, spending on welfare trebled in real terms to £96 billion, while GDP increased by much less. Our approach is a different one. We are committed to supporting working families with a whole host of measures to get people back into work, to innovate, to grow and to put the country on a good footing. It is only a forecast from the Resolution Foundation. Forecasts are not always right, and we are determined to make the changes we need for this country.

[Lord Shinkwin (Con)]

My Lords, can my noble friend say whether any assessment has been made of the effect of the national living wage on reducing inequality and, indeed, whether there is anything more that can be done in this respect?

[Baroness Neville-Rolfe]

I thank my noble friend for that question. I believe that the national living wage, brought in in April last year, is a fantastic example of policies that the Government have introduced to make work pay. Looking forward, it will rise again, to £7.50 next month, and it has already given many working people in Britain the fastest pay rise in 20 years.

[Lord Lea of Crondall (Lab)]

My Lords, observers will have noticed that there is a startling contradiction between the presumption in the Question that income inequality has been growing very sharply and the presumption in the reply that it is doing the opposite. There are different measures, but most of them show that inequality is growing. Would it not be useful if the ONS convened a panel to get a little more clarity as to why figures can be bandied around that give such different descriptions of what is happening?

[Baroness Neville-Rolfe]

I think the ONS keeps us honest; it looks at these figures over time and very helpfully updates us. The OBR forecasts are also updated all the time so that we can see what is happening. I come back to the point that the Resolution Foundation is looking at a forecast, but if we look at what has happened, five years ago it was predicted by the IFS, I think, that there would be a rise in inequality. In fact, that has not happened. Actually, things have continued to progress and we have seen a recovery. That is what we need to continue by having the right policies, which this Government are pursuing under our new Prime Minister.

[Baroness Kramer (LD)]

My Lords, I am shocked that the Minister does not recognise that young working families are facing serious financial pressure and are struggling, and that it looks as though it is going to be worse with inflation. Does she agree that part of the reason is the very high rents that most of these families face? Will she be willing, in the Budget tomorrow, to permit local councils to go out and borrow the necessary amounts of money to drive forward development of affordable rental housing? She has often acknowledged that the housing market is broken but all the Government’s solutions are on the demand side, and supply does not increase, especially not in the affordable area.

[Baroness Neville-Rolfe]

I would not want to steal the Chancellor’s thunder today. There is certainly some provision for prudential borrowing by local councils, but I come back to the support that we give to working families. The national living wage has already been mentioned by my noble friend. That has provided the fastest pay rise in 20 years. We have raised the personal allowance to £12,500 by the end of this Parliament; nobody had done that before. We are introducing universal credit, which has the benefit of making work pay, so that if you go out and work you are not held back by benefit dilemmas. We are committed to making work pay, and we believe that that is the very best way forward for the people of this country and for hard-working families, which I agree are a priority.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister cannot discount the Resolution Foundation in such a cavalier manner. It has a strong reputation and it produced very real, well-backed analysis. It said that higher incomes will rise, but slowly; that middle incomes are going to stagnate; and that low incomes are going to fall. We know that the base for low incomes is so little that they will be unable to afford to fall without poverty increasing substantially. The Foundation says it will be the biggest rise in inequality since the late 1980s. I do not need to remind the House which party was in power during that period or which Prime Minister—many of whose Cabinet members, of course, are still with us.

[Baroness Neville-Rolfe]

I would add that the Resolution Foundation report also says—which is the point I have been emphasising—that economic forecasts can change dramatically and there is no way of knowing just how the future will play out. I believe that the approach we now have—including our industrial strategy, and investment in infrastructure, housing, digital and transport —is making a big difference. We have protected the most vulnerable through the benefit system, which is actually highly redistributive, so that households in the lowest decile get four times the support in spending that they pay in tax, while the highest decile pay five times as much in tax as they receive in pay. We want a fairer society and getting workless households into work and improving productivity and skills is, to my mind, the best way forward.

Health: Duties on Food and Drink

Baroness Neville-Rolfe Excerpts

Monday 6th March 2017 Lords Chamber

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, the OTS’s current VAT simplification review will not consider these issues. The review is focused on identifying opportunities for simplification of the VAT system and establishing whether the system is working to minimise tax compliance burdens. The Government have, however, gone to great lengths to promote healthy eating, drinking and lifestyles. We have announced a new soft drinks industry levy and a sugar reduction programme to help address childhood obesity.

[Lord Brooke of Alverthorpe (Lab)]

My Lords, I am grateful to the Minister for her reply, but disappointed. I wonder whether she might be persuaded to reflect on the need for a further examination of the subject. Does she agree that Brexit provides the opportunity for us to look at VAT, customs and excise duty, and a whole range of taxes in a much more flexible way than we have been able to when linked to Europe? Does she agree that we have a major problem with the costs that alcohol is causing to the NHS, and that one way we might change that is by persuading people to move from high-strength to lower-strength drinks, and that now we have this flexibility coming there is a strong case for trying to effect such a change?

[Baroness Neville-Rolfe]

My Lords, I have some sympathy with the point the noble Lord makes. The Government believe that alcohol duties should be related to the alcoholic strength of drinks but, as he says, EU law currently restricts changes to the rates and structure of alcohol duties. We have already said that we would like any future changes to allow duty on wine to rise in line with alcoholic strength. We are constrained until we leave the EU but we will certainly consider this issue carefully in the light of EU exit.

[Baroness McIntosh of Pickering (Con)]

My Lords, my noble friend will be aware that the Health Minister gave evidence to the ad hoc scrutiny committee on the Licensing Act 2003 to the effect that customs and excise duty would be reviewed precisely in this regard. Given the hard work that the noble Lord, Lord Brooke, has been doing over many years on this issue, what plans do the Government have to look at pricing, taxation and, potentially, minimum unit pricing as a steer for controlling alcohol, particularly the harmful effects on all age groups of alcohol and excessive alcohol abuse?

[Baroness Neville-Rolfe]

Obviously, the Government look forward to the work that is being done by the committee on the Licensing Act, learning from what has worked well and what has worked less well. It is fair to say that the Government have done a whole range of things to try to tackle the problem of cheap alcohol. The lower-strength drinks have lower rates, and there are higher duties on higher-strength beers and ciders. We took action to ban sales in England and Wales below duty and VAT. We amended the definition of “cider” so that only products with a minimum 35% apple or pear juice can be defined as cider for tax purposes. Working with the Home Office and the police, industry has taken a whole load of measures which I think are very important. Noble Lords will know that I used to be in the retail industry, and this was an issue that exercised me a lot. Indeed, we supported the minimum unit pricing that came in in Scotland, which is now the subject of court action.

[Lord Davies of Oldham (Lab)]

My Lords, I share my noble friend’s disappointment at the Minister’s reply. I understand what the Minister says about the review of VAT—that it is about simplification—but it is also an opportunity. If the Education Minister can devote a levy on soft drinks to school sports in order to tackle the problem of obesity, why on earth can we not look at using VAT to tackle the acute problems associated with alcoholic drinks and heavy drinking, which need resources?

[Baroness Neville-Rolfe]

Alcohol is a problem and I think I gave a positive answer about the direction of travel, outlining the issues regarding EU rates and the structure of alcohol duties. The truth is that alcohol and obesity are problems right across the board. That is one of the reasons why local authorities have £16 billion for public health over the spending review period, in addition to the PHE funding and what the NHS itself spends on prevention. Our GPs do a marvellous job and I have been very struck by the way they support the measures we need on alcohol. However, I take the point that the licensing and tax regimes are also important.

[Baroness Watkins of Tavistock (CB)]

My Lords, are the Government content with the way in which white cider is currently marketed and taxed? White cider is in fact not cider at all, and many bottles contain the equivalent of 11 units of vodka. In some shops, it is cheaper per litre than milk. I understand that there is the potential to increase tax on this product within the EU guidelines to reduce its destructive effects, particularly on young people.

[Baroness Neville-Rolfe]

We have made the changes in the juice rules that I mentioned and have had a number of representations, including perhaps from the noble Baroness, about white cider in the context of the Budget. I would add only that the UK cider industry is an important part of the rural economy and uses almost half the apples produced in this country.

[Lord Rennard (LD)]

My Lords, the Sheffield Alcohol Research Group has suggested that a 50p minimum unit pricing for alcohol, together with the duty escalator, could prevent around 700 deaths a year from alcohol-related causes. Would it not therefore be in the interests of the country, the NHS and the Treasury to introduce such policies?

[Baroness Neville-Rolfe]

We have already banned sales in England and Wales below duty and VAT, but the minimum unit pricing introduced in Scotland is subject to an appeal in the Scottish courts. While that is continuing, the introduction of unit pricing in England and Wales has to remain under review.

Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017

Baroness Neville-Rolfe Excerpts

Monday 6th March 2017 Lords Chamber

Moved by

[Baroness Neville-Rolfe]

That the draft Regulations laid before the House on 10 January be approved. Considered in Grand Committee on 28 February.

Motion agreed.

Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017

Baroness Neville-Rolfe Excerpts

Tuesday 28th February 2017 Grand Committee

Moved by

[Baroness Neville-Rolfe]

That the Grand Committee do consider the Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017.

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, the regulations we are looking at today help to ensure that we have an effective system in place to handle the failure of investment banks. Our approach simplifies and speeds up the special administration process and reduces the cost of the administration for clients and for creditors.

It is of course worth recalling that the collapse of Lehman Brothers taught us that our insolvency regime was not capable of dealing effectively with a failure of a large and complex investment bank. Against that background, we introduced the investment bank special administration regime in 2011 with the aim of changing the insolvency rules so that they more adequately protected the interests of clients. The legislation, rightly, includes a provision for review. I pay tribute to Mr Peter Bloxham, an insolvency lawyer who was appointed to lead this and whose final report was laid before Parliament in 2014. The purpose of the regulations is to improve the functioning of the regime by implementing the Bloxham review recommendations and learning from investment bank insolvencies in recent years.

The reforms we are making seek to strengthen the administration process in three ways. First, the regulations make it easier for an administrator to transfer client assets to an alternative firm. This will benefit clients in the event a firm fails by ensuring they have continued access to investment services. The regulations provide an administrator with the power to transfer the whole investment firm to another institution in spite of certain restrictions which can delay or disrupt this, such as the need to obtain client consent from all affected clients before the transfer can take place. Importantly, the regulations include key safeguards to protect clients and their interests. Clients will be able to request the return of their assets following the transfer, while client risk-management arrangements that the firm has in place will be protected.

Secondly, the regulations make the administration process simpler and quicker by strengthening and extending the bar date mechanism. This is a procedure that gives the administrator the power to set deadlines for clients to submit claims for the return of their assets. In the past, some administrators have been unable to close the client estate following the bar date procedure, allowing the administration process to drag on. These regulations therefore introduce a “hard” bar date, a power which enables the administrator to return assets more quickly to clients. I am very grateful to the chair of the House of Lords Secondary Legislation Scrutiny Committee, my noble friend Lord Trefgarne, for the time his committee has dedicated to reviewing the regulations. The committee paid special attention to the bar date mechanism and I always welcome its expertise and engagement on these sorts of provisions.

Thirdly, the regulations provide greater legal certainty for clients and creditors. This addresses a key weakness in the existing regime. One key change is clarification of a client’s right to receive interest on their claims during the administration process. We are taking away the perverse incentive to engage in arbitrage between client and creditor estates that occurred in previous administrations. In addition, the regulations clarify when an administrator needs to go to court to seek a direction on certain matters. Taken together, these reforms improve the speed at which assets can be returned to clients and enable the administration process to operate both more efficiently and effectively.

The changes we are making were broadly supported in consultation with the different parts of the market that would be affected by the failure of an investment bank. We also took advice from the Banking Liaison Panel on specific aspects of the regime, particularly the safeguards in place. I regret that we did not publish a consultation response document. However, in the Explanatory Memorandum and impact assessment accompanying the regulations, we presented a summary of the eight responses we received. I also note that we did not carry forward a duty on firms to co-operate with the administrator. Following discussions with the Joint Committee on Statutory Instruments we assessed that existing statutory duties that require firms to provide information and documents to the administrator would be effective. These existing duties will enable clients to access their assets quickly and efficiently without imposing an additional and overlapping duty on firms.

These regulations are an important step forward. They are a reflection of the lessons we have learned from the past failures of investment banks but they are also a reflection of the strong future of our banking and financial system. With the reforms we are proposing today, we will be better able to ensure the financial security of the UK and continue London’s role as a leading financial centre. I beg to move.

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for introducing this order. As she has already outlined, the purpose of this instrument is two-fold: to correct the definition of “investment bank” and to extend elements of the special administration regime, the SAR, which is the administration procedure for insolvent investment banks. These measures are part of an effort to improve the regulations and processes that govern the financial services sector. We oppose none of the measures the Government are proposing to introduce, but I have a number of points that I hope the Minister can clarify.

Part 2 of the instrument alters the definition of “investment bank” to include alternative investment funds and undertakings for collective investments in transferable securities. It was the intention of the original legislation that such firms be included in the SAR. However, they have fallen out of scope as an unintended consequence of the introduction of other legislation. As has been said, this is merely a correction. In practical terms, it increases the number of banks covered by the legislation from 700 to 1,000. May I be assured that this rise has been taken into account when considering the resources needed to communicate changes to the SAR?

I will focus the bulk of my time on Part 3 of the regulations. After much discussion, the Banking Act 2009 did not include any specific reform of investment bank insolvency. However, it provided an enabling power to pass new regulations that had to be reviewed within two years. Accordingly, the special administration regime was introduced in the Investment Bank Special Administration Regulations 2011. Peter Bloxham carried out a review and published recommendations in January 2014. This instrument implements some of those recommendations.

The most substantive change the regulations will introduce is changing the “soft” bar date to a “hard” bar date. Under the current legislation, claimants who fail to claim before the bar date can still receive client assets. The introduction of a “hard” bar date would remove this right. This seem perfectly reasonable. The client asset can be closed more swiftly and at a lower cost. However, the key question I have about this switch is how much longer the process of insolvency will last as a result. If I am not mistaken, the “hard” bar date will not be automatic. The administrator will have to apply to the court. For the court to accept a “hard” bar date, it must be,

“satisfied that the administrator has taken all reasonable measures to identify and contact persons who may be entitled to the return of client assets”.

How long do the Government expect the administrator will need before it can collate all this information?

Furthermore, new Regulation 12D(2)(b) sets out the criteria for when the court can grant an application for a “hard” bar date. The first of these criteria is that there can be,

“no reasonable prospect … that the administrator will receive claims for the return of client assets after that date”.

How can the administrator be sure that there is “no reasonable prospect”? Surely this will require extensive research. Again, will this not result in delay before the administrator is confident it has a strong case for the court? The longer a case of insolvency drags on, the greater the uncertainty, and with uncertainty the prospect of market instability.

The next issue is one my honourable friend in the other place the Member for Stalybridge and Hyde raised, relating to the mechanisms in place before assets are pooled, which could assist in a more efficient and reliable return on client assets. The Economic Secretary to the Treasury in the other place stated in response to my honourable friend’s questions that,

“the FCA has taken a number of steps to improve firms’ record keeping. These reforms have been extensively consulted on with practitioners who have experience in dealing with pooled accounts”.—[Official Report, Commons, Second Delegated Legislation Committee, 7/2/17; col. 8.]

I ask the Minister: what specific steps have been taken by the FCA and has it seen a reduction in the rate of regulatory non-compliance cases it deals with as a result?

I turn to the issues raised by the Secondary Legislation Scrutiny Committee. Why have the Government not published the full consultation response to the Bloxham review? I note the Minister’s apology but I hope she can go into a little more detail. I have read the explanation, as has the committee, and I have to say that neither it nor I are convinced by the answers so far. The Government state that:

“The areas raised in the consultation were largely technical in nature”.


Surely this is exactly the place where such technicalities should be debated and scrutinised. I look forward to hearing a more detailed response from the Minister as to why the Government feel it is appropriate to flout their own consultation principles.

My final query for the Minister relates to the procedures used in the event that the administrator’s conduct is challenged. The new sub-paragraph (e) in paragraph 14 states that the FSCS, the financial services compensation scheme:

“may make an application … on the grounds that the administrator is not performing the duties … as quickly or as efficiently as is reasonably practicable”.

I note that the new Section 10A(b) inserted by the order says the administrator must “keep the FSCS informed”, but what does the Minister anticipate that will mean in practice? Surely in order for the FSCS to be confident that the administrator is not fulfilling his statutory duty, he must have detailed knowledge of the workings of the operation. What criteria will be used to judge whether an administrator has failed, and by whom? If the administrator is found to be inappropriate, whose responsibility is it to complete the insolvency? I look forward to the Minister’s response.

[Lord James of Blackheath (Con)]

My Lords, may I intrude a word into this debate? There is an aspect of 2008 that has never been corrected, and which did a great deal to disguise the extent of the insolvencies existing at that time. It might now perhaps be possible to squeeze a solution into something like this.

There is a practice that was prevalent in cases such as Bradford & Bingley and Northern Rock: if a bank or building society had a house on which it had an outstanding loan of, say, £10,000, and the house was worth £1 million, it entered the whole £1 million as an asset on its balance sheet, although it had no legal access or right to that surplus value. Banks did that solely to emphasise the extent of the solvency that they could demonstrate for their loans, but it made a complete distortion of what the balance sheet really was and misled people into letting them trade on for too long. Nowhere have we ever corrected this in any of the accounting rules. This may be the last chance saloon.

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord, Lord Tunnicliffe, and I will try to address his various questions. I am very grateful to my noble friend Lord James for his comments, and I will see if I can answer his question. If I am not able to do so today, I will certainly write.

We all share an interest in ensuring that we handle the failure of an investment bank effectively. That is not only for the benefit of any clients or creditors who will be involved but to the benefit of our whole financial system. Since the investment bank special administration regime was introduced in 2011, firms operating under the procedure have given us valuable insights into how we can improve it, and in particular how we can improve the ability of clients to receive their assets as quickly as possible in the event of a bank failure. The return or transfer of client money could take as little as 30 days, but closing a whole estate can be very complex and is obviously very unlikely to occur in less than a few months.

The noble Lord, Lord Tunnicliffe, asked whether the Treasury had considered the number of banks in scope of this legislation. He referred to the number going up from 700 to 1,000, and he was concerned about the communication resource in relation to that. In fact administrators believe that the additional costs of familiarising themselves with the regime will be negligible; indeed, the impact assessment shows that there are thought to be savings from these changes. In the majority of cases, the amendments provide helpful legal certainty.

--- Later in debate ---

[Lord James of Blackheath]

May I suggest that the matter could be taken up with the Accounting Standards Board?

[Baroness Neville-Rolfe]

I can certainly agree to talk further to my noble friend, and if talking to the Accounting Standards Board seems to be a good way forward, I would be happy to do that. I am grateful to him for raising the point.

I conclude by saying that these regulations make important reforms to strengthen the investment bank special administration regime. I hope the Committee will join me in supporting our efforts and this Motion.

Motion agreed.

Brexit: Financial Services (European Union Committee Report)

Baroness Neville-Rolfe Excerpts

Thursday 9th February 2017 Lords Chamber

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, the noble Baroness, Lady Falkner of Margravine, and her committee have produced an excellent, clear report. I thank her, and others, for the warm welcome they have given me in my challenging new role. I join others in thanking her and members of the committee—some of whom, along with others, have spoken with great clarity today—for their work. I especially thank the clerks, who have done a really good job at great speed.

It is obvious that financial services will be an important component of the EU exit discussions and it is helpful to have a comprehensive document covering all the issues at this exact stage—as well as to have this debate before we submit our government response to the committee. This debate is especially useful to me, as only last week I was given responsibility within the Treasury for EU exit on financial services. I can reassure noble Lords that I have a long history of working with, and operating in, the EU and I believe that we can build a strong new partnership on financial and economic matters.

The links between the UK and our nearest neighbours in Europe are numerous and long-standing, as the Prime Minister said when she highlighted financial services as a priority. Above all, it is in our interest for the EU to flourish and we will be aiming for the freest possible trade in financial services between the UK and the 27 member states.

I am especially grateful to my noble friend Lord Caithness, who gave us the benefit of his experience at the Treasury and an insight into the global future. This underlined to me the importance of maintaining the UK’s pre-eminence in financial services. Having, like him, operated for many years in the EU, working with EU partners, I very much agree about the importance of language. Notions such as seeking common ground are good concepts in negotiation.

The noble Earl asked about the risk of currency devaluations. He will remember that Treasury Ministers have to be very careful about what they say regarding currency. However, since the financial crisis, the Government have strengthened the domestic financial stability policy framework and, as the Governor of the Bank of England noted, the UK financial system has passed several tests over the past year. The Treasury, the Bank, the Prudential Regulation Authority and the Financial Conduct Authority will continue to monitor any risks closely. That is very important and reassuring.

As a glass-half-full person, I was glad to hear the noble Lord, Lord Butler of Brockwell, sound more optimistic than he did at the time the committee produced its report. My noble friend Lord Eccles and the noble Earl, Lord Kinnoull, felt the same. The noble Lord, Lord Butler, is right about the interest that the EU has in a sensible outcome. He may well know that four-fifths of EU 27 capital market business is conducted through the UK, and he is also right to say that we need to keep close to each other.

One key issue that the report discusses is that of access to EU markets. I listened with great interest to the noble Lord, Lord Dykes, who said how important it was to remain a confident country in this time of change. The Prime Minister helped us here with her speech at Lancaster House, in which she made it clear that we would not seek membership of the single market. Instead, we are seeking a new strategic partnership with the EU that complements the needs of our industries, including the needs of financial services companies and their customers.

That means that we are working closely with firms to understand what issues Brexit raises for them and what a good outcome might look like. Our work so far shows that the answer to that question varies enormously according to whom you ask. Many firms, for example, across banking, asset management, insurance and payment services, which currently trade across borders, benefit from passporting rights, but that is less true of firms that provide retail financial services chiefly within the UK, such as domestic insurance firms and high street retail banks.

We are working to understand the needs of the wide spectrum of financial services interests in the UK. That includes, for example, the car companies, which provide lease financing for most new cars bought in Britain today. It means understanding the interests of the wider financial and related professional ecosystem—a word that others have used—including accountants and lawyers, as well as thinking about the interests of consumers of financial services, including the less well-off or those who might be misled. I liked the example given by the noble Lord, Lord Butler, about car insurance for travellers in Europe.

As the report rightly notes, various elements of EU financial services legislation contain equivalence provisions, some of which can offer a basis for firms from third countries to provide services across the EU. We have heard calls from our stakeholders on this and studied the industry analysis proposing these equivalence regimes as the basis for future market access.

The noble Lord, Lord Tunnicliffe, asked about the depth of discussion on passporting rights. The simple answer is that at nearly every meeting on financial services interests there is a discussion of passporting rights—but, as with equivalence, different people are talking about different things. We need some flexibility in our negotiations, but I reassure this House that in our new strategic partnership we will seek the freest possible trade in financial services between the UK and the EU. In the Prime Minister’s words, it will be on the basis of a “bold and ambitious” free trade agreement.

As the committee’s report noted and our debate today has illustrated, this is an exceptionally complex set of issues. For this reason, I am determined that consultation with our industries and stakeholders should continue throughout the negotiating process, which will enable us to improve our evidence base and understand the impact of different scenarios. Those themes from the report were picked up by the noble Lord, Lord Tunnicliffe. The noble Lord also asked about Dodd-Frank. It is frankly early days on that. Our simple aim is to secure the future of a sector responsible for 7% of GDP and over 1 million jobs.

A second area of enormous significance to the sector is to avoid a so-called “cliff edge”. As the report highlights, this will be important to a large number of industries across the entire EU. For financial services firms, this is of particular importance because of the deeply integrated market for financial services and long-established regulatory coherence. To pick up on the points made by the noble Baroness, Lady Falkner, we want to give businesses enough time to plan and prepare for the new arrangements that will be in place. We want the change from where we are now as EU members to our new relationship with the rest of the EU to be as smooth and orderly as possible. It is in recognition of this that the Prime Minister has made it clear since the committee reported that a phased process of implementation will be sought.

I understand the noble Baroness’s point about the need for an early agreement on phasing to help allay the concerns of the financial services industries. We also believe that such a phased process of implementation can be in the mutual interest of the UK and the EU. Inevitably, the details of the timing of the implementation period will have to be discussed through the process of negotiation with our EU partners.

A third priority that many noble Lords touched on, including the noble Lord, Lord Desai, and the noble Earl, Lord Kinnoull, and which I think is extremely important, is access to talent. The noble Earl, Lord Kinnoull, warned that capital follows talent. I certainly remember that from my time in business. For some, it is the overriding issue. Fintech firms, for example, tell us they rely on drawing from an international talent pool. Europe leads on fintech, much of it here in London, and we are committed to staying at the cutting edge of financial innovation. Let me highlight the statistic from the report that is so telling on talent: of the 1 million or so people who work directly in our financial services, 60,000 are EU nationals and 100,000 are non-EU nationals. To respond to the noble Earl, we recognise that the ability to attract and look after highly qualified staff and transfer them easily between the UK and the EU is a key issue, including for insurance.

In future we must ensure that we can control the number of people coming to the UK from the EU. We are considering the options for our future immigration system very carefully. As part of that it is important that we understand the impacts of different options on different sectors of the economy and on the labour market. Companies are not only discussing with us how we keep attracting new talent; they want to know what it means for the international staff they already have and value. It is a priority for the UK to be able to guarantee the rights of EU citizens already living in Britain, and the rights of British nationals living in other member states, as soon as possible. That must be agreed on a reciprocal basis and we stand ready to sign up to this and to do so soon if it can be agreed with our EU partners.

I turn now to the international dimension. My noble friend Lord Caithness asked about the Prime Minister’s meeting with President Trump in the United States. The trip in January was very positive. I felt very proud of the Prime Minister. Obviously I cannot comment on the private detail of the conversation but the Prime Minister set out that there is a shared commitment to economic co-operation and trade between the United States and the UK. The UK has always been a leading voice for free trade in the EU and globally. That will continue. I always say that trade is in our DNA.

The Government agree with the committee’s assessment of the UK as a global financial services hub and the depth of capital market activity it fosters—to the benefit of Europe as a whole, its pensioners, its businesses and its public sector bodies and their customers. The UK and the EU have a mutual interest in ensuring that specialist activities, such as clearing do not end up in New York. The noble Lord, Lord Shutt, talked about possible job implications. I will say two things. First, I saw Mr Xavier Rolet today. He is one of the first experienced leaders in this industry that I have had the pleasure to consult. He gave me a copy of the EY report.

Secondly, as the committee’s report identifies, many firms in the UK, in the rest of Europe and internationally benefit from London’s multicurrency clearing structure. The Chancellor himself has pointed out that any changes to the structure could force up the cost of clearing, with a substantial cost to the European economy and to firms in the 27 member states—and cost is an important motivator. We will look at the committee’s recommendations on clearing very carefully in responding to the report.

My noble friend Lord Caithness asked about financial services regulatory co-operation in future trade deals, which was a very good question. The Prime Minister has said that the UK will be free to strike trade deals around the world after exit because of the approach that we have taken. That includes financial services. Trade deals involving non-tariff barriers, which have been mentioned, such as regulation, are also important and can be part of discussions on any new trade deal.

As the noble Lord, Lord Desai, said, we have played a major part in the architecture of the international financial system. We agree that we need to ensure that the UK, with its expertise, experience and eye for detail, continues to have influence over international standards with a voice on things such as the Basel Committee, the Financial Stability Board and other international fora such as the International Organization of Securities Commissions and the International Association of Insurance Supervisors. These international bodies could not be more important.

A priority of the Government is to consult external expertise extensively at this time and I am grateful for the vast amount of input that we have already had at every level in the Treasury and in DExEU. We are not talking just to those businesses with whole new Brexit strategy departments and consultants. We are also talking to those with none and to start-ups, supply chains and other stakeholders. We are also engaging outside London, where, as the noble Lord, Lord Shutt, said, we have large numbers of financial services jobs. There are, for example, around 140,000 people in this sector in Scotland, Northern Ireland and Wales—think of Standard Life or Virgin Money in Edinburgh, Legal & General in Cardiff, and Citi in Belfast. Indeed, next week I will visit Wales in my new role and hope to meet some financial services stakeholders.

We will keep up this process of listening to expert views from a range of standpoints as the negotiations kick off and progress. I hope not to be criticised by this House for lack of vigour. I know that many noble Lords have expertise in these areas. I therefore take this opportunity to invite them to contact me if they have advice to proffer.

I have focused my remarks largely today on two things: the needs of our varied financial services sector as we leave the EU, and how we are researching, understanding and analysing those needs. While some are more optimistic than others, there is a wide measure of agreement today that we need to secure the freest possible market access, the smoothest possible transition, and the ability to recruit and retain the best and the brightest. This matters to those people whose jobs depend on this industry—more than 1 million people in this country. It matters to the wider UK economy. Financial services contribute around £66 billion a year in tax and represent a growing percentage of our exports. It matters to our partners across Europe—and, of course, we are a gateway to the world of international finance.

It has been a pleasure to debate this perceptive and timely report. I again express my appreciation to the noble Baroness, Lady Falkner of Margravine, and the team that she chaired so expertly, for their conclusions.

Bank of England and Financial Services (Consequential Amendments) Regulations 2017

Baroness Neville-Rolfe Excerpts

Tuesday 24th January 2017 Lords Chamber

Moved by

[Baroness Neville-Rolfe]

That the draft Regulations laid before the House on 2 December be approved.

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

The Bank of England and Financial Services Act 2016 provides for ending the Prudential Regulation Authority’s status as a subsidiary of the Bank of England. It transfers the functions of the PRA to the Bank, and provides that when the Bank is acting as the Prudential Regulation Authority its functions are to be exercised through a new Prudential Regulation Committee, which will have a majority of external appointees.

Making the Bank the Prudential Regulation Authority, and requiring it to exercise its functions as the PRA through the Prudential Regulation Committee, a statutory committee on the same footing as the MPC and FPC, means elevating the microprudential role to the same level as monetary policy and macroprudential policy. This is an upgrade. It reinforces—to Bank staff but also to the public, to whom the Bank must be transparent and accountable—that the Bank is not simply an organisation dedicated to setting interest rates, but one with equally important macro and microprudential responsibilities. The Bank has told us that closer integration has increased the feeling among PRA staff that they are integral to the Bank’s mission and have broader opportunities for progression across the whole Bank.

Where do these regulations fit in? Lots of existing legislation contains references to the Bank, the PRA or both. Before the provisions in the Act ending the PRA’s status as a subsidiary can come into force, we need to make consequential amendments to existing legislation so that references to the Bank and the PRA continue to make sense once the Bank and the PRA are the same.

In some cases existing legislation applies to the Bank and the PRA differently. Where this is the case, we have maintained the existing difference. For example, the Terrorism Act 2000 excludes from that Act’s definition of the “regulated sector” business conducted by the Bank. It does not exclude business conducted by the PRA. These regulations maintain this state of affairs by specifying that the reference to the Bank in Schedule 3A to the Terrorism Act 2000 does not include the Bank acting as the PRA.

In other cases, existing legislation applies to the Bank and the PRA equally. I shall not go through the detail, but in these cases the regulations simply remove references to the PRA and confirm that references to the Bank include the Bank when it is acting as the PRA.

The regulations represent the final legal tidying-up necessary to implement the provisions of the Bank of England and Financial Services Act 2016, which ended the subsidiary status of the PRA. I beg to move.

[Lord Tunnicliffe (Lab)]

I thank the Minister for introducing these regulations—and my speaking notes go on to say, “and I thank those who have spoken in this short debate”, but it has been short indeed. As has been identified, this is an uncontroversial statutory instrument, which makes consequential amendments to legislation where references to the Prudential Regulation Authority are made. We understand that these are tidying-up changes and have no intention of opposing this instrument.

I do not wish to keep your Lordships unduly, but it is important to mention what we regard as the wider implications of the primary legislation. The PRA, established by the Financial Services Act 2012—an exercise in which I participated, as I have with every piece of legislation to do with it ever since; that is why I now look so old—will be de-subsidiarised, giving the Bank of England control over microprudential regulation. The board will be replaced by the Prudential Regulation Committee, which will sit on the same statutory footing as the Monetary Policy Committee and the Financial Policy Committee.

As your Lordships will recall, our main concern was to ensure that those in positions of power and authority within the banking sector were properly accountable. However, we also queried the Government's rationale for bringing the PRA within the scope of the Bank of England. I would like to make two points. First, I start from the same position as I did at the end of 2015, when what is now the Bank of England and Financial Services Act was going through your Lordships’ House. As I said on the second day of Committee on 11 November 2015:

“I think the Bank will move its emphasis from the Monetary Policy Committee towards the FPC”.


The nature of our economy is changing. The powers of the FPC, including controlling the creation of credit, are absolutely fundamental to how efficiently the money system supports the economy, and hence are fundamental to the economy. Under the system which the 2016 Act abolished there were at least checks and balances.

I went on to say that the PRA was,

“a subsidiary—an independent company … governed by company law—and, therefore, there has to be an arm’s-length relationship between it and the FPC. Under the various terms of the Act, the FPC can create various macroeconomic tools, which it then hands down to the PRA. It hands those down not through some side-channels or influence but, because of that independent legal status, in a very formal way to its subsidiary, and I think that is healthy. I do not believe that in effect moving the PRA closer to the Bank—and, by definition, closer to the FPC—is a good thing. The present separation is working, and I think we should continue it”.—[Official Report, 11/11/15; col. 2005.]

Indeed, one of the benefits of subsidiary status—I should know, having headed a subsidiary company of a large organisation—is that one gets to focus on the business, so that there are clear lines of responsibility. As was brilliantly articulated by my noble friend Lord Eatwell, the 2016 Act muddies these lines of responsibility and, as he said,

“renders the governance structure of the Bank of England opaque”.—[Official Report, 9/11/15; col. 1851.]

The lines of demarcation set out in the Act relating to the PRC seem to add yet another layer of bureaucracy and complication to a new system which for all intents and purposes was functioning as it should. What specific work has been done since the Act came into force last year to ensure the same levels of accountability and transparency, and how will those qualities be visible to the general public?

Presuming that the Government do not take of heed of my advice, the PRA will be abolished and the PRC created. When will this transition take place? The Act states that an order will be introduced by the Treasury to give effect to the Act. Should we expect that order by the end of this Session? I thank the Minister in anticipation for her response. I am in no way saying that we are not impressed by the performance of the Bank of England. Nevertheless, the reasons she gave seemed rather fluffy to justify giving up the clarity that the present subsidiary status provides.

[Baroness Neville-Rolfe]

I am grateful to the noble Lord for his support for the regulations—and, indeed, for his dedication to the scrutiny of the 2016 Act and its subsequent children. He feels that the Act made the governance structure of the Bank of England opaque. I disagree: I welcome the changes, because I believe they make that governance better and clearer. Before the 2016 Act the MPC was a committee, the PRA was a subsidiary and the FPC was a sub-committee of the court, which is, of course, the Bank’s board.

With the changes in the Act, all three are now policy committees established on the same statutory basis, with clear statutory objectives and processes. The noble Lord asked what had happened since the Act came into force to improve accountability and transparency. Since it came into force last year, the National Audit Office has been able to conduct value-for-money reviews at the Bank for the first time, and the MPC’s new practice of publishing its minutes has swiftly become a legal requirement. Once the new PRC is created it will have to report every year on its resources and the independence of its operations, and produce a separate statement of accounts to ensure that the industry levy is limited to funding PRA functions.

[Lord Tunnicliffe]

My recollection is that the MPC has to report eight times a year, and the FPC, in practice, produces a report at least quarterly. Will the Prudential Regulation Committee produce regular reports of its activity—more regularly than annually?

[Baroness Neville-Rolfe]

The current plan is that it will report every year on its resources and the independence of its operations.

I will respond to the noble Lord’s question on timing. The provisions giving effect to the transfer will come into effect on 1 March this year—very soon—to ensure that the transition is aligned with the Bank’s financial reporting year.

The Bank of England has come a long way since it was established in 1694 to finance the war of the Grand Alliance against France. At that time, it only had 19 officials, including two doorkeepers. Now the Bank of England, including the PRA, has about 3,600 officials and has picked up a few additional responsibilities in the intervening 323 years. These regulations play their own small part in that process. I thank the House again for today’s exchange and commend the regulations to the House.

Motion agreed.

Tax Avoidance

Baroness Neville-Rolfe Excerpts

Wednesday 18th January 2017 Lords Chamber

[Lord Harries of Pentregarth]

To ask Her Majesty’s Government what further steps they intend to take to stop aggressive tax avoidance schemes by individuals and companies.

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, during this Parliament we have announced that we will legislate for over 30 measures to tackle avoidance, evasion and aggressive tax planning. This includes a package of changes that close down avenues for tax avoidance by multinationals. We have also announced a new penalty for the enablers of tax avoidance that targets all those in the supply chain of tax avoidance arrangements.

[Lord Harries of Pentregarth (CB)]

I very much welcome the Government’s legislation to make international companies more transparent, and in particular to reveal the real centre of their economic activity and any possible misalignment between that and where they declare their profits for tax purposes. However, given that multilateral action is now less likely as a result of the decision to leave the European Union, will the Government take the lead on this legislation and ensure that companies have to reveal these data as part of their accounts, beginning with the next financial year?

[Baroness Neville-Rolfe]

The noble and right reverend Lord is right that we have very much been at the leading edge in this area. Our principle is that we should tax companies on where their activities take place. The OECD base erosion and profit-shifting projects, which we have been very much leading on, avoid strategies that artificially shift profits to low-tax or no-tax jurisdictions where there is little economic activity. That seems vital. Transparency is also important, as the noble and right reverend Lord says, but obviously that is something we have to tackle by acting together internationally. Our international work on tax avoidance and evasion continues, quite apart from anything that is going on at EU level.

[Lord Davies of Oldham (Lab)]

My Lords, the Government are not at the leading edge of collecting taxes. They are in the process, over a five-year period, of implementing agreed EC tax avoidance measures. The Government expected that that would raise a certain amount of money but at present the total is £2.6 billion below what they had anticipated. Are the Government aware of how this looks in Europe? Do we not really need to reassure Europe on these matters? Otherwise, the sense Europe has that we might go for low taxation and look to be an offshore tax haven will strengthen their negotiating stance across all Treasury matters in the forthcoming negotiations.

[Baroness Neville-Rolfe]

I really do not see things that way at all. Actually, the UK tax gap is one of the lowest in the world. We are investing in work on avoidance and evasion, with an extra £800 million for HMRC, while the work we have done to bring in accelerated payments has yielded £3 billion in extra tax since 2014. The noble Lord talks about tax havens. I think the Prime Minister made it quite clear yesterday that Britain wants a new partnership with the EU and is hoping that we will get a good deal. The point about tax havens was the need to change the economic model if that was not possible. I am hopeful that, with that new agenda she set out, we will get a very positive agreement in this area.

[Viscount Hailsham (Con)]

My Lords, does my noble friend understand the concern of many of those who have to advise on statute law? Does she understand that it is undesirable to give to the courts a power to strike down an arrangement which complies with the letter of the law on the grounds that it does not comply with the spirit of it? The trouble with that is that it produces unpredictability and therefore injustice. Better by far, if Parliament is unhappy with the interpretation of law, to amend the primary legislation.

--- Later in debate ---

[Baroness Neville-Rolfe]

I am always very interested to hear from my noble friend on such issues. This is a complex point which, as a new Treasury Minister, I look forward to talking to him about to understand the implications in this important area of evasion and avoidance. Since the coalition, there has been a lot of agreement on the need to move forward sensibly, whether by statute or the intervention of the courts.

[Baroness Kramer (LD)]

My Lords, many of us have been very confused as to why the Government put so little effort into persuading the UK’s overseas territories and Crown dependencies to lift the secrecy that covers tax avoidance. Are we now finding that the answer, as the Chancellor expressed to the German Government, is that he sees a tax haven as a potential economic model, even if by default, for the UK economy—in contravention, I suggest, with long-held British values and the basis of our economy?

[Baroness Neville-Rolfe]

I think I have already made clear the context of the Chancellor’s remarks. We are seeking to get a good agreed deal, but clearly, you cannot forecast that. The CDOTs have now all signed up to the common reporting standard and started exchange of information in September last year. This is a result of the sort of international discussion and agreement that we need on these abuse issues, where I believe this country has led the way and, if I might say so, the coalition did some ground-breaking work.

Economic Forecasts

Baroness Neville-Rolfe Excerpts

Tuesday 17th January 2017 Lords Chamber

[Lord Dobbs (Con)]

My Lords, at his request and with the leave of the House, I beg leave to ask the Question standing in the name of my noble friend Lord Forsyth of Drumlean.

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

In quarter 3 of 2016, following the EU referendum, UK GDP growth was 0.6%, and the unemployment rate is now 4.8%. These figures show that not only was the economy stronger than we thought going into the referendum, it has been much more resilient than many people projected—“a brighter future”, in the Prime Minister’s words. The short-term pre-referendum analysis published by the Treasury was based on a specific set of assumptions, some of which have already proved invalid.

[Lord Dobbs]

My Lords, what a joy it must be for us all to see business confidence rising and industry expanding; what excitement there is in seeing so many great, global countries recommitting themselves to Great Britain; and what a sadness for so many of us to see so many so-called experts having got it so wrong so frequently. Michael Fish got it wrong just once, not every night for six months. Does my noble friend agree that we have a clear objective, we have a clear agenda, and it is now time for all of us, no matter what side we took during the referendum campaign, to accept the very clear instructions of the British people and help to deliver the very best Brexit deal that common sense and common European interest can deliver?

[Baroness Neville-Rolfe]

I agree with my noble friend that we should try to deliver the best deal for this country that we can. Obviously, the analysis was based on a specific set of assumptions. They may have seemed sensible at the time but, with the benefit of hindsight, these things are always difficult. The Treasury also cited the uncertainty that a leave vote would cause, weighing on the economy, and it was therefore good to see certainty at the top of the Prime Minister’s list of objectives today.

[Lord Davies of Oldham (Lab)]

My Lords, not all facts are as rosy as the noble Lord, Lord Dobbs, suggests. In hard facts, are we not dealing with a significant depreciation of the currency and a consequent rise in inflation which will cause difficulty for those of our fellow citizens who cannot readily raise their incomes? Is it not the case, whatever the rosy view on the other side of the House, that despite the drop in the value of the pound we have the highest levels of deficit on our current account ever recorded, so not much has yet fed through to our exporters?

[Baroness Neville-Rolfe]

As a new Treasury Minister, I am very aware that I should not comment on currency movements, but we are very lucky in this country to have the independent Bank of England. It has an inflation target; we do not target the exchange rate. The performance of the economy has been stronger since Brexit than any of us feared with, for example, good household consumption figures recently.

[Lord Tomlinson (Lab)]

My Lords, does the noble Baroness agree with the Governor of the Bank of England, whom she has just praised, in his analysis but two days ago, when he said that the high levels of consumption in this country are kept up by unsustainable levels of household debt—that we are living now and will have to pay for it in the future?

[Baroness Neville-Rolfe]

I always listen with great care to what the governor says. Of course, unsecured debt as a share of household income is in fact lower than it was before the financial crisis. It is true that the savings ratio has come down more recently to 5.6%. That often happens in a recovery. I go back to the point that I made at the start: UK GDP growth has been strong relative to other leading OECD nations, and the unemployment rate is extremely low in this country, which is very good for working people across the UK.

[Lord Lawson of Blaby (Con)]

Will my noble friend ignore the misery mongers on the Opposition Benches? Is she aware that some time back, long before the beneficent Brexit decision, the majority of economists, including the Bank of England, were saying that sterling was overvalued and needed to come down, and that inflation was too low—far below the 2% target—and needed to go up? When these things are gradually happening, they then say it is a disaster. Would she like to comment on that?

[Baroness Neville-Rolfe]

I very much agree with my noble friend that we always need to look at the opportunities. As I have often said, I am glass half full, not glass half empty. Like the Prime Minister, I am determined that we should pursue a good Brexit and a bold and ambitious free trade agreement with the European Union, if I may pick up the comments that were made in relation to Mr Ricardo.

[Baroness Kramer (LD)]

My Lords, does the Minister understand some of the concerns at the kind of complacency that we have just heard expressed about a 20% devaluation of sterling, far higher than any recommended devaluation; soaring consumer debt, not quite yet at the crisis levels of 2008 but only a margin below; and inflation creeping into the system? I am sure that poor people will be glad to know that the noble Lord, Lord Lawson, celebrates the higher prices that they will be paying. Those have been recipes in the past for economic crisis. Should not the Government take more notice of what are not straws in the wind but major signals of problems ahead?

[Baroness Neville-Rolfe]

We have a system of carefully looking with the help of the independent OBR twice a year at where things are going and making the adjustments that we need. Indeed, I agree with the noble Baroness that there are long-term problems, and I am surprised that no one has mentioned the fiscal sustainability report that was published today—an independent and objective assessment, which looks ahead to the long term and will be an important catalyst for discussing some of the challenges we have in relation to the economy and how we fund the public services appropriately.

Savings (Government Contributions) Bill

Baroness Neville-Rolfe Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 12th January 2017 Lords Chamber

Moved by

[Baroness Neville-Rolfe]

That the Bill be now read a second time.

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, I am delighted that the first Bill I am taking as Commercial Secretary is about supporting people to save. As we know, saving is a hugely important topic and a very personal one for people up and down this country.

The reality is that families in the UK are not saving enough. The saving ratio is near a record low and it is estimated that 21 million people in the UK do not have £500 in savings to cover an unexpected bill. In the current economic climate it is important that households keep setting aside what they can afford to build their financial resilience and save for the future. Saving benefits the economy, helping to create stable, long-term economic growth, and it benefits individuals, helping them meet their aspirations and prepare sensibly for the future. So we want to make sure that all people in this country, no matter their circumstances, have the tools at their disposal to save money in a way that works for them.

There have been a number of initiatives in this area over recent years. The personal savings allowance put an end to 17 million people having to pay tax on the interest they received on their savings. There have been substantial increases to the ISA allowance: from April people can save up to £20,000 in this tax-advantaged wrapper. The Autumn Statement announced further support for savers with the introduction of a new market-leading three-year savings bond from NS&I in spring 2017.

To help even more people save for the future, this Bill brings in two new schemes: the lifetime ISA and Help to Save. I will introduce them in some more detail. First, the lifetime ISA provides a new option for younger people who are looking to save for the long term. Essentially, this is designed to offer people more flexibility in how they save. For some people, the existing support that is available will be sufficient. There is already, for example, a good level of support provided through the pensions system, particularly thanks to automatic enrolment, a policy that has attracted support, rightly, on all sides of this House. It makes it compulsory for employers to enrol people into a pension scheme and contribute towards it.

However, when we did a consultation on pensions tax relief back in 2015, we found that younger people in particular could find pensions inflexible. So we looked at what more we could do to provide more choice and flexibility for them. That is why we designed the lifetime ISA to offer that as a complement to the pensions system. Adults will be able to open an account from the age of 18 to the age of 40, and carry on saving up to the age of 50. They can save up to £4,000 a year. They will earn a 25% tax-free bonus on their contributions from the Government, paid straight into the account, which represents a clear and attractive incentive to save.

The flexibility comes in how the lifetime ISA can be used. Savings under this scheme can be used to supplement your income in later life because you can withdraw funds, including the bonus, any time from the age of 60. But you can also use your savings to get on to the property ladder for a first home costing no more than £450,000. We know how important that is for many young people today. We were clear in our manifesto that we believe the chance to own your own home should be more widely available. Through the Bill, from April next year, people will have a new and more flexible way to save, which may be more suitable for their individual needs.

The other policy introduced in the Bill is Help to Save. This is another way in which we are looking to help people build up their savings, and this is specifically targeted at people on low incomes, for whom it can be a particular struggle to do so. In fact, research from the Centre for Social Justice estimates that 3 million low-income households have no savings at all. This is a serious statistic and one that we cannot ignore. Instead, we need to support and encourage more people to build up their resilience and become more financially secure. That is why it is the Government’s view that we should support those on low incomes who are trying to do just that by putting money aside on a regular basis. This Bill would therefore introduce a new Help to Save scheme no later than April 2018.

The scheme will be delivered by National Savings and Investments, building on its reputation as a trusted savings provider and ensuring that accounts are available nationwide. It would be open to any adult who is getting working tax credits, or who is getting universal credit and working enough to earn the equivalent of at least 16 hours pay at the national living wage. This means that there are around 3.5 million people who would be eligible for the scheme. Those eligible will be able to save up to £50 a month for two years—£1,200 in total—and then receive a 50% bonus on what they have saved. If, after those two years, they want to do that again for the next two years, they will be able to do so.

Help to Save offers a flexible way to save which we know that people value. First, there are no restrictions on what people are able to do with the bonus once they get it. Secondly, people will be able to take the money out at any time. There will not be any charge or penalty for doing so. That is why we see Help to Save as an attractive new scheme that would support and encourage people to save what they can. Having savings to fall back on can make all the difference to how well people can cope with unforeseen events that come their way.

Money Advice Service research in 2013 showed that 71% of UK adults faced an unexpected bill during the previous year. Research from the debt charity StepChange suggests that if a family has £1,000 in the bank, it is almost half as likely to fall into problem debt, by which is meant being in arrears with at least one bill or credit commitment. It is therefore really important that we take forward this scheme to help more people on low incomes build up a pot of money that can be spent however they want, but that might be particularly important in case of a rainy day.

The lifetime ISA and Help to Save are designed to do the same thing—namely, to reward those who are trying to save for the future and to encourage more people to follow their example. Whether it is young people saving flexibly for their futures or people on low incomes trying to set aside a bit of money each month, they deserve to have the tools to do that in a way that works for them. That is what these two new products offer. It therefore gives me pleasure to commend this Bill to the House.

--- Later in debate ---

[Baroness Neville-Rolfe]

My Lords, I thank all noble Lords who have contributed to the debate today, and I thank the noble Lord, Lord Tunnicliffe, for his very kind welcome. I certainly look forward to working with him and other noble Lords in this esoteric and interesting area and bringing light to the issues.

I think we all agree on the importance of people having effective tools to help them save money. As the noble Lord, Lord McKenzie of Luton, suggested, saving is important and we need the right quiver of incentives—and I welcome his support for Help to Save. I think there is an equal consensus around the need to encourage more people to save. I take the point that there may be more to do to publicise the progress that we have made on defined benefit pensions, described by my noble friend Lady Altmann—who is in a great position to encourage pensions saving and to explain how valuable it can be. However, I do not agree with her conclusion on the lifetime ISA: it has been supported by many, including the ABI, individual members and, indeed, Martin Lewis.

I turn to the link between the lifetime ISA and automatic enrolment, which was first raised by the noble Baroness, Lady Drake. I am well aware of her great expertise on pensions and, indeed, her role in the seminal Turner commission report—I remember well that huge report, which was very authoritative, arriving on my mat when I was responsible for pensions at Tesco, where we really cared a lot about helping people both to have a good pension and to save for their retirement. Those of us who care about pensions can be champions, as the noble Baroness, Lady Greengross, said. I share her respect for the work of Business in the Community, as she well knows.

I stress that we are fully committed to supporting people through the pensions system. Automatic enrolment will help 10 million people to be newly saving or saving more by 2018. The lifetime ISA is designed to complement that. It gives young people more choice in how they save for the long term. It is not a replacement for pensions. The Government’s policy towards employers reflects this. Employers have a statutory obligation to contribute towards pensions under automatic enrolment, as well as a direct incentive. Neither is the case with the lifetime ISA. Our impact assessment, based on an OBR-certified costing note, is clear that we do not assume that anybody will opt out of a workplace pension to save into a lifetime ISA—as the noble Baroness, Lady Drake, said.

The Help to Buy ISA is similar to the lifetime ISA in that it gives a 25% bonus to support people to buy a first home.

[Lord Tunnicliffe]

May I check the logic of that? Is the Minister saying that the OBR has certified that it is a reasonable assumption that nobody will opt out as a result of a lifetime ISA, or merely that it took that as an input assumption in doing its analysis?

[Baroness Neville-Rolfe]

As with all impact assessments, it is an estimate. We looked at the Help to Buy ISA, which is similar to the lifetime ISA in that it gives a 25% bonus to support people to buy a first home. That has not led to a surge in opt-outs. Instead, opt-out rates for automatic enrolment are still much lower than the Government expected, as several noble Lords said; they are currently 9%. The overall programme assumption was, I understand, 28%. We will of course regularly monitor the lifetime ISA going forward to make sure that it is achieving its aim—as the noble Baroness, Lady Greengross, suggested, and indeed as we do with all important policy areas. But I am not convinced, to respond to the point made by the noble Lord, Lord Tunnicliffe, that we need a formal annual review.

The noble Baroness, Lady Greengross, asked how many people using Help to Save were eligible for automatic enrolment. We set out our expectations of take-up of Help to Save. I am afraid that, as with all forecasts, there is uncertainty, so at this stage we are not able to say how many of these people will also be eligible for automatic enrolment.

Several noble Lords talked about guidance and communication. The Government announced in October 2016 that they plan to replace the three government-sponsored financial guidance providers—the Money Advice Service, the Pensions Advisory Service and Pension Wise—with a new, single financial guidance body, which I welcome. Through creating a single body we intend to make it as easy as possible for consumers to access the help they need to get all their financial questions answered. For example, this could be through helping families to balance their household budget or for individuals considering their options in retirement. Consultation on the precise design of the single guidance body is currently live and closes on 13 February. MAS, TPAS and Pension Wise will continue to provide guidance to consumers until the new body goes live.

The noble Baroness, Lady Drake, raised the issue of pensions tax relief, as did other noble Lords. Our responses to the Treasury’s pensions tax consultation indicated that there was no clear consensus for reform and, therefore, that it was not the right time to undertake fundamental reform to the pensions tax system. But obviously the Government have moved, with the Bill, to encourage younger people to save through the lifetime ISA—and that was a key theme that came out of the consultation.

The noble Baroness, Lady Drake, raised the question of mis-selling risk, which was also a concern of my noble friend Lady Altmann. I agree that it is very important for individuals to have clear information on their products. That is why we will publish factual information about the lifetime ISA on GOV.UK, as well as working with the Money Advice Service and its successor to ensure that they make appropriate and impartial information available. As was said, it is the independent Financial Conduct Authority’s role to regulate account providers, including how they sell a product to consumers. It is currently consulting on the approach and has set out its proposals.

Having said all of that, the communication issue has come up under several different headings. If noble Lords would find it helpful, I will undertake to look through Hansard at the various points that have been made on communication and set out in a letter to noble Lords who have taken part in this debate just what our plans are. That will enable me, for example, to check with the FCA about its current plans and take account of any consultation responses that may already be available. We need to make sure that at the point of sale providers are transparent about risks, including any potential early withdrawal charge and with information on automatic enrolment. That theme came through from almost all noble Lords who spoke. It is a very important area. As has been said, this is a Money Bill, but that does not mean that we cannot set out how we see these things being properly communicated.

The noble Lord, Lord Sharkey, questioned the impact assessment. I understand, from checking with the experts, that it is correct. I was glad that he raised housing because it is an important area. The OBR has noted that the effect of the lifetime ISA on house prices is highly uncertain and its predicted impact is significantly smaller than overall house price movements. As we know, a number of factors can affect house prices, which will be subject to change in future years. For example, we are taking steps to boost housing supply. Following the announcement of £5.3 billion additional investment in housing in the Autumn Statement, we expect to double our annual capital spending on housing during this Parliament. We will publish a housing White Paper shortly, which I hope will address some of the supply issues the noble Lord raised and allow this House to have further exchanges on this incredibly important issue for the future of our economy and our industrial strategy. I believe the lifetime ISA is one way to make sure that first-time buyers have the support they need to get on to the housing ladder.

I will address a number of technical points raised by the noble Baroness, Lady Drake. She asked whether the Government would commit to a 50% participation rate for Help to Save. The Government are not setting any specific target around take-up of Help to Save because we want opening an account to be an active decision by those who feel Help to Save is right for them. However, we will continue to work with the account provider and other interested parties to ensure that people are made aware of the scheme and receive the right support and guidance.

The noble Lord, Lord McKenzie, talked about eligibility for the under-25s. A person aged under 25 is eligible for working tax credit if they work a minimum of 16 hours a week and have a child or a disability—I am learning a lot from this debate. Our intention is to passport people into eligibility for Help to Save. This is a well-established way of targeting support at people on lower incomes. Importantly, it removes the need for people to complete a further means test to prove that they are eligible, which we know could deter people from opening accounts.

[Lord McKenzie of Luton]

Perhaps the Minister will write in due course. There seems to be a disparity between the requirements for universal credit and for working tax credit. In universal credit you must have 16 hours at the national wage. For working tax credit, unless you fall within the disability or childcare categories, you need 30 hours of work. Why have the Government used those particular thresholds?

[Baroness Neville-Rolfe]

It is an important but esoteric point. If I may, I will write to the noble Lord. I am sure that in time I will understand these arrangements better. On his point about saving on behalf of others, individuals will pay into accounts and receive a government bonus. There will be no restrictions on what individuals do with the bonus or savings, or where the money has come from. However, HMRC will carry out additional checks on a number of accounts and will respond to any intelligence it receives from third parties where this gives rise to doubt about a person’s eligibility.

The noble Lord asked about the Government’s latest position on borrowing from lifetime ISAs. The Government continue to consider whether there should be flexibility to borrow funds from an individual’s lifetime ISA without incurring a charge if funds are fully repaid, but have decided that it will not be a feature when it becomes available in April 2017.

The noble Baroness, Lady Drake, said that the Help to Save scheme was not generous enough. On increasing the 50% bonus, our pilots for the saving gateway showed that a higher match rate of 100% made people only 5% more likely to open an account than a 50% match, and the amount of money saved into accounts was not significantly affected. On the two-year bonus period, I can make it clear that no one will be penalised for early withdrawals if they need to make any. The rationale of the scheme is to encourage people to develop a regular savings habit that will last beyond their participation in the scheme because it is valuable more generally.

[Baroness Drake]

I appreciate that this is a money Bill, but on the noble Baroness’s last point—I really do want the Help to Save scheme to work—the fact that the evidence shows that a matching contribution from the Government raises the participation rate by only 5% is not a reason not to match, because for those who are participating, their resilience is greater. A sort of apples-and-pears argument is being deployed here. A more generous match increases the resilience of those who do participate.

On the participation rate, all the behavioural evidence is that simply having good information does not necessarily deliver the level of behavioural response. More of a nudge, more of an active plan, may deliver more than a one-in-seven participation rate.

[Baroness Neville-Rolfe]

I take note of the noble Baroness’s point. There is a balance here. I have set out why we have got to where we have got to. Indeed, I look forward to debates on the statutory instruments for this Bill in the fullness of time. I am sure nobody has ever said that before.

The noble Lord, Lord Sharkey, asked about other providers. He referenced a discussion in the other place about the involvement of credit unions. We have appointed NS&I as the scheme provider to remove significant administrative and compliance costs associated with allowing different providers to offer accounts. An option where we fund NS&I to provide accounts while allowing other providers to offer accounts on a voluntary basis would not provide value for money, but—this answers his question—we shall not rule out the option for a range of providers to offer accounts as long as they deliver national coverage. We felt that the credit union did not do that. That is why the Bill has been drafted to accommodate different models of account provision, although other models are not in the current plan.

[Lord Sharkey]

I am grateful to the noble Baroness for that answer and I understand the position the Government have taken. Are there ongoing conversations with credit unions and other commercial suppliers of both these schemes?

[Baroness Neville-Rolfe]

I believe that the Economic Secretary to the Treasury has had some discussions of which the noble Lord may be aware, but I should not want to suggest that we are about to change the situation. I have made it clear that the provision is written in an appropriately broad fashion. I can also confirm that the Government are not restricting the number of lifetime ISA providers. Provision will be open to any provider with the appropriate HMRC and FCA approvals.

When it comes down to it, this money Bill is all about supporting people who are trying to save, whether through increased support to those on low incomes through Help to Save or through the increased flexibility and choice for younger savers offered by the lifetime ISA. This is a Bill that supports people trying to do the right thing—those who want to save and to be financially prepared for the future. I am therefore pleased to commend this Bill and to ask the House to give it a Second Reading.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time, and passed.