Financial Conduct Authority Redress Scheme

Bob Stewart Excerpts

Thursday 4th December 2014 Commons Chamber

[Bob Stewart (Beckenham) (Con)]

It is a pleasure to follow my hon. Friend the Member for Ceredigion (Mr Williams), who also attended Aberystwyth university. Like him, I commend my hon. Friend the Member for Aberconwy (Guto Bebb) for securing this debate and campaigning on this matter. I think that everyone in the House is grateful to him for his efforts.

Many small businesses have suffered as a result of bank mismanagement, and I wish to highlight just one of them. A constituent of mine, Mr Dean D’Eye, became a customer of the Romford lending division of NatWest—part of RBS, of course—14 years ago. He had investment and property development businesses, and his main contact point with NatWest was a man called Ray Pask. Until 2008, Dean D’Eye carried out many transactions via NatWest. His total lending across various companies totalled about £11 million, with a debt of about £5.8 million. All interest payments on his debts were paid on time, and his business had a very satisfactory gearing of less than 60%.

After the Lehman bank collapse in September 2008, however, Dean D’Eye was inundated with additional requests for information, which took up a great deal of time—time off the crucial task of doing business. Then in December 2008, without warning, NatWest retained the £139,000 profit from a property sale, despite having sent letters confirming it could be used to aid the group’s cash flow. Thereafter, NatWest mis-sold the swap products associated with Dean D’Eye’s business.

In early 2009, while the demands for even more information continued, Dean D’Eye’s group was placed under watch by the global restructuring group. Then in April 2009, the bank sent in administrators from a company called MCR to report on his business. In Dean D’Eye’s view, its subsequent report was engineered to cause maximum damage, to justify putting his business into administration.

[Sir Andrew Stunell (Hazel Grove) (LD)]

I do not know the details of my hon. Friend’s case, but I could almost recite them, given the grave similarities to cases that have arisen in my constituency. There seems to be a pattern, particularly with RBS, of following a track designed to produce a certain outcome, regardless of the strength of the business. Does he agree that the FCA should take that into account when looking at the independent assessments?

[Bob Stewart]

The point of our producing case studies is to prove that they are all along the same, incorrect path.

On 28 May 2009, NatWest formally cancelled Dean D’Eye’s overdraft, which, considering the size of the business, was small—about £40,000. Within a week, on 1 June, all his loans were called in, so that by 10.17 am on 5 June, administrators had full control of the business, which they started running from his office. This decision meant the group lost its cash flow, which in turn created a default with Dunbar bank, owned by Zurich Insurance Group. Dunbar bank has a reputation for being even more ruthless with its customers than NatWest.

As was broadcast on a recent BBC “Panorama” programme, Lawrence Tomlinson, the Government’s entrepreneur in residence, has exposed the dubious activities of NatWest’s GRG department—on that matter, retribution was taken against him as well. The NatWest GRG’s senior managers have at the very least given some obscure answers to the Treasury Committee. I understand that, since then, some of them have resigned and that the GRG has been disbanded. I gather that only 6% of the business adopted by the GRG ever re-emerged. That is hardly a success. My constituent, Dean D’Eye, now hopes to get litigation funding, so that he can take NatWest to court for the way in which it ruined his business. I cannot say that I blame him for doing so.

[Mark Garnier (Wyre Forest) (Con)]

It is a great pleasure to follow my hon. Friend the Member for Beckenham (Bob Stewart). I should like to add my congratulations to my hon. Friend the Member for Aberconwy (Guto Bebb) on securing the third of these debates. This is turning into a running series, although I hope that we shall not need a further debate on this matter in the next Parliament because we will have resolved the issue by that time.

Great progress has been made as a result of the huge amount of work that my hon. Friend has done, and it should be recognised that, in many cases, the banks have stepped up to the plate to handle the problems that they have created. However, we have been left with a cohort of claimants who feel that they are not getting the redress they deserve, and I want to concentrate on them today.

When I consider the plight of those businesses that have been mis-sold interest rate hedging products, I have yet to find a victim for whom I do not have enormous sympathy. This appalling scandal has destroyed many people’s lives, including those of people who have not been directly affected. For example, people have found themselves out of a job when their employer went bust as a result of the scandal. Other people have been creditors who could not suffer the cash flow shortfall resulting from banks taking too long to make redress payments, especially consequential loss payments, to the businesses that owed them money.

The scandal’s implications go far beyond the victims who were mis-sold swaps, and it is therefore right that we should consider the regulator’s response. The response of the Financial Conduct Authority is incredibly important, not least because this is one of the first full-blown scandals to which it has had to respond. How the new regulator behaves over this scandal will set a precedent for how it behaves in the future and tell us whether it is fit for purpose.

I want to raise a couple of issues, given that the regulator has opted for a voluntary redress scheme. That in itself is probably not unreasonable, and it gives the banks an opportunity to show how they have changed their culture and responded to the chaos they have caused. However, this is a brand new way of responding to such a crisis, and it must be looked at very carefully. The briefing note that the FCA prepared for this debate states, in the frequently asked questions section, that the voluntary approach is different from previous redress schemes, citing speed in compensation. Speedy outcomes have not been achieved in all cases, however.

It is noteworthy that the regulator cites part of the Financial Services and Markets Act 2000 as a reason for not having to make public the arrangements between itself and the banks. Any new process needs to be fully transparent if there is to be confidence in that process. There is no confidence in this process, and the situation is fundamentally flawed.

[Bob Stewart]

How can anyone possibly think that there should not be full transparency in this sort of activity? I do not understand how the FCA can justify not being transparent about all its dealings.

[Mark Garnier]

I am not sure that the FCA can justify it. The FCA is answerable to Parliament and to the Treasury Committee, and until such time as we can conduct a proper investigation into what it has been up to, how can anyone believe that this is a good system?

--- Later in debate ---

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

Thank you, Madam Deputy Presiding Officer. Sorry, Madam Deputy Speaker. I always do that; I have been thinking too much about Scotland during the day.

I welcome the opportunity to speak in this debate. Hon. Members have given several examples about problems faced by their constituents. As a constituency MP, I have heard from a number of my constituents or small businesses that have suffered similar consequences.

The motion addresses the perceived failure of the FCA redress scheme. I was of course aware that the scheme had attracted criticism. We have heard quite a lot about that today, particularly in relation to some of the problems involved in the cases that hon. Members have raised. I will speak about them in more detail.

Before I consider the merits of the redress scheme, it is worth remembering how we got into the situation of needing such a scheme in the first place. We must therefore again address the mis-selling of interest rate hedging products that made the scheme necessary, as hon. Members have done during the debate.

Hon. Members are probably aware—the banks certainly are—that I have spoken often and at considerable length about the need for banks to eradicate the culture of mis-selling and to put their own house in order. The banks have a duty, whether we call it a fiduciary, an ethical or a human decency duty, to act in the best interests of their customers. Absolutely fundamental to that is the requirement to ensure not only that customers are sold products that they want and need, but that they understand the terms, conditions and caveats that underpin them.

From time to time, things can and do go wrong, and not even the most prescient among us can anticipate all the nuances and fluctuations in the money markets that may affect the products we purchase. However, just like the rewards associated with any product, the risks must be clearly stated from the outset. It can be argued that interest rate hedging products in and of themselves might not always be bad when sold in appropriate circumstances—they may help to shield bank customers and even small businesses from the risk of sharp interest rates movements—but, as we have heard this afternoon, it is clear that in many cases the risks have not been fully explained to, or fully understood by, the customers.

The FCA has clearly laid out the shortcomings in the information that it has provided. Nearly 19,000 small business customers of major UK banks took part in the review, and among the main problems they highlighted were the poor disclosure of exit costs, the failure to ascertain customers’ understanding of risk, the straying of non-advised sales into advised ones—that has been raised this afternoon—and the fact that the sale of products was driven by rewards and incentives. I will briefly take each in turn.

In its briefing, the House of Commons Library gives the example of a customer who was sold an interest rate hedging product that lasted longer than the loan whose risk it hedged. When the bank chose not to renew the loan, the customer was left with a stark choice between paying the extortionate breakage fees and continuing to pay the monthly cost of the hedging product. The latter option has been likened to a customer continuing to pay for the insurance on a car that they have sold. It is important to note that, unlike for a fixed-rate loan, an interest rate swap agreement is separate from the loan contract and must be terminated independently. From some of the speeches in this debate, it is clear that that has not always been entirely understood by those involved. Repaying the underlying borrowing does not automatically terminate the interest rate structures, and as we have heard, customers are not always made sufficiently aware of that.

Most of us who do not work in finance, banking or associated professions will perhaps have a rather sketchy understanding of the risk. There is nothing wrong with hedging against risk; it is a widely used practice that has occurred in many different manifestations for many years. However, the concept of hedging against risk has spawned a diverse range of products that are sometimes dizzying in their complexity, even for those who perhaps run their own businesses and think of themselves as if not “sophisticated” in the way defined, none the less as having a reasonably good handle on things, yet they find themselves caught out.

Derivatives are the most common example of that. Interest rate hedging products are not as complex as some derivatives, but they are complex enough to confound the unwary, especially where they involve structured collars that can effectively result in customers paying more if interest rates fall beneath an agreed level. That requires a finely balanced judgment by any customer, and an understanding of the vagaries of interest rates. It is crucial that the bank selling interest rate hedging products explains and defines the product to the customer and ensures that it matches their circumstances, but as we have heard, many banks did not do that.

[Bob Stewart]

Surely it is the bank’s duty when it starts to fiddle around with interest rates to warn the customer that that is happening and not just suddenly do it.

[Cathy Jamieson]

The hon. Gentleman makes a good point, and some of the concerns and examples have been about banks that seemed to be selling products, but not outlining the potential for interest rates to drop or giving customers information about the bank’s own forecasts. We have real difficulties with such circumstances.

Bede Griffiths Charitable Trust and Southern India

Bob Stewart Excerpts

Tuesday 25th November 2014 Westminster Hall

[Bob Stewart (Beckenham) (Con)]

It is a pleasure, Mr Gray, to serve under your chairmanship. It is good to see you again for the second time this morning—we had breakfast together.

On the evening of 15 December 2005, a young man called Tim attended a Christmas party in the City of London. Tim had recently left Chigwell school in Essex and was doing work experience before going to university. He was a decent, popular and intelligent boy at school, and he clearly had a great future ahead of him. At the end of the evening, he left the party, happy and sober, to travel from Liverpool street station to his parents’ home in Goodmayes. At the station, he took a late train home.

The next day, I was having lunch at the Army and Navy club with Dr Tony Pruss, an old school friend and also Tim’s father. Tony, his brother Adrian and I had all been pupils at Chigwell school and were reminiscing over lunch about the old days, as friends do. After lunch, just as we were leaving the club together, Tony received a mobile phone call from Mary, his wife. She was frantically worried because Tim had not returned home the night before. He would normally contact her to say where he was, but Mary had heard nothing.

Tony was instantly concerned and with good reason. Shortly thereafter, Tony and Mary were told that Tim’s body had been found alongside the railway track at Shenfield station. The world fell around Tony and Mary Pruss. Like any loving parents, they simply could not believe what had happened, but tragically it was the truth.

A few weeks later, I attended the inquest into Tim’s death in support of my friends, Tony and Mary Pruss. The coroner heard evidence that Tim had been hit by a train coming into the station having walked off the platform for some reason. Nobody knew why, but it might have been to excuse himself because, at the time, no lavatory facilities were open at the station. Tim was certainly not inebriated or drugged. The coroner heard evidence that Tim’s death must have been instantaneous—thank goodness. His death was deemed to have been a dreadful accident.

The death of Tim Pruss hit Chigwell school hard. As I have said, Tim had been hugely popular and a great character when he was there. The school was established by Archbishop Harsnett of York in 1629 and was very much a Christian foundation, and to this day takes its heritage very seriously. It has and continues to have contacts with missionary activities abroad and, at this time, particularly in an area of southern India called Tamil Nadu. There it supports the Bede Griffiths Charitable Trust’s work among the local people. Indeed, the school often sends out parties of students to visit, to learn and to try to help people less fortunate than themselves.

Tim Pruss had told his parents that he would like to go to Tamil Nadu but, as is the way with the young, he just did not go. However, Tony and Mary Pruss remembered that Tim had wanted to go there and it gave them the idea, too. They decided to look at the work of the Bede Griffiths Charitable Trust in Tamil Nadu and flew there. Once in India, they realised that they could help. They decided to use the money they had set aside for Tim’ education and inheritance to good effect. Shortly thereafter, the Tim Pruss Memorial school was established as a part of the Bede Griffiths Charitable Trust.

Bede Griffiths, the Benedictine monk after whom the charity was named, was born in 1906. He studied English literature and philosophy at Oxford and graduated in 1929. By 1932, he was a Benedictine monk and he ministered in England and Scotland until the early 1950s. He then joined a well-established Benedictine community in south India at Shantivanam in Tamil Nadu state. It was not long before people of all religions in the area came to regard him as a very special person and one whose views were well worth hearing. His Shantivanam ashram—a sort of cross between a monastery, centre of learning and community centre—became renowned principally because of Bede Griffiths. Although he died in 1993, his thoughts live on in his books and writings.

In this country, the Bede Griffiths Charitable Trust was established in 2004. To avoid confusion, may I point out that there is also a Bede Griffiths trust in the United States, but they are not linked in any way? The Bede Griffiths Charitable Trust has the specific task of helping to fund worthwhile projects in and around Shantivanam. The main aim of its projects is to help some of the most deprived people who live there.

Bede Griffiths Charitable Trust projects focus on education and training, with particular support for children, women and the elderly. For example, last year the trust did considerable work in Tamil Nadu state. The biggest project was the Tim Pruss Memorial school, but there were a few other equally worthy activities, such as providing educational expenses for children; provision of milk and rice for the poorest people, and of food and clothing for the elderly; and the running costs of a kindergarten, a tuition centre, a community centre and a home for the elderly. In 2013, the trust received more than £37,000 from donations and charitable events. The majority of that money—£23,000—went to the Tim Pruss Memorial school.

Early each year, the trust managers in India submit an application to the trustees for grants for their financial year commencing in April. Applications are normally accompanied by a financial statement of the project’s income and expenditure in the previous year and, of course, audited accounts. The trustees, some of whom are not far from me at the moment in the Gallery, visit Tamil Nadu at their own expense once a year on average, and the project managers show them where the money they have raised and donated has been spent. In addition, evidence is gathered by regular updates from the relevant project managers. The work of the charity is undertaken entirely by volunteers, with the result that there are very few overheads and that 98% of the income raised goes directly to supporting activities in Tamil Nadu.

The Tim Pruss Memorial school is at Inungur, which is a remote area where pupils have great difficulty in getting to a Government school. They are taught in English and are well funded by Bede Griffiths Charitable Trust grants, as well as by a small number of contributions from individual donors.

The school has 275 pupils aged between three and 11 years old. It provides an English-based education under the leadership of the headmaster, Mr Senthil Kumar. Obviously, the biggest costs are staff salaries, which come to close to £23,000 per annum. Parents make a small contribution where they can. The school has been operating since 2007 and has expanded one building at a time. After an initial grant of £7,000 in 2008, a junior school building was erected, and by 2009 it was officially named as the Tim Pruss Memorial school. In 2012, Tim’s brother, Michael Pruss, who is also an old Chigwellian, raised a further £10,000 by running a marathon in Long Beach, California. He is something to do with the film industry, and quite powerful in it. The money he raised was used to build a new hall. Of course, Tim’s parents, Mary and Tony, have played a key role in all the developments.

One of the founding trust members was the Rev. Dr Chris Collingwood, then Chigwell school chaplain. It was he who invited older pupils and parents on an annual school trip to experience life in the Indian subcontinent, particularly after the 2004 Boxing day tsunami. During those visits, pupils saw the work of the trust in some of the projects in the local community and around Shantivanam. Chigwell school continues to support the trust and send annual trips to Tamil Nadu. The students learn a lot during such visits. To start with, they get to understand a little of India and its geography, climate and people. They also experience life in the Christian monastic community at the Shantivanam ashram, where they stay. They are encouraged to join in at least some of the chapel services, and to attend some of the talks that are led by the priests and lay brothers who live at the ashram. Most of all, they see the positive effects of social projects in poor rural areas.

In 2013, those on the Chigwell school trip completely redecorated the older part of the old people’s home, an old house that had become drab and dirty. The students brought paint with them and, under the supervision of a qualified surveyor, completed the decoration within a day. Eighteen students, six parents or former pupils, a school governor and two trustees went on a self-financed trip to Tamil Nadu. A multi-purpose hall for meetings and school meals in the Tim Pruss Memorial school has been built with more than £14,000 raised by fundraising and donations. Additional money has been allocated by the trust to cover the running costs of a tuition centre, two kindergartens, a home for the elderly and two centres training adults in typing, computing and tailoring.

The home for elderly people established by the trust has 17 residents, of whom one is a Muslim and one a Christian—the remaining 15 are Hindu. Fourteen of the residents are from local villages but three are from further away. The home is an old house with a new block providing accommodation behind it. The £13,000 to build the new block came from one donation from a Chigwell school family. Since then, the Bede Griffiths Charitable Trust has helped towards the running costs of the home by contributing £1,000 a year. Residents live in twin single-sex rooms in the new block but come together in the old house for meals and social events. A warden and a part-time assistant run the home.

Recently, a gift of more than £1,500 enabled a brick-built home to be constructed following a fire that destroyed a single-parent family’s home, which had been constructed from wood and leaves. Altogether, around 15 homes have been built following trust donations. However, Chigwell is not the only school involved in fundraising for the trust. The Prince’s Mead school in Winchester, whose head teacher is Ms Penelope Kirk, has also been a terrific donor. It supported the school when it was just one small building, prior to 2007, and continues to do so. I should declare my interest in the Bede Griffiths Charitable Trust: recently, because of my friendship with Dr and Mrs Tony Pruss, as well as my links to Chigwell school, I was asked to be involved and am now a patron.

I should like to say how fitting and appropriate it is that my hon. Friend the Member for Bexleyheath and Crayford (Mr Evennett), who is the pairing Whip and a very good friend, is replying to the debate. By chance, his son Tom, who also attended Chigwell school, was a good friend of Tim Pruss’s brother, Michael, whom I mentioned on account of his raising a lot of money for the Tim Pruss Memorial school. In a way, this is rather a family occasion all round.

The charity is clearly exceedingly well run by its trustees, who are Adrian Rance, the chairman, Mark Bradbury, the secretary, Greville Norman, the treasurer, Tony and Mary Pruss, Helen Dixon, who is in the Gallery, Elizabeth Tysoe, Pippa Mistry-Norman—also at Chigwell—and David Gower, second master at Chigwell school. I hope the debate will raise the profile of the Bede Griffiths Charitable Trust. I commend the trust to the House and ask the Department for International Development and the Foreign Office to note the excellent, well supervised work being done by that great charity.

[The Lord Commissioner of Her Majesty’s Treasury (Mr David Evennett)]

I congratulate my constituency neighbour, my hon. Friend the Member for Beckenham (Bob Stewart), on securing this important and timely debate. I commend him on his excellent, thoughtful speech, and apologise for the absence of my right hon. Friend the Minister of State, Department for International Development, who is appearing at the Select Committee on International Development this morning. I have been asked to respond as the DFID Whip, and am delighted to do so on behalf of the Government.

I offer my condolences to Tim’s family on what was a tragic loss for them and his many friends. I know Chigwell school, as my hon. Friend mentioned, because my sons Mark and Tom both went there, and I went to the neighbouring grammar school, Buckhurst Hill county high school for boys, which was next door but is now sadly no more.

We have today learned an awful lot about the Bede Griffiths Charitable Trust and its work, and the problems of southern India. We have also heard about Tony and Mary Pruss’s dedication. I commend them for their endeavours in memory of their son, and for their huge contribution to helping the less fortunate in Tamil Nadu state. The trust does vital work there. We have heard about its important provision for the poorest people, those who are suffering, the elderly and the young; and about its support for local community facilities. The Tim Pruss Memorial school in Inungur is helping 275 pupils in a remote area of the country who would otherwise have had great difficulty in going to a Government school. Those are positive, constructive approaches to assist a part of the world with considerable disadvantages.

As my hon. Friend the Member for Beckenham knows, the Government have made a commitment to international development, and I am proud that Great Britain was the first G7 country to reach the target of 0.7% of national income for aid spending. Not only do the Government play their part in helping a variety of causes globally, but the great British public also do their bit to support those aims. One need only think of the extraordinary response to the Philippines appeal after Typhoon Haiyan last year, or the millions donated to help tackle Ebola in west Africa in the past few weeks. We as a country can be proud of the contribution that our people are making in voluntary donations.

One can also see that compassion and dedication clearly in the sheer number of fantastic civil society organisations in this country, such as the Bede Griffiths Charitable Trust, that make a difference in the developing world. Working with civil society organisations forms an integral part of DFID’s approach to reducing poverty, promoting wealth creation, achieving the millennium development goals, tackling climate change and dealing with conflict.

Civil society can play an important role in reaching poor and marginalised people and communities in places that the Government and private sectors have not been able to reach. They do so through their ability to build relationships, trust and legitimacy, their grass-roots knowledge of needs in developing countries and their responsiveness. It is a crucial part of creating the open societies required for tackling poverty and its underlying causes and creating economic growth and development. Many smaller and medium-sized groups such as the Bede Griffiths Charitable Trust are more out of sight and perhaps receive less fanfare, but they do powerful work on the ground, which is why debates in the Commons to highlight them are important. The good work being done needs to be recognised and publicised. My hon. Friend has done a marvellous job in doing so today.

There are many organisations running projects that no one else thought of doing. In fact, it is often smaller grass-roots organisations that can make connections on the ground and help to change how people act for the better. Of course Government support is vital, which is why the UK Government support smaller civil society organisations through DFID’s global poverty action fund, which provides grants to charities across the UK to help them fight poverty in the world’s poorest countries. For example, the charity Women and Children First UK is helping reduce maternal and newborn mortality in Mumbai.

Such schemes have achieved great results, supporting some fantastic organisations, which is why UK Aid Direct was launched, a new £150 million funding scheme to support small and medium-sized national and international civil society organisations in reducing poverty over the next five years. As a successor to the global poverty action fund, UK Aid Direct will build on the success and momentum created by that fund. It will also bring more flexibility and allow the work with civil society to respond to opportunities as they arise. The scheme highlights DFID’s ongoing commitment to the role of civil society in poverty reduction and recognises the important contributions made by small and medium-sized civil society organisations.

Applications for the first £30 million funding round for UK Aid Direct closed today. In the first funding round, projects will focus on finishing the job on the health millennium development goals, and particularly on sexual and reproductive health and rights. It is a particularly important focus for development at this time, as the MDGs for reducing child mortality, improving maternal health and combating HIV/AIDS and other diseases are off-track. DFID is looking for innovative, ambitious projects whose proposals will demonstrably have a tangible impact on our efforts to achieve the off-track MDGs.

[Bob Stewart]

On that point, it would be lovely if DFID would consider a grant to the Bede Griffiths Charitable Trust if possible. It is an extremely well run charity, and it undoubtedly offers value for money. I just make that point.

[Mr Evennett]

I note my hon. Friend’s plea. I know that my officials have listened to it, and I will respond in a moment.

The poorest areas civil society programme works with Indian civil society organisations in the seven poorest states and helps socially excluded groups claim their rights. The programme has led some impressive initiatives, such as the campaign for complete abolition of the inhuman practice of manual scavenging, a caste-based practice in which human excreta are cleaned manually by individuals from the Dalit and Muslim communities in India, who face untouchability and social exclusion.

Faith-based organisations such as the Bede Griffiths Charitable Trust play an important part in reducing poverty in developing countries. Religion unquestionably plays a role within civil society, and we can use that to help advance the development agenda. Faith is often part of individual or group identity, which gives faith groups considerable legitimacy; they are often seen as more embedded in the local community than some development actors. Faith groups inspire confidence and trust. Indeed, they are often the first groups to which the poor turn in times of need and crisis, and to which they give in times of plenty. Faith communities can be motivated by different ethical values and beliefs from most secular organisations, including a sense of service, selflessness, generosity, mindfulness and compassion. They are often less transient than many secular civil society organisations and can mobilise many adherents and significant financial resources. Faith groups make a significant contribution to poverty reduction.

I now have an answer to my hon. Friend’s question. We are happy to provide information to him, so that the trust can get in touch after the debate. I cannot promise any more than that, but we in the Department are always willing to consider any opportunity.

Faith groups are a key development partner. They empower poor people so that their voices are heard. They can subject Governments to critical scrutiny and bring distinct and valuable perspectives to policy formulation processes. To strengthen our relationship with faith groups, the UK Government have launched the faith partnership principles paper, and we are working with faith groups to ensure that those principles are put into practice. The paper sets out the principles—transparency, mutual respect and understanding—that will guide our relationship with faith groups, as well as plans to build a common understanding of faith and development, document the impact of faith groups through systematic research and discuss areas of difference in a constructive way without threatening wider collaboration. DFID’s work with faith groups over the last 10 years has benefited many millions of men, women, boys and girls. My hon. Friend referred particularly to the generosity, commitment and hard work of Tim’s family, the trust and others with counterparts in India.

India has grown rapidly in the last decade and is now one of the world’s major economies, but remains home to one third of the world’s poor. In recent years, India has rapidly increased its spending on health, education and other development issues. In recognition of India’s changing place in the world, the Secretary of State for International Development announced in a statement to Parliament in November 2012 that we have agreed with the Government of India to move to a new type of development relationship. After 2015, our partnership will focus on sharing skills and expertise, making private-sector investments that will help the poorest people and generate returns, and strengthening partnership on global development issues such as food security and climate change.

UK aid is delivering results in India; for example, it is reaching out to 3.6 million pregnant women and to children under five through nutrition programmes, and will give roughly 2 million people access to improved sanitation by 2015. This Government are assisting civil society organisations of all shapes and sizes in playing a critical role in fighting poverty, and we will continue to do so. The world has made unprecedented progress in the fight against poverty in the last two decades.

In this debate, with a great deal of interest, we have learned all about the Pruss family and their commitment, the Tim Pruss memorial school and the Bede Griffiths Charitable Trust. I am pleased to acknowledge the trust’s commitment to making a difference, and the time and effort given by Dr and Mrs Pruss and all those involved in this important charity. I hope that we have been able to put on record the work that has been done; my hon. Friend the Member for Beckenham has done a superb job in doing that. After this debate, we in the Department will certainly consider in what ways we might assist, but the most important thing is to congratulate the trust and all involved in it, and to support it in continuing the good work that it has done so far.

Money Creation and Society

Bob Stewart Excerpts

Thursday 20th November 2014 Commons Chamber

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

It is a pleasure, as always, to follow the right hon. Member for Oldham West and Royton (Mr Meacher), who gave us a characteristically thoughtful and radical speech. I do not necessarily start from the same premises as him, but what he says is an important contribution to the debate, on the securing of which I credit my hon. Friend the Member for Wycombe (Steve Baker). He has done the House and the country a service by forcing us to focus on the issue of where money comes from and what banks do. He did so in an insightful way. Above all, he showed that he sees, as our old universities used to see, economics as a branch of moral sciences. It is not just a narrow, analytical, economic issue, but a moral, philosophical and ultimately a theological issue, which he illuminated well for the House.

A lot has been made of the ignorance of Members of Parliament of how money is created. I suspect that that ignorance, not just in Members of Parliament but in the intellectual elite in this country, explains many things, not least why we entered the financial crisis with a regulatory system that was so unprepared for a banking crisis. I suspect that it is because people have not reflected on why banks are so different from all other capitalist companies. They are different in three crucial respects, which is why they need a very different regulatory system from normal companies.

First, all bankers—not just rogue bankers but even the best, the most honourable and the most honest—do things that would land the rest of us in jail. Near my house in France is a large grain silo. After the harvest, farmers deposit grain in it. The silo gives them a certificate for every tonne of grain that they deposit. They can withdraw that amount of grain whenever they want by presenting that certificate. If the silo owner issued more certificates than there was grain kept in his silo, he would go to jail, but that is effectively what bankers do. They keep as reserves only a fraction of the money deposited with them, which is why we call the system the fractional reserve banking system. Murray Rothbard, an Austrian economist much neglected in this country, said very flatly that banking is therefore fraud: fractional reserve banking is fraud; it should be outlawed; banks should be required to keep 100% reserves against the money they lend out. I reject that conclusion, because there is a value in what banks do in transforming short-term savings into long-term investments. That is socially valuable and that is the function banks serve.

We should recognise the second distinctive feature of banks that arises directly from the fact that they have only a fraction of the reserves against the loans they make: banks, individually and collectively, are intrinsically unstable. They are unstable because they borrow short and lend long. I have been constantly amazed throughout the financial crisis to hear intelligent people say that the problem with Northern Rock, RBS or HBOS, or with the German, French, Greek and other banks that ran into problems, was the result of their borrowing short and lending long, and they should not have been doing it, as if it was a deviation from their normal role. Of course banks borrow short and lend long. That is what banks do. That is what they are there for. If they had not done that they would not be banks. Banking works so long as too many depositors do not try to withdraw their funds simultaneously. However, if depositors, retail or wholesale, withdraw or refuse to renew their short-term deposits, a bank will fail.

If normal companies fail, there is no need for the Government to intervene. Their assets will be redeployed in a more profitable use or taken over by a better-managed company. But if one bank fails, depositors are likely to withdraw deposits from other banks, about which there may also be doubts. A bank facing a run, whether or not initially justified, would be forced to call in loans or sell collateral, causing asset prices to fall, thereby undermining the solvency of other banks. So the failure of one bank may lead to the collapse of the whole banking system.

The third distinctive feature of banks was highlighted by my hon. Friend the Member for Wycombe: banks create money. The vast majority of money consists of bank deposits. If a bank lends a company £10 million, it does not need to go and borrow that money from a saver; it simply creates an extra £10 million by electronically crediting the company’s bank account with that sum. It creates £10 million out of thin air. By contrast, when a bank loan is repaid, that extinguishes money; it disappears into thin air. The total money supply increases when banks create new loans faster than old loans are repaid. That is where growth in the money supply usually comes from, and it is the normal situation in a growing economy. Ideally, credit should expand so that the supply of money grows sufficiently rapidly to finance growth in economic activity. When a bank or banks collapse, they will call in loans, which will reduce the money supply, which in turn will cause a contraction of activity throughout the economy.

In that respect, banks are totally different from other companies—even companies that also lend things. If a car rental company collapses, it does not lead to a reduction in the number of cars available in the economy. Its stock of cars can be sold off to other rental companies or to individuals. Nor does the collapse of one rental company weaken the position of other car rental companies; on the contrary, they then face less competition, which should strengthen their margins.

The collapse of a car rental company has no systemic implications, whereas the collapse of a bank can pull down the whole banking system and plunge the economy into recession. That is why we need a special regulatory regime for banks and, above all, a lender of last resort to pump in money if there is a run on the banks or a credit crunch, yet this was barely discussed when the new regulatory structure of our financial and banking system was set up in 1998. The focus then was on consumer protection issues. Systemic stability and the lender-of-last-resort function were scarcely mentioned. That is why the UK was so unprepared when the credit crunch struck in 2007. Nor were these aspects properly considered when the euro was set up. As a result, a currency and a banking system were established without the new central bank being given the power to act as lender of last resort. It has had to usurp that power, more or less illegally, but that is its own problem.

This analysis is not one of those insights that come from hindsight. Some while ago, Michael Howard, now the noble Lord Howard, reminded Parliament—and indeed me; I had completely forgotten—that I was shadow Chancellor when the Bill that became the Bank of England Act 1998 was introduced. He pointed out that I then warned the House:

“With the removal of banking control to the Financial Services Authority…it is difficult to see how…the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.”

And so it turned out. I added:

“setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 731-32.]

So that turned out, too. I could foresee that, because the problem was not deregulation, but the regulatory confusion and the proliferation of regulation introduced by the former Chancellor, which resulted from a failure to focus on the banking system’s inherent instability, and to provide for its stability.

This failure to focus on the fundamentals was not a peculiarly British thing. The EU made the same mistakes in spades when setting up the euro, and at the very apogee of the world financial system, they deluded themselves that instability was a thing of the past. In its “Global Financial Stability Report” of April 2006, less than 18 months before the crisis erupted, the International Monetary Fund, no less, said:

“There is growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors, rather than warehousing such risk on their balance sheets, has helped to make the banking and overall financial system more resilient…The improved resilience may be seen in fewer bank failures and more consistent credit provision. Consequently, the commercial banks…may be less vulnerable today to credit or economic shocks.”

The supreme irony is that those at the pinnacle of the world regulatory system believed that the very complex derivatives that contributed to the collapse of the financial system would render it immune to such instability. We need constantly to be aware that banks are unstable, and are the source of money. If instability leads to a crash, that leads to a contraction in the money supply, and that can exacerbate and intensify a recession.

[Bob Stewart (Beckenham) (Con)]

I am listening carefully to my right hon. Friend. Does that mean that the banks are uncontrollable, as things stand?

[Mr Lilley]

No; they can and should be controlled. They are controlled both by being required to have assets, and ultimately by the measures that Government should take to ensure that they do not expand lending too rapidly. That is the point that I want to come on to, because a failure to focus on the nature of banking and money creation causes confusion about the causes of inflation and the role of quantitative easing.

As too many people do not understand where money comes from, there is confusion about quantitative easing. To some extent, the monetarists, of whom I am one, are responsible for that confusion. For most of our lifetime, the basic economic problem has been inflation. There have been great debates about its causes. Ultimately, those debates were won by the monetarists. They said, “Inflation is caused by too much money—by money growing more rapidly than output. If that happens, inevitably and inexorably, prices will rise.” The trouble was that all too often, monetarists used the shorthand phrase, “Inflation is caused by Government printing too much money.” In fact, it is caused not by Government printing the money, but by banks lending money and then creating new money at too great a rate for the needs of the economy. We should have said, “Inflation follows when Governments allow or encourage banks to create money too rapidly.” The inflationary problem was not who created the money, but the fact that too much money was created.

The banks are now not lending enough to create enough money to finance the growth and expansion of the economy that we need. That is why the central bank steps in with quantitative easing, which is often described as the bank printing money. Those who have been brought up to believe that printing money was what caused inflation think that quantitative easing must, by definition, cause inflation. It only causes inflation if there is too much of it—if we create too much money at a faster rate than the growth of output, and therefore drive up prices—but that is not the situation at present.

--- Later in debate ---

[Zac Goldsmith (Richmond Park) (Con)]

I want to put on record my gratitude to my hon. Friend the Member for Wycombe (Steve Baker) for having initiated this debate, and to his supporters from various parties. Having heard his speech—or most of it; I apologise for being late—I am even more satisfied that it was right to cast my vote for him to join the Treasury Committee.

My hon. Friend has introduced an incredibly important debate. As we have heard, this issue has not been debated here for well over a century. We would not be having it were it not for the fact that we are still in the midst of tumultuous times. We had the banking crash and the corresponding crash in confidence in the banking system and in the wider economy, and now, partly as a consequence, we have the problem of under-lending, particularly to small and medium-sized businesses. This subject could not be more important.

The right hon. Member for Oldham West and Royton (Mr Meacher)—I will call him my right hon. Friend because we work together on many issues—pointed out at the beginning of his speech that this issue is not well understood by members of the public. As I think he said later—if not, I will add it—it is also not well understood by Members of Parliament. I would include myself in that. I suspect that most people here would be humble enough to recognise that the banking wizardry we are discussing is such a complex issue that very few people properly understand it.

[Bob Stewart]

I totally associate myself with my hon. Friend’s comments about ignorance and include myself in that. It seems to me that the system is broken. The banks will not lend money because the Government have told them that they have to keep reserves. We do not like quantitative easing because that means that the banks are not lending. There is something very wrong with the system. It is not a case of “if the system isn’t broke, don’t fix it”, but “the system is broke, and someone’s got to fix it”.

[Zac Goldsmith]

My hon. Friend makes a valuable point that I will come to later.

If Members of Parliament do not really understand how money is created—I believe that that is the majority position, based on discussions that I have been having—how on earth can we be confident that the reforms that we have brought in over the past few years are going to work in preventing repeated collapses of the sort that we saw before the last election? In my view, we cannot be confident of that. The problem is the impulsive position taken by ignorant Members. I do not intend to be rude; as I said, I include myself in that bracket. For too many people, the impulse has been simply to call for more regulation, as though that is going to magic away these problems. As my hon. Friend the Member for Wycombe said, there are 8,000 pages of guidance in relation to one aspect of banking that he discussed. The problem is not a lack of regulation; it is the fact that the existing regulations miss the goal in so many respects. Banking has become so complex and convoluted that we need an entirely different approach.

When we talk to people outside Parliament about banking, the majority have a fairly simple view—the bank takes deposits and then lends, and that is the way it has always been. Of course, there is an element of truth in that, but it is so far removed from where we are today that it is only a very tiny element.

Childcare Payments Bill

Bob Stewart Excerpts

Monday 17th November 2014 Commons Chamber

[Priti Patel]

I welcome the hon. Member for Wirral South (Alison McGovern) to her position and post. It is good to hear from her. Obviously, she did not have the full benefit of participating in the Committee, so it is good to hear her views today.

New clause 2 is about the Bill’s impact on child care costs, an issue that we discussed at some length in Committee. The new clause would require the Government to publish a review of the Bill’s impact on the cost of child care three months after it passed into law, and every three years thereafter. The review would have a particular focus on the effectiveness of the Act in making child care more affordable, the average cost of child care for working parents, and the impact of supply-led measures on costs.

As I have said many times in debates on this Bill, the Government have made a clear commitment to review the impact of the scheme two years after full implementation. That was set out in the impact assessment published alongside the Bill. The Government feel that a two-year assessment period is reasonable and will allow sufficient time for the scheme to become bedded in, so that the full impacts can be assessed and properly evaluated in the context of wider Government policy. We do not think that there is anything to be gained from adding a further review after only three months.

I think that all hon. and right hon. Members are rightly concerned about the impact that high child care costs have on working parents. We understand the cost of child care, and the Government are committed to supporting parents to meet that cost; that is the purpose of the Bill.

[Bob Stewart (Beckenham) (Con)]

I assume that the Minister and her team will watch this very closely from the start. She may not need a review: if she saw something going wrong, she would take immediate action to correct it, before the two-year point.

[Priti Patel]

I thank my hon. Friend for his comment. Naturally, we want to get this right, so there is oversight at every level. Later in my remarks, I shall touch on areas where his remarks are valid and pertinent.

We know that child care is an expensive outgoing for many families across the country. This Government understand the need for both demand and supply-led measures to ensure that the costs of child care do not spiral out of control. We have been taking steps to ensure that both sides of the problem are properly considered. The Government believe that increasing supply is an effective way of limiting further price rises, and are therefore making significant reforms to support the child care sector in increasing the supply of places.

The Government are taking actions beyond the scope of the Bill to improve the quality and supply of child care provision. These reforms are designed to ensure that any increase in demand for child care arising from the new scheme will be matched by increased supply and not by increased costs. The latest figures show that there are about 100,000 more child care places than in 2009, and the Government are taking action to grow the supply of child care still further, which will improve choice and affordability for parents. For example, we are making start-up grants of up to £2 million available to help people set up new child care businesses. We are also enabling good and outstanding childminders to access funding for early education places. Only 4,000 do so currently, but as a result of our reforms, up to 32,000 will be automatically eligible. We are making it simpler and easier for schools and child care providers to work together to increase the amount of child care available on school sites, and only this year we have introduced childminder agencies, which are designed to improve the support available for both childminders and parents, and to simplify existing regulatory frameworks to allow nurseries to expand more easily.

We recognise that child care costs place a significant financial burden on many families, but research shows that after 12 years of consistently rising prices, the costs of child care in England have stabilised for the first time. There is encouraging evidence that costs of some of the most popular types of child care are falling in England. For example, the Family and Childcare Trust reported in March that the cost of nurseries in 2014 was 2% lower than in the previous year in real terms. Similarly, the cost of after-school clubs reduced by 5% in real terms during the same period. Once inflation is taken into account, costs for the majority of parents have fallen. This means that more parents are able to access affordable child care and support their families, and shows that the Government’s reforms are making a difference. We should compare that with the situation under Labour, when costs rose nearly 50% between 2002 and 2010, and the average cost of child care rose faster than inflation.

Alongside these measures to increase the provision of good quality, affordable child care, the Government have taken significant steps to support families in meeting their child care costs.

National Insurance Contributions Bill

Bob Stewart Excerpts

Tuesday 11th November 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I would like to think that the Minister and I are always vociferous and meticulous in our deliberations on finance and taxation matters, and that we have both been efficient in our deliberations on the Bill. That is because, as the Minister explained, this is a short Bill which aims to simplify the administrative process of paying class 2 national insurance contributions for the self-employed. It applies measures from this year’s Finance Bill, now the Finance Act 2014, to NICs, and introduces a targeted anti-avoidance rule, a so-called TAAR, to tackle disguised self-employment made possible through employment intermediaries and offshore employers. We have supported the Bill throughout its previous stages in the House and will do so today.

Until now, as the Minister explained, payments of class 2 and class 4 NICs by the self-employed have had to be made separately. When the Office of Tax Simplification looked at these matters in 2012, it proposed bringing class 2 NICs within self-assessment, and suggested that this change would bring administrative benefits to self-employed persons and businesses. In July 2013, HMRC published a consultation document in which it noted that the present system places significant burdens on small businesses, and that although class 2 NICs accounted for less than 0.3% of the £102 billion or so of NICs collected by HMRC in 2012-13, they accounted for more than 40% of national insurance-related telephone calls to HMRC and the resulting processing work. The Bill therefore changes the liability for class 2 NICs so that it arises at the end of the tax year and not weekly, as now, and moves class 2 NICs into self-assessment, so that self-employed people can deal with their class 2 NICs together with their income tax and class 4 NICs.

We support the aim of making the system easier for self-employed people and reducing the administrative burden caused by the current separate systems for the collection of class 4 and class 2 NICs. Almost one person in six is self-employed, so this is a significant issue affecting a large number of people. Making the system easier to navigate is therefore welcome and of genuine practical benefit for the self-employed.

A number of specific issues were raised by stakeholder groups regarding eligibility for maternity allowance and the impact of this simplification on people claiming universal credit. Those are issues that we raised on Second Reading, which the Minister dealt with in Committee. We were also able to take evidence from expert witnesses who gave evidence to the Committee. We had some useful clarification and reassurance from the Minister on those points, which has dealt with the concerns raised. We are grateful for that.

We noted in Committee that communication of these changes to the people affected by them will be very important, a point which the Minister acknowledged. We were concerned particularly about people who might be described as digitally excluded. It is of course easier for the Government, and it is a responsible time and expense-saving mechanism, to put lots of advice on the internet, but there are groups, perhaps especially those who are self-employed and who may ultimately be reliant on universal credit, who might be described as digitally excluded, and it is important that they can access information about how the changes may impact on them. The Minister gave assurances to the Committee that those matters were in hand. We will continue to scrutinise this aspect as the Bill progresses and becomes law.

As the Minister explained, the Bill also extends provisions relating to follower notices, accelerated payment notices and measures to tackle high-risk promoters of tax avoidance schemes that were passed in the Finance Act 2014 in relation to income tax. It applies those rules to NICs as well. As the Minister noted, we have had extensive debate on these measures, primarily during the passage of the Finance Bill 2014. In Committee the Minister provided a helpful update on how the measures relating to income tax are bedding in.

We heard encouraging evidence from expert witnesses that these measures were already having a positive behavioural impact on the way in which individuals approached their taxation affairs, and that the measures were preventing people from getting involved in schemes that they might previously have taken a chance on. We welcome that. We will continue to scrutinise the impact of these measures, and in particular the effectiveness of HMRC’s internal governance mechanisms in relation to follower notices. These are important changes and they continue to have our support.

Clause 5 introduces a new TAAR to cover the payment of national insurance contributions, which sits alongside the provisions in this year’s Finance Act aimed at tackling employment intermediaries who falsely label workers as self-employed to reduce their tax liabilities. For workers who are falsely badged as self-employed, particularly for those who do not know that that is the case, which has happened on an alarmingly regular basis, the effect is that they are not eligible for many of the benefits available to employed earners, such as holiday and sickness pay.

This year’s Finance Act amended legislation directly to address the issue in relation to the payment of income tax. A worker will now be designated as an employee if they are under the supervision, direction or control of someone else, and in that case they must be paid through PAYE, rather than as a self-employed worker. That is a change from the previous designation, under which a worker is deemed to be an employee if they provide their services personally. It was found by HMRC that many intermediaries were able to exploit that test by claiming that there was no obligation for the worker to provide their services personally. To get around that, a clause was often inserted into a worker’s contract stating that they could send somebody else to do their work, even though in reality the employer wanted that specific worker.

[Bob Stewart (Beckenham) (Con)]

I seek clarification from the Minister or the hon. Lady, who understand these things well. A part-time worker has to pay national insurance contributions, and so does the employer. I was a little puzzled that that might not be the case, but it is, is it not?

[Shabana Mahmood]

I am grateful for the question. If workers are above the threshold which is in place for the paying of national insurance contributions, the usual rules apply. I am sorry if I confused the hon. Gentleman; I was talking about self-employed people, which is a particular case in the context of the Bill. Clause 5, as I said, introduces a targeted anti-avoidance rule to prevent a type of abuse that has been occurring through employment intermediaries.

The role of the TAAR envisaged in the Bill is to prevent the circumventing of the rules so that workers who would be employed earners if it were not for the intermediary arrangements are treated as employed earners. That will allow HMRC to consider both the motive for setting up such an arrangement, including whether it was set up to avoid NICs, and what was achieved, including whether it resulted in less NICs being paid. As I said, the problem of bogus self-employment is widespread and complex. We heard evidence on that, particularly in Committee where one witness said that there were ways in which companies were trying to avoid paying national insurance contributions. The Minister helpfully told the Committee that he and his officials were already looking into that.

Taking action in this area is difficult. If often feels as if the Government of the day are playing catch-up with companies intent on trying to find ways of getting around the rules, but tackling bogus self-employment is necessary for parties of all political persuasions to protect revenues to the Exchequer. The Minister and I may occasionally disagree on the emphasis and priorities for action in dealing with false self-employment, but the TAAR introduced by clause 5 is a useful addition to the Government’s armoury for tackling this type of tax avoidance, and we support that measure.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Finance Bill

Bob Stewart Excerpts

Wednesday 2nd July 2014 Commons Chamber

[Mr Gauke]

I am grateful to the hon. Gentleman for returning me to the subject matter before us, and no doubt you are, too, Madam Deputy Speaker.

The Office for Budget Responsibility forecast in the June 2010 Budget stated that the cuts in the corporation tax rate would more than offset the reduction in investment allowances such that the

“cost of capital for new investment is lower for all non-financial companies, and the rate of return from the existing capital stock is higher”.

That very important point could easily be missed from this debate. However, we also recognise that in the current economic climate, businesses face particular challenges. Having got the corporation tax rate down significantly, making a temporary boost to support and encourage increased investment was both appropriate and desirable. That is why we introduced a temporary generous increase in the annual investment allowance at the 2013 Budget, and we have gone on to double its generosity a year later.

[Bob Stewart (Beckenham) (Con)]

Would the Minister like corporation tax to come down below 20%, if possible? Is that ever envisaged?

[Mr Gauke]

My hon. Friend raises an interesting point, which I could spend some time discussing. Some challenges are involved in reducing corporation tax below 20% in terms of ensuring that such a tax cut is well focused in encouraging increased investment. He will be aware of some of the difficulties that occurred when the previous Government temporarily introduced a 0% corporation tax rate for smaller businesses; that resulted in quite a lot of tax-motivated incorporation. I will not detain the House for long on this point, so I will just say that some issues would need to be addressed in respect of that.

What would certainly be damaging would be to reverse the considerable progress we have made on reducing corporation tax. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) placed great emphasis on providing certainty for businesses, and I would agree on that, but what we have done in reducing the corporation tax rate from 28% to 21%, and then to 20% as of next April, has undoubtedly helped the UK’s competitiveness position. One could quote survey after survey demonstrating that the UK is now viewed much more favourably as a place in which to do business because of our corporate tax regime, and it would be damaging were we to reverse this. Labour is on the record as wanting to put corporation tax back up to 21%. That would be the first increase, as a revenue raiser, in corporation tax since the 1960s, and we have heard a significant hint this week that Labour may even increase it to 26%.

Finance Bill

Bob Stewart Excerpts

Tuesday 1st July 2014 Commons Chamber

[Richard Fuller]

I am pleased to follow the hon. Member for Islwyn (Chris Evans), who spoke with great authority, drawing as he did on his experiences as a trade union official before he was a Member of Parliament. I will, if I may, draw on some of my own experiences of working with small businesses. In that regard, I draw Members’ attention to my entry in the Register of Members’ Interests.

I apologise to the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) for missing the beginning of her comments. I thought that she spoke persuasively and eloquently about some of the issues and about the policy that the Government have introduced. She had me persuaded all the way, until she referred to the spare room subsidy as a tax. It is just not a tax, and it is such a shame when bad slogans happen to good people because all the persuasion power of their speeches is lost. The rest of her speech raised some important points.

We should put the new clause into context. The Government have an extraordinary long-term economic plan that is delivering improvements to the economic lives of my constituents in Bedford and Kempston. It impacts on their ability to find work and get into work. It also raises their average weekly earnings, which is a major concern for many people. It is good to see the plan starting to bear fruit.

Perhaps now is not a good time for an ordinary Tory Back-Bench Member to criticise the Government, but if my hon. Friend the Minister will forgive me, I will do so. We are looking here at a policy in search of a problem; we are not really looking at something that will have a dramatic impact on the well-being of our businesses or our employees. I am open to being persuaded by the Minister. He usually persuades me and I am sure that he will do so today, but perhaps I could go through some of my experiences from when I was in business relating to two parts of our debate.

On the one hand, we have employee and workers’ rights and, on the other, we have employee shareholdings. The approach seems to be to conflate those two issues into one policy and I am not sure whether that will ultimately prove to be wise. In my experience as an employer, although employees’ issues in employment sometimes concerned the extent of employee rights, red tape and regulation often led to far more concerns about the impact of government on the business. In addition, the problem was not necessarily the rights per se but the complexity of the regulations. For a small business, just understanding the regulations to comply with them causes problems. I am not sure that the problem was specifically the rights that were given to employees. Is the objective in this case to reduce the complexity of regulation for businesses through the use of the combination of employee shareholdings, or is there some other objective?

The hon. Member for Islwyn mentioned some of the issues when companies give shares to employees. For a large part of my life, I have worked with technology businesses and the provision of shares was a norm for business. It was a way in which many companies could afford to start, to grow and to prosper. In those circumstances, people were given shares not because of their employee rights but as an incentive either to reward effort or to encourage effort to promote the success of the company. It was also a matter of the trade-off of rewards. Many small companies did not want to use the cash they got from investors to pay high or market rates to their employees and wished to defer that by providing people with the opportunity to have shares to share in the ultimate long-term success of the business. That is a tremendously powerful model for many sectors, not just the technology sector but other sectors of our economy, in that people are willing to trade off immediate returns for long-term rewards.

When we consider other ways to think about compensation, which will, I think, be a growing issue over the next five years, we must consider how to encourage people to defer some of their compensation until later in their lives. I can understand how the promotion of employee shareholding helps with short and long-term rewards, but my concern is that combining that with employee rights means that clarity might be lost. Rather than being given a positive impression about why we are encouraging employees to become shareholders, people will instead ask whether there is a catch. It should be absolutely clear that there is no catch when people are being offered shares. This is clearly an issue of deferring compensation from period x to period y.

I am concerned that, as I have said, this is perhaps a policy in search of a problem. As with so much that Government do, we will see unintended consequences. If the new clause is targeted at small businesses, we must remember that the Government have other options at their disposal. Just a week or two ago, the Centre for Policy Studies produced some very positive policies about abolishing corporation tax for very small businesses and abolishing capital gains tax for investors. To my mind, that would have more of an impact on encouraging more entrepreneurial businesses. We have recently seen news about the merger of national insurance and income tax, which would alleviate some of the burdens and complexity for business in managing employees.

[Bob Stewart (Beckenham) (Con)]

When I visit small businesses in my constituency, I am sometimes quite shocked that, say, one person out of 10—a large proportion of the staff—has to spend all his or her time dealing with regulations and sorting out the problems they cause rather than getting on with making money.

Wales Bill

Bob Stewart Excerpts

Tuesday 24th June 2014 Commons Chamber

[Mrs James]

I thank the hon. Gentleman for his intervention, but it is not true that I am opposed to the list system. I think it is excellent and that it gives an opportunity to all parties. It is fair and gives a voice to parties that may not otherwise have had a voice in the Assembly. What I oppose is placing candidates at the top of the list so that if they lose in one system they have the chance to win in another. I am not criticising the system; all I am saying is that dual candidacy is not acceptable.

For an individual who is already standing as a candidate on a constituency list to have an opportunity for a second bite of the cherry is political carpetbagging—that’s all it is, pure and simple—and therefore unacceptable.

[Bob Stewart (Beckenham) (Con)]

Does that mean that the hon. Lady is in favour of a complete list system or an individual candidacy system? What she really seems to be against is mixing them up, so which of them does she support?

[Mrs James]

I support having both first-past-the-post and regional Assembly Members. They add a great deal to the Assembly and, as I have already said, the system is fairer and proves that people who stand for smaller parties get a voice. That cannot be opposed, but I am opposed to people standing on both lists.

--- Later in debate ---

[Mr Mark Williams]

I very much agree with my hon. Friend. Paul Silk has done the politics of consensus a great service. The commissioners, from all four parties, sometimes had to make compromises but arrived at an agreed report on two occasions. That is a mark of Paul Silk’s chairmanship and the quality of those commissioners.

Of course, my right hon. Friend is a Conservative Secretary of State—

[Bob Stewart]

A very good one.

[Mr Mark Williams]

Indeed—he is a very good Secretary of State on many issues.

I remind my hon. Friend the Member for Montgomeryshire (Glyn Davies) that this is a coalition Government and it is a Liberal Democrat achievement that we have got this far with this Bill. Last week I was at a book launch, as was the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd), to celebrate the life of the late Emlyn Hooson—one of my hon. Friend’s illustrious predecessors—who on St David’s day in 1968 put forward a Parliament for Wales Bill that did not get very far. It is a mark of his work and that of many others from other political parties that we have reached this point today, albeit crystallised by my right hon. Friend the Secretary of State.

Finance (No. 2) Bill

Bob Stewart Excerpts

Wednesday 9th April 2014 Commons Chamber

[Fiona Bruce]

This tax policy increases the opportunity for choice. Many mothers and fathers want to stay at home and do not want to go have to go out to work. I appreciate that the financial implications of the policy are small but, none the less, the policy says, “We value you and your role in society if you want to stay at home.”

If we are serious about finding effective solutions to community breakdown and to the poverty that blights parts of Britain characterised by family breakdown, educational failure, economic dependence, indebtedness and addictions, supporting marriage is one way to do so. The public support that, contrary to the view of the hon. Member for Plymouth, Moor View (Alison Seabeck), who is no longer in her place—[Interruption.] I apologise. She is in the Chamber, but in a different place. I endeavoured to intervene on her because, according to a YouGov poll, 85% of people support giving financial recognition to married couples through the tax system, and 83% of the public think that tackling family breakdown is important. Even more starkly, according to the Centre for Social Justice, half of lone mothers think it is important that children grow up with a father.

Yes, the proposal will cost the Exchequer—I believe the shadow Minister said it will cost some £550 million—but that is dwarfed by the cost of family breakdown which, in 2012, had risen to some £44 billion. It is estimated by the Relationships Foundation to have an equivalent cost to the UK taxpayer of £1,470 a year each. Of course, that figure is still rising—currently £46 billion and increasing.

Support for marriage, therefore, simply cannot be dismissed as giving money to those who are already comfortable. As we have heard, this proposal will disproportionately benefit those on the lower half of the income scale, but it is much more than that. It is a matter of social justice. Supporting marriage is progressive. It is the right thing to do, not only for individuals but for the beneficial public consequences it promotes. If arrangements have beneficial public consequences, such as good environmental conduct or saving for one’s pension, it is established practice that such public benefits are recognised by the tax system. So it should be with marriage.

[Bob Stewart (Beckenham) (Con)]

Is there any provision that would mean that people who have been together as a family—a man and a woman, with children—for a certain period of time, say five years, would be able to count in the same way as being married to get the tax break? The benefits would then be almost the same, would they not?

[Fiona Bruce]

The benefits that are proposed in this clause are for married couples. That is the way in which our society recognises a permanent and lifelong commitment that is intended by the parties.

Of course I would like to see more, but I welcome this positive start. I would like to see a department for families, a dedicated family policy across government and greater investment in relationship education for young people, both in school and later for those embarking on relationships or contemplating having a family. In the meantime, I fully support this proposal. It will encourage marriage and sends out an important signal that, for the first time in a long time from the Government, marriage is valued in our society—something the last Government never did. It places Britain in the position of recognising marriage in the tax system, whereas we were the only country in Europe not to do so. Is it any coincidence that the UK has one of the highest levels of family breakdown in Europe? We have to do what we can to change that, and this is one way. As the Prime Minister said, this change will provide support. Our support for families and marriage puts us on the side of a progressive politics and on the side of change that says, “We can stop social decline, we can fix our broken society and we can make this country a better place to live for everyone.”

--- Later in debate ---

[Cathy Jamieson]

I will come to that. In discussions I have had with banks they say that they want to lend and have the resources to do so, but some of the schemes have not necessarily encouraged people to come forward and have not been as successful as they might have wished. I have also heard the criticism from some banks, not all, that perhaps another levy or a different approach to the bankers bonus tax would have implications for capitalisation of the banks and so on. However, when we look at the scale of some of the bonus pots, it is difficult to make the argument that the money will not be there. The money appears to be there in some instances for excessive remuneration and bonuses, rather than other schemes.

Compensation costs for the mis-selling of payment protection insurance—the PPI scandal—have now reached £22 billion, an astonishing sum, with Lloyds alone incurring compensation costs not far short of £10 billion. Significant fines have been imposed on Barclays, RBS, Lloyds and Deutsche Bank for attempts to rig LIBOR, doing huge damage to the banks’ credibility and showing how important it is to change the culture and behaviour. That change has been much talked about, but has yet to be delivered entirely.

I am not trying to bash the bankers, as it is sometimes portrayed. I well understand the difficulties faced by front-line staff in the banks—the people in the lower tiers of the management system. They operated in and had to comply with the prevailing culture, and were set particular targets and given sales incentives. When we look back at that approach, we can begin to pinpoint the move away from the notion that the bank was there to look after people’s money, both individual depositors and local businesses, towards the retail culture, in which the emphasis was on selling and making profits without, in some instances, due care and attention to fiscal responsibilities and duties to the customer. I hope that changes brought about by recent legislation will see an end to that culture. Many of the banks are talking about that, and it will understandably take time, but we need the nudges, the pressures and the reminders, not just from the regulators, but through public opinion. Unless a watchful eye is kept on the banks, the change in culture will not necessarily succeed.

Despite having racked up billions of pounds in fines, several of the big banks still proposed significantly higher bonuses for 2013—the latest year for which figures are available—than for the previous year. They went up 10% to £2.4 billion at Barclays; up 8% at Lloyds to £395 million; and up 6% at HSBC to £2.3 billion. RBS, which is 81% owned by the taxpayer, has also announced a bonus pool of £588 million this year. I know that some of the banks claim that their overall bonus pool is coming down, but for the ordinary person in the street the figures are more than they would ever hope to win in a lottery in their wildest dreams, never mind expect to earn in the course of a year. They also find it astonishing that the banks might seek to breach the EU cap on bankers bonuses. It is difficult to understand why people who are paid in excess of £1 million, and have a range of other benefits, seek bonuses of twice their annual salary.

[Bob Stewart]

One consequence of bonus payments is that the Treasury, presumably, gets 40% of them, which is a bonus for the Exchequer. Or have I got that wrong?

[Cathy Jamieson]

I will come on to that point, and on to corporation tax, when I speak in more detail about why we want a review of the bank levy. I hope Government Members understand why we think it is important to have a review and to consider the implications. I started by saying that we are taking a relatively mild-mannered approach, with no demand, as is sometimes made, for something to happen immediately. We are saying, “Let’s look at the figures, let’s look at the implications, let’s look at what can be done in the round, and let’s have the Government do that work and bring it back for further discussion.”

To go back to the hon. Gentleman’s point, the figures compiled by the Labour party suggest that the cut to the 50p tax rate saw an estimated 2,714 bankers who earn more than £800,000 share a £98.5 million windfall—an average tax cut of £36,300 each. I just make that point in relation to the notion that the Treasury will somehow get the yield from that.

--- Later in debate ---

[Jonathan Edwards]

Once again, I am grateful for that intervention. That is one in a long list of political issues on which the First Minister and his Cabinet members say one thing in Cardiff while Welsh Labour MPs operate completely differently down here. The proof of the pudding will, of course, be the Westminster Labour party manifesto. We will see what influence the First Minister has over that, but the manner in which he has been completely bullied by the shadow Secretary of State, who now supports a lockstep on income tax powers, seems to show that the balance of power is quite firmly here in London.

[Bob Stewart]

The hon. Gentleman has referred to Cardiff airport. Is there another airport in Wales to which air passenger duty applies?

[Jonathan Edwards]

Cardiff is the only international airport. We are talking about APD relief on long-haul flights, and it would apply primarily to Cardiff, but I imagine that the Welsh Government would have ambitions to redevelop other airports in Wales—[Interruption.] If they had the ambition, they would want to improve those airports.

As I was saying, public opinion clearly supports the devolution of the tax to Wales. Only yesterday, the Western Mail published the results of a survey that showed that 78% of respondents supported the devolution of APD. On this, as with so many other issues, the powers that be in Westminster are at odds with what the people of Wales demand. In response to that poll, the Welsh Labour Government said:

“We will continue to put forward the strong case for it”—

APD—

“to be devolved in the hope the UK Government will eventually listen to us and the overwhelming majority of the Welsh public who support this move, as reflected in this poll”.

A day after the poll, we have an opportunity in the Finance Bill to achieve that objective, but where is the Labour party?

I am glad that, since Cardiff airport has been brought into public ownership, new management has driven up passenger numbers by 9%. That is a crucial point—the national airport of Wales is publicly owned. I agree with that, as the airport is an essential part of Welsh national infrastructure, but Labour MPs from Wales are not here to ensure that something that is publicly owned by the people of Wales has the best chance of succeeding in the long term.

The devolution of APD could help to ensure the long-term future of the airport and draw passengers away from congested airports in the south-east of England—something I am sure many MPs and their constituents in and around the south-east of England would welcome. I therefore look forward, perhaps somewhat over-excitedly, to some of those MPs joining us in the Aye Lobby. I am similarly amazed that the Secretary of State for Wales is not pushing for the devolution of APD at the highest level, as it would provide us with the ability to develop the Welsh economy, which should be one of his core objectives.

The hon. Member for Vale of Glamorgan (Alun Cairns) is not in his usual place, which is slightly strange, considering that the airport is in his constituency. The livelihood of many of his constituents depends on the vitality of the airport, as well as the aircraft engineering industry that has grown around it, and they will be dismayed to learn that their MP does not support measures that could give the airport a competitive advantage. I should like to make reference in passing to the difficulties that engineering companies operating from the St Athan airbase, which is close to the international airport, face as a result of the management of that airfield by the Ministry of Defence.

The new clause effectively seeks to give Wales an essential tool to support and provide jobs locally in south Wales and the wider Welsh economy. The financial powers recommended by the Commission on Devolution in Wales are needed as soon as possible as a spur to jobs and growth in Wales. The Westminster Government, in the Wales Bill, have cherry-picked the recommendations and omitted the devolution of APD as well as other proposals. The powers included in the Bill may not be implemented until well into the second half of the decade, provided that no more roadblocks are put in place by other parties. Every month that passes without the devolution of those powers, the Welsh economy languishes even longer at the bottom of the economic league table of the nations and regions of the UK, with job and economic prospects diminished, hopes and dreams dashed, and lives stalled.

Plaid Cymru has made jobs and the economy its absolute priority, which is why we have again tabled an amendment on air passenger duty. We want to create a modern and prosperous Wales and, unlike our political opponents, we have little faith in London government of whatever colour achieving that ambition. That is why we want Wales to have the tools to get on with the job without delay. Diolch yn fawr.

--- Later in debate ---

[Mr Gauke]

I wish to avoid running the risk of repeating myself, but I make the point that I made earlier: the devolution of APD within Great Britain would create unfortunate market distortions. As we said in our November 2013 response to the Silk commission, we are not convinced of the case for devolving air passenger duty to Wales, given the potential effects across the country as a whole. In the case of Scotland, the distortive effects across the country as a whole are harder to diagnose, given that it has more major airports with significant route connectivity. Our opinion remains that this requires careful evaluation if we are to be confident of its potential effects, so I ask hon. Members to withdraw their amendments.

[Bob Stewart]

Is it the Government’s intention to continue the trend of reducing air passenger duty across the country?

[Mr Gauke]

What I would say to my hon. Friend is that we have set out in the Budget and in the Bill significant changes that we think fix the problem we inherited from the previous Government.

My hon. Friend gives me the opportunity to turn to clauses 72 to 74. Ahead of our rates reform, clause 72 fulfils the commitment given in Budget 2013 on the rates of duty for 2014-15. This respects the air travel industry’s point that tickets are often sold a considerable time in advance of travel. The industry needs up to a year’s forward rates certainty to have sufficient time to prepare its accounting systems and set pricing ahead of advance ticket sales. The rates contained in clause 72 have therefore been anticipated by the industry.

Finance (No. 2) Bill

Bob Stewart Excerpts

Tuesday 1st April 2014 Commons Chamber

[David Rutley]

That is a good question and I thank the hon. Lady for giving me the opportunity to respond. Of course I speak to members of the public in Macclesfield and outside my constituency, too.

[Bob Stewart (Beckenham) (Con)]

It’s a great place.

[David Rutley]

My hon. Friend says, from a sedentary position, that it is a great place.

These are, of course, challenging times, but things are improving. The reason for having a Budget that is useful and important for business is that it is through business and the private sector that we create jobs to enable people to take care of their needs and those of their families. The hon. Lady will know—as will, no doubt, Mr Deputy Speaker, although he cannot comment—that under the Labour Government 100,000 public sector jobs were created in the north-west over a period when net new jobs in the private sector came to approximately 18,000. Surely, that is completely unsustainable.

--- Later in debate ---

[David Rutley]

I did: absolutely. In fact, as Hansard will record, I referred to “the extraordinary deficit” that had been created by the Labour Government.

A budget surplus is now in our sights. We are likely to see it in 2018-19. According to the International Monetary Fund—which is often quoted by Labour Members—the UK is achieving a larger reduction in both the headline and the structural deficits than any other major advanced economy in the world. Unemployment is falling, growth is up, and we have a record number of businesses and a strengthening culture of entrepreneurialism and self-employment. Those are clear results from a Government with a clear sense of direction.

This Bill will doubtless be remembered for years to come for the great work that it is doing to help to promote the interests of savers and pensioners through the reforms that it introduces in clauses 39 to 43, which we will debate in Committee.

[Bob Stewart]

I think my hon. Friend will agree with me that the Bill will also be remembered because, apparently, it gives £700 more to everyone in the country.

[David Rutley]

Certainly, very important steps are being taken, such as raising personal allowances, which will help all our constituents who are facing challenging times. However, there are also measures in the Bill that will help businesses to create more work and more wealth, and help us to achieve greater growth and prosperity.

Returning to clauses 39 to 43, the Chancellor has championed the consumer’s right to take decisions in accordance with their own life circumstances, over and above the procrustean desires of the state. Much has been said about these reforms, and no doubt plenty more will be said in the days and years ahead, but I want to focus today on how other clauses in the Bill are equally supportive of consumers by bolstering competition and lowering barriers to entry for British enterprise—clause 10, on capital allowances, clause 6, on corporation tax, and clause 73, on air passenger duty, to name but a few. Encouraging new entrants—those first-time entrepreneurs, employers and exporters—is vital in increasing choice for consumers and in keeping established businesses on their toes and responsive to their customers. This Government have slashed barriers to entry through deregulation initiatives—an ongoing process that I have been involved with on the Deregulation Bill Committee—and there is also the red tape challenge and the one-in, two-out regulatory arrangements. These are important steps in creating much-needed supply-side reforms.

I hope to contribute further on the Finance Bill Committee—if I can catch the Whip’s eye—because the barriers to small new businesses, new employers and new exporters have been kept far too high in the previous decade or more. We need to get on and finish the job and create a real enterprise pathway. There is little point in trying to address the problem of firms that are too big to fail if we do not also seek to address that of new businesses that are too small to succeed against barriers to entry that have been in place for far too long. This Bill helps us to take significant strides forward. In the words of the British Chambers of Commerce:

“By making a better business environment his top priority, the Chancellor has recognised that successful and confident companies are the key to transforming Britain’s growing economic recovery into one that is felt in homes and on high streets.”

It is the economics of strong, long-term measures for long-term growth.