Financial Services
Lord Davies of Oldham Excerpts(11 years, 5 months ago)
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Lord Davies of Oldham
My Lords, it may well be one of the jewels in the Crown, but it is somewhat tarnished. I congratulate the noble Lord, Lord Dykes, on raising this issue at this time, which is of the most profound significance for the nation—wider, I think, than the agenda that he addressed. I agree with him about aspects of looking at the financial transaction tax. I have great reservations about that being proposed in Europe. If there is a possibility of such a tax, endorsed by the Americans, which would help to ensure that the finance capital, the City of London, and other centres across the world repaid the colossal debt they owe to wider society as a result of their mismanagement of the financial sector, that is only right and proper.
It is inconceivable that we return to the age of light regulation. Light regulation brought this country to its knees. We have more than 2 million people unemployed; we have 1 million young people unable to obtain jobs. We have a colossal problem with the cutbacks in public services, which are felt as a massive cost for all but particularly those who are very dependent on them for benefits and support. What is more, what does it amount to that each and every man, woman and child in this country has paid out £19,000 to the financial sector to create the bailouts to get out of the colossal mess that we are in?
Of course, I have no doubt that comments will be made about “the Government of light regulation”. The Conservative Party points the finger and says that Labour was in power at the time, as indeed we were, and was guilty of not having taken sufficient note of the impending crisis, but the Conservative Party was carrying down exactly the norms of light regulation that have been expressed today. What the country is demanding, however, is answerability. Of course we must create a base on which the financial services flourish, but it is demanding that they flourish within a framework where we never again see a crisis like the one we have had these past four years. Why not? Because we may well be in the greatest depression for a century and it may take us more than a decade to recover from it.
Already, current living standards are considerably below what they were in 2007. That is the price which the nation is paying and it ill behoves those who argue that the financial services need to be respected—of course they do. How could you do anything else with a sector of the economy which, as noble Lords have identified, amounts to such importance in it? The noble Lords, Lord Bilimoria, Lord Dykes and Lord Flight, all identified the importance of the City to the economy. Nobody is underestimating how significant that is, because we all know the figures.
However, the Prime Minister said that we must rebalance the economy. What does he mean by that? He must, at the very least, mean two things: first, that overdependence on the financial services industry makes the economy vulnerable, as it certainly did in 2007; secondly, that the vast majority of employment in the financial sector is within 20 miles of this Building. It is in London or the south-eastern counties, and if you talk about rebalancing the economy you have to look at areas where people are grossly underemployed at present and where capital is at low levels, such as the north of England, the north-west and elsewhere. A balanced economy will require those issues to be addressed. That is why it is necessary for the Government to spell out the position that they are going to adopt. They will have that opportunity on numerous imminent occasions.
It is important that the Government address themselves to the fundamental problems of our economy at present. I give them all credit for the way in which they have addressed the banking issue. I am not enamoured of the stance on banking but I congratulate the Government on recognising that we had to have banking legislation to clear up the mess of the past. Where I and my party have our reservations, which will be voiced as we consider the banking Bill, is that the question of sanctions seems to be rather marginal. For instance, the Government do not seem to think that there is much more to do than the Vickers fencing-off of the position of the banks, rather than the direct separation that may be necessary. After all, we have one instance before us at present in the Royal Bank of Scotland. What are the Government going to do about that? Should they not, at the very least, consider whether there should be a separation between the retail and investment arms of RBS as a solution to that position? Would that not also indicate that the legislation ought to consider that dimension?
I come briefly to the question of the financial transaction tax, which the noble Lord, Lord Dykes, raised. I agreed with his sentiments that there is much merit in it. The merit in it is quite straightforward: it potentially raises vastly more than stamp duty raises at present. It is also necessary that the financial services sector meets the obligations in terms of proper payment, particularly against a background where the country is scandalised that at the peak of the crisis, absolutely unjustifiable bonuses were being paid out to leading figures, and where not just incompetence but the depth to which finance had descended in terms of morality was being revealed. You cannot look at the LIBOR issue and the immorality of the terrible risk-taking with other people’s money without recognising the old adage of, “My word is my bond”. The morality of the City needs to be restored because what has been going on is untenable.
The financial transaction tax is an important concept. I recognise that Britain certainly could not go forward with it if the United States remained hostile to the position. We could not have New York not being a part of it. However, if the American Administration began to see the merits of the tax, and the European countries—11 at the moment and more to be added to the list—lend their support to the concept, it would be appalling if the British Government did not recognise those merits as well. That is not to endorse what is before the Government at present, and I acknowledge entirely their resistance to what is now on the table. However, I would argue that it is the concept that ought to be worked on, thought through and improved.
The Committee will be aware of the fact that I am grateful for this opportunity. It has come a little prematurely because I had expected it to be in response to a Statement in the House, which unfortunately we did not get yesterday. After all, the Commission on Banking Standards has pointed to a significant way forward. We are all desperately eager to get the Government’s definitive response to the crucial issues raised by the commission. We did not have a chance to consider a Statement yesterday, and I do not think that we will get to the banking Bill in real terms for some time. I am therefore grateful to the noble Lord, Lord Dykes, for giving us a chance at least to make some contribution today.
Taxation: Evasion and Avoidance
Lord Davies of Oldham Excerpts(11 years, 5 months ago)
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Lord Davies of Oldham
My Lords, I am quite sure that the House does not begrudge the noble Lord, Lord Brooke, his late intervention in the debate, if only because he is the only Conservative speaker. However, we all very much appreciated the particular point that he made about charities and I hope that the Minister will respond to it.
It is normal at this stage to congratulate the noble Lord who has secured the debate on doing so and on his introductory speech. On this occasion, I do so with exceptional enthusiasm. We heard an outstanding speech from my noble friend Lord Foulkes. As my noble friend Lord Browne indicated as the second speaker, everything that needed to be said had at least been referred to by my noble friend Lord Foulkes in his all-encompassing speech, in which he made the points that were emphasised in subsequent speeches. We have of course all found other emphases to make and develop out of the original contribution.
I want to return to the opening point. My noble friend Lord Foulkes indicated that he sought this debate because society is suffering at present from grossly irresponsible conduct by people with enormous power. That was reflected, first, in the financial sector and the collapse of revenues for the Government—something that all significant nations suffered. That is why every nation has been looking at how to boost returns to their finance departments or treasuries. One thing that has stood out in every review has been that the capacity to raise taxation, certainly against declining production and the dip in production that all countries have suffered—and this country significantly so—has meant that government revenues have been under stress. Therefore, it is not surprising that the emphasis has shifted somewhat to who is making a contribution to those revenues and to whether everything is being done to see that fairness obtains. It is clear that a great deal has been revealed about the immoral conduct of a large number of our major companies, particularly multinationals. It is immoral not to make a contribution to a society that provides all the necessary infrastructure for successful operations and yet seek to deny to that society the resources that sustain these essential services.
As my noble friend Lord Foulkes emphasised, it is ordinary people who have been paying the price of these collapses, not those who have awarded themselves huge bonuses in both the financial sector and at the top of industry. This has created such a disparity in income as to produce an unfair society in very dramatic forms over these past few years. It is essential, therefore, that we seek to recreate a fair society, and that means the Government need to act. If ordinary people are paying the price in lower wages, in lost jobs, in reduced public support for people on low income and in young people having great difficulty in obtaining a start in life with a job, it is essential that we ensure fairness in society, not only in the burdens but in the contributions. There has been a significant failure in that regard.
My noble friend Lord Browne identified one dimension of the unfairness. It is not only advanced countries that are suffering because of the gross levels of tax evasion by major companies; it has a crippling impact on underdeveloped countries such as Zambia when companies evade taxes which are vastly higher than any aid we offer to such countries.
The multinational companies have come to the fore. There has been not only a series of revelations at a parliamentary level in this country but, as the noble Baroness, Lady Kramer—the only speaker until the last intervention from the coalition Benches—emphasised, the Americans have taken a clear lead in this field. Not only is there the examination that has been going on in Congress for more than a decade, to which the noble Baroness referred, but, as is now appreciated, President Obama has been effective in taking an early lead in striking bilateral arrangements with countries to ensure the essential information flows which alone give the opportunity for people to respond effectively to the way in which big companies operate.
The Americans were greatly concerned about Apple when they discovered the extraordinary amount of taxation that was avoided by the location of its main body in Ireland. With all the advantages that it derived there, it could avoid significant taxation on its activities which raised revenue in the United States, Europe and the wider world.
The noble Baroness, Lady Kramer, also referred to Starbucks, as did a number of my noble friends. Companies want to sustain their reputation—they make their sales on the basis of how they are thought to provide services by the public—and we know the assiduous amount of effort and colossal resources that companies put in to burnishing their reputations. That is why Starbucks felt obliged to make a belated contribution. However, this is tokenism: it is not the response of a major company to the obligations it has. As my noble friend Lord Browne emphasised, given the obligations that it has, it will not do for it to make a token contribution when it has been exposed and therefore fears that there has been damage to its reputation.
We need a structure of identification and enforcement with regard to tax to ensure that these matters are dealt with fairly. My noble friend Lord Watson referred to the progress that is being made in Europe on this front and he mentioned the German example. So he should, because it was the German identification of what was going on in the Liechtenstein bank accounts of German citizens that alerted policymakers to the enormous potential loss to government revenues because of these strategies.
We have certainly got an obligation here; the Germans are concerned about Liechtenstein and the Americans are concerned about Ireland and the advantages it offers multinationals, and the United Kingdom, as we all know, has a string of Crown dependencies and tax havens. It is essential that we make progress there. Some progress is being made and we congratulate the Government on seeking more openness about their operation.
I hope this point will be accepted by the Minister. This debate is taking place a week and a half before the G8 summit. The Prime Minister will be president of the G8 when the meeting takes place. Can we be assured that an emphatic lead will be taken on these issues because it is quite clear that a great deal needs to be done? Will he seek to ensure that the G8 commits itself to securing country-by-country reporting in order to get essential information into the public arena and to make obligations on companies effective?
We need to see whether the Prime Minister will be able to extend the disclosure of tax avoidance schemes on an international scale. The Government are making some progress in the domestic scene but we want to see more breadth to this because disclosure of information is key to the issues. We certainly need to make sure that the Prime Minister is able to emphasise that Britain is taking key action with regard to the tax havens over which we have some jurisdiction. We expect, therefore, that considerable progress on these matters will be made at the G8. The Prime Minister will surely recognise that this is a unique opportunity, not least because key powers have clearly identified and expressed anxiety about these issues in recent months.
We also need action at home. We need to reform our corporate tax system, which clearly does not cope adequately with the issue at the present time. As several of my noble friends have emphasised, including my noble friend Lord Haskel, we need to ensure that Her Majesty’s Revenue has the resources to pursue people effectively. It is extraordinary that there have been cut backs even in the revenue collection department of HMRC in the years since the coalition came to power when it has been identified on all sides how cost-effective the allocation of resources are to that department in securing the taxation to which the country is entitled.
This has been an extremely illuminating debate and one to which I know the Minister will have some constructive response to make. I certainly hope he has, because I want to emphasise one point from the Opposition Benches—I am aware that this debate has been rather laden with speakers from the Opposition, with scant contributions by the Conservative Party. The noble Lord will recognise that the nation has a common interest in effective action at this time, and the Prime Minister has been vouchsafed a particularly unique opportunity, which we hope he will seize.
Economy: Fiscal Framework
Lord Davies of Oldham Excerpts(11 years, 5 months ago)
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Lord Newby
My Lords, the capacity of the banks to fill that need is shown by the latest borrowing figures, which are mixed. Of the 40 banks that are participating in the Funding for Lending scheme, 27 expanded their lending and 13 contracted it. There was a small net contraction—much less than in recent quarters. There is evidence that net lending will expand as the year progresses, as a number of banks—such as Santander, which is winding down its mortgage book—come to the end of programmes.
Lord Davies of Oldham
My Lords, in his somewhat oblique Answer to the Question put by my noble friend Lord Barnett, the Minister mentioned the automatic stabilisers. Will the Government commit, in the forthcoming spending review, to the automatic stabilisers being maintained?
Economy: Growth
Lord Davies of Oldham Excerpts(11 years, 6 months ago)
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Lord Davies of Oldham
My Lords, I congratulate my noble friend Lord Soley on securing this debate and concentrating on the issue that must be of prime importance to all of us: how we restore growth to a flatlining economy. Of course, there are rather fewer contributors today than there were in the economics debate on Monday. It is also true that just before the end of the previous Session we had a major debate on the issue, so one would have thought that the relatively small number of noble Lords participating in this debate reflects the fact that others have made their contributions already.
This debate concentrates on growth. I hope that the Minister in replying will indicate where he thinks growth is coming from and acknowledge the danger our society is in from an economy that has flatlined, as ours has. It is all right for the noble Lord, Lord Bates, to indicate that six times as many jobs are being created in the private sector as are being lost in the public sector, but then why do the latest unemployment figures show a distinctive and frightening rise? Why are a million of our young people still unemployed? What does it mean for the next generation when jobs are so difficult to obtain?
I also appreciate the self-restraint of my noble friend Lord Soley on aviation, which is nothing like the self-restraint of this Government, who have pushed aviation policy not into green shoots but into some distant long grass before any decision will be taken. Let us look at long-term investment by the Government. In aviation we have to wait a considerable time before decisions will be taken, and the much-vaunted HS2, which we welcome, is also a considerable period away from any significant investment being made. In the depths of a recession at least certain factors ought to work to the country’s advantage. After all, sterling has depreciated by almost a fifth. Yet has that produced a significant increase in exports? No, since that devaluation of sterling we have seen our balance of payments deficit get worse.
No one should underestimate the problems that accrue from the crash of 2008, but our challenge to the Government is that they have pursued the wrong priorities. The noble Lord, Lord Bates, compared Britain with France. There was never a mention from the government side comparing Britain with the United States of America. Has no one from the government Benches looked at the Michigan economy and seen what the response has been to a Government who pumped in resources to save two of the biggest car manufacturers in the world and to sustain employment and their balance of payments position by ensuring that such critical industries were not lost? Of course, for our Government such action would be complete anathema.
We are content to see austerity being pursued to such an extent that no one in our society with resources has the confidence to invest. Quantitative easing goes to banks, but banks do not have the confidence to lend to industry. In industry, many of our major companies are awash with resources, with £670 billion in cash, but they do not invest either. Why? Because the pursuit of austerity and impoverishing our people throttles demand. What is actually happening is that there is very limited purchasing power in the economy. It is of course right that we pay some regard to the activities of the Government in seeking to promote small businesses, but every noble Lord knows that the contribution made by small businesses to our balance of payments and exports is quite limited, although I note the points made by the noble Baroness, Lady Kramer, and agree with a number of them. We have to get our major areas of investment right, and at the present time we have not because of the absence of demand.
My noble friend Lord Bhattacharyya indicated how we could improve crucial aspects of the supply side of industry. There is no doubt that the Minister ought to respond positively to his recommendations in this debate. With such a low level of demand in society, it is extraordinarily difficult to get investment going again. It is not as if the Government exude confidence by their actions. After all, their austerity targets are missed. We were meant to see the deficit disappear by 2015, but we are now working to a longer-term cycle of 2017, with a certain elasticity even in that. We were meant to make ourselves pristine for the credit agencies, but two of the credit agencies have reduced our three-star status. We were meant to hold our heads high in the international world, but a visitation from the IMF has been presaged by serious criticisms of the Government’s position for having produced an economy so devoid of growth.
That means that the Government are patching up rather than following an intelligent strategy. They have to patch up. Think of the schemes that have already failed. Think of Merlin, which was meant to give some substance to the banks. Think of the insurance strategy, which the noble Lord, Lord Bates, welcomed because the north of England was included, whereas London and East Anglia were not. The problem is that the strategy produced only a tiny fraction of the jobs that it was predicted would follow.
Even in the most recent Budget, have the Government learnt lessons? Of course they are right that we should address the issue of housebuilding and achieve stimulus in those terms, but they have not suggested that the resource should be directed at the first-time buyer. They are not even suggesting that the resource should be directed only at someone buying their first house. It looks as if all that they will do is give a further twist to the house price spiral, thereby making even more remote the opportunities for people with limited resources to get into the housing market.
When we are critical of the Government about demand, it is because every Budget under the Government has significantly reduced purchasing power. The Government must recognise that if they slash benefits, many of which also apply to people in work, they are cutting demand. They must appreciate that if they direct their significant resources to the elite in our society, particularly those who enjoy millionaire status, it will be such an unfair society as to be demoralising for people who work hard but receive very little. One statistic of which the Government should take note is the significant fall in real wages since 2009. That is not just a real reduction in purchasing power among people at work but a worrying reduction in confidence.
If all that was the result of government incompetence, we would have real worries, but it would always be hoped that lessons could be learnt. It is not government incompetence. This strategy is pursued by a Government who believe fundamentally in a smaller state, who want significantly to reduce public expenditure and, in doing so, deliberately create circumstances in which there is higher unemployment and lower demand in society. That has underpinned the whole strategy of the Chancellor of the Exchequer and the Prime Minister since 2010, and that is why the Minister must respond on the state of the economy, which at present is a cause for concern on every side.
EU: Budget Report
Lord Davies of Oldham Excerpts(11 years, 7 months ago)
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Lord McFall of Alcluith
My Lords, in his manifesto defining the Mais lecture of February 2010, the Chancellor, just before he assumed office, announced a new macroeconomic and financial policy. He asserted that economic theory and, indeed, evidence suggested that tight fiscal policy would lead to recovery. He embraced the notion of austerity politics, and the imprimatur of both the Chancellor and the Prime Minister was very firmly on that phrase, “austerity politics”.
Three years later, what do we find? We find unemployment increasing, with youth unemployment of 1 million, which is unacceptably high, child poverty levels ballooning, and almost zero growth. Notwithstanding today’s announcement, even if we include that and accept that in the past 18 months we have seen growth of 0.4%, that works out at a miserable 0.066% growth per quarter—in other words, a percentage of growth equivalent to 66 out of 10,000, or virtually none at all.
When the Chancellor came into office, as others have said, he inherited an economy that was growing by 2.6%, from the third quarter of 2009 to the third quarter of 2010. Since that date, total growth has been 0.8%, solely down to the effect of the Olympics. As my noble friend has said, the markets have now turned against the Chancellor. The comments of Bill Gross of PIMCO, which has the biggest bond fund of $300 trillion, made it very clear that the austerity policy does not lead to growth in the short term. As he asserted, the Government need to spend money. He also said that it was a mistake to assume that the bond markets want severe fiscal belt-tightening.
Given that the Chancellor and the Prime Minister have sacrificed growth on the altar of despair for the past three years, we now need an urgent injection of confidence. Austerity was never going to work because when you are in politics, if you assert austerity and are devoid of hope, the people rightly assert that you are not on their side. Today, there needs to be a case for optimism.
Along with other Peers, the other evening I saw Ken Loach’s film, “The Spirit of ’45” about the period after the Second World War. At that time there were appalling economic and human circumstances. Debt as a percentage of GDP was 250%, compared to the 70% it is today as a result of the financial crisis, yet with that debt dreams were turned into reality for many millions of impoverished individuals. Can the Government today not embrace a modicum of the hope and spirit of 1945 and ensure that we offer people something in the future?
On the eve of the financial crisis in 2007, national public debt was 36%, the lowest ratio to GDP in the past 300 years, as was asserted by Martin Wolf in the Financial Times this week. When we look at the public spending figures under the Labour Government from 1997 to 2010, we find that it was 39.7% of GDP. Let us go back to 1979 to 1997 under the Conservative Government, when public spending was on average 43.3% of GDP. So it was 39.7% for the Labour Government and 43.3% for the Conservative Government. Those are powerful statistics that destroy the myth that spending by the Labour Government was out of control.
Now, when interest rates and the cost of government borrowing is at rock bottom, is the time to invest in infrastructure so that we get a 21st century that is fit for purpose. For the past four or so years, along with others, I have been advocating the establishment of a business investment bank. It would fill the current equity gap with longer repayment periods for viable businesses and help SMEs, which are starved of lending because of the private sector money famine. Wherever we go, SMEs tell us that they have this huge problem.
We have to look to the future. We should be looking at replicating the fantastic initiative of the Labour Government in 1969 when they set up the Open University, of which I am a proud graduate. We should be looking at a successor to that with a 21st-century UK digital university underpinned by superfast broadband and smart grids. It would cost one-third of the money that will be spent on HS2. Wiring everyone up would in the long term help social inclusion and income equality. We have to think big on that. Why do we not have an objective of ensuring that all university learning is put on the net? What would that mean? It would mean that every individual could walk through the digital gates of the finest universities from the privacy of their own home and hearth.
The future never has a big enough constituency. Those fighting for present gain almost always win out. At a time when the social contract in society is broken and when millions of people will have no gain for the foreseeable future and have considerable pain, there is a need to restart and rebuild that confidence by ensuring that we do not miss out in the future. As Heraclitus said, change is the only reality, and we know that in politics change is the law of life. The late US President John F Kennedy said that those who look only to the past or present are certain to miss the future. I suggest that by ditching the cruel hoax of austerity politics—austerity is a hoax because it has been proved that it does not work, and cruel because it hurts those who are already hurt most— we can make a start to ensure that we as a country and as individuals do not miss out in the future.
Lord Davies of Oldham
My Lords, this has been a most interesting debate and the Minister has a major task in replying to it. He has to address himself to the minutiae of parliamentary procedure and to the most philosophical aspects of the current policies of the Government.
On the question of procedure, I cannot understand why we did not have a speakers list for this debate. I agree with the noble Baroness, Lady Noakes, on this matter. I also understand why she does not see why these Motions are necessary anyway as far as Europe is concerned. My noble friend Lord Barnett did not doubt that the Motions might be necessary but on the whole found them so offensive that he would not vote for them if there was any question of a Division, which there is not going to be. This indicates that there are anxieties on all sides about the framework for this debate.
What is fundamental is the concern about where the economy is at the present time and what we are reporting to Europe about the state of the British economy. It is quite clear that every target that the Chancellor set himself in 2010 has been missed and that the timetable for recovery has already been elongated by several years. As my noble friend Lord Barnett indicated, it is now expected that it will be at least 2018 before the deficit will have been reduced.
At the very beginning, the Minister stated that one of his items would bring confidence. As in all economic debates about the position of the economy and the balance of payments, confidence is of great importance. The Chancellor chose one measurement of it, Britain’s AAA credit rating. We saw Moody’s going first and now Fitch has stripped away the AAA credit rating. What is reflected in that is a degree—if the Chancellor was right to put so much importance on them—of erosion of confidence. My noble friend Lord Barnett said that the reason for that is pessimism about growth. That issue was reflected, particularly on this side of the House, in every aspect of the debate.
My noble friend Lord Hollick identified another area in which confidence is being eroded. The intellectual support for the Chancellor’s policy put forward by Reinhart and Rogoff has been destroyed by the indications of the research and the propositions are inherently faulty. That intellectual prop having gone, what is in its place? My noble friend Lord Layard identified these issues with the greatest clarity. What there is is a commitment to a right-wing ideology that does not need too much in the way of intellectual support. After all, we have been through these issues before under Conservative Governments. It is about the creation of the virtues of the smaller state. In the Government’s drive towards creating the smaller state, which my noble friend Lord Layard identified has little to do with whether economic growth can be produced or whether we can tackle the fundamental issues of the economy, the price is being paid not by millionaires who are being cushioned by taxation relief but in increasing unemployment and low wages for those who are in employment. It is already recognised that wages will have dropped by 2.4% this last year. That is the cost to the people in work. Meanwhile, the Government have some figure of the number of jobs being created by the private sector. We know what a lot of these jobs are: they are concealed unemployment. They are part-time jobs that give no opportunity for people to work longer hours; part-time jobs on low pay in which people are still struggling—although in work—to make ends meet. Those people are paying the price for this Government’s policies.
Budget Statement
Lord Davies of Oldham Excerpts(11 years, 8 months ago)
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Lord Davies of Oldham
My Lords, I am grateful for the contribution of the noble Lord, Lord Brooke, and that of the right reverend Prelate the Bishop of Bristol, who emphasised the progress towards the aid target of 0.7% of GDP, which this Government have fulfilled. It was driven towards strongly by the preceding Administration, so at least we have a note of unity across the House on the successful achievement of that position and its ring-fencing.
Another note of agreement—I am certainly happy with it and I get the impression from the debate that this might be so across the House—is that, as my noble friend Lord Desai said, this Budget does not do anything very much. That is certainly the case because the Chancellor has placed himself within a straitjacket and there is not much he can do when he is so constrained by his singular commitment to one objective. Of course, no one underestimates the challenges facing the Chancellor. We all know the difficulties over the debt and that external forces, particularly the difficulties in the eurozone, our largest overseas customer, do not help exports and the potential for an emergence from this crisis through export-led growth.
However, I cannot recall the Government or a government spokesman putting the crisis of 2008 into an international context. I cannot remember them ever since suggesting that there were difficulties other than those attributed to the Labour Administration struggling with the problems of international finance at that time. We all know that the first manifestations of crisis were in the United States, and subsequently in Europe, before Northern Rock reached a pitch at which we had to act. The international context rubs both ways.
We need to recognise from the experience of Northern Rock some of the dangers in the Government’s proposed housing measures. A number of noble Lords emphasised their support for these measures. The noble Baroness, Lady Kramer, quoted the Business Secretary as having expressed these views in the New Statesman, and he certainly did. Why did he choose the New Statesman? It is because he thought it was read by a thoughtful, constructive audience who had already been campaigning for an emphasis on housebuilding to inject some demand into the economy and some earnings into the construction industry. We all know that the construction industry is one of the fastest to regenerate if the demand is there.
I appreciated the point made by the noble Lord, Lord Flight, and the noble Baroness, Lady Browning, a moment or two ago, that we have to be careful with regard to this issue because we know that it was overborrowing for house purchasing that precipitated the crisis in the United States. I hope the Minister will respond to the questions addressed to him by my noble friend Lord Eatwell in his contribution to the debate. What, in the Government’s view, will the guarantee scheme mean for house prices? What is the cost of the scheme over the three-year period that it is meant to obtain? How much dead weight is involved in the scheme? Will there be support for purchases that have already been made? I hope the Minister will address these points, if only because anxieties about this issue were expressed as strongly on his side of the House as on mine.
We have questions as to whether the Chancellor has matched up to the challenge before him. So far, progress has been limited to almost the point of marginality. The Chancellor has failed to hit every target that he identified when he first took office. Of course, I recognise that one or two elements in this Budget have found favour. The noble Lord, Lord Bilimoria, declaring his interest, mentioned that a penny off the pint of beer was most welcome. I cannot think how many pubs will be saved by a reduction in the price of beer by 0.3%. However, I do not have quite the experience of the industry of the noble Lord, Lord Bilimoria.
I am grateful to the noble Lord, Lord Marlesford, who also indicated that we should have reservations about the intention to freeze taxation on fuel. There will be escalating costs involved in that over time, and the noble Lord identified them very clearly. That aspect may gain the Chancellor a little short-term credibility but it raises considerable problems. The Chancellor will be aware that these little gimmicks to brighten life up for the nation are happening two years before the next election, but of course there is a lot that needs brightening up.
Something that has not featured enough in this debate is what it means for a nation to be told that its living standards, which have already decreased significantly over the past few years, are destined to be reduced over the next two years, if not longer, as well. That shows itself most in the more desperate sections of our community, among the poor, who have of course been subject to the Government’s unremitting ideological onslaught on welfare, but it also reaches right across the community save, perhaps, for those millionaires who stand to see a considerable increase in their incomes from the decision taken last year to cut taxation from 50% to 45%.
We have had some interesting contributions on the question of infrastructure, and I hope that the Minister will respond to the questions put by my noble friend Lord Eatwell. How much has been spent on infrastructure this year? The problem with the Budget is that it is all jam tomorrow—or not tomorrow, in fact, but some 700 days after tomorrow. It is two years before the expenditure on and investment in infrastructure is due to take place. We need to know how much was spent in 2012 and how much will be spent in 2013. I fear that the answers may be somewhat bleak.
Within this framework, perhaps I may also emphasise the anxieties expressed by my noble friend Lady Worthington on the question of electricity prices. There are within this Budget and in the Government’s policies hidden costs that will manifest themselves in the most appalling way; that is, directly on those who are least well able to cope with them. Unless one is in a position to invest significantly, the consumption of electricity is a given cost in bills that have to be met when they are presented.
On my side of the House, my noble friends Lord Kestenbaum and Lord Haskel, along with my noble friend Lord Bhattacharyya in considerable detail, emphasised the fact that we need investment. We cannot get out of this situation without it. The IMF has told the Government that they cannot get out of this situation without paying attention to growth. My noble friends pointed out that at last the penny is beginning to drop in government to a marginal extent, but for the past three years there has been an unremitting commitment to one objective to the exclusion of any considered investment related to growth. That is why we consider that the Government have a difficult case to argue.
I appreciated the contribution of the noble Lord, Lord Shipley, who shifted the debate on to the local and regional dimension and referred to the Heseltine report. It is encouraging that the Government are at least paying lip service to some of the noble Lord’s proposals. When we talk about development in the regions and the problem of the domination of London, it is worth recalling that one of the first acts of this Government was to destroy the regional development agencies. I recognise that the local enterprise partnerships are different and it may be that they are able to make progress, but there is no reason other than the wilful action of the Government at the beginning of their term why things are so very difficult in the regions at this time.
I apologise for slightly overrunning my time. I hope that the Minister will recognise that we want to put this debate in the context of a Government who are failing the nation and causing a great deal of distress among many members of our community.
Taxation: Income Tax
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Lord Newby
I am always happy to write to the noble Baroness. On the first point she raised, if one is self-employed, the only person you can look to to pay your salary is yourself. If you earn money yourself, you are able to pay yourself well. If you have a contract with somebody as a self-employed person, you should be looking to be paid at least the minimum wage under that contract. However, many self-employed people do consultancy work of various sorts for a fixed price or produce goods and the extent to which they earn an income depends on the extent to which they are able to sell what they produce.
Lord Davies of Oldham
My Lords, the noble Lord’s Answer to his noble friend Lord Greaves was pathetically thin against a background where, as he must surely appreciate, unfairness is perpetrated very heavily against the low-paid and the poor, for whom the Government have scant regard, having of course withdrawn significant numbers of benefits from them. When will the Government address the fact that the economy is so lacking in demand that we are in the worst depression for 80 years? Ministers are not matching up to the challenge presented.
Lord Newby
My Lords, for most people the most important factor in the economy is whether they have a job. Last year, an additional half a million people got a job and it was a major step forward in their personal circumstances. The labour market has performed well, and it continues to perform well, and all forward indicators in recent surveys suggest that, across all sectors, even more people are likely to be employed in the near future.
Taxation: Avoidance
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Lord Deighton
My Lords, I cannot comment on the tax affairs of individual taxpayers but what I can do is speak generally. Schemes that abuse the gift aid rules with a view to enabling individuals to avoid tax do fall within the disclosure of tax avoidance schemes rules. That means that anyone who uses such a scheme must disclose it on their tax return. HMRC can then identify those individuals and challenge the reliefs claimed where appropriate.
Lord Davies of Oldham
My Lords, are not the charities that most significantly avoid tax on dubious grounds the public schools? Many of them were granted charitable status when they educated the poor or those of middling incomes. They now clearly educate, overwhelmingly, the children of the wealthy and the privileged, as evidenced by the Conservative Front Bench in the Commons.
Lord Deighton
As I said in my original Answer, the issue of whether an organisation qualifies as a charity is for the Charities Commission. The review of the noble Lord, Lord Hodgson, which reported in the middle of 2012, was given an initial response by the Government just before Christmas. The Public Administration Select Committee is also looking at this and will report, I think, in March. At that point the Government will give their further recommendations on the regulation of the charities sector. That will deal with the issue of which organisations qualify as charities, including public schools.
Banking Reform
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Lord Newby
My Lords, the Government have today laid before the House the Financial Services (Banking Reform) Bill, and their response to the report of the Parliamentary Commission on Banking Standards that was published on 21 December last year, following the commission’s pre-legislative scrutiny of the Bill. I thank and pay tribute to the members of both the Independent Commission on Banking and the Parliamentary Commission on Banking Standards. The two commissions, whose membership comprises some of the most distinguished policymakers and formidable intellects in the world, have between them shaped a set of reforms to British banking that will lead the world and set an example to other countries in the seriousness, radicalism and meticulousness of the changes that are proposed. The Bill that is published today reflects their painstaking work, and the Government have accepted almost all their recommendations.
The reforms address what the Chancellor has called the British dilemma: how Britain can be a leading global financial centre, with more than its share of international trade in financial services, while at the same time not exposing the ordinary working people of this country to the catastrophic risks of banks failing. These reforms were, and are, necessary. The previous regime was tested and failed. UK taxpayers had to bail out the banks with £65 billion of the hard-earned money of ordinary working people, while those who had taken a one-way bet with their money slunk away, losing nothing more than their job—and sometimes not even that.
The anger that the country feels about what happened must be channelled into change, to reset Britain’s banking system. The objective of the Bill proposed by Vickers and endorsed by the commission is that any failure of any bank in future should not impose a cost on the taxpayer, and not interrupt for a second vital banking services. That is a high ambition, but one that is appropriate for a country with a reputation for financial stability and confidence that has for centuries been one of Britain’s chief assets in the world.
As is well known, the Bill will erect a ring-fence around the core operations of banks headquartered and regulated in the UK. Within that ring-fence, banks must be completely insulated from activities such as using depositors’ funds to speculate for the banks’ own benefit in capital markets. In the event of failure, depositors will be given preference in liquidation. As a result of the commission’s recommendations, the Government are making a number of further changes to the Bill. First, in the honourable Member for Chichester’s acute phrase, which will permanently enter the lexicon of banking, the ring-fence will be electrified. The regulator will be given the power to order the full separation of any bank that attempts to undermine the ring-fence. The directors of the banks will be personally responsible for ensuring that their banks comply with the ring-fencing rules, and the Prudential Regulation Authority will conduct an annual review of the operation and adequacy of the ring-fence rules.
Secondly, there are explicit provisions in the Bill for the principal aspects of ring-fencing, including that there should be separate boards of directors, remuneration arrangements and human resource management, for ring-fenced banks. Thirdly, the Bill gives us an opportunity to make an historic change in the competitive environment of UK banking. Competition is essential to ensure that customers benefit from innovation, extracting customer service and efficiency from their banks. That has not always been the experience of customers in the past. As well as bringing in a seven-day automatic account-switching service from September this year, the Government will take steps to tackle the cosy arrangement whereby the biggest banks determine how payment systems will be run. Why should it be necessary in 2013 for a cheque to take six days to clear, with banks and not customers scooping up the interest on balances during this delay? Why should a new bank have to beg an incumbent bank for permission to use the payments system? We will require access arrangements to payments systems that are fair, reasonable and transparent. The commission has, rightly, emphasised the importance of competition. I am grateful to it for propelling this drive further, as I am to my honourable friend the Member for South Northamptonshire, for whom greater competition in banking has been a personal crusade.
The fourth change is that more parliamentary scrutiny will be built into the secondary legislation that implements this high-level Bill. Drafts of the principal statutory instruments to be made will be available to the House before Second Reading. The Government accept the recommendation of the Delegated Powers and Regulatory Reform Committee on the type of scrutiny each should receive.
These are historic reforms, but they are appropriate for our country, and for an industry in which, directly and indirectly, 2 million people work. It is our biggest export earner and contributes £1 in every £8 of our tax revenue. We should take the steps necessary to restore confidence in and to an industry in which it has fallen so far. There is much scrutiny of the Bill before us, both here and in the other place. I look forward very much to our discussions in the weeks and months ahead.
Lord Davies of Oldham
My Lords, I am grateful to the noble Lord for repeating the response to the Urgent Question but I am appalled that this issue is being tackled as an Urgent Question. It means that this House has merely 10 minutes to consider the matter. Surely on this issue—the most significant piece of legislation that will go before the two Houses relating to an industry that has been at the centre of the greatest crisis in many years—there should have been a Statement in the other place. Why was it a junior Treasury Minister who made the Statement and not the Chancellor?
This is indicative that the Government would like to water things down. They have done that from the beginning. When the Vickers commission reported, the Government’s first reaction was to set about watering down its recommendations, by allowing, for instance, the reduction of the advised leverage ratio. When the Joint Committee of the two Houses proposed to electrify the ring-fence, the Government’s first reaction was to refuse to commit to it. As we see today, they have significant reservations about it. They have produced only a partial climbdown.
Does the Minister agree with the noble Baroness, Lady Kramer, who is in her place? I apologise if am pre-empting what she might say but I will have no other opportunity in this debate. She is the economics spokesperson for the Minister’s party. She believes that attempting to limit the procedure to individual banks will effectively tie up the sanction in years of complex litigation. That is why we endorse her viewpoint; it is ours, too, that this should be legislation. The back-stop power should apply to all banks.
Is it not vital that the Government make up their mind shortly and include a reserve power in this Bill for full separation of retail and investment banking, in case ring-fencing does not work,? That is what the Opposition have asked for. I believe that is what the noble Baroness, Lady Kramer, is asking for. It is certainly what the parliamentary commission indicated in its report and I fail to see why the Government are not more responsive in an area that they must know causes the greatest anxiety to the British people. The Government must look closely at this, and be determined, clear and effective, and not wishy-washy.
Lord Newby
My Lords, I smile with amusement when the noble Lord accuses the Government of not taking this issue seriously. When his party was in his power, and we and I suggested to it and him that they do exactly that, we were told that it was irrelevant to the problems that we were facing and that we should definitely not do it. I will certainly not take any lessons from him about the importance of this issue.
As for whether the legislation should include reserve powers to implement full separation across the sector, this was put to the Governor of the Bank of England, who said that he did not want such reserve powers. More importantly, general reserve powers would give huge power outwith Parliament to tear up the provisions of the Bill as we envisage it, and fundamentally change some of the ways that we see it working. The Government think that if you got to the point where that was a possibility, or you wanted those powers, the appropriate way to do it would be to come back to Parliament, rather than leaving it to the regulator to exercise what would be very sweeping powers indeed.
Economy: Growth
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Lord Davies of Oldham
My Lords, this has been a most fascinating debate, which has covered a wide range of issues and it is therefore a testing ground for the new Minister, whom of course I welcome to his place. I am sure that he will enjoy these debates, as we all do, while recognising that replying to a debate with nearly 30 contributions, all of which merit real thought and response, is challenging. This is not least because the Minister is also replying to the debate about the most fundamental issue before the country, which is the present state of the economy.
The Minister will have noted that from the beginning the noble Lord, Lord Skidelsky, from the Cross Benches, wasted no time in emphasising two things. We should not be deluded by false claims on infrastructure, or the way in which the Government are recovering the economy. Mention of HS2 and HS3, which are more than a decade, or certainly several years away, before any work on them is done, scarcely fits into the pattern of the urgency of our need for recovery in the economy. My noble friend Lord Barnett buttressed that position by identifying how little has been done in the specific area of infrastructure investment, on which he had challenged the Government.
The Minister might have thought at that stage that at least we were on home ground in talking about infrastructure. The noble Lord, Lord Lamont, raised the very real and significant issue about regulation of the banking sector. The Minister will appreciate that behind these issues that we are discussing is the financial collapse a few years ago. This has thrust the financial sector into considerable turmoil. For the Government, it has presented a very real challenge in how we seek successfully to regulate the banks, so that nothing like the disaster of the past decade can occur again.
There were other issues in this debate that I hope the Minister will find time to address. In an interesting contribution from the business perspective, the noble Lord, Lord Wolfson, appeared to indicate that one of the best infrastructure projects in which we could get involved was building roads. Behind it he raised, as regards finance for the roads, the possibility of some system of road pricing. I have no doubt that the noble Lord, Lord Deighton, has already been warned about going where others have feared to tread in the past, but he would be wise not to be too enthusiastic about the concept of road pricing in anticipation of where the Government might go in due course.
The issue of quantitative easing came up. The noble Lord, Lord Forsyth, raised the matter first. He was supported from my Benches by my noble friend Lord Desai. Both of them were really asking what happens when quantitative easing ceases, and we seek to establish a more normal framework for our economy and currency. This is an interesting question, which I hope the noble Lord will recognise as germane and important to this debate.
The noble Lord, Lord Birt, stressed the issue of the development of the right kind of skills in an economy. This is a long-term process. We all recognise that, but we have heard too much analysis of what is wrong with our skills sector without effectively producing the strategy to cope with it. There is no doubt that for the long-term health of our economy we need to ensure that our people are readily skilled for a world in which technical change occurs so quickly. If that was not enough the noble Lord, Lord Lang, brought up pensions and the challenge that they present to the Government, and in this significant issue he was supported by my noble friend Lord Monks. The agenda is moving up, without the noble Lord, Lord Bilimoria, not failing, as he usually does, to give us an overview of the issues that are at stake and how they affect business. He was full of a somewhat doleful message. Of the Chancellor’s targets, which he set two and a half years ago against which his achievements must be measured, only the tattered banner of credit rating 3A remained, and one was not too sure how long that banner would last before it was shredded.
The noble Lord, Lord Higgins, picked up on this debate as having a certain dismal quality. It is certainly one that has raised fundamental issues. The noble Lord introduced a dismal element because he thinks that some of the solutions are difficult to achieve in the time that we need to achieve them. The Opposition agree with him. Meanwhile, my noble friends Lord Hanworth and Lord Hollick emphasised the failings of the Government in relation to the policy that has been pursued so far. I am not sure that the suggestion that the noble Lord, Lord Heseltine, had produced a document to which the Government should give their fullest attention was quite the response that they have so far given. While we know that that document is to be taken seriously, “seriously” is different from “being acted upon”. We await the Government’s indication that they are actually prepared to implement some of the suggested reforms of the noble Lord, Lord Heseltine.
The noble Lord, Lord Sheikh, suggested that the Prime Minister has committed himself to every government department having a growth objective. I do not know all government departments intimately, but I can think of one or two that would resist that concept. There is another challenge for the noble Lord as he beds himself down into Treasury matters. As he will be only too well aware, the Treasury is at the centre of all these issues, and the responsibility that he has taken on needs to measure up to that.
Those are the issues that have been raised in debate, but the fundamental point is the charge that is being made from this side of the House, buttressed by a number of contributions from elsewhere in the Chamber. That charge is straightforward—that we are quite possibly on the brink of a triple-dip recession. We are taking longer to emerge from recession than at any time in the past. The objectives and measures that the Chancellor put forward for success in his handling of the economy are all representations of failure.
The noble Lord, Lord Howell, found a glimmer of optimism in opportunities for improving exports. No one doubts the necessity for that, but when the pound is slumping to the extent it is, if we do not capitalise on that to develop our export potential, we are in a very serious position indeed. However, although the noble Lord, Lord Howell, is certainly better informed on these matters than I am, I do not think that exports are based too much on sentiment. I understand the markets that may obtain within the Commonwealth, but I am not sure that we get any favourable treatment as far as those sovereign countries are concerned.
This debate has laid bare the weaknesses of the Government’s present policy. We are at a crossroads because it will not be long before the Government recognise that they cannot pursue these policies for much longer without pushing the country into total despair. One speech was quite enlightening on these things. It was made by the noble Earl, Lord Listowel, on child welfare. I appreciated his contribution. At last we got to the costs which are being born of failure. The cutbacks that are occurring affect our people so grievously, and we have not seen anything yet. The vast bulk of the cuts in welfare are still to be enforced and implemented upon our people. The noble Lord must recognise that this leads to the parlous state which the economy is in. I hope that he will recognise serious authorities, such as the chief economist to the IMF, the chairman of the bank to which he had some connection, who indicated that he thought that the Chancellor is on the wrong path, or Boris Johnson, who takes a rather different view on the policies that are being pursued at present. We are at a crossroads, and the Government had better start making the right choice of route to follow, otherwise the Minister’s role will be less happy than he would wish it to be.