Banking: LIBOR and EURIBOR

Lord Barnett Excerpts

Tuesday 12th February 2013 Lords Chamber

[Lord Deighton]

My Lords, my noble friend makes an important point about the seriousness with which we are addressing this attempted manipulation of LIBOR rates. On the specific question of the penalties, the Financial Services Authority is the independent regulator. It is mandated to set all the rules on regulatory matters. That includes decisions about using early-settlement discounts as a way of managing the process. It considers it in the public interest to settle matters in cases involving financial penalties as early as possible and to provide incentives. There are many advantages in early settlement. It helps consumers to get compensation earlier than would otherwise be the case and prevents cases being contested at the regulatory decisions committee, which could cost a lot of time and money.

[Lord Barnett]

My Lords, does the noble Lord find it as astonishing as I do that, on an issue such as interest rates, which is obviously of great concern both nationally and internationally, nobody in the Bank of England or the Treasury had the faintest idea about what was going on with LIBOR?

Taxation: Tax Collection

Lord Barnett Excerpts

Tuesday 5th February 2013 Lords Chamber

[Lord Newby]

My Lords, I think everybody agrees that we have a particularly barnacle-encrusted tax system. This Government have set up the Office of Tax Simplification, which has started work in this area. One advantage of the general anti-abuse rule is that once such a rule is in place, it should not be necessary to introduce as much new tax legislation to deal with tax abuse, because the general rule will cover it.

[Lord Barnett]

My Lords, will the legislation include a definition of aggressive tax avoidance as compared with ordinary tax avoidance?

[Lord Newby]

I think that the noble Lord is crying for the moon.

Government: Economic Policies

Lord Barnett Excerpts

Wednesday 30th January 2013 Lords Chamber

[Lord Deighton]

I welcome my noble friend’s encouragement to delve a little deeper into the figures. Certainly, with respect to employment, we are seeing a switch from an overinflated public sector to a much more dynamic private sector, which will stand us in very good stead in the longer term. If one looks at the specific factors relating to the output figures, there are some very interesting facts; for example, the majority of the decline in the fourth quarter relates to maintenance in the North Sea, and coping with the long-term decline of that source of revenue to the United Kingdom is a structural problem to which we must adjust.

[Lord Barnett]

Can the noble Lord tell us, if the economy is going so well, why the deficit is rising?

[Lord Deighton]

My comments were not intended to imply that the economy was going so well. My comments were intended to imply that the economy is facing extraordinarily difficult circumstances that were a function of the historical debt we accumulated, and a very difficult global situation in terms of demand. With respect to the deficit, I confirm that it has been reduced by a quarter.

Economy: Growth

Lord Barnett Excerpts

Tuesday 29th January 2013 Lords Chamber

[Lord Barnett]

My Lords, like other noble Lords, I welcome and congratulate the noble Lord, Lord Deighton.  His predecessor, the noble Lord, Lord Sassoon, and I had many lively exchanges, and I am happy to tell him that although we disagreed most of the time, the noble Lord, Lord Sassoon, and I are now very good friends and we will share a meal shortly.

I agreed with the noble Lord, Lord Deighton, when he said that getting spending under control is difficult.  I spent five difficult years as Chief Secretary to the Treasury, and I know from my stress at that time how difficult those years were, so I sympathise with him very much indeed and hope he has a bit of success in that job.

I recognise all that the Government are trying to do on infrastructure and in other areas.  Unfortunately they have not yet had great success, according to the levels of GDP and growth that we have seen in the past two and a half years.  That said, the best hope is that in the forthcoming year we will not have a recession.  I am not one of those who like to think that a triple- dip recession is going to happen.  It may well amend the figures, as we have seen already.

Despite everything, borrowing has increased, as my noble friend Lord Eatwell pointed out.  Despite all the austerity that we have seen over the past nearly three years, borrowing has increased and little or no growth has come of it.  I am bound to ask, with all the Minister has told us and all that we have heard, what the Government are doing to get growth going. That is what everybody wants to hear now, not next year, not at the end of 20 or 30 years when we see HS2 going—I may not be around at the time.

Blaming the EU, the eurozone, the world, the snow and everything else does not help us.  There are two obvious reasons.  The first is the deficit reduction plan. It was inevitably bound to result, as my noble friend Lord Eatwell explained so clearly, in what we have.  Infrastructure has been promised.  Many Governments, not only my own but many others since, have failed to achieve it. The present Government are doing their best, and I understand that the noble Lord is now the Minister for Infrastructure, so I hope his plans will succeed, but when will they succeed?

We are told that much money has been put into infrastructure. One of the Minister’s first Written Answers to me told me about the £5.5 billion that the Chancellor had promised for infrastructure plans. It is worth quoting what he said. Unfortunately he has already learnt from Treasury officials, because I asked,

“how much of the £5.5 billion … has been spent”—

to date. His answer is worth repeating:

“The majority of the £5.5 billion of additional capital committed … was allocated”—

note “allocated” not “spent”—

“for 2013-14 and 2014-15. £70 million was allocated”—[Official Report, 22/01/13; col. WA189.]—

not spent—this year. That is what it is. When I asked about the spending, he said that he does not hold data about spending. Perhaps he will have a word with his officials and look more closely at the Answers he is given.

As a number of noble Lords have said in this debate, we have not yet seen the expenditure. That £5.5 billion was inside the deficit reduction plan. It is not extra. We have not had any extra. We have not even had the £5.5 billion yet, and I doubt that we are going to get it before 2015, certainly not if HS2 is an example.

I shall not repeat everything that has been said, because my noble friend Lord Eatwell said very concisely and well what is wrong with the whole situation. It is no use blaming anybody. I am not blaming the Government particularly. We should not listen to the chief economist of the IMF too closely. Perhaps we should listen to somebody else in the IMF who arrived fairly recently: the new lady in charge. The fact is that the chief economist of the IMF has told us what the Government should now be doing. The Governor of the Bank of England has even had some new ideas about new supply side measures, and on infrastructure we have even heard that the Deputy Prime Minister did not realise what the Government were doing for the past two and a half years. They did not exactly get on with the job of dealing with infrastructure or, indeed, anything else.

Why we do not have money being spent can be summed up by that Answer I have just quoted. It is not being spent, and that is the problem. There is no use talking about why we do not have growth when the money is not being spent today. I know that developing major infrastructure plans is difficult, and it is as much the previous Government’s fault as anybody else’s, but the fact is that we are where we are now, and this Government have unfortunately not been spending money on infrastructure now. With all the good intentions in the world, it has all been allocated, not spent.

The other fine schemes that we have heard of are very good. The Funding for Lending scheme is a very good scheme, but again it is not being taken up to the degree required now for the obvious reason, which has been said, that there is not enough demand to force people to want to borrow. They are being told not to borrow. They should not borrow too much, and they are not willing to borrow. I wish all companies were like those that the noble Lord, Lord Wolfson, was speaking about. His company is highly successful. If every other company in the country was as successful as Next, we would be in a much better position than the one we are in today. Unfortunately, they are not, and they are not willing to borrow, whether guaranteed or not guaranteed. The Funding for Lending scheme is a very good scheme, and I hope it will eventually be hugely successful, but for the moment it is not. Others have been mentioned.

I have always had a great deal of respect for the noble Lord, Lord Heseltine. He did a great deal of work and produced a huge book. The Government support his plan, but he has said that even if all the bids that he advocates are in by this coming April, it will be 2015 before those schemes get off the ground, and I very much doubt whether those bids will be in by April this year. Unfortunately his schemes, although fine on paper, like everything else will not achieve what we require.

What are the other hopes for the economy? One “hope” is Mark Carney, the new Governor of the Bank of England. He said recently that he wants to see his target changed to nominal GDP. Some people do not appreciate that that does not mean dropping inflation but combining it with inflation. My noble friend Lord Peston and I tabled an amendment to the Financial Services Bill, which the noble Lord, Lord Newby, rejected, to delete the three little words in the Bank of England Act: “subject to that”. If the amendment had been accepted, the new Governor of the Bank of England would have had his powers immediately, but that was rejected.

Indeed, the noble Lord, Lord Newby, told us the other day that the Chancellor has rejected the new governor’s proposals, although he did not put it as bluntly as that. He said that they are not changing the target. If I may put it this way, they are typical Treasury words—as the noble Lord, Lord Deighton, is already learning—that do not answer the question. Have they dropped Mark Carney’s ideas? He did not say that they had not dropped them, just that they were keeping the same target. So we are stuck with it. My hope for Mr Carney is that he will ignore the target and just do it. The Chancellor cannot sack him because he is now the best in the world, as the Prime Minister has told us. He is unsackable, so my advice to Mr Carney, if he ever hears or reads it, is to ignore the target and just get on with the job of co-operating with the Chancellor and helping him to achieve what we all want to see—growth in the economy. As I said, that in no way means abandoning the idea of keeping inflation under control.

With or without the agreement of the Chancellor, I hope that the co-operation on monetary and fiscal policy that has been referred to will be achieved. I hope so, but I am not terribly hopeful. We are told that what the Government are doing now is because they cannot borrow any more, and that if the previous Government had not borrowed so much they would not be in this difficulty. In 2007-08 the previous Government themselves inherited a global financial catastrophe. It was not made in Downing Street. If the then Government had not borrowed, the present Government would have borrowed not only a huge debt but a recession as well—yet another recession. They saved that. The previous Government did at least leave them growth. That growth has gone and the debt is still there, so the inheritance is not the reason for a deficit reduction plan. Austerity is clearly not an answer. If nobody else can see it, I hope that Mark Carney can and will help the Chancellor to see it as well. The question remains for the Chancellor: what is he going to do about growth now? Is he going to spend any money? He has told us that he will not, that he cannot borrow any more.

In 2010, we were told that the Budget deficit reduction would be brought into balance in five years. The latest figure I have seen is from the Office for Budget Responsibility, which I am bound to say is not the greatest forecaster in the country on any list. The last I saw it was fifth out of 10. It is not my favourite forecaster, but it is the Chancellor’s favourite forecaster, and he said the annual Budget deficit will be down to 1.6% of GDP not in 2015 but in 2018. This was before the latest set of figures that we have seen, so if we are lucky it will be 2020 or beyond. I hope that long before then the Chancellor will be changed. We might even have one in the House of Lords, now that we can discuss these matters, so my noble friend could take over.

We have had lower growth for too long and we need to increase it. I hope, and it is only a hope, that the Chancellor, nearer to 2015, will see that he cannot go into another election with high borrowing and no growth and will do something to resist that policy and change it himself, if he is not changed.

Bank of England

Lord Barnett Excerpts

Tuesday 22nd January 2013 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government whether they agree with Mark Carney, the new Governor of the Bank of England, that the Bank’s target should be changed from inflation to nominal gross domestic product.

[Lord Newby]

My Lords, the Chancellor set the remit for the Monetary Policy Committee at Budget 2012 to target inflation at 2%, as measured by the 12-month increase in the consumer prices index. The Government have no plans to change the inflation-targeting framework.

[Lord Barnett]

That was not really an Answer to my Question. I understand what is in the current Monetary Policy Committee target and that it has not changed. However, is the Minister aware that the ONS has recently found that GDP—real GDP, that is—was 3% less than it was before the recession and that growth, as most forecasters are saying, is not likely to be very good? So at least it would be helpful—if anybody can do anything about it—if the man whom the Prime Minister described as the best in the world was given these additional powers. Does this mean that if the Governor took those powers to himself, the Chancellor would override them with the current powers that he has?

[Lord Newby]

My Lords, the Question that has been raised, about whether to change the inflation target, is an important one. Before any change is made, however, the question that we have to answer conclusively is: what could the MPC do under that target that it cannot do now? A debate is currently going on that is academic in part and in which all the commentators are involved. For the time being, however, we see no reason to change the current framework.

Taxation: Tax Havens

Lord Barnett Excerpts

Wednesday 9th January 2013 Lords Chamber

[Lord Newby]

My Lords, the Government greatly welcome the enthusiasm from the Benches opposite for the initiatives which we are now taking.

[Lord Barnett]

My Lords, global agreement is clearly important and I am glad that the noble Lord and the Government are seeking it. However, that will take a very long time. Would it not be better to do as I think my noble friend Lord Dubs was saying—to seek agreement among some of the smaller areas where countries are doing these things, such as the Channel Islands and the Isle of Man? Are we doing anything there?

[Lord Newby]

My Lords, there has been a lot of activity to increase transparency in relation to the Channel Islands and the Isle of Man so that we can now request information about an individual’s tax affairs. A major change is that we are moving towards what is called an enhanced automatic tax information exchange, the first of which was signed with the Isle of Man. This means that every year we will automatically get details of the tax affairs of UK-based individuals with accounts in those countries. We will find out what payments have been made into bank accounts in those countries so that we can make sure that those people are paying adequate amounts of tax. That deals with individuals, however, whereas the Question of the noble Lord, Lord Dubs, deals more with corporates.

Economy: Effect of US “Fiscal Cliff” Solution

Lord Barnett Excerpts

Tuesday 8th January 2013 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government what assessment they have made of the effect of the “fiscal cliff” solution in the United States on the United Kingdom economy.

[Lord Newby]

My Lords, the Office for Budget Responsibility based its December 2012 forecasts for the UK economy on the assumption that fiscal policy would be tightened in the US by between 1% and 2% of US GDP. This is what is now happening. The Congressional Budget Office’s assessment of the American Taxpayer Relief Act, the measure agreed by Congress last week, is that it will produce a fiscal tightening of 1.7% of US GDP.

[Lord Barnett]

Of course, my Lords, the cliff-edge solution did not solve any fundamental problem, any more than our fundamental problem in this country has been solved. That problem requires us to achieve sustainable growth. The Government are taking a few steps in that direction with their infrastructure plans but none of those will do anything now, and urgent action is needed now. Does the noble Lord accept that one way of doing that would be for the Government to find some modest capital, comparatively speaking, because companies are simply not willing to borrow, whether under guarantee or not? The Government will have to kick-start infrastructure if they want to see growth start. Does he agree that that would be a way forward?

[Lord Newby]

My Lords, the noble Lord will recall that in the Pre-Budget Statement my right honourable friend the Chancellor announced another £5.5 billion of additional capital spending on roads, science infrastructure and schools, and that earlier in the autumn we passed an Act providing guarantees for £40 billion for infrastructure and another £10 billion for housing. The Government are making considerable efforts to increase the amount of infrastructure activity.

Finance: Peer-to-Peer Lending

Lord Barnett Excerpts

Wednesday 19th December 2012 Lords Chamber

[Lord Barnett]

My Lords, I wish the noble Lord well in his retirement. I hope he is retiring only from the Treasury. I have very much enjoyed our exchanges over the past two-and-a-half years.

Can he confirm that one of the many subsidiaries of the huge new Bank of England under the Financial Services Act will have the power to regulate in this case? When it is really a business-to-business matter—it is a big and growing business and I gather that some trade associations are already involved—can the Minister say whether it would be liable to tax relief and therefore part of a possible new tax avoidance scheme? Of course, that will be very different from one Peer lending to another, or one Baroness lending to another.

[Lord Sassoon]

As always, I am grateful to the noble Lord, Lord Barnett, who keeps me on my toes until the end. On regulation, we had some interesting debates in the course of the passage of the Financial Services Act but, on balance, I think it is appropriate that p-to-p lending comes within the FCA’s regulatory framework. We also need to look at the experience in places such as the US and ensure that regulation does not kill off what could be a very valuable contribution to lending. There are some issues on tax, which are the subject of ongoing debate between the industry and HMRC. We certainly do not want anything to stand in the way of the growth of industry. I do not believe that tax issues do that. There is a big, ongoing agenda of which the noble Lord, Lord Barnett, identifies some of the key issues.

Taxation: Avoidance

Lord Barnett Excerpts

Tuesday 11th December 2012 Lords Chamber

[Lord Newby]

My Lords, tobacco smuggling is a significant issue but in the overall quantum of tax that is currently not paid but should be, it represents a relatively small proportion.

[Lord Barnett]

My Lords, my noble friend Lord Dubs is quite right, but should the answer not be that there is nothing whatever that the Government can do until there is international agreement which, sadly, is unlikely to happen in the very near future?

[Lord Newby]

We need a greater degree of international agreement and that is why, along with France and Germany, we have just contributed an extra €150,000 to the OECD’s work to change the basis of accounting. We can do only a certain amount ourselves. It would be a counsel of despair to say that we cannot change the rules; the rules exist and can be changed.

Banking: Regulation

Lord Barnett Excerpts

Monday 10th December 2012 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government what action they propose with regard to the regulation of the banking industry.

[Lord Newby]

My Lords, Her Majesty’s Government have committed to fundamental reform of financial regulation in the United Kingdom through the Financial Services Bill, which received its Third Reading in the House last week. Further regulation of the banking industry will be contained in the Banking Reform Bill, which is currently the subject of pre-legislative scrutiny by the Parliamentary Commission on Banking Standards.

[Lord Barnett]

Has the noble Lord seen what was said by the present Governor of the Bank of England last week that this can be dealt with without even bothering with regulation? First he criticised the banks for hiding £60 billion of debts and then he went on to suggest that banks should increase their capital reserves immediately. Does the Minister agree with that, or does he agree with the banks that say that if they increase the capital reserves they cannot also lend as the Chancellor has suggested? Which one of those does the Minister agree with?

[Lord Newby]

My Lords, the fact that the governor can make statements at the moment that are aspirations and have no direct impact shows why the new regulatory architecture, particularly the Financial Policy Committee, which is a new body designed specifically to look at these things, is so important. I am sure that they are reflecting on his views and will be opining on them very shortly.