Oral Answers to Questions
Charlie Elphicke Excerpts(14 years, 10 months ago)
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Justine Greening
The hon. Lady says, “Just do it!”, but she should know that that is simply not legally possible. She fully understands that. The reason that the Opposition are talking about that is that the fuel duty rises that are coming through were legislated for by Labour, so they are desperately looking for something to say about an issue that they themselves created. She knows that her policy on the VAT rise is illegal, totally unworkable and completely unfunded. Labour wants to take seven years to support motorists; we want to see what we can do to support them now.
Charlie Elphicke (Dover) (Con)
Will the Minister tell us by how much duty has risen in recent years, and whether the person who put the duty up is in the House today?
Justine Greening
When the Labour Government came to power in 1997, fuel duty was 36.86p per litre. By the time they left office, it had risen to 57.19p per litre. As I am sure my hon. Friend is aware, one of the architects of those tax rises was then the chief economic adviser to the Treasury; he is now the shadow Chancellor.
Fuel Prices and the Cost of Living
Charlie Elphicke Excerpts(14 years, 11 months ago)
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Charlie Elphicke
I thank the hon. Lady for her kindness and generosity in allowing me to intervene. To clear up the addling of some minds in the House regarding the history of this matter, will she confirm that in 1997 duty was 36.86p and today it is 57.19p?
Ms Eagle
One minute Government Members say that we have no plan to deal with the deficit, and the next minute they complain that we had a plan that would have raised money. They really do try to have it both ways and are not remotely coherent.
The time for action is now. The Chancellor should take immediate action on fuel prices to ease the cost of living crisis in Britain. He does not even have to wait until the Budget. We are calling on him to reverse immediately the 2.5 percentage point increase in VAT on petrol that he imposed in January.
Justine Greening
My hon. Friend is absolutely right. In fact, the EU directive on VAT states:
“Member States may apply either one or two reduced rates…The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III.”
That annex does not include road fuel, and other amending articles do not permit a reduced rate or exemption to be applied to transport fuel. That in is European Council directive 2006/112/EC of 28 November 2006 on the common system of value added tax, at article 98 and annex III.
Charlie Elphicke
In the light of what my hon. Friend has just said, is not the motion before the House a shamelessly opportunistic preying on the justly held fears of the British people about the cost of fuel?
Justine Greening
That is absolutely what it is, and it is something else as well—it is a smokescreen. The Labour party has no plan whatever to tackle the deficit, and this Opposition day debate is all about trying to divert attention from that. It had no plans when it was in government, and it has no plans now it is in opposition.
Fiona O’Donnell
Thank you, Mr Deputy Speaker. I am obviously going to have to treat the Minister with kid gloves as she is so sensitive.
East Lothian is a largely rural constituency made up of small gatherings of communities that rely heavily on the use of their cars. I suspect that the hundreds of e-mails that I have received over the past few weeks will now be followed by hundreds more, as my constituents will be bitterly disappointed by the Minister’s utterly sterile contribution to the debate.
Fiona O’Donnell
Not at this stage.
The e-mails that I have received have not been the standard campaign e-mails that many of us find in our inboxes every day. I have been genuinely moved and angered by the stories that they have told. They have been from motorists, some of them older people living on pensions, people surviving on disability living allowance—Lord knows, they have enough to worry about under this Government—or people stuck on fixed incomes. This rise in the cost of fuel is hitting them hard.
I have also had e-mails from employers in my constituency. East Lothian relies heavily on small employers, but they are struggling. Two have already told me that their businesses will close this month, and that is bad news for East Lothian and for my constituents. We are promised that we will have a Budget for growth next week, but in East Lothian, the Government’s policy is not working; it is going in the opposite direction.
Fiona O'Donnell
Perhaps I have some responsibility here. I have not formally congratulated the Government on winning the general election, so perhaps it is my fault that they have not grasped the fact that they are now in government. They are in a position to change their minds, to lower the VAT rate on fuel and to make a difference to Mr Flynn and to ensure that the people he employs continue to have jobs. I suspect that Mr Flynn will remain disappointed, however. We were certainly not planning to increase VAT or to make life even more difficult for people.
Fiona O'Donnell
No thank you.
Then there is the case of Mary Johnston from Haddington, who said:
“My husband and I are senior citizens. We live in a farm cottage 2.5 miles outside Haddington”.
Let me summarise by saying that the rising costs of motoring are making it virtually impossible for them to leave their house. I hope that at some point during this debate we will hear some words of comfort from a Government who have let down my constituency.
Fuel Prices and the Cost of Living
Charlie Elphicke Excerpts(14 years, 11 months ago)
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Gemma Doyle
My hon. Friend makes a significant point. I was about to say that a number of factors are adding up to put intense pressure on family incomes. For example, 1,000 families in my constituency will lose a further £400 a year as a result of the Government’s cuts to the child care element of the working tax credit. What makes that all so much worse is that while the Government are choking off help for hard-working families and recklessly cutting jobs and services, they have given the banks a huge tax cut this year. I know my constituents find it hard to understand how that can be squared with the Prime Minister’s claim that we are all in it together—a frankly laughable claim from a Cabinet of millionaires. [Interruption.] I am sorry if Government Members do not like to be reminded of how many millionaires are in the Cabinet, but I am afraid that that is a matter of fact.
The Government have heaped pain on families, but they could have made a different choice and relieved some of that pain. As my hon. Friend the Member for Wallasey (Ms Eagle) said, the Government could use the £800 million raised from the bank levy immediately to reverse the VAT rise on fuel. Just as the previous Government often postponed fuel duty rises when oil prices were rising, as they are now, the Chancellor should look again at the Budget—that is why he should be here today, listening to the arguments—ahead of the planned 1% rise in April.
Charlie Elphicke
Has the hon. Lady considered that the reason the Chancellor is not here today is that he is busy trying to sort out the Budget to undo the massive financial mess left by the Labour Government and deal with their economic incompetence?
Gemma Doyle
It is the duty of the Chancellor to listen to Members as he is putting together his Budget. Both he and the Chief Secretary to the Treasury should be present, listening to Members as we debate this important subject.
I have outlined a different approach, which would be the right approach. I notice that none of the Scottish National party MPs is present. Their proposal for a fuel duty cut in remote areas would do nothing to help my constituents in West Dunbartonshire. The name of the constituency may include the word “shire”, but on the whole it is not a rural area, although a small number of my constituents would consider themselves to be in a remote area. The majority of my constituents live in an urban or a suburban area and they are struggling with the record price of fuel. We need to go much further and bring down fuel costs for everyone in urban and rural areas.
I will of course support the motion in the name of the Leader of the Opposition. The Government can and must take action to provide some relief to people in my constituency and across the country. They can do this in the ways outlined today. Like numerous other Members, I urge the Chancellor to take that action and go some small way towards showing that he has not completely lost touch with the pain that British motorists are suffering.
Charlie Elphicke (Dover) (Con)
It is a privilege and honour to follow the hon. Member for East Antrim (Sammy Wilson), who made an entertaining, engaging and thoughtful speech on this issue, which we all feel strongly about. It has been an emotional debate on both sides of the House. Constituents write to me daily expressing concern about the cost of living and how they will manage, given the way the cost of fuel has risen in recent times. It is a just concern that is understood on both sides of the House. Hauliers in my constituency write to me expressing grave concern about the situation they find themselves in and their ability to compete with operators on the continent who undercut them.
However, I must say that for the Opposition to bring forward such a motion is the most extraordinary and shameless opportunism I can recall seeing in this House. It is shameful because we know that the Labour party increased duty 12 times in its period in office. We know that it took away the 10p tax rate. We know that tax discs went through the roof, and we know that the haulage industry was decimated in the last decade because the Labour Government had no interest or desire to ensure that that industry was safeguarded.
Chris Evans (Islwyn) (Lab/Co-op)
Does the hon. Gentleman agree that the most damning verdict on the coalition’s first year in government was when someone wrote to me and said, “Mr Evans, thanks to the increase in VAT on fuel duty, I’m worse off than I was a year ago”? Does the hon. Gentleman agree that most people in this country are worse off than they were a year ago?
Charlie Elphicke
Measures taken by this Government will take 800,000 of the poorest people in the land out of tax. The Chancellor is not in his place today; I hope very much that he is working out how he can look after the least well-off people in this country in his Budget. I hope that he will be listening and thinking carefully about how he can engage with people’s understandable concern about the cost of fuel and how the country can be put right after 10 years of being driven into the international sidings.
Elizabeth Truss (South West Norfolk) (Con)
Does my hon. Friend agree that in his Budget the Chancellor should be looking at areas such as South West Norfolk, where people have little alternative but to use their cars both for business and domestic purposes? In particular, does he agree that the rural fuel reduction should be extended to areas such as Norfolk, where there is very little public transport?
Charlie Elphicke
My hon. Friend makes a powerful point on behalf of her constituents, for whom she is such a brilliant advocate. As she and I know, the difficulty is the amount of money in the kitty, which is massively in the red. We have a structural deficit of £109 billion and borrowings this year of more than £150 billion. That is the poisoned economic inheritance that the previous Government left, having maxed out the nation’s credit card and brought this country to the brink of bankruptcy. What do they urge us to do? Opportunistically, they urge us to cut taxes. How would they do that? They would borrow more money, as we know from the shadow Chancellor’s Bloomberg speech, and raise interest rates on mortgages for the average householder, who struggles to get by as it is.
Sheila Gilmore
Did the hon. Gentleman actually listen to what his hon. Friend the Economic Secretary to the Treasury said earlier about the impact of VAT rises and fuel cost rises on businesses? They mean that businesses go under, people are put out of work and they then buy less? Is that not the crux of the issue? If we want growth, we need to give people income with which to purchase things.
Charlie Elphicke
The crux of the issue is that we have to stop the draining of money from the public finances, right the nation’s finances and get this country growing with a pro-business agenda. That is what the Government are looking at, and I hope that in the Budget next week we will see a pro-growth, pro-business, pro-jobs and pro-money economic policy, which we have not had for the past decade. We have been brought to the brink of ruin by the amount of debt that the previous Government encouraged ordinary people to get into and, indeed, managed to get the public finances into. This Government are about putting those things right: ensuring that our housekeeping personally and as a nation is put back on the level. That is really important.
Fiona O'Donnell
Among all those tough choices, which does the hon. Gentleman think his Chancellor found tougher: taking money from his friends in the City and in the banks, or taking money from hard-working families in my constituency?
Charlie Elphicke
I gently encourage the hon. Lady to be cautious when making remarks about rich people. The other day her right hon. Friend the Leader of the Opposition talked about how his house is worth millions and millions, so we should be careful before we start trading such ludicrous insults. This is a serious debate; we have people in our constituencies living in deprivation, and all she can do is trade political barbs. I encourage her to consider how we can create more jobs and money, and how we can grow the private sector, so that it includes real jobs and real money that will take this country forward and grow our economy. The priority has to be to ensure that this country gets back into the fast lane of economic growth in the international arena. We have been slipping down the global competitiveness league over the past 10 years, and we need to ensure that this country goes back to the head of the economic river.
Pamela Nash
Does the hon. Gentleman not agree that rapidly rising fuel prices are doing exactly the opposite of what he says his Government are trying to achieve, with economic growth and the number of jobs throughout the country decreasing?
Charlie Elphicke
I cannot control the weather; God controls that. Nor can I control world oil prices; they are controlled by the global markets. Would that we could just magic away the fact that global oil prices have risen, but we cannot, and global oil prices have been rising and creating the problem felt deeply by many of our constituents. The situation has not been helped by the past decade’s 12 rises in fuel duty, which saw it go up from 36p to 57p. That is a massive, 20p increase, and on top of that there is VAT. But, to come to this House and say, “Well, why don’t we just chop the VAT by 2.5%,” knowing that is illegal and unlawful, and that it would take six years to secure such a derogation, is a shameless and craven exercise in opportunism.
Tom Blenkinsop
The Government are proposing enterprise action zones, so if I were to set up a petrol station in one of them, would I be able to sell petrol exempt of all taxes? That would present a problem for the hon. Gentleman’s argument that, under EU law, we are not able to roll back VAT.
Charlie Elphicke
I do not think the Chancellor would introduce any such enterprise zone on that basis, and nor should he; that would be a ridiculous thing to do.
Just as ridiculous is the fact that the previous Government did so little about smuggling across the border. We see it daily in Dover, where local hauliers complain to me bitterly about the people who fill up in Luxembourg but not in the United Kingdom. They bring goods in, pick up another load, leave and then fill up again in Luxembourg. They contribute nothing to duty, road funds or vehicle excise duty in this country; they come on a free pass, and the previous Government did nothing about it.
Dr William McCrea (South Antrim) (DUP)
Does the hon. Gentleman understand the anger felt by law-abiding people in these days of great financial constraint about the fact that on Tuesday the UK’s biggest fuel laundering plant was found in Crossmaglen in Northern Ireland? That industrial-scale plant was capable of producing more than 30 million litres of illicit fuel a year, representing the equivalent of £20 million in lost revenue. Surely it is about time that such despicable action was stamped out.
Charlie Elphicke
I completely agree with the hon. Gentleman, who makes a very fair point. We need to be firmer and tougher on smuggling and ensure that everyone pays their fair share. Two hauliers in my constituency, Martin Husk, and Tony Thompson of Comfret, stopped me the other day in Dover, complaining bitterly about the way they are hobbled by international competition, and I said that we should look carefully at daily road-user pricing. That would need a European derogation, but all other countries seem able to do it. We should look at introducing that as a longer-term, well thought-out, non-opportunistic measure.
We need measures on fuel which are lawful and affordable. We cannot just prey on people’s fears and be cravenly opportunistic; we have to be considered and careful. We need the Government to continue carefully considering the policy for the Budget next week, and to bring forward something that is affordable, credible, sensible and well thought-out, not the sort of ludicrous opportunism that we have seen from the Opposition.
HM Revenue and Customs
Charlie Elphicke Excerpts(14 years, 11 months ago)
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Priti Patel
I do not, actually. Many other measures came out of the comprehensive spending review and last year’s Budget that will help small businesses to further their interests and, we hope, grow their businesses as well.
I come from a small business background—my parents have a small business—and I am stunned by the attitude and the bureaucracy associated with HMRC. Its lack of accountability is also deeply disturbing for all our constituents. I have had constituents in my surgery who have been reduced to tears when describing their own personal experiences and the distress that HMRC has caused them. In one case, a couple who had separated were having endless complications with their tax credit awards, and the wife was receiving demands from HMRC for the repayment of overpaid credits. In another, problems were caused by HMRC’s delay in processing the correct levels of tax credit for a constituent because—surprise, surprise!—HMRC had made mistakes with the information that it held on her, and my constituent subsequently had to supply it with a great deal of additional paperwork and ID. That involved a lengthy and inconvenient process.
I should like to draw the House’s attention to another tax credit case. It concerns a couple who received overpayments as a result of HMRC’s mistakes. HMRC even gave my constituents a reward of £35 in recognition of that. However, the errors mean that that family are now being pursued for a range of repayments and are undergoing another lengthy and bureaucratic process, even though they have done nothing wrong. Make no mistake, HMRC is effectively still persecuting them and treating them like criminals.
In all those cases, and many others, my constituents have endeavoured to do the right thing, and there has been no evidence of any attempt to avoid paying taxes or to mislead HMRC. However, due to an overly complicated tax system and what seems to be endemic incompetence at HMRC, my constituents, and, as we have heard today, many others, have suffered. My constituents feel that HMRC, with the full force of the state behind it, is effectively bullying them and persecuting the disadvantaged, the weak and the powerless, and that it fails to realise the worry, stress, anxiety and misery that its errors cause the businesses and individuals who are threatened. Those unreasonable actions defy common sense and undermine how HMRC operates and the tax system.
Charlie Elphicke (Dover) (Con)
When my hon. Friend takes up cases with HMRC, does she find that they are suddenly sorted out extraordinarily quickly?
Priti Patel
I wish that the answer was yes, but unfortunately it is no. As with all large organisations, I am staggered by how long it takes to get a response. I am the one chasing up cases on behalf of constituents months after a complaint has been made.
That brings me on to accountability. Despite the fact that I have taken up every single constituency case directly with HMRC’s chief executive, she has yet to respond personally on any case I have written to her about. It seems that there is a lack of transparency in HMRC. I should also point out that it has an organogram that reaches about 45 pages, which tells me that it is a substantial bureaucracy, but there seems to be no manager for common sense in the organisation. I urge it to start seeing common sense.
In my view, that bureaucracy adds weight to my constituents’ impression that HMRC is an unwieldy, unaccountable organisation that seems effectively to be a law unto itself and never to take responsibility for its errors. I have concluded that that is its practice because it does not feel it has to do so. All too often, officials seem to hide behind complex rules and leave businesses and families having to pursue lengthy appeal processes, whether through the adjudicator, the tribunal, the ombudsman or the courts. Clearly, that puts those who feel that they have suffered an injustice at a significant disadvantage. In many cases, people do not want to go through a lengthy and perhaps costly process to seek a resolution. When they do pursue a matter, those who are unable to seek legal help are left to pitch up with their own amateur efforts against the professional force that is HMRC’s bureaucracy.
I make those criticisms and comments not to attack or damage HMRC but because I want it to make drastic improvements in the service it provides to the British taxpayer. I draw my remarks to a conclusion by congratulating the Treasury Committee on its ongoing and important investigations into HMRC. I praise the Exchequer Secretary for the attention he has given my constituents’ cases, and I wish him luck and all the best in the challenge ahead of him.
John McDonnell
I fully agree, and we have painted a picture this afternoon of the impact of a combination of job reductions, cuts in redundancy pay and the threats of cuts to pensions, which my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East described as a perfect storm. The message from those on the front line of tax collection is that HMRC is in a perilous situation. I hope from here on in that those voices will be heard and that we will consider a more systematic approach to HMRC reform.
Hon. Members have been told that access to face-to-face inquiry services has been significantly reduced, which is extremely worrying. Let me put on record what a number of tax inspectors have said about that. They say:
“Those offices that remain open”
after the 200 closures
“are having their enquiry centre opening hours significantly reduced. In some case these offices are due to be opened for only two or three days”—
maximum—
“rather than the five days a week they currently open for.”
There is also concern about the disbanding of the complex personal return team in March 2009. Many thousands of the top UK taxpayers no longer have the services of a dedicated case owner and customer relationship manager. Thirty-five thousand taxpayers whose tax affairs were handled by that dedicated team—a highly trained, professional team—are now dealt with in the wider HMRC network. There is a view that the skills are therefore not available or not dedicated in the most effective way to increase tax revenues.
In conclusion, I have heard figures bandied about for how much tax is avoided or evaded, and therefore should be collected. They range from the internal estimate of £46 billion up to £120 billion. A number of us have worked with Richard Murphy and John Christensen of the Tax Justice Network over the past five to eight years to try to highlight the issue. Until recently it was not taken up or reported particularly effectively by the media, so I pay tribute to UK Uncut—a group of individuals who have come together spontaneously, taken information from the tax justice campaign and mobilised direct action, which, whatever Members think of it, has been incredibly effective in raising the issue up the political agenda. As a result of campaigning by the Tax Justice Network, UK Uncut and others, and as people are experiencing the cuts and moving from abstraction to reality in their communities, as my hon. Friend the Member for Leeds East said, they are now asking the question: why are we not collecting this tax? It is due not just to a lack of political will—although there is a tax reform issue that needs to be addressed—but to the way in which we have treated HMRC over the years, undermining its ability to collect those taxes.
Charlie Elphicke
I agree with the hon. Gentleman that everyone should pay their fair share of tax, but I strongly disagree with—indeed, I would condemn—any endorsement in this place of direct action that has the effect of shutting down businesses for a day, at a time when jobs and money are hard enough to come by for people in this country because of the Labour party’s recession.
John McDonnell
Jobs would be more protected if companies and rich people paid their taxes. If there is £120 billion out there that should be paid, then it should be paid, and if it takes direct action to force action on that, I support that direct action. Indeed, I have participated in it and will do so in future.
Now that the issue has become so pertinent to our constituents, to the country’s financial affairs and to trying to tackle the deficit, my view is that if we continue to hamstring HMRC in the way that it has been since 2005, we will undermine its ability to operate effectively. If we continue with the job cuts experienced in recent years, and with those as a result of the comprehensive spending review, we will destroy that public service ethos, as my hon. Friend the Member for Luton North said, undermining the organisation that we have been so proud of over the past two centuries for its effectiveness in ensuring a fair and just taxation system. I urge the Minister to put in place a consultative process, consulting the unions and the staff on a reform programme for HMRC, so that it can once again do its job effectively.
Charlie Elphicke (Dover) (Con)
This is an important debate, because the evidence shows that businesses and people do better when taxes are simple and certain. Anyone who knows anything about business will know that people in business have to plan. They have to know where they stand and what the tax regime will be. That regime has to be as simple as possible, so that people can understand it and get their heads round it. That is fundamental to the consistency of the rule of law and the framework that enables business to thrive.
It is the same for individuals. I could tell hon. Members about the number of people who come to my surgery who have been stressed out of their minds by demands for £2,000 in tax that they simply do not have. That kind of demand weighs on them, giving them the gravest possible concern and taking over their lives, as they wonder how they will manage to make ends meet. I tend to intervene in those cases, because I can write to Dame Lesley, although I have to say that my experience has not been entirely the same as that of my hon. Friend the Member for Witham (Priti Patel). I have found the Revenue quite helpful in giving people time to pay and helping them to understand that they can do so through their coding notice. Nevertheless, things should not be like that. We have heard time and again that the Revenue did not used to be like that. It is only in recent years that it has gone that way.
It is important that everyone in this country should pay their fair share of taxes, and that includes business. However, we also need to be careful not to make up phoney figures for the tax gap and make wild claims that it is £150 billion a year, when the Revenue itself has said clearly that it is no more than £40 billion.
I take issue with the hon. Member for Hayes and Harlington (John McDonnell), who is still in his place, when he says that it is somehow acceptable to have direct action campaigns against business for the amount of money that it might or might not owe. It is unacceptable to close down a business for a day and deny the people who work on the shop floor—people who are often not well paid—the chance to earn their living and go about their business in their ordinary way in their ordinary lives. It is wrong to do that, and in some cases taking part in such direct action campaigns amounts to a criminal offence, so I urge all Members not to take action that unlawfully impedes business, particularly if it is of a criminal nature.
I am a member not of the Treasury Committee or the Public Accounts Committee, but of the lowly Public Administration Committee, in which we look at paper clips and try to reflect on how administration can be improved. Looking at the careful and thoughtful work done by the Treasury Committee before the election, it is quite clear that the number of customer complaints has risen dramatically. It now stands at 87,179, so I ask where those complaints and problems are. That is how to deal with the issues arising. Call centre issues are important—the fact that we cannot eyeball someone or get our phone calls answered quickly. Complaints about office processing have risen by 38%, while complaints about online services have risen by an astonishing 181%. It is logical to focus on where the complaints arise and where the problems need to be dealt with.
Let me deal with the call centre issues. We know that 43% of phone calls were simply not answered in 2008-09—[Interruption.] That is a huge number of calls, as my hon. Friend the Member for Witham interjects from a sedentary position. We also know that 35% were not answered last year. That does not tell us how long it took to answer the calls that were answered. Oral evidence to the Treasury Committee suggested that it could be as long as 12 minutes—an extraordinary situation. One person providing evidence said that if he took 12 minutes to answer his phone calls, he would not be in business for long. There is clearly an issue about the efficiency and quality of call centres that needs to be looked at.
I do not condemn HMRC, as many of its officers and officials have worked very hard, but I do condemn the previous Government for using the expertise of these wretched consultants time and again to answer all their problems, instead of using the expertise that existed within two institutions with long, proud and successful histories.
I hope that the Exchequer Secretary who comes on deck at this moment will realise on the one hand that he is fortunate, as he cannot do any worse than his predecessors, but on the other hand that he faces a challenge and should take care not to sit on deck while the orchestra is playing and the water is flooding in through holes down below. I hope that he will be assiduous in looking at the issues and trying to sort out the administrative, policy and leadership issues in HMRC today—including the matter of political leadership.
I say that because the staff survey suggests that staff feel pretty wretched. We have heard that time and again, and no one seems to think that the HMRC is well managed. No one has much confidence in anyone and no one feels energised to go the extra mile. Most people do not have that much confidence in their line managers, but they have an awful lot more confidence in them than they do in the top leadership of the entire institution. It is pretty clear, then, that we need to focus on providing the political leadership and the organisational and managerial leadership to make HMRC a better place and, above all, to make it feel better about itself.
We also need to sort out the information technology. It is clear from the Treasury Committee report that, under the previous Government, IT was an unmitigated disaster. I have to describe the response from this Government, who had only just come to office, as Panglossian. It was one of the poorest responses that I have ever seen. I do not blame the Minister, because this was back in June when the Government had only just been formed, but I urge him to take much greater control. I hope that he will take the policy side of his Department by the scruff of the neck.
Commenting on the disaster of the call centres, the Government’s response was that
“six of the seven indicators have improved from baseline and therefore exceeds HMT’s definition of ‘strong progress’.”
The Government seemed to suggest that everything was just marvellous. They went on about how wonderful the call centre answering record was, and I do not think that that is acceptable. The Government do not seem to have been in touch with the reality of the situation.
When asked about the disaster of morale, the Government went into management-speak worthy of the former director-general of the BBC. They talked of creating
“a working environment which motivates and develops our people to give of their best and take pride”.
Whenever we hear mission statements of that kind, we have a sinking feeling that the consultants have crept in through the back door and started to charge a lot of money and ruin an organisation. I hope that the emphasis will change, and that the Government will instead say, “We are going to inspire people, and give them back their sense of pride and responsibility at ground-floor level.” That will enable those people to make real advances and exercise responsibility at every level, rather than returning to the dreadful tick-box culture that has grown up over the past 10 years.
As for IT, we know that it is a disaster. The Exchequer Secretary had to come to the House in the autumn and say that it was a disaster. I must say that he was very forthright and honest with the House, and dealt with the situation superbly. The earlier Panglossian response had been:
“The robustness of HMRC’s IT systems continues to improve, however the scale of the operation, and the amount of legacy systems, is such that this is a journey of continuous improvement and not overnight change.”
Charlie Elphicke
Indeed.
I believe that the Exchequer Secretary is a very fine Minister who will, in time, become one of the ablest Ministers to have graced this or any Government. Let me end my speech by urging him to grab this issue by the scruff of the neck. I urge him not to knock the officers of HMRC who work so hard but to inspire them, make them feel better about themselves, and allow them to take charge and do really well—to provide a great call centre service, a great online service, and the great service in general that HMRC used to provide before it was ruined, particularly in the last decade.
Banking
Charlie Elphicke Excerpts(15 years ago)
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Mr Osborne
I thought that the hon. Gentleman might ask a question like that, so I did a bit of research and discovered that one of the biggest donors to the shadow Chancellor’s party leadership campaign was a Michael Sanzone, who started off at ABN Amro, moved to RBS and ended up at Lehman Brothers before supporting his campaign. They are probably the four most catastrophic decisions of recent years.
Charlie Elphicke (Dover) (Con)
That gentleman was probably expecting a knighthood and a peerage, like so many of them had in the past. Have we not moved on from excessive bonuses to an emphasis on lending more money to small and medium-sized enterprises? Are we not seeing £10 billion for SMEs and £2.5 billion in total for the new growth fund?
Mr Osborne
My hon. Friend is absolutely right. For me, in these discussions the absolute key has been the additional commitment to lend to small and medium-sized businesses. Over the past couple of years, all Members have had people in our constituencies come to us with very difficult stories about the failure of banks to lend to such businesses, and we now have a commitment to increase the lending available by 15%, which is a substantial increase. Alongside that—I did not have time to go into all the detail, but it is being published this afternoon—there will be a new code of practice for the banks to treat their customers much more fairly: for example, they should engage with small businesses a full year before an overdraft comes up for renewal. For me, dealing with that crucial area of the economy—getting credit to small and medium-sized businesses—has been one of the most important parts of the new settlement.
Bank Bonuses
Charlie Elphicke Excerpts(15 years, 1 month ago)
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Mr Osborne
One of the issues that we are talking directly to the banks about is lending into regional economies outside London and the south-east—that is in addition to the contribution that they make to the whole national economy. That regional emphasis is a very specific part of the discussions we are having.
Charlie Elphicke (Dover) (Con)
The Chancellor has already told the House that under the banking contract, bonuses were actively encouraged by the previous Government for the current year. Can he tell the House whether lending to cash-strapped small businesses was also encouraged under that contract?
Mr Osborne
Nothing meaningful was secured on lending to small businesses by the previous Government at the very moment when they had maximum leverage: when they were bailing out these banks. That is part of what we are dealing with. We are also dealing with the situation in which they bought their very large stake in the Royal Bank of Scotland—as I have said, the deal explicitly says that the bonuses covering the year 2010 should be paid at market rates. I am saying that we want to see the bonus pool smaller and the Royal Bank of Scotland as a back-marker, rather than a front-runner.
Oral Answers to Questions
Charlie Elphicke Excerpts(15 years, 1 month ago)
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Mr Gauke
Had we proceeded with the spending formula that existed under the previous Government, some of the deprived areas that are most dependent on central Government grant would have faced a greater cut than the one in the proposals announced by my right hon. Friend the Secretary of State for Communities and Local Government.
Charlie Elphicke (Dover) (Con)
Does the Minister agree with me, and my constituents in Dover and Deal, that the council tax freeze is very welcome, and stands in sharp contrast to the massive rises that have hit the poor, elderly and vulnerable in recent years?
Loans to Ireland Bill
Charlie Elphicke Excerpts(15 years, 2 months ago)
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Mr Osborne
It is a reasonable summary. Of course we stand behind the International Monetary Fund as a shareholder of it, as are most countries in the world. I shall come on to the European financial stability mechanism, which I have already talked to the House about on a number of occasions. Like other contributors to the EU budget, we stand behind it. In a sense, the loan that we are proposing today is the direct British taxpayer contribution—or rather, the money that is borrowed on behalf of the British taxpayer. I shall come to the terms of the loan, but of course we expect to be repaid, and repaid with interest. We are doing this because we think it is absolutely in our national interest, for some of the reasons that have been set out.
Charlie Elphicke (Dover) (Con)
On that point, may I welcome the fact that the Bill is before the House today and that approval is being sought before the loan is made? Will my right hon. Friend explain how we came to be part of the European financial stability mechanism, what approval the House gave to it and what level of debates there were about it?
Mr Osborne
As I explained to the House previously—my predecessor, the right hon. Member for Edinburgh South West (Mr Darling) is here, and might at some point want to give his own version of events—my understanding is that in the period between the general election and the formation of the Government, an emergency ECOFIN meeting was held to address the Greek situation and to provide confidence that the European Union and the eurozone stood behind other member states that were potentially in difficulty.
My predecessor ensured that we stayed out of the eurozone facility—I have acknowledged that in the House —but acquiesced in the use of article 122 of the treaty, which allowed the European Union to disburse funds when a natural disaster, such as an extreme weather event, was affecting a member state, to create a mechanism that could stand behind countries that got into difficulties. The decision on the use of that mechanism is taken by qualified majority voting, so although we could vote against its use in this situation, I did not think that that would achieve anything. I am focused, in a way that I shall describe, on trying to extricate the UK from the EU-27 mechanisms that stand behind eurozone countries. If hon. Members will bear with me, I shall talk about that later, and if people want to intervene at that point, that would be more sensible.
Let me move on to the connections between our banking sectors. Our banking sector has a considerable exposure to Ireland, but I should stress that in the opinion of the Financial Services Authority, the UK banks are sufficiently well capitalised to more than manage the impact of the situation in Ireland. For a long time now the devaluation in Irish asset values has been accounted for and priced in.
One thing is clear. It is undoubtedly in Britain’s national interest to have a growing Irish economy and a stable Irish banking system. In the judgment of both the Irish Government and the international community that was not going to come about without the assistance package we debate today. I would now like to explain to Members the principles of the Bill, and then take them through the heads of terms of the loan agreement.
The Bill has two substantive clauses. Clause 1 sets out the parameters under which the Treasury may make payments under UK loans to Ireland. As I explained earlier, the total international assistance package, including our contribution, is denominated in euros. However, we are making a bilateral loan in sterling so that Ireland bears the exchange rate risk over the coming years. Subsection (3) of the clause includes a cap on the total size of our bilateral loan. It is written on the face of the Bill that
“the aggregate amount of payments made by the Treasury by way of Irish loans...must not exceed £3,250 million”.
In other words, the £3.25 billion we originally agreed will be the maximum total size of our bilateral loan to Ireland. A sunset clause is also, in effect, built into the legislation. The period over which the loans may be offered begins on 9 December 2010, when the Bill was published, and ends on 8 December 2015.
Charlie Elphicke
Surely, the right hon. Gentleman’s point highlights the lack of wisdom in signing us up to the stabilisation mechanism on 9 May.
Alan Johnson
This may be news to the hon. Gentleman, but his party is in government now. As I said, my party ensured that we contributed nothing—not a penny, not a euro, not a drachma—to the Greek bailout. The Chancellor is coming before this House with a £6.6 billion contribution to Ireland, which we support, but the various aspects of the mechanism need to be explained and understood.
Alan Johnson
I do agree that part of it should be bilateral, for all the reasons that I have mentioned. As various members have commented, however, we need to understand why the formulation has been made—because it could be setting precedents; because there is a larger pot of money out of which a lesser sum of money is being brought; and because the Chancellor can come back to this House, by virtue of a statutory instrument and seek further money for Ireland. We need to be clear what we are letting ourselves in for.
Alan Johnson
No, I will not give way—perhaps later.
I am also curious about the following piece of distorted logic. In the Treasury Committee, the Chancellor said that it was okay to set austerity aside in order to make a loan to Ireland because of the promise of repayment. He said that this loan “adds to our debt” but
“We’re getting back a very important asset which is a commitment from the Irish government to pay us back with interest.”
What puzzles me is which part of that definition of a sensible loan did not apply to Sheffield Forgemasters. [Hon. Members: “Oh.”] I am sorry that Government. Members groan about British manufacturing industry. My right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) raised this issue during the Chancellor’s statement on 22 November. Why does the Chancellor agree a huge loan to Ireland on the basis he cited but reject a modest £80 million that would be paid back with interest and boost the opportunity of British manufacturers to have a substantial stake in the civil nuclear energy supply chain, which is currently dominated by overseas companies? At a time when we are looking for jobs and growth, the logic of that escapes me.
My third concern is the prospect of each eurozone country being bailed out as its economy falls into crisis without addressing the root causes of the continent’s problems.
Alan Johnson
No, I will not give way. The Prime Minister said:
“That is why a priority for any Conservative government led by me will be to create a much better environment for business… We know it can be done. Just look at the Republic of Ireland.”
Two years later, at exactly the time when Ireland’s six largest banks were forced to borrow €20 billion from the European Central Bank, the Prime Minister said that Ireland had
“a ‘future fund’ of assets, providing security against future liabilities and unknown shocks coming down the line.”
Perhaps those on the Treasury Bench will update us on how that future fund is doing in Ireland. Finally, in June 2008, at a Cameron Direct event in Harlow, he said:
“When it comes to the engine room of the country, the economy, you know you can look across to southern Ireland where they have created a dynamic economy. Well we’ve got to do that right here.”
Our message to the Chancellor as we prepare to support his Bill is not to replicate Ireland, but to repudiate the measures that put its economy in such a perilous position.
We understand that there is an O’Donnell circulating a plan B in Whitehall against the Chancellor’s wishes. As the Chancellor said in The Times, the Irish have
“much to teach us, if only we are willing to learn.”
Autumn Forecast
Charlie Elphicke Excerpts(15 years, 2 months ago)
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Mr Osborne
The Bank of England Monetary Policy Committee sets interests rates, and does so independently. The purpose, in part, of the measures that we have taken to reduce the deficit is to give the Monetary Policy Committee the maximum possible flexibility and freedom in setting the appropriate monetary policy to stimulate demand in the economy. I believe that that has enabled it to keep interest rates low, which helps to stimulate the economy.
Charlie Elphicke (Dover) (Con)
Will the Chancellor confirm that the corporation tax reforms that were announced today will make the UK more attractive as a holding company jurisdiction and help to make the UK a pre-eminent corporate headquarters centre, as much as a financial centre?
Mr Osborne
My hon. Friend is absolutely right that the reforms will help to do that. They will help the UK to be an attractive place for international companies to locate, invest and create jobs. The changes to the patent regime will help a number of sectors, such as pharmaceuticals. I mentioned GlaxoSmithKline, but of course Pfizer is a big employer near Dover, and I hope that it, too, will benefit from the announcements that we have made.
Banking Reform
Charlie Elphicke Excerpts(15 years, 2 months ago)
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Mr William Bain (Glasgow North East) (Lab)
It is a pleasure to be able to contribute to this important debate. I thank my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) for having the good sense to persuade the Backbench Business Committee to secure it. It is also a pleasure to follow the hon. Member for Clacton (Mr Carswell). I agreed with some of his remarks, particularly the one about breaking up the banks.
When I was preparing for the debate, I had occasion—and a little more time than I expected, owing to my difficult journey from Scotland to London today—to examine an excellent study of the banking crisis by three major economists in a book entitled “Balancing the Banks”, by Mathias Dewatripont, Jean-Charles Rochet and Jean Tirole. Jean Tirole’s chapter in particular details, in very precise order, the reasons for the crisis and makes several points. First, it deals with the crisis in United States home loans, which spread to other sectors and other countries. The staggering expansion in the level of securitisation partly explains the difficulties that the US banks got into. Between 1995 and 2006 the proportion of loans that were securitised rose from 30% to 80%, and the proportion of sub-prime loans that were securitised increased from 46% in 2001 to 81% in 2006. Jean Tirole also points out the lack of high-quality collateral backing many of these loans, which particularly came to our attention when the inter-bank bond and derivatives markets simply froze up. Added to that, excessive liquidity fed the demand for securitisation. As my right hon. Friend the Member for Oldham West and Royton pointed out, monetary policy was also very loose, particularly in the United States, and the performance of credit rating agencies hardly covered them in glory.
Another important point in understanding what went wrong is the failure of international regulation of the banks. For example, the level of off-balance-sheet liquidity support increased hugely, especially in America. There has also been a need to rediscover what prudential regulation of the banking system should be about. It should be about, first and foremost, protecting small depositors and investors, but also containing the domino effects of systemic risk.
We should therefore welcome some of the recommendations of the Basel Committee on Banking Supervision. The key failure of Basel II was its reliance on pro-cyclical capital controls, and one of the Basel III reforms we should welcome is the introduction of counter-cyclical buffers. I think it is also true to say that Basel II was too complex. It was based on a pillar structure that was both difficult to understand and unable to anticipate systemic risks to the banking system or, indeed, manage financial innovation. As my right hon. Friend pointed out, it was unable to predict the chaos that credit default swaps and collateralised debt obligations would create throughout the world. There needs, therefore, to be an increase in the capital and liquidity banks should hold.
I disagree, although only slightly, with my right hon. Friend in one respect, however. Basel III does introduce a powerful counter-cyclical element of up to 2.5%, which may be significant in preventing future problems. There is also a balance to be struck.
Charlie Elphicke (Dover) (Con)
Is the hon. Gentleman aware that Basel III also seems to introduce an incentive for increased invoice discounting and trade factoring, and is that not slightly undesirable?
Mr Bain
The hon. Gentleman raises an interesting point. I was about to make the point that Basel III strikes a balance between protecting the taxpayer and the state and promoting economic growth. I understand the banks have been lobbying to try to diminish some of the effects of holding extra capital. Indeed, when I met a representative from Lloyds Banking Group in Glasgow on Friday, he lobbied me to take that position.
What we have witnessed is a crisis that began in the housing and asset price markets in America. It spread to other countries and to the banks of other countries, and it has now also spread to the state. It is important that the taxpayer can see that there are buffers to prevent the state from having to bail out banks across the globe. Having a counter-cyclical element should help achieve that.
The Government should continue the work the previous Government did in pursuing the issue of getting a global deal on bankers’ bonuses. If they do not, or if they are unable to achieve a global deal, the UK and the EU should be prepared to take a lead in giving greater transparency and reducing some of the terrible incentives to sharp practices in the last decade.
Across the world, we are seeing the terrible effects of a credit crunch causing a banking crisis, in turn causing a deficit crisis and then a growth crisis. In the coming months and years, we need to put in place a policy that sorts out the system for good. We need a policy that learns the lessons from the crisis and ensures the taxpayer never has to foot a huge bill for the terrible behaviour of a greedy few.
Mr Umunna
The apparatus would help to introduce greater transparency on bonuses, because if we want to do something about reckless remuneration we need to know about it. I speak to many people in the City, and, although some of course disagree with the measure, many accept that it needs to be introduced. Action was taken, but some measures are still outstanding.
Mr Umunna
I am going to make progress, because I do not have much time.
I welcome the introduction of the independent banking commission, which the new Government were right to set up. Without pre-empting the commission, I firmly believe that we should separate retail from investment banking. There is some consensus on that, but it is a question of degree.
Stephen Barclay (North East Cambridgeshire) (Con)
It is a pleasure to follow the well-crafted speech of the hon. Member for Streatham (Mr Umunna). I, like him, welcome the chance to debate this important issue. I must preface my remarks by declaring, in the interests of transparency, that I too used to work in the industry. I worked on both sides of the regulatory fence—as a regulator in policy and supervision roles, and in the insurance and banking sector—prior to entering the House.
The depth of anger felt by our constituents is very much underestimated in the City and in Canary Wharf. Constituents might hear the technical jargon that is often used in such debates, but they are not confused by what went on: they know that senior bankers made big mistakes yet kept their massive payments; they are incredulous that the banks have returned so quickly to paying bonuses, as the hon. Member for Leeds East (Mr Mudie) said; and they are frustrated that the rhetoric of reassurance from the banks is so often at odds with their own experience as customers, particularly when it comes to the fair treatment of customers.
As my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) pointed out, the motion is—dare I say it—poorly drafted when it states that “no action” has taken place. Indeed, the hon. Member for Streatham endorsed that view from the other side of the House. There has been a flurry of regulatory initiatives, such as more intensive supervision by the Financial Services Authority following its admission of regulatory failure over Northern Rock; and on derivatives, which the motion mentions, the capital requirements directive will subject contracts that are not cleared through a funding house to higher capital requirements. So, action is taking place. Likewise, the Government’s amendment rightly focuses on structure and, indeed, prudential policy, but it is silent on the key issue on which I shall concentrate: enforcement against individuals in banks.
Before doing so, I must say that so far the debate has been silent on the short-termism fostered by the pension fund management, and in particular on the pressure that that puts on chief executives, who risk being fired if they do not add shareholder value. In banks, people fear missing the targets set by their chief executive more than they fear the regulator.
Charlie Elphicke
Is not one of the serious issues with bonuses, and the point that my hon. Friend makes, that there emerged a kind of cool option, whereby bankers could receive a bonus but never lose out? Should the system not be reformed, so that bankers are able not only to receive a bonus, but to incur a loss? That would align them more with the return on whatever their bank is up to.
Stephen Barclay
My hon. Friend is absolutely correct, and I shall come on to consider the quantum of fines that have been imposed, because it makes very strongly the point that he makes.
On the regulatory structure, I am sure that my hon. Friend the Financial Secretary to the Treasury will talk about the changes that the Government are rightly making, because we need to be clear who is in charge in the event of failure. The tripartite system did not make that clear. However, I am sure that he, like the previous Chancellor in his White Paper, accepts that there is no single institutional model to insulate us from a future crisis.
The Government are also right to focus on prudential policy, but I caution against a reliance on policy itself, because we need only look at how often it has changed. We are already on Basel III, Solvency II and MiFID II —the markets in financial instruments directive—and the next debate is on commission in the retail sector, which has been debated for many years.
To give a specific example of the flaws in new policy, let me direct the House to “best execution”—one of the features of MiFID that required banks to shop around to obtain the best price. It will not surprise Members to discover that when banks shopped around they happened to find, in accordance with their written policy, that the best possible price just happened to be the one offered by their investment banking arm. Notwithstanding, therefore, the limits of new structures and policy, I believe a clearing house for derivatives would be a welcome step and a key component in addressing opaque financial instruments, such as securitisations, which stopped people obtaining the required visibility in respect of bank balance sheets and which was central to stopping banks lending to each other. Alan Greenspan’s claim that derivatives efficiently dispersed risk throughout the financial system ignored the concentration of risk in individual firms. We need only look at AIG to see the effect of that sort of concentration of credit risk.
A perhaps more technical point is that clearing houses should be more consistently valuing collatoralisation requirements across all banks. The reason for that is the different requirements that apply to UK and German banks, for example, in terms of their capital standards and liquidity requirements.
The most glaring issue that needs to be addressed is that of enforcement—in particular, the lack of transparency that goes to the heart of the sense among constituents that people have had a one-way bet. That was the point to which my hon. Friend the Member for Dover (Charlie Elphicke) alluded. To give an example, the failure of enforcement and the lack of a taxpayer’s guarantee has been material, particularly now that investment banks are not partnerships; I do not think that many partnerships would have leveraged their capital up to 40 times, as many of the banks did. Put simply, the alignment of interest between shareholders who provide the capital and employees who allocate it is not as strong as was historically the case. That is one of the features of a shadow banking system in which the banks had no long-term interest in the securitisations that they structured and underwrote. We would not allow such a thing with an aviation or pharmaceuticals company; they could not design and profit from products that they expected to fail, as Goldman Sachs did with the Abacus deal.
In the final minute allocated to me, I turn to the quantum of fines. To put the matter in context, no fine has been imposed on any senior executive at HBOS, HSBC, Barclays, Lloyds or Royal Bank of Scotland. The biggest three fines, applied to Northern Rock, amount to less than £1 million—that is, less than the chief exec earned as a bonus the year before. The fines were subject to 20% and 30% discounts as a result of early settlement and on the grounds of hardship. For that reason, our constituents feel that no one has been held accountable. They have seen people walk away with the profits without being held accountable for the things that went wrong. As the Minister looks at the structure and policy, we also need to learn the lessons of why enforcement against individuals has failed.