Budget: Cost of Changes

Lord Barnett Excerpts

Tuesday 12th June 2012 Lords Chamber

Asked by

[Lord Barnett]

To ask Her Majesty’s Government what is their estimate of the cost of the recent changes to the plans outlined in the Budget.

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

My Lords, the recent changes are expected to cost less than £150 million. That is it. I know that the noble Lord, Lord Barnett, enjoys telling the House that I have not answered his questions. I trust that, on this one occasion at least, he will accept that I have answered the Question.

[Lord Barnett]

Yes, the noble Lord has. It makes me wonder why on earth the Government bothered with such controversial cuts if the cost was so small. I was not allowed to use the word “U-turn” in my Question because it was deemed too political. However, if the Government are listening, as they have said they are, are they still listening to and potentially acting on the words of people such as those in the IMF who normally support the Government but have suggested that they should now boost the economy and go for growth, as well as others such as those on the Treasury Select Committee? Why will they not do that? Is there any particular reason?

[Lord Sassoon]

My Lords, a great range of commentators, including the Governor of the Bank of England, the IMF, the OECD and so on, all believe that the Government should stick to their fiscal course, and that is precisely what we intend to do.

Financial Services Bill

Lord Barnett Excerpts

Monday 11th June 2012 Lords Chamber

[Lord Barnett]

My Lords, we are debating the Second Reading of a large Bill that is split into two parts to make it look smaller, I suppose—one containing the clauses and the other the schedules. When I first saw the Bill, I was reminded of days long gone when I took Finance Bills through both Houses. I was in opposition on Finance Bills to the noble Lord, Lord Lawson, and we debated them at great length over many years. We considered two Bills a year in my time—the second amending the first. I fear that that will happen again because Oppositions of all parties tend to choose the sexier points of a Bill to debate and leave the main parts undebated and unscrutinised. The situation is a bit better these days, in the sense that the House of Lords—although Finance Bills are money Bills, and this Bill is not—examines clauses in Select Committees, of which I have been a member. They do a good job, but it is very limited. The Commons does nothing at all about these matters.

The situation is not much improved these days, although I hope that this Bill will be a lot better because it has had a great deal of pre-legislative scrutiny. We have had Select Committees, Joint Committees, Command Papers and White Papers. In fact, there is so much paperwork attached to the Bill that I confess I have not read it all. I am sure that every other Member of the House who has spoken will have done so. I hope that the pre-legislative scrutiny will help, but despite all that, I hope I will be forgiven for believing—as with Finance Bills—that we might see in years to come a lot more Financial Services Bills that amend this one.

The Bill amends a number of Acts, not least the Bank of England Act that the right honourable Gordon Brown, as Chancellor, introduced to the House of Commons. At the time, I thought that it was not a bad Bill, apart from in one or two major areas. However, in practice, I had reservations. In an article in today’s Financial Times, John Gieve, a former senior Deputy Governor of the Bank of England, said:

“The debate so far has revolved around one fixed point: the assumption that no change is required in any respect to the … Monetary Policy Committee”.

He had obviously not read or heard my speeches over many years because, together with the noble Lord, Lord Peston, who is my noble friend and professional tutor, I tried to persuade the Chancellor at the Second Reading of that Bill—we also did so privately—that he needed to make a major change that has been referred to by a number of noble Lords, I think even in the excellent maiden speech of the noble Lord, Lord O’Donnell. There were three words in that Bill which should not have been there. The words were “subject to that”. They meant that the Monetary Policy Committee must look at the problem of inflation and only then—I repeat, only then—look at the major economic and financial problems that the country faced. I give notice to the noble Lord, Lord Sassoon, that we will try again—given that the Bank of England Act is referred to in the Bill—to remove those three small words.

The real question before us is whether the Bill will deal with the kind of crisis we had in 2008. A number of noble Lords have expressed doubts. The noble Lord, Lord Tugendhat, with whom I very much agreed, asked why on earth the Bank of England, of all places, should have huge powers such as those given to it by the Bill. After all, its past record would not normally justify giving it greater powers, yet that is what the Bill does in a big way. We are now going to have deputy governors of the Bank. All we are told is that the Bill is to avoid a repeat of the financial crises that we have had in the past. Perhaps I may express the hope that it will do that—but I doubt that it will because the plain fact is that part of the reason for the crisis, as the noble Lord, Lord Sassoon, mentioned, was what happened when Northern Rock was lending 120% mortgages. Auditors have been blamed. In my long-lost past when I was a junior auditor and before I became a senior partner, I often wondered how I would deal with an audit of major banks lending at this rate. Under their present terms, auditors could not deny them a certificate, and of course this Bill will not do anything about that.

I have a feeling that we have this the wrong way round in that this Bill should have come after the banking Bill. I ask myself whether all the new prudential regulations and new committees—the new Financial Policy Committee and the new Financial Conduct Authority—should have come up for discussion after the introduction of a banking Bill, which we are now going to have. Perhaps the Government will tell us when we will have that Bill and when it is likely to become an Act. It is urgently needed. I would not like to say that without such a Bill all the banks are going to be unable to cope with the sort of crisis that we met in 2008, and ultimately it may well be that without sufficient scrutiny, as I mentioned, that Bill will not achieve any kind of objective. Perhaps after nearly 48 years in one House or the other I have become overly cynical. Perhaps I have taken through too many Finance Bills and have debated finance and economics too often. I hope that I am not cynical but I fear that I am. It is very difficult to be confident that the great new structure brought in by this Bill is going to solve the problems that we are facing and meet the objectives clearly set out in the Bill.

I do not agree with noble Lords who said that they regret that the Bill is to be taken in Grand Committee. I find that Grand Committees provide closer and more detailed scrutiny of Bills. This is not the kind of Bill that is helped by being debated on the Floor of the House. Our House is a bit like the House of Commons in that only the sexier parts are debated at length, whereas in Grand Committee you can look at Bills more closely.

I look forward to the amendments that will be moved by me, my noble friend and many others. I hope that ultimately my worst hopes and excessive pessimism will not be met and that the Bill will emerge in a better form than it is in today.

Debt

Lord Barnett Excerpts

Tuesday 29th May 2012 Lords Chamber

Asked by

[Lord Barnett]

To ask Her Majesty’s Government, further to their proposals in the Queen’s Speech “to reduce the deficit”, in which year they expect the national debt to start to be reduced.

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

My Lords, the Office for Budget Responsibility’s March 2012 forecast shows public sector net debt falling as a share of gross domestic product in 2015-16. The Government are therefore on course to meet the target for debt set at the June 2010 Budget.

[Lord Barnett]

My Lords, I am grateful for that Answer, but since then the Bank of England has forecast that growth will be even lower and it could be lower still according to other independent forecasters. In those circumstances, the debt is likely to go on much longer. Despite that, I am happy to congratulate the Government on being willing to find up to £1 billion to help the European growth fund if needed, if asked—which I hope they are. Will the Government therefore be willing to find—because it is petty cash in the context of £1 trillion or more of national debt—the same amount or more petty cash for what the CBI is asking for: a UK growth fund for infrastructure expenditure?

[Lord Sassoon]

My Lords, there are all sorts of good ideas and lobbying that come from all sorts of quarters, but if the Government were to treat £1 billion here or there as petty cash, the British public would be absolutely appalled with what we were doing with public expenditure. As for business investment, yes, we talk to the CBI—it comes up with a lot of good ideas—but what is important is that the provisional data for the second quarter of 2012 indicate that business investment is showing a stronger recovery than forecast by the Office for Budget Responsibility. The OBR did not expect business investment to reach the level that we have seen in the second quarter until 2013. It is good that business investment is rising.

EU: Euro Area Crisis

Lord Barnett Excerpts

Thursday 24th May 2012 Lords Chamber

[Lord Foster of Bishop Auckland]

My Lords—

[Lord Barnett]

My Lords, would it not be in the UK’s best interests to recognise the major differences that exist? If we are to help in any way to avoid a messy break-up of the eurozone, would it not be in our best interests to help set up some kind of scheme that would bring about the usual kind of compromise that would help at least in the short term? The noble Lord said recently that the Prime Minister was right and might agree to some kind of support for a growth fund. Does that option still exist?

[Lord Sassoon]

My Lords, as I said in answer to the previous supplementary question, we are playing a very constructive role at the table with the 27, discussing all the possibilities for getting Europe through the present crisis—not only short-term measures that need to be taken but important questions about sustainable growth and the structure of the single market. However, fundamentally it is for the euro area countries to take decisions now about the euro area’s very immediate problems.

Eurozone

Lord Barnett Excerpts

Thursday 17th May 2012 Lords Chamber

[Lord Sassoon]

My Lords, I have been completely clear that as of this July, the mechanism in the eurozone, which the previous Government signed us up to, will no longer make any future commitments. The new permanent mechanism that is being put in place is a eurozone-led mechanism and the UK is not part of it.

[Lord Barnett]

My Lords, I referred yesterday to a report in the best newspaper in the country, the Financial Times, which obviously the noble Lord, Lord Howell, does not read. That report, by two journalists, said that the Prime Minister was contemplating capital for a European growth fund. That would be a sensible compromise with the new French President. Will the Minister either confirm the truth of this or deny it completely?

Economy: Credit Easing Policy

Lord Barnett Excerpts

Thursday 26th April 2012 Lords Chamber

Asked by

[Lord Barnett]

To ask Her Majesty’s Government what evidence they have that the Chancellor of the Exchequer’s credit easing policy is increasing business investment.

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

My Lords, the national loan guarantee scheme was launched on 20 March to provide cheaper loans for smaller businesses. Businesses have now started to benefit from these loans. Also, under the £1.2 billion business finance partnership, the Government intend shortly to invest up to £700 million with some or all of the seven shortlisted fund managers. Although it is too early to draw conclusions on any impact, credit easing is expected to have a positive effect on the economy.

[Lord Barnett]

Bearing in mind that the Answer that the noble Lord has just given me is not quite relevant to the Question on the Order Paper, surely the Answer should have been that the Office for Budget Responsibility—which meets regularly with the Chancellor and the Treasury—said in March, at the time of the Budget, that there would be a 6.9 per cent fall in business investment. Why did he not want to tell us that? At the same time the OBR told us that there would be growth this year. As the Minister knows, in the first quarter we have had negative growth of 0.2 per cent. In those circumstances, do he and the Chancellor believe that without QE we would have had even worse negative growth? Is that the Government’s position? What do they plan to do? Are they planning to increase QE, or are they taking note of the Treasury Select Committee’s recent report which pointed out the serious effect it was having on retired people who are taking out annuities and getting very low interest rates?

[Lord Sassoon]

My Lords, I fear that I will not be able to do justice to all the six questions that I thought I detected, but let me try to deal with one or two. First, we should distinguish between credit easing, which is the policy announced by the Chancellor and made manifest in the national loan guarantee scheme, and quantitative easing, which is the responsibility of the Bank of England. As to quantitative easing, if the noble Lord, Lord Barnett, had asked me I would have answered that the Bank of England’s own assessment is that under quantitative easing the economy has benefited by between 1.5 to 2 per cent. One can therefore draw inferences from that for what a more limited scheme targeted at small businesses will achieve.

As to the question of the levels of investment in the economy, that is set out in the latest report from the Office for Budget Responsibility. It is therefore its independent figures, not mine, which point out that the fall-off in levels of business investment and the expected sharp recovery very much follow the pattern seen in the recession of the early 1990s. It is territory that we have been in before and the Government believe that we should respond in the ways that we have. As to the evidence that the national loan guarantee scheme is gaining traction, Barclays has already issued a £1.5 billion bond backed by the scheme, and Lloyds has issued $1.4 billion since the scheme started on 20 March. So it is indeed, unlike some of the schemes introduced by the previous Government, up and running and having an effect.

Scotland Bill

Lord Barnett Excerpts

Wednesday 28th March 2012 Lords Chamber

Moved by

[Lord Barnett]

30: After Clause 36, insert the following new Clause—
“Allocation of public funds to Scotland
(1) The allocation of public funds to Scotland shall be based on a needs assessment, rather than the population basis of the Barnett formula.
(2) The Chancellor of the Exchequer shall, by order, establish a commission—
(a) to agree a methodology for assessing Scotland’s needs; and(b) periodically to review the allocation of public funds to Scotland in the light of its needs.(3) The first review by the commission must be completed no later than 1 April 2015.
(4) The new Barnett formula should be implemented no later than 1 April 2016.”

[Lord Barnett]

My Lords, I should apologise as an English Member intervening to this extent in a Scottish debate. I must also apologise that I was unable to be present when my amendment was debated in Committee. I thank the noble Lord, Lord Forsyth, for so ably speaking to it on my behalf. It was much appreciated, as were the other speeches in the debate, although not all of them were ones with which I would agree, as I will point out in a few moments.

I want to make clear that this amendment is based entirely on the report by this House’s select committee on the Barnett Formula. That Select Committee is probably the best thing I ever did in this House. Not only was its membership cross-party and cross-non-party but it was chaired by my noble friend Lord Richard, a former Labour Leader of your Lordships’ House. It had distinguished members such as the noble Lord, Lord Lawson of Blaby, who was a Chancellor of the Exchequer; two former Secretaries of State, Lord Lang and Lord Forsyth; many noble friends and former Ministers; and senior Lib Dems and Cross-Benchers. After a year’s discussion and evidence-taking, they came up with a powerful report, which made strong recommendations which are entirely the basis for my amendment.

The issue is about the fairness of allocating expenditure between England, Northern Ireland, Wales and Scotland. I am moving the amendment on a Bill about Scotland but if it is accepted, as I hope, it would affect the money going to the other parts of the United Kingdom as well. It is bound to do. I am glad to see my noble friend Lord Richard come in. I have just referred to his chairmanship of the committee which formed the basis for this amendment, and am glad to see him in his place. The amendment is based on the Select Committee’s report and requires need to be taken care of. In other words, instead of the block grant changing each year based on population, it would be based on need. I hope that nobody could oppose need when talking about this matter, although I gather, sadly from some notes that I have received, that my own Front Bench is going to oppose the needs basis rather than the population basis. I hope that it is not the case and that it has been badly drafted, but if it is not it would be disgraceful.

I know that there have been reports that the Barnett formula was once referred to by Alex Salmond, the present leader in Scotland, as the Barnett squeeze. He reckons it is all perfectly reasonable and fair to Scotland. Following a report by some research body recently, I saw a headline that said, “Scots rejoice as subsidy junkie myth laid to rest”. That report was based on the annual changes but, as the Select Committee pointed out in its report, it is not just the annual changes that are wrong; it is the baseline. Those former Secretaries of State who have told me in the past that the formula would eventually make things right really meant that it would bring things back to the baseline. However, the baseline is wrong. The Select Committee pointed out clearly that it was the major cause of the difference between the two and the difference is enormous.

--- Later in debate ---

[Lord Barnett]

My Lords, I thank all noble Lords who have spoken in the debate. I am sorry that I cannot reply to them but, given the time, I am sure that they would not expect an overly long speech from me.

To say that I am disappointed with my own Front Bench is to put it mildly. My noble friends could not even go as far as the Government in saying that they recognise the concerns about needs. I imagine that my English noble friend who replied on behalf of the Opposition had been got at by the Scots, who did not want him to support the amendment. I do not know whether that is the case but, whatever they did, I find it incredible that he, as an academic, should have come up with the idea that this is an “unripe time”. He obviously had not read the excellent Richard report.

[Lord Eatwell]

I did.

[Lord Barnett]

If he had, he would not have come up with the kind of speech that he made today. As I said, to say that I am disappointed is to put it mildly. I think that it has been appalling.

The noble Lord, Lord Sassoon, did at least repeat his concern, and it is one that the Government recognise. As many noble Lords said—even those who disagreed with the amendments—the technical drafting is not an argument. If the noble Lord wants them redrafted, I will redraft them, or I will let him redraft them—I do not mind. However, the case for doing something, whether in this Bill or elsewhere, is clearly made, as basically every speaker has said. I understand that the noble Lord, Lord Sassoon, cannot go further, because he also has a brief and he is not able to go further than he has done.

We will inevitably return to this matter because this huge disparity in the allocation of money between the different parts of the country cannot go on. As has been said in this debate, this issue concerns the whole of the UK, not just Scotland, and it cannot be set aside by talking about technical amendments or by saying that they should not appear in this Bill, or that they are being brought forward in the wrong place or at the wrong time. Of course all those things can be said but they do not alter the fact that something needs to be done here about the whole of the UK. I have listened very carefully to what has been said and, for the moment, I beg leave to withdraw the amendment.

Amendment 30 withdrawn.

Economy: Quantitative Easing

Lord Barnett Excerpts

Monday 19th March 2012 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government why the Chancellor of the Exchequer agreed the latest increase in quantitative easing.

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

My Lords, the independent Monetary Policy Committee has operational responsibility for monetary policy. The MPC judged in February 2012 that without further monetary stimulus it was more likely than not that inflation would undershoot the 2 per cent target in the medium term. The Chancellor agreed that an increase in the asset purchase ceiling would provide the MPC with the scope to meet the inflation target in the medium term and gave his authorisation to proceed.

[Lord Barnett]

My Lords, I thank the Minister for that Answer. That increase was initiated by the Monetary Policy Committee but, under the terms of the original agreement in 2009, the Chancellor had to give his consent—which I assume he did. The current Chancellor took over that policy. As I understand it, he said at the time that it was a “leap in the dark”, designed because all other government policy had failed. Does he still feel that that is the case, or has he changed his mind? What does he now expect from QE?

[Lord Sassoon]

My Lords, I reiterate that the MPC has operational control and freedom here. The Government, on behalf of the taxpayer, indemnifies the Bank against losses, so of course any increase in the limit of the asset purchase facility has to be authorised by the Treasury. As to what people’s quotes might be, I know that I get into trouble if I start questioning whether the noble Lord, Lord Barnett, has correctly quoted my right honourable friend. I am sure that he did, but in completely different circumstances. The situation now is that we have tight fiscal policy. Against that discipline, the monetary policy of the Bank of England can be conducted with confidence. Tight fiscal discipline and loose money is the policy prescription. I suspect that that was not the policy prescription when my right honourable friend made that quote.

EU: Economic and Financial Issues

Lord Barnett Excerpts

Monday 12th March 2012 Lords Chamber

[Lord Sassoon]

My Lords, the fiscal compact intergovernmental treaty was discussed at the European Council on 8 and 9 December. As has been discussed on a significant number of occasions, the UK did not get the safeguards it was looking for and is not a party to that treaty, which is why we did not sign it in the fringes of the European Council on 1 and 2 March.

[Lord Barnett]

My Lords, will the noble Lord accept my congratulations to the Government on following the previous Government’s agreement not to join the euro? Nevertheless, would it not be as well to admit that because of that, unfortunately, the whole question of the survival of the euro is discussed mainly among eurozone Finance Ministers? Why will he not admit it?

[Lord Sassoon]

Well, I have not been asked the question in those terms before. It is for the eurozone members to bear the brunt of sorting out the eurozone. That is exactly what they are getting on with doing, which is why we welcome the fiscal compact intergovernmental treaty as a necessary step towards the remorseless logic that with currency union comes much closer fiscal union. We keep close to it. Meanwhile, we are working with many like-minded states on an ambitious pro-growth agenda, which is what Europe also desperately needs.

Budget Deficit

Lord Barnett Excerpts

Wednesday 15th February 2012 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government what assumptions they are currently using about what the scale of the deficit will be on 31 March 2012, and how this compares to what had been predicted by the Office for Budget Responsibility at the time of the last budget.

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

My Lords, the Office for Budget Responsibility published its most recent forecast on 29 November 2011. Its forecast for public sector net borrowing in 2011-12 is £127 billion. This represented an increase of £5 billion since the forecast produced for Budget 2011. The OBR attributed the worse economic outlook to three factors: the sharp increase in global commodity prices over 2010 and 2011; the impact of the euro area crisis; and the ongoing structural impact of the financial crisis.

[Lord Barnett]

Actually, my Lords, I knew that. My Question was about assumptions in the Treasury; surely its officials cannot sit there twiddling their thumbs twice a year waiting for the OBR forecast. Is not the major problem that the Chancellor has concentrated to such a degree on the deficit that he has lost track of where that is taking him? The plain fact is that it is a lack of growth that is doing the damage. Now, as we know, the Chancellor has had to extend the balancing of the budget to 2017, and he may well have to extend that further. Many of the Chancellor’s friends who supported him, like the IMF and the OECD, are now saying that if the position deteriorates, as it is clearly doing, then he should be more flexible. Would he consider, for example, something that would help in the short term—namely, finding the odd few billion, which would not be very much in relation to the total deficit, in order to kick-start the privately funded infrastructure plans that he has spoken about previously? Would that not at least help to alleviate some of the problems?

[Lord Sassoon]

My Lords, I shall try to deal with at least some of the noble Lord’s supplementary questions. First, there is a process of exchanging and discussing numbers between the OBR and the Treasury under the memorandum of understanding. The details of all communications between the OBR and Ministers will be published in due course on the OBR’s website, as they were in the run-up to last year’s Budget.

Secondly, on the question of the deficit reduction plan, it is interesting to look at the recent IFS green budget, which does a comparison between the coalition plans and the relatively sober Alistair Darling plans rather than the Ed Balls plans. The comparison shows that up to 2016-17 the cumulative impact of Mr Darling’s policy would have been that debt under a Labour Government was £201 billion higher than it will be under the forecast for the coalition Government. As the markets have made clear this week, if we listened to suggestions about making increased spending commitments now, our interest rates would go sky high and our industry would be crippled. We are sticking to our plans, but the private sector will contribute to significant infrastructure investment of the sort that both the noble Lord, Lord Barnett, and I would welcome.