Inflation

Lord Barnett Excerpts

Thursday 17th March 2011 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government whether they will clarify the comments made by the Chancellor of the Exchequer to the Governor of the Bank of England in his letter of 15 February on inflation targets.

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

My Lords, consistent with the Monetary Policy Committee remit, the governor is required to write to the Chancellor if inflation deviates from the target of 2 per cent as measured by the 12-month increase in the consumer prices index by more than one percentage point. In his response to the governor, the Chancellor noted the Monetary Policy Committee’s assessment of inflation prospects relative to the inflation target and welcomed the committee’s determination to ensure that inflation returns to target in the medium term.

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[Lord Barnett]

My Lords, I congratulate the noble Lord on the variety of ways that he finds not to answer a question. There are only two answers to the big issue on interest rates: whether or not you agree that they should go up. The Chancellor, in reply to the Governor of the Bank of England, who had said that increasing interest rates would be a futile gesture at the moment, said that he had “complete confidence” in the governor. In those circumstances, and given that this Government are the most transparent in history, can the Minister tell us the Chancellor’s view? Is he for or against an increase in interest rates?

[Lord Sassoon]

My Lords, first, I am grateful for the congratulations, however backhanded, offered by the noble Lord, Lord Barnett, and I will bank them. We are discussing the letter from my right honourable friend the Chancellor to the governor. In that letter, as I attempted to explain in my first Answer, he does not express any view about interest rates because, as the noble Lord well knows, the setting of interest rates is an independent matter for the Monetary Policy Committee of the Bank of England. I am sorry if I have to be boring about this, but there seems to be some misunderstanding. It is absolutely not for the Chancellor to express any view on this matter. What he does, as the noble Lord recognises, is to express confidence in the governor and the MPC structure and to support their independence.

Independent Commission on Banking

Lord Barnett Excerpts

Monday 28th February 2011 Lords Chamber

[Lord Sassoon]

My Lords, I agree with my noble friend that risk and the stability of the system go the heart of the remit of the commission. However, the individual product sets which are offered by individual banks is at the moment a matter for the Financial Services Authority, and I am sure that it will be taking its responsibilities very seriously in relation to the business models and products of all the banks it regulates.

[Lord Barnett]

My Lords, whatever the final recommendations of the commission, what work has the Treasury done with regards to splitting? Would it be helpful to the certain sale of our shareholdings? If it turns out to be bad, will the Minister be acting, as the noble Baroness asked, on a potential splitting?

Monetary Policy Committee

Lord Barnett Excerpts

Wednesday 16th February 2011 Lords Chamber

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

My Lords, Her Majesty’s Government have no proposals to change the relationship between the Chancellor of the Exchequer and the Governor of the Bank of England in his capacity as chairman of the Monetary Policy Committee.

[Lord Barnett]

I welcome the Answer from the noble Lord, but does it include what the Chancellor told the Treasury Select Committee; namely, that he is going to follow the policy of the previous Chancellor, which would not prevent him reducing or increasing quantitative easing, although he has the powers? Then again, the governor also said in his letter to the Chancellor, published on 14 February, that he believed that inflation would have been below the 2 per cent target if it had not been for three exceptional factors. Does the noble Lord agree with that because the Chancellor’s letter is somewhat unclear to say the least? As to the balance of risk that the governor was writing about, he seemed to be worried about the problems for growth and employment if he increased interest rates. Does the noble Lord agree with that?

[Lord Sassoon]

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

Currency Markets

Lord Barnett Excerpts

Wednesday 2nd February 2011 Lords Chamber

[Lord Sassoon]

My Lords, we want to see a transparent, deep and liquid market in the euro, other currencies, commodities and all forms of securities. As my noble friend suggests, it is right that London has taken the lead not only in global currency trading but in so many other markets. This Government intend to ensure that that continues to be the case.

[Lord Barnett]

Could the Minister confirm the recent figures issued by the highly respected Bank for International Settlements that the sovereign debt owed to British banks by Ireland, Greece and Portugal is something like $233 billion and would be $370 billion if Spain was included? In those circumstances, would it not be sensible to involve ourselves in discussions on a serious eurozone scheme that would help to avoid any serious problems?

[Lord Sassoon]

My Lords, the European stability mechanism is the permanent mechanism that will replace the temporary arrangements and there is a commitment among European leaders to complete the design by March 2011. Even though we are not in the eurozone and will not be a member of the new stability mechanism, we have been invited to participate in the design. My right honourable friend the Chancellor confirmed to President Juncker, I think on 7 December, that the UK would take up that invitation to participate in the design.

National Insurance Contributions Bill

Lord Barnett Excerpts

Wednesday 2nd February 2011 Lords Chamber

[Lord Sassoon]

My Lords, this has been an interesting and high-quality debate, as is usual for this House, even if it has gone off into general economic issues on a number of occasions. Nevertheless, I am grateful to all noble Lords who have contributed.

Perhaps I may first address one or two of the questions and concerns that have been raised in connection with the national insurance contribution rate rises. I shall to try to restrain myself and not be drawn into some of the broader economic debate. My noble friend Lord Newby neatly knocked some of those concerns on the head, and your Lordships do not need another long lecture from me to explain just why the deficit reduction is necessary and what the greater construct is.

The noble Lords, Lord McKenzie of Luton and Lord Myners, referred to VAT in different ways. The critical point here is that consumption taxes are generally regarded by economists as being the least damaging to growth. If we had raised in other ways the £13 billion that it was regrettably necessary to raise out of the increase in VAT—for example, through larger increases in national insurance contributions—it would have been significantly more damaging to growth and jobs.

The noble Lord, Lord McKenzie of Luton, asked about the £1.4 billion effect on employers. This is a complicated matter, because there is a net overall benefit of £3 billion accruing from the total package, but it is the case that the way in which we have ameliorated the previous Government’s plans means that some of the benefit is switched from national insurance contributions to income tax. So, yes, there will be a net rise in national insurance contribution payments, compensated by a larger fall in income tax payments. While one can dice and slice this any number of ways, the critical point is that, in total, employers will be £3 billion better off next year, and that figure will rise in future years.

The noble Lord, Lord McKenzie of Luton, asked about the relationship of thresholds going forward. We have no plans to break the alignment of income tax higher rate threshold and the upper earnings and profits limits. Beyond this, we will review options for simplification in the light of any advice we get on priorities which are identified by the Office of Tax Simplification as and when it looks at this area.

The last main point on Part 1 of the Bill related to the important question of the funding of the National Health Service. This was also referred to by the noble Lord, Lord Davies of Oldham. I hope it is completely clear to noble Lords that nothing in the Bill affects in any way the commitment to increase NHS spending in real terms in each year of this Parliament. We can afford to do this without additional funding from national insurance contributions. I hope that gives reassurance and answers some of the specific questions raised by noble Lords on Part 1 of the Bill.

There were a number of detailed questions on Part 2 of the Bill. The first general group of questions related broadly to the scope of the holiday, both geographically and in relation to charities in particular. On the question of charities, which was referred to by the noble Lord, Lord Myners, and the most reverend Primate, it is not the case that charities are excluded from the scheme, but they must qualify in a number of respects. First, a new charity must be located in one of the relevant regions and it has to carry on a trade. In those circumstances, the holiday will apply subject to the charity meeting the other qualifying conditions.

It would be wrong to say that all charities are excluded, but I accept that non-trading charities are. If they had been included, it would have complicated the scheme and created complexity around administration, eligibility, anti-avoidance rules and so on. Any benefit ensuing is likely to be limited as we estimate that relatively few non-trading charities employing staff are likely to be set up over the holiday period.

The consistent theme is that the scheme is targeted at new businesses creating employment. If a new charity carries on a business, it will qualify.

[Lord Barnett]

My Lords, the noble Lord gave a definition of “trade” as “trading”. However, Clause 5(6)(a) refers to,

“a trade, profession or vocation”.

Is that not somewhat different?

[Lord Sassoon]

My Lords, I think it is a wider definition, so if a charity in those areas was carrying on activities that went beyond trading, my understanding is that the charity would qualify. The noble Lord, Lord Barnett, makes a point that perhaps the latitude for charities is wider than I am painting it. However, the critical point here—perhaps I am using “trading” too loosely—is that we are talking about creating new employment. If a new charity is carrying on a business that creates employment, it will qualify.

Monetary Policy Committee

Lord Barnett Excerpts

Monday 31st January 2011 Lords Chamber

[Lord Sassoon]

My Lords, that was a nice long lecture. I think there was a question at the end of it. It is precisely because the Government took resolute and early action to restore the fiscal position to one that pulls us back from the brink of the disaster which the previous Government left us with that the Bank of England can conduct monetary policy on a prudent basis and, as I said in my earlier Answer, all forecasters that I know of are forecasting that inflation is likely to come back towards the target range.

[Lord Barnett]

As the Minister appears to agree with the Chancellor on almost everything, does he agree with the Governor and the majority of the members of the MPC that the interest rate should be kept at its present level?

[Lord Sassoon]

My Lords, I will not fall into the trap of second-guessing the MPC. As I have said, the Monetary Policy Committee of the Bank of England runs monetary policy on an independent basis. That was an establishment of the previous Government to which I pay tribute. I am certainly not going to do anything other than restate the critical importance of the independence of the Monetary Policy Committee. It is up to the committee to decide how to hit the inflation target, which it is doing with the full confidence of the Government.

Budget Responsibility and National Audit Bill [HL]

Lord Barnett Excerpts

Monday 31st January 2011 Lords Chamber

[Lord Higgins]

My Lords, I intervene briefly to express appreciation to my noble friend for the way in which he has kept us in touch during the period between Grand Committee and now with the way in which his thoughts have been developing. Certainly this is a non-controversial Bill, but the House is succeeding in improving it still further and that is a good thing.

[Lord Barnett]

My Lords, I thank the noble Lord, Lord Sassoon, for his amendments. He referred again to the independence of the OBR but, as he knows, I have all along been concerned with both its relevance and independence.

On relevance, there are dozens of truly independent forecasting bodies all over the country, including the Institute for Fiscal Studies, which used to be chaired by the present chairman of the OBR. The issue concerns itself with the expense of a body such as this when we have not only the forecasts of the independent outside bodies but the Treasury forecasts, the Bank of England forecasts and the OBR forecasts, most of which probably will be broadly in line with the current situation.

We will never know—I have tried to find out on many different occasions—the Government’s view on what should happen when they have the forecasts. The Minister has found all kinds of different ways of not answering my questions about what the Government’s policy is and whether they agree with the Bank of England on keeping interest rates at 0.5 per cent, given the growing pressure—wrongly in many quarters—on the need to increase interest rates. He will not say whether he disagrees—I appreciate that he cannot disagree with or say anything different to what the Chancellor has said—but it would be nice if, at some time or another, he could answer the question of what the Government’s policy is, as opposed to accepting the forecasts, which he has done on numerous occasions.

On the question of independence, I am worried by the constant references in the media to “the Government’s in-house forecasting body, the OBR”. This does not lend itself very well to the independence that we would all like to see in the OBR. I am sure Robert Chote will do his best to ensure that it is truly independent but, if it is no more independent than the dozens of existing bodies, why do we need the OBR at all? That is the question I put to the noble Lord while thanking him for the amendments he has brought forward.

[Baroness Noakes]

My Lords, I add my support for the amendments. It is to the great credit of the Minister that he took away the good discussions we had in Committee and has produced this and the other amendments today.

The noble Lord, Lord Barnett, referred to the OBR being regarded as the Government’s in-house forecasting body. I have never heard it referred to in those terms, although I know that noble Lords on the Benches opposite have tried to make that accusation stick. I believe it is already regarded as a properly independent body under its chairman, Mr Robert Chote, and we should rejoice in that.

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[Lord Barnett]

My Lords, as from time to time I disagree with my noble friend Lord Eatwell, I make it clear that on Amendment 6 I strongly agree with him. It makes sense to separate the review from the political cycle. I will disagree with him at a later stage, but on this I thought that he made a very good point.

I am never surprised at the noble Lord, Lord Burns, speaking as if he is on the Treasury Front Bench. We should not be surprised; he has been doing it all his life. He did a marvellous job in the Treasury, particularly for the five years that I was there.

I thought that my noble friend Lord Eatwell made a good point about the cycle, as did my noble friend Lord Myners, and I hope that on reflection the Minister will accept the amendment. It makes a lot of sense and he might, on this occasion, accept it.

[Lord Sassoon]

My Lords, I start by welcoming the noble Lord, Lord Myners, back to the Chamber. I am not sure that he had quite got his script co-ordinated with the Front Bench, but I accept his congratulations. I will put aside their slightly backhanded nature. Next time I think he should speak to his Front Bench, which seemed to be taking sole credit for the government amendments that have come forward. Nevertheless, I am grateful to him.

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[Lord Barnett]

The noble Lord, Lord Burns, never disappoints me. I am delighted to see that he agrees with the principle of the amendment. I agree with the principle but I disagree with the amendment. Once again, my noble friend Lord Eatwell ignores this House. He would like to see the scrutiny undertaken just by the Treasury Committee of the House of Commons. I have no objection to that and, indeed, I would be delighted if the Minister accepted it, because the Treasury Select Committee of the House of Commons, under different chairmanships, has usually done a great job and continues to do a very good job now under a Conservative chairman. Why does my noble friend not wish to have this scrutinised, as my noble friend Lord Peston and I proposed in Grand Committee, by the Economic Affairs Committee of the House of Lords? As a former chairman, I am prejudiced and my noble friend Lord Peston was a longer-term chairman of the committee. It has always done an excellent and very independent job in this House.

If the Minister is minded to accept an amendment occasionally, and can ignore the word “resist” in his brief, perhaps he might be willing to add to the amendment the words “the House of Lords Economic Affairs Committee should also carry out scrutiny”. We now have a former Chief Secretary to the Treasury chairing the committee and doing an excellent job. On this occasion, I hope that the noble Lord, Lord Sassoon, will accept the amendment as amended by my suggestion. I beg formally not to move.

[Lord Sassoon]

My Lords, perhaps I may just get my head round the formal non-moving of an amendment that has not been put down. I shall try to give the noble Lord, Lord Eatwell, the reassurance that he seeks in this area. The Government support the spirit of the amendment. Transparency and parliamentary scrutiny of the OBR’s budget are absolutely central to safeguarding its independence. I do not think that there is any difference between us on that point.

The next issue is getting a proportional arrangement which achieves the objective. The effect of the proposed amendment has already been achieved. In line with the Treasury Select Committee's recommendation, the annual budget of the OBR will be identified separately in the Treasury's estimate and it will be available for the Treasury Committee to scrutinise in another place. Nevertheless, we have gone further than the Treasury Committee asked for in order to enhance the transparency of the OBR’s budget and critically to protect it from any suggestion of politically motivated cuts. Again, in line with the Treasury Select Committee’s recommendation, the OBR will also be able to submit to the Treasury Select Committee an additional estimates memorandum alongside that of the Treasury in which it can explain for itself the reasons for changes in the available budget for the year ahead. I think that will go beyond what is proposed, in effect, in this amendment because the OBR will be free to explain in full what any changes in the budget mean.

I agree with the noble Lord, Lord Burns, that if we need to be concerned about anything here it is the multi-year aspects of it, which the proposed amendment does not address. The OBR has already been provided with an agreed and publicly documented multi-year budget, so that an annual budget exercise cannot be used to exert hidden pressure on the OBR. This specific element has been welcomed by the IMF.

I will divert for a moment to address one or two of the points raised by the noble Lord, Lord Eatwell, on some of the international experience in this area. While I am sure that the Toronto Globe and Mail is a fine source of reporting, I think it is relevant to remember that the Canadian Parliamentary Budget Officer is really not in any comparable position to the OBR. Its budget is not separately identified anywhere within the estimates of expenditure presented to the Canadian Parliament. It is a very different office from the one we are looking at. The Parliamentary Budget Officer in Canada was not given an agreed and published multi-year budget. I think we are in very different territory from Canada.

Hungary was mentioned. It is interesting to note that Hungary’s Fiscal Council chairman pointed out—I do not know whether this is correct—in the context of saying it was very, very rare to introduce substantial changes or abolish fiscal councils that the only example he could point to was Venezuela under Hugo Chavez abolishing its fiscal council. So there are one or two examples but they are not comparable examples. It is precisely to guard against any suggestion of such interference that we have put in place the measures that we have.

In trying to give the noble Lord the reassurance he seeks, we have discussed already the responsibility of the OBR’s non-executives. Critical to that is their duty to report on anything that appears to them to constrain the OBR’s discretion. Of course, that would include any attempt to control the OBR through manipulating its budget. To quote the chair of the Treasury Select Committee:

“It is vital that the OBR has the resources it needs. The Committee will monitor this carefully: the terms of reference suggest that the Treasury accepts the importance of transparency and separate disclosure, and we will have the information we need”—

we, the Treasury Select Committee—

“to do our work”.

The package of measures we propose for the OBR in the Bill follows the recommendations of the Select Committee and in the judgment of the Treasury fully reflects that intention. The chair of the OBR has already made clear that he has adequate resources and that he will promptly raise any issues on funding with the Select Committee—a very public forum in which to raise any concerns.

Finally, I will quote Robert Chote at his pre-appointment hearing in front of the Select Committee. He said:

“If you accede to my appointment and I find myself being squeezed in that way, this committee will be hearing about it very promptly. That’s how we make that public and ensure that those sorts of pressures do not go unremarked”.

I suggest that there are a considerable number of safeguards in place. Indeed, we go further than the noble Lord’s amendment because we believe that the multi-year dimension is as important as, if not more important than, the single year dimension to which his amendment refers. In view of the reassurance that I have been able to give him, in particular pointing to the role that we have just now confirmed for the non-executives, I hope that he will withdraw the amendment.

Inflation

Lord Barnett Excerpts

Wednesday 19th January 2011 Lords Chamber

[Lord Sassoon]

My Lords, of course the Government are concerned about the current level of inflation and the impact that it has on many parts of society, particularly on working families, savers and others. However, how the Bank of England meets the Government’s set target for inflation, including decisions about what it does, if anything, about quantitative easing or the reversal of it, is an operational decision for the bank.

[Lord Barnett]

My Lords, can the noble Lord confirm that he is not joining those who wrongly seek to pressurise the MPC to increase interest rates? Furthermore, as he cares about transparency, will he perhaps now take the opportunity to answer the Question for Written Answer that I put to him some time ago and tell us precisely what the Treasury representative on the MPC was instructed to say to the committee about the Treasury’s view on interest rates?

[Lord Sassoon]

My Lords, I am very happy to confirm that the Government have every confidence in the MPC. They regard its independence as a cornerstone in making sure that the Chancellor’s inflation target is hit as far as it is in the power of the MPC to achieve it. That is what it is asked to do and there is absolutely no interference. As I have explained before, a representative of Her Majesty’s Treasury does indeed attend MPC meetings—not in any way to interfere with the independent deliberations of the MPC but to make sure that the committee is aware of relevant Treasury policy decisions, such as what is coming out of budgets. That is all I can say.

Deficit Reduction

Lord Barnett Excerpts

Tuesday 18th January 2011 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government why the Chancellor of the Exchequer has excluded potential privatisation proceeds from his deficit reduction plans.

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

My Lords, since 1998, HM Treasury’s overall deficit reduction measure has been public sector net borrowing, or PSNB. Under this measure, privatisation proceeds from the selling of shares in companies do not affect the deficit.

[Lord Barnett]

Yes, my Lords, but, as the noble Lord knows, the Chancellor, replying to questions at the Select Committee recently, admitted that there are large sums that they are considering from the sale of assets. He also said that not all the proceeds must be used to reduce the national debt. The Conservative chairman of the Select Committee then said that he must have quite a bit in his back pocket; he was referring to the tens of billions of pounds from sales. I know that the noble Lord cannot reverse what the Chancellor said, but can he at least assure us that there is no basis in the dastardly charge that the Government are trying to build up a large fund to reduce taxation rather than some of the worst, most painful cuts that are now taking place?

[Lord Sassoon]

The noble Lord, Lord Barnett, called it a “dastardly charge”; I am sure that I would not characterise it quite like that. The fact is that my right honourable friend the Chancellor is hiding nothing. It is simply that, as I have explained, under the measure that has been used since 1998 for measuring the deficit, privatisation sales—the sales of shares in companies—do not rank against the deficit, so my right honourable friend can have nothing up his sleeve.

However, it is important that the Government exercise stewardship over all their assets, fixed and otherwise, so that we have an ambitious programme to raise proceeds—they may not all count for deficit reduction—which will affect the debt position. That chimes in with the modernisation of government. Of course, among the most valuable assets the Government have are the shares in the banks which were nationalised. We want to ensure that the taxpayer gets a good return on those shares.

Individual Savings Accounts

Lord Barnett Excerpts

Monday 20th December 2010 Lords Chamber

[Lord Sassoon]

My Lords, I am sorry to disappoint my noble friend, who has been assiduous over the months in asking questions about AIM shares and ISAs. Within the range of products available, there are distinct differences between the aims of ISAs and those of other savings channels. When the ISA was introduced in 1999—and it has been an enormously successful investment channel—it was intended to be a mainstream product with easy access and liquidity. A line therefore has to be drawn between the sort of investments that are thought suitable to qualify and those that are not. AIM shares were kept out in 1999 and I believe that it is still appropriate, taking into account principally the nature of the product and the ease of access to liquidity investment, that they should be. SIPPs, which are a more sophisticated, tailored pension product with a different time horizon—for example, they do not require 30-day withdrawal—can rightly benefit from having a much wider range of investments held within them.

[Lord Barnett]

My Lords, I declare an interest as chairman of an AIM-listed company that may not benefit from the method that the noble Lord, Lord Lee, recommends. I recognise that the response that the Minister has given is based on the best possible advice available to him, but I am not sure that he is right in the general sense. Would he be prepared to go back to his advisers and ask them at least to reconsider his answer, as the noble Lord, Lord Lee, makes a reasonable case?