National Insurance Contributions Bill
Lord Davies of Oldham Excerpts(13 years, 8 months ago)
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Lord Davies of Oldham
My Lords, presumably the Minister hopes that the Committee stage of this Bill will not be as protracted as another Bill that has been before the House over the past few weeks, and I think that I can give him that assurance. However, we want to debate whether Clause 1 should stand part for the obvious reason that this is by far the most significant clause in what is an important Bill.
As the Minister will appreciate, we support the increase in national insurance contributions but our proposals were very different. He must recognise that, during the course of the detailed discussion on the clauses of the Bill that we will have this afternoon, we will identify some of those points of difference. We hope that he will be in a position to answer some of the questions that were adumbrated in general terms at Second Reading and will be dealt with in rather more detail today.
To put the Bill in context, there is a difference in perspective between the Government’s strategy and the one that my party would pursue. The Minister and the Committee will recognise that last year there were three consecutive quarters of growth followed by a quarter of negative growth, which looked marginal when the first set of figures came out but rather more serious following the subsequent revision. We are concerned about the impact of the Bill and of the Government’s general strategy on the broader economy.
We would put jobs and growth first. That is why we are concerned that the increase in national insurance contributions will prove to be difficult for growth and particularly for the protection of employment, given that the increase in NICs is being supplemented by a very significant increase in VAT. Expert opinion identifies that the increase in VAT could result in the loss of three times as many jobs as might be lost by anything to do with national insurance increases, which were the subject of considerable debate at the last general election.
We are concerned that there is no protection for those earning less than £20,000 per year. We would have sought that protection by raising the primary threshold. The Government are imposing increases without fully increasing the secondary threshold for employers. That presents obvious difficulties. Can the Minister confirm that employers will suffer nearly £1.5 billion extra in terms of commitment of resources as against rather modest savings on the secondary threshold? The Minister will say that the secondary threshold is not meant to compensate for the impact on employers because personal tax allowances will help to some degree. The trouble with that argument, which the Minister vouchsafed to the House at Second Reading, is that it takes no account of the balance on personal tax allowances, namely the very severe benefits cuts and loss of income to many of the less well-off in our society. That is why the Bill needs to be put in that broader context.
We are concerned that the Bill is being promoted against a background of government policies that threaten the recovery. We had some indication of the difficulties just before Christmas. That coincided with adverse weather conditions, which was the reason given by the Chancellor of the Exchequer at the time and looks pretty threadbare now. One cause of anxiety about the recovery is the cuts in public expenditure, which will lead to significant job losses and a severe loss in confidence among employers and consumers. The Government propose—something that they criticised the previous Administration for—to increase national insurance contributions, but they have also increased VAT and have other strategies on the economy that are the source of great anxiety.
We look at the Bill in the context of the importance of growth in the economy and strengthening employment. Declining employment, when people lose their jobs, reduces demand severely in the economy and does enormous damage to the Government’s receipts from their various forms of revenue gathering. That is why we shall be using this Committee session for detailed examination of the Bill. However, we wanted to make this series of comments on whether Clause 1 should stand part because of its significance in the Government’s wider economic strategy, on which this side has very serious doubts. I hope that the Minister will be able to give some response. I beg to move.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, I am grateful to the noble Lord, Lord Davies of Oldham, for confirming that the Committee might move more expeditiously through this Bill than some other recent Bills.
I think that the noble Lord said that I would understand why he opposes Clause 1 standing part of the Bill, but I could not quite work it out and I am even more confused now that he says that the Opposition support the 1 percentage point increase, which is the import of Clause 1. However, I guess that I will eventually get used to the way that the House operates on these things. If the purpose of this discussion is to put the Bill into a bit of context, I am certainly very happy to do that.
The Government face the twin challenges of dealing with the inherited deficit and getting the economy growing again. In this wider context, the Bill goes to the heart of those challenges. I have repeatedly said that the recovery is likely to be choppy, and so it is proving. It is not easy to stimulate growth while bringing the deficit under control. The case of national insurance exemplifies the dilemma and the challenge. The 1 per cent increase in national insurance produces revenue of the order of £9 billion to £10 billion, which is necessary to deal with the deficit. Although we will put 70 to 80 per cent of the weight of deficit reduction on spending, nevertheless increases in taxation will bear part of the burden. Therefore, we start by accepting some of the changes that the previous Government proposed. We do not know what they had in mind on VAT. There were strong indications from Ministers in the previous Government that had they been returned to office they might well have increased VAT.
In the context of national insurance increases, offsetting measures that go hand in hand with the Bill—although they are not in the Bill—will increase the secondary threshold by £21 a week and the primary threshold and the lower profits limit by £24 a week. This will significantly offset the rises in the Bill. The increase in income tax personal allowances and the reductions in the basic rate limit and in the national insurance upper earnings and profits limit will, as a combined package, go a substantial way towards offseting the effect of the national insurance rises. Compared with the plans that we inherited, employers will be more than £3 billion better off next year, and that figure will rise in future years. As I said, we are fully compensating for the £9 billion increase in labour taxation that the rate rise represents.
The threshold rises will mean that the burden that the Government add to labour costs will lessen, and there will be more to share between employers and employees so that both will benefit. As a result of the way in which we are doing this, some of the benefit will be switched from national insurance contributions to income tax, so the net rise in national insurance contributions payments will be compensated for by a larger fall in income tax payments. Employers will be better off in respect of employees earning up to £20,000, while employers who have staff among the highest earners will pay more in national insurance contributions.
We are agreed that the 1 percentage point increase is appropriate. Where we diverge from the analysis of the noble Lord, Lord Davies, is in seeing the proposed increase as a significant tax on jobs at a time when the recovery needs to be encouraged and bolstered. That is why we have made the offsetting increases in limits, and the increase in the income tax personal allowance. I am grateful to the noble Lord for enabling us to start our discussion by putting the Bill in a wider context, because that is important. Having explored the issue, I hope that we will now move on to the detailed points that he intends to raise.
Lord Davies of Oldham
My Lords, of course, I am grateful to the Minister for his general response. He referred to choppy waters, but choppy waters can be uncomfortable and people in boats can feel unwell in choppy waters. We are concerned that those waters may have sufficient movement to swamp many people. We are worried about the rate of job loss and the loss of income among many sectors of our community, which will be reflected in the overall state of the economy. Indeed, we may already have seen signs of that. The Minister is fully entitled to adopt his optimistic stance at this point but I hope that his words do not come back to haunt him given that his Administration’s proposals may lead to excessive job loss. We think that it is easy to read the signs of the very great difficulties that we shall face on the employment front and, therefore, in the economy.
The Minister will also know that there is a difference in perspective between my party and the Government. Other significant Governments in the world—not least that of the United States—take a rather different perspective on what needs to be done in policy terms in relation to the present position as compared to the policy that he has adumbrated. Nevertheless, I am grateful that the Minister has been as constructive as he always seeks to be in response to my opening remarks. As we get into closer detail on the Bill, I do not have the slightest doubt that he will enjoy being even more constructive.
Lord Davies of Oldham
“( ) a non-trading charity”
Lord Davies of Oldham
My Lords, from the perspective of opposition I always rather approve of Bills starting in our House, the upper House. It gives us a first shot at the Minister and a chance to develop our own argument without in any way having been influenced or prejudiced by any discussions elsewhere. In opposition and in government I often found it quite a challenge with Bills starting in the Lords because Members come well informed, with their own perspective, and set the scene which is then followed elsewhere.
On this occasion, however, the amendment that we want to press the Minister on with regard to non-trading charities was dealt with extensively in the other place in Committee but I must say, and I hope the Minister will bear this in mind, we did not think the response of the Government on this issue was particularly convincing. It seemed to rest on why the Opposition were introducing charities to a Bill which is all to do with the wealth-creating sector. That may reflect a rather narrow perspective on what is called, and should be defined as, wealth in our society, but I will not go into too many philosophical—not to say economic—arguments on that.
What it does raise for us, however, is a very odd perspective indeed. As we understand it, the Government in their more benign moments are extolling the virtues of the big society—that we are all in it together and we can all contribute to it in our various ways. Among those various ways there is no doubt at all that there is an expectation, and indeed a hope, that what will be generated is greater activity by those who work in charitable activities, rather than other more formal wealth-creating organisations or public institutions.
The Government, of course, need this encouragement. After all, they are about significantly reducing the public sector. I know that the noble Lord will say—I am almost word perfect on these matters—that that is because of what they have inherited. There is never a suggestion that what the Government have inherited has perhaps nothing to do with the deficit of the last Government but is an inheritance of the philosophy with regard to society; namely, that big government is bad and small government, by definition, is inevitably better.
Small government means that functions are not going to be carried out for people with various needs by government, and those needs are going to be unrecognised. It is not often that Ministers present themselves entirely in that harsh light, although on occasion I must say there are notable exceptions to that kind generalisation. Ministers expect tasks to be done, not by public institutions but supported and sustained by public revenues. In other words, they want someone else to do it.
I recognise, of course, that wealth creation is of enormous significance to our society at all times, but particularly in the present economic situation. However, the idea that we should exclude the active contribution of other institutions seems to me to require a pretty substantial defence. Why so? Why should a non-trading charity not fit within this framework? Why are we not inclusive on the institutions that can contribute to the nation’s welfare and the employment of individuals? Why are the Government saying that in this respect, as far as charities are concerned, there is no room in the inn? That does not seem to be based upon any economic perspective, nor one outstandingly of cost, but upon the presumption that here we have a measure that is overwhelmingly concerned with business and the wealth-creating area.
I am very far from decrying that; I am all in favour of that which encourages new businesses to develop and flourish. However, I cannot see why one should just slam the door in the face of those developments which will contribute to the common good but are non-trading charities. If the noble Lord is just going to fall back on the stance that was presented in the other place, I can only say to him that sufficient time has elapsed to consider the responses made at that time. They were unsatisfactory on that occasion to many Members, certainly to my side of the committee considering the matter in the other place. They appear manifestly unsatisfactory to us at this stage and I hope that the Minister can give a response to these points.
Lord Newby
My Lords, I have a factual question to ask the Minister on this. During my life, I have been involved in setting up one or two charities where the legal basis of the charity has been a company limited by guarantee which has then got charitable status, so that we have been filling in returns to Companies House as well as to the Charity Commission. What I do not understand is: if a charity’s legal basis is corporate and that charity is then employing staff, whether trading or not, why does it not mean that it would be covered by the normal income tax and national insurance rules?
Lord Davies of Oldham
I am grateful to the Minister. I was looking at Hansard and I see that the framework in which I used the word “benign” for the Government was extremely limited and confined. I think I am unlikely to use that adjective again in our debates. It was a one-off.
I appreciate that charities enjoy various advantages for the work that they do across the range of the taxation system. Here is an opportunity which the Government seek to encourage. Of course, I recognise the prime purpose of what they define as the wealth-creating sector but surely the Minister should appreciate how limited the opportunities are for legislation. Certainly, as a Treasury Minister, he will know that although the Treasury is in an advantageous position compared to other departments, when it can identify available resources—the Minister shakes his head and is engaging my sympathy at this stage, but I will not use the word “benign” again—it is not replete with opportunities to legislate any more than any other department. With its Bills, it is in some degree of competition.
Here is a very modest little Bill with a clear objective. I do not decry the clear objective, the main purpose, of the Bill. I am merely saying that within the framework of that main purpose, not a great deal is necessary to provide some opportunity for non-trading charities. I merely say that it is recognised on all sides that charities always have an important role to play, but this Government are placing increasing emphasis on the third sector in those terms. Therefore, it ill behoves them to take a negative view on what they can do to help within the framework of this modest little Bill.
Of course I shall withdraw my amendment today, but I am by no means certain that we have seen the last of this issue.
Lord Davies of Oldham
Lord Davies of Oldham
The Minister will be somewhat shocked by the fact that I am being constructive at this juncture. We have a later amendment that asks the Minister to address himself to a modest change to the Bill, which he might define as an extra demand on resources, so I am being constructive with this amendment. Given the fact that we know that the vast majority of new businesses in their first year employ not many more than two persons, I think that the Government may be excessive in their proposition of 10. I suggest five against a background where the Minister will already have sniffed the air and decided that there must be an ulterior purpose. Indeed there is. As he knows, with the later amendment I want to talk about apprenticeships and to extend the definition a little more.
We think that the vast majority of new businesses will benefit from what is on offer from this measure if we restrict it to the first five employees. We have tabled the amendment to see whether the Minister agrees with us.
Lord Newby
It is a pity that Amendment 14 is not grouped with these two amendments as they clearly fall together. While everybody supports promoting apprenticeships, it seems to me that the Bill is simpler than what the noble Lord proposes. While it is a good thing to promote apprenticeships, if I am starting up a new business and am not necessarily going to employ apprentices, I could envisage a situation in which I might well employ 10 people. I raise this while declaring an interest. I formed a community interest company a year ago, which will start trading in this coming financial year. It is likely to be based in Birmingham. I do not know whether the company will qualify for this measure, given it was formed but not trading last year, but we will be employing both part-time and full-time people in the area of education and sport. It may well be, if we are successful, that we will be employing more than 10 people within three years. If some of those are coaches or if some of them are already qualified as teachers, they will have skills. They will be working for us where they would not otherwise be working in an area covered by the Bill, but technically they will not be apprentices.
I think that you would lose the opportunity to encourage companies which are employing people who would not be eligible for apprenticeships by reducing the limit down from 10 to five. Of course, if the limit stays at 10, Amendment 14 has virtually no impact because the number would go up only from 10 to 12. Therefore, partly in a self-interested sense—I have no idea whether our company would qualify and this is not the reason that I am doing it—it seems to me that you may damage employment prospects by these amendments in a way that is not really intended.
Lord Davies of Oldham
My Lords, I will certainly withdraw the amendment, although I am not sure that I entirely accept the arguments made against an amendment that I have not yet even moved. I am afraid that the Committee will have to endure that burden in a moment when I come to apprenticeships. I accept the Minister's point that the number of new employees is likely to be very limited, despite what the noble Lord, Lord Newby, said about his ambitious proposal. I wish him well in personal terms while preserving strict neutrality towards the Bill.
The number of new companies will not be as extensive as he indicated. The Minister is right to call in aid that point, and to refer to the limited savings represented by the amendment. I hope that it will be accepted in the spirit in which it was intended, namely as preparatory to the marginal addition to the Bill contained in the next amendment. I beg leave to withdraw the amendment.
Lord Davies of Oldham
“( ) A new business which offers apprenticeship opportunities which are taken up during the period of the holiday period shall be allowed to extend the number of qualifying employees to 12.”
Lord Davies of Oldham
My Lords, apprenticeships are a good thing. I know that I will get nods from all sides of the Committee when I say that. We have made progress in recent years and it is important that we make greater progress. One dimension that ought to worry us all is unemployment. It is a potentially greater problem across wide ranges of our society but unemployment visited on young people is a particularly pernicious burden. We should not be surprised if we have difficulties with the attitudes of young people to our society if it is impossible for them, whatever their talents, to land a job. Apprenticeships are an important way in which people can come within the framework of work, and I suggest that our modern society will reflect rather more the significance of old-style apprenticeships.
When I say “old-style”, I refer to our great and glorious industrial past. A predecessor of mine in Oldham used to boast of there being 20,000 engineering employees in plants in the Manchester and Oldham area, and of hundreds of apprenticeships being available. Young people streamed out of education—in some cases, they might have been better advised to stay on to earn different qualifications—into guaranteed opportunities as apprentices in those big engineering works. Those days are long past; we all appreciate that. However, what may be becoming more significant in our society is the development of skills and crafts that mirror a period prior to the great industrialisation. I refer to small-scale businesses and crafts that often do not need many full-time employees to justify an apprentice who in his or her turn learns their role. That is of very great importance.
In all my time when I was greatly involved in further education, one thing that drove me to distraction was our inability to sell work experience in relation to the education experience in college. This was particularly true for young women. There might be a course leading to a career with the cleanest, most attractive technology imaginable—for example, providing the electronic back-up for pop groups, which should lighten up the heart of every youngster—but one would see engaging in those activities exactly the same proportions of men to women and boys to girls as we had in our traditional pattern in the world of work. We have to move away from that.
Apprenticeships, particularly those in small companies relating to the operations that we are defining in the Bill as worthy of support, potentially provide opportunities to break the mould of some dated employment practices. The Minister will tell me that this is a limited Bill and that the gains that will come from it are necessarily limited when viewed against the broader perspective of the Government’s policies. I recognise that all too clearly but the Bill nevertheless seeks to help a particular sector of small businesses. We should surely try to link that to the importance of developing apprenticeships in our society and, accordingly, I beg to move.
Lord Sassoon
My Lords, apprenticeships are certainly important to this Government. Since the noble Lord, Lord Davies, has talked about them at some length, as he may know, it was National Apprenticeship Week three weeks ago. I met electronic engineering apprentices working on the rebuilding of Blackfriars station and its railway bridge. It was enormously encouraging to see the enthusiasm of those apprentices, who fully understood how their apprenticeships could be the start of a very worthwhile and remunerative career path and that they had a very supportive employer—a much bigger employer than in the scheme we are discussing. However, when I asked them whether their south London schools had encouraged them down this path, it was depressing to be told that there had been absolutely no mention of apprenticeships as a route to go down on the part of those schools. Therefore, I can see that there is work to be done on fully encouraging young people to take up apprenticeships, but it will not be for lack of government money. In 2011-12, we will provide £799 million for apprenticeships in the 16 to 19 age range, which is an increase from the £780 million in 2010-11. This money will fund 230,000 apprenticeship places for that age group. Therefore, the importance of apprenticeships is absolutely not lost on me.
Apprentices and their national insurance are covered by the Bill in the same way as any other employee. On previous amendments we have talked about the number of employees that small businesses typically take on. That is a critical point. The ceiling that we have left in the Bill of 10 employees provides sufficient headroom to take on apprentices. A feature of apprentices is that there is not normally the turnover that we talked about and it is not a question of part-time work. One or two apprentices being taken on by a business should be accommodated within that headroom limit of 10. We think that is a sufficient and appropriate way to accommodate what I completely agree is a critical part of the thrust needed to rebuild the nation’s workforce with the appropriate skills base for a thriving economy in the 21st century. With that explanation, I again ask that the noble Lord follow the convention of withdrawing his amendment.
Lord Davies of Oldham
My Lords, I am grateful to the Minister for that concerted response and, of course, I withdraw the amendment.
Lord Davies of Oldham
“( ) HMRC will ensure that all staff dedicated to the administration of deductions or refunds under the terms of Part 2 of this Act are additional employees and not taken from other tasks necessary for the continuation of the other functions of HMRC.”
Lord Davies of Oldham
My Lords, I have no doubt that Amendment 16 may cause a slight flurry in the dovecotes. I hope that the Administration recognise that we are seeking to guarantee the success of the scheme by offering protection for the administrative resources devoted to it. However, I also see significant figures in the Treasury, not least the Minister himself, looking somewhat askance at the fact that we might have in public statute a definition of who should do the job of the Inland Revenue with regard to this issue.
This is a probing amendment and I do not expect the Minister to accept it on this occasion, although in due course he may be persuaded. The intention is to identify one obvious factor. We fully recognise that the public service is under considerable challenge at present, that lots of posts will be lost and that an awful lot of people are under pressure. Yet this scheme not only requires additional resources but has particular complexity built into it. There is no doubt that the Bill would be regarded as a matter-of-course administrative exercise if it covered all regions of the country and the excepted areas were brought in. We all appreciate the complexity and difficulty of the position, and the amount of resources that will be required to ensure that the scheme works. Of course we share with the Minister the ambition that this will prove to be successful. However, there are clear administrative implications. I am sure that the Minister has thought about these very seriously and will give me all the reassurances that I could possibly want.
Lord Sassoon
It is a high bar to be able to give the noble Lord, Lord Davies of Oldham, all the reassurances that he could wish for, but I will attempt to give him some reassurance. The way in which HMRC is going about administering the holiday is that it has devised new processes for dealing with the holiday alongside the other day-to-day tasks in its casework. Additional steps have been incorporated already in its day-to-day caseworking, so it has not been necessary to employ new staff. The training has already been done. It shows how HMRC is able to adopt a flexible approach to allocating its resources as and when schemes in tax and national insurance change. HMRC staff have been engaged in this work since September. It would not be possible to use new employees, if that was being suggested. I understand the probing nature of this discussion but using new employees would not technically work as staff are already trained and running the scheme alongside their other responsibilities without the need to employ additional staff.
I hope that the noble Lord has the reassurances he seeks, such that he might be minded to withdraw Amendment 16, as I think he said that he would.
Lord Davies of Oldham
I am grateful to the noble Lord. I feel somewhat encouraged. I did not have the slightest doubt that the issue was expressed entirely in his own words and was not drafted for him by a senior official. If that had not been the case, I would have had a few doubts. I am very grateful for the response that he gave. I beg leave to withdraw the amendment.
Lord Davies of Oldham
“Consideration of extension or modification of scheme
( ) The Treasury shall, by a date no later than six months after Royal Assent, and then again after a further 12 months, review the operation of the regional holiday scheme under Part 2 of this Act to assess if it should be reapplied to different areas of the country.
( ) If a recommendation is made to extend or modify the application of the scheme, the Secretary of State shall bring about such changes by order, to be subject to the approval of both House of Parliament.”
Lord Davies of Oldham
In moving Amendment 17, I shall speak also to Amendment 18. They clearly have the same thinking behind them; namely, the scheme’s advisability in circumstances where we recognise the challenge that the Bill presents. The noble Lord was good enough to indicate a moment ago the administrative arrangements that have been put in place regarding the Bill. It needs to succeed and we need to be able to identify its success. As we have indicated, we have real reservations about certain parts of the operation, particularly the concept of the exempted regions.
Therefore, we want a full evaluation of the virtues of the scheme. Amendment 17 proposes that we should get an early report from the Treasury on its operation and Amendment 18, which is linked in the discussion, proposes that there should be a full report on the impact of the scheme. The measure has its exempted regions, but it has a highly specific and particular approach to an important issue, which is bound to affect particular areas. As the exemptions have been made on a clear identification of where the economic need is for this stimulus—that is why the stimulus is partial rather than national—it is only right that we are in a position to evaluate whether that strategy proves to be successful. Amendment 18 seeks a report that will give us the fullest evaluation of a scheme that has its controversial elements as well as carrying a principle to which the Opposition also subscribe. I beg to move.
Lord Sassoon
My Lords, we certainly agree that generally tax policy-making and the effects of tax measures should be more transparent. It is for that reason and because of the commitments given in another place, which I shall run through in a moment, that we do not believe that Amendment 17 is necessary. However, we completely share the commitment to transparency. Therefore, it may be helpful to the Committee if I echo the undertaking given by my honourable friend the Exchequer Secretary in another place to provide Parliament and the public with updates after the end of the tax year on the operation of the scheme, including information at regional level, although the precise requirements set out in the amendment could raise legal issues, for example on confidentiality of taxpayer data.
The factual report that we envisage would cover, regionally and nationally, the number of new businesses applying, the number of applications rejected, the number of qualifying employees for whom a holiday has been claimed and the amount claimed. The main difference between the commitment that the Government have made and this amendment is that the latter would require a constituency level breakdown even though the scheme is regional in England and will not cover every English constituency.
I remind the Committee that during proceedings in Committee in another place, amendments put forward with the aim of altering the holiday to a constituency basis were discussed at some length. My honourable friend the Exchequer Secretary said then that the Government do not believe that a constituency-based scheme is either appropriate or feasible. Since we have a regional scheme including the whole of Wales, Scotland and Northern Ireland, it does not seem logical to provide a constituency level breakdown even if it was possible to do so. A regional scheme and a regional analysis at the end of each tax year will be available for scrutiny. Therefore, we do not think that it is necessary to enshrine that in an amendment to the Bill. I refer to Amendment 18—I said Amendment 17 at one point, and will come to that in a moment.
A technical point in the amendment refers to a budget for the scheme. For the avoidance of doubt, businesses can be confident that there is no budgetary constraint. The holiday will continue as proposed, regardless of the number of applicants. The expected costs of the scheme were set out in the policy-costing documentation at the time of the Budget last year.
Amendment 17 is aimed at providing flexibility to modify the holiday. As I have explained, the Government want to target available resources on the regions most dependent on public sector employment. We want to do so in the way that we have discussed at length with regard to the qualifying businesses, the numbers of employees and so on. However, introducing flexibility to change the details of the scheme, as proposed in the amendment, would increase uncertainty for those who might potentially benefit and would risk inhibiting decision-making for those who need to know with some certainty what the holiday permits. I hope that I have provided considerable reassurance on the questions of transparency and of the ability of the House to scrutinise the way that the scheme will operate in practice, and that noble Lords will withdraw their amendment.
Lord Davies of Oldham
I am grateful to the Minister; half a loaf is better than none. The extent to which he defined how far he was able to go in response to the amendment was some consolation. I appreciate his remarks. I am well aware of the fact that no one in Committee is particularly concerned about constituencies. I am also well aware that the issue was raised in the other place, where concerns were extensive. The Minister will forgive me for seeking to identify that this might be the basis for a degree of transparency that would be welcomed by all those who are directly answerable to the electorate. I am grateful for his response and beg leave to withdraw the amendment.
Egypt: Mubarak Family Assets
Lord Davies of Oldham Excerpts(13 years, 9 months ago)
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Lord Sassoon
I am grateful to my noble friend. I have explained two parts of the construct: the EU angle and the Proceeds of Crime Act. Of course, it is highly relevant that banks are obliged under their normal reporting rules to file relevant reports if they see any suspicious activities. That relates particularly to any engagement and due diligence that is necessary in relation to politically exposed persons. This is a good opportunity, prompted by my noble friend, to remind the banks of their obligations under those ongoing rules, which I know the banks take extremely seriously.
Lord Davies of Oldham
My Lords, the House will have gained a great deal of reassurance from the Minister’s replies, particularly his first one, on this important topic. We all appreciate that additional requests could come in as the situation in Egypt evolves. Is the noble Lord able to give the House the full reassurance that the Government will be able to meet any request that should come in, given the degree of information that we have under the money laundering legislation?
Lord Sassoon
My Lords, I am grateful to the noble Lord for recognising that the Government are actively on the case. Of course, in relation to requests that come in, it is then up to the appropriate investigating authorities to do whatever is necessary to gather the evidence. Our agencies are well able to do this, although we should recognise that there are always enormous challenges in these cases in tracing assets if that is what is required.
Investment Bank Special Administration Regulations 2011
Lord Davies of Oldham Excerpts(13 years, 9 months ago)
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Baroness Maddock
My Lords, I strongly support many of the things that the noble Lord, Lord Myners, said in support of these orders, particularly the measures that allow for clients’ assets to be recovered more readily. I have three questions.
Not only will administrators be able to prioritise the three objectives outlined in the instrument as they see fit, but they will also be able to continue to administer their organisations with a guarantee that suppliers must provide their services for up to a period of 28 days without pay. Have the Government fully identified the potential costs to suppliers who have to continue to provide their services for this period?
Secondly, I understand that the regulations allow suppliers to gain a court order to exempt them from this duty if they can prove hardship. Again, can the Government expand a little on the definition of hardship?
Lastly, on the bar date by which time claims for assets must be made, will the Government consider setting out what they think might be a reasonable amount of time to allow for claimants to properly state their case?
Having posed those questions, in summary I support these regulations and hope that the Government will give proper attention to the suppliers who must provide their services without pay and, of course, those clients who seek to recover their assets.
Lord Davies of Oldham
My Lords, I bring some comfort to the Minister, as he has already had a plethora of questions, which I know he will dutifully answer in his wind-up. I have a few questions of my own but I begin by saying that we welcome these regulations, which bring investment banks within the terms of the special administration or wind-up rules for banks contained in the Banking Act, which otherwise apply only to deposit-taking banks. As my noble friend Lord Myners reminded the House, this goes back to the Banking Act 2009 on which he led for the Government—I was pleased to give him some minimal support at the time and enjoyed that experience—but there was always going to be considerable secondary legislation attendant upon that Act. The regulations are part of that process, and we welcome them and commend them to the House, as the Minister will do in his final speech.
I also want to reassure the Minister that I do not think I will go far down the line on which my noble friend Lord Myners managed to stir up the attendant House—the issue of bankers’ bonuses. There will be a time for debates on that and he will know that we are all watching the work of the independent commission on banking and awaiting its outcome. He will also know that the country expects the industry to be responsive to the obvious fact that mistakes were made and calamities visited both on this country and on the wider world economy because of the significance of the banks. In particular, he will know that their return to the bonuses concept affects our nation adversely in circumstances in which so many people are hard pressed for resources. That applies especially to the banks in which the taxpayer has a substantial stake. The Government must respond to this fundamental question: how is it that, when the rest of the country is suffering such privation, people can pay themselves such enormous sums in bonuses and do so on the basis of a taxpayer bailout? However, that is a debate for another day.
As I indicated to the Minister, I shall concentrate on one or two detailed questions. I want to ask about Regulation 6(1)(b), under which there can be an application for special administration if that is deemed “fair”. Fair by whom? Presumably, the decision is made by the Financial Services Authority or the Secretary of State, but who defines what is fair? This seems a very loose term, in what are otherwise tightly drawn regulations, so I ask the Minister to comment on that point.
Secondly, an important element in reducing the vulnerability of investment banks is to require them to hold more capital and, especially, to limit their leverage. Can the Minister outline what steps are being taken to implement either of those measures?
In what ways is this legislation future-proof? Which agency will be responsible once the FSA is wound up? There is an important element of client protection in these regulations, which my noble friend Lord Myners referred to. Who is actually going to ensure that there is consumer protection? Investment banks deal predominantly in wholesale markets, so it might be thought that the Bank of England was relevant. It is clear, however, that once the FSA goes we need to know who is going to take responsibility regarding consumers in both areas.
National Insurance Contributions Bill
Lord Davies of Oldham Excerpts(13 years, 9 months ago)
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Lord Davies of Oldham
My Lords, this has been a most interesting debate. As the House will recognise, the Opposition’s case has largely been presented in the excellent speech of my noble friend Lord McKenzie of Luton. However, it is my interesting task to sum up some of the major questions that the Government need to respond to in this debate. I appreciate that the Minister still has the Committee stage to go through and that many of these questions will receive more deliberation during that stage. However, several questions were raised today which—in fairness to the excellence of this debate—he ought to answer.
I will answer one question for him, if he likes. The noble Lord, Lord Bilimoria, wondered why national insurance contributions were the great hidden tax. Where was the noble Lord in the general election? He might recall that the general election was substantially fought on issues such as national insurance contributions—in fact the Labour Party was berated by the Conservative Party because we intended to increase NICs. Subsequently, the Conservative Party, as the coalition Government, came to agree with this position, which is why we have clearly indicated that we have no intention of objecting in principle to the Bill.
We also note that what the Conservative Party did not mention in the general election, but which the coalition Government have brought into operation, is a VAT increase. My noble friend Lord Myners has reinforced the point that this will have three times the impact on jobs—it will cost 250,000 jobs—that the NIC position will create.
The real issue of contention here is the concept of how this holiday will be implemented. First, the very fact that it will not be general will increase the administrative costs and complexity. It means that there will be more of a paperchase and that more people will need to be employed in Her Majesty’s Revenue and Customs. So there are costs involved. Secondly, what are these broad categories of exclusions? Speaking from the coalition position, the noble Lord, Lord Newby, said that the London labour market is somewhat different, and that help for the regions which might be appropriate elsewhere might therefore not be appropriate for London. But he did not mention the eastern region, did he? It is losing its RDA, too, and it is subject to this exemption. Why did he not address himself to that matter? He said that the London situation is different, and it is.
One of the problems with the London situation is that far too many Members of Parliament arrive in London either at our great railway stations and are conveyed through the West End to Westminster; or they come down the great roads from Tatton, through north London and Hampstead and into Westminster; or they come from Oxfordshire on the great roads through the west of London—Kensington and Chelsea perhaps—into Westminster. They are therefore utterly oblivious of the fact that London includes eight of the most deprived areas in the country. Several of them are east London boroughs. Tower Hamlets and Hackney—to take but two—are second and third in terms of levels of deprivation.
We therefore need to take seriously the representation from Thames Gateway. Of course its area covers more than these London boroughs, but these London boroughs are part of that developmental scheme. They are suffering with rates of unemployment that match anywhere in the United Kingdom. So what is the justification for excluding these authorities and London from the provision?
The noble Lord will also recognise that my noble friend Lord McKenzie asked two quite specific questions which are general enough and relevant enough to this debate. They will certainly be pursued in due course. They are important to the structure of the debate, and the Minister ought to reply to them. My noble friend wanted to know, first, whether the increases proposed in the Bill will be greater by some £1.4 billion than the savings that employers will obtain from increases in the secondary threshold. It will not do to argue that the measures should be seen in the context of the broader taxation structure. The issue is what the Bill will do concerning demands on resources.
The second question concerned the part of the national insurance contribution that is hypothecated for the NHS. Will we get some insight here? The fact that the Bill reduces that by some 50 per cent has serious implications both for the Government’s promise that the National Health Service will be fully funded and in terms of the enormous demand on resources that that represents. Reducing the hypothecated amount is a loss of resource available to the health service. It is not a gain. So I think that the Minister ought to reply to that point as well.
This has been a most interesting debate, and I think that noble Lords have been restrained. Although he indicated that he sympathised with those who want a general debate on the economy, even my noble friend Lord Myners ensured that his contribution remained entirely relevant to the measure, at the same time as posing to the Minister some very real anxieties about the course that government policy is following. However, this is not a general economic debate. This is a debate about a particular Bill that the Government are putting before the House. We in this House never object to Second Readings, and we find the basic principle behind the Bill unexceptionable, but that does not mean that we do not have a number of questions and issues that we want to discuss in Committee.
Lord Sassoon
My Lords, we are talking about the estimates here of the effect of the national insurance holiday. They have been put through the OBR’s estimable machinery in the normal way that the OBR does. As to the basis for the figure of 800,000 jobs, the detail of how that estimate was made and the data sources used were set out in the policy costings document published alongside the June Budget. I believe that the basis on which it was done was entirely transparent.
There was also a question whether the £940 million might be an overestimate of the benefit. It is a number that represents money that these new employers would otherwise have paid, so it genuinely reduces their labour costs and benefits them by that amount.
Lastly, I address the question about monitoring the holiday. My noble friend Lord Newby and the noble Lord, Lord McKenzie, asked about this, and the noble Lord, Lord Myners, may have touched on it. There will be monitoring and updates will be published after the end of the tax year on the operation of the scheme, including information at regional level. The Government envisage that the report will cover, from a regional and national perspective, the number of businesses applying and applications rejected, as well as the number of employees for whom a benefit is received and the amount claimed. This report will require information supplied by employers following the end of the tax year, and the first report will be published when the necessary information has been received, processed and checked to ensure that there is appropriate quality assurance. The Government aim to have these collated data and provisional findings published as soon as they become available, so it will be a comprehensive report on how the scheme is going.
Lord Davies of Oldham
Of course, the House will be reassured by the points that the Minister has just made, but does he have any comment to make on the question asked about the up-to-date position? The scheme has been running for a while now and there must, therefore, be some analysis of progress.
Lord Sassoon
My Lords, I really think that it is too early yet to have reliable data of the sort that I have indicated, which will come in at the end of the year, to make any judgments about the success of the scheme. As I have explained, we will publish comprehensive regional and national data on the scheme. It would cause there to be a disproportionate burden on the employers and the scheme if we asked them to report with greater frequency. The Government will study the data when they come in to make sure that we understand fully the impact of the scheme.
Inflation
Lord Davies of Oldham Excerpts(13 years, 10 months ago)
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Lord Sassoon
My Lords, I know that it is customary for me to answer the questions and for noble Lords to ask them but five letters were written by the Governor of the Bank of England to the previous Government and I do not recall the previous Government having done anything about them in response. It is quite right that the Governor of the Bank of England explains the situation, but the previous Government put in place and supported the framework that exists, exactly as we are doing, and it is an important part of that framework that the governor writes letters.
Lord Davies of Oldham
My Lords, the Minister will surely recognise that the Government take responsibility for the VAT rise and also take responsibility for the fact that the general inflation rate impacts with particular savagery, through government policies and cuts, on the poor and less well off in our society. In present circumstances, when our citizens are suffering and the growth rate is 2 per cent or below, surely the Government should express more than a little anxiety about the possibility of a rise in interest rates.
Lord Sassoon
My Lords, I could not agree more with the starting premise of the noble Lord, Lord Davies of Oldham. The Government are concerned about the hard-pressed, hard-saving, hard-working low earners in this country. That is why, in April this year, 880,000 people will be taken out of taxation altogether. That is also why 23 million taxpayers will each receive back £170 compared with the plans of the previous Government. That is an absolute recognition of the fact that the Government understand how low-income families are suffering and are doing something about it.
Financial Services: Shareholder Engagement
Lord Davies of Oldham Excerpts(13 years, 10 months ago)
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Lord Sassoon
I am grateful to my noble friend for reminding us of the importance of audit, particularly in relation to banks. It enables me to remind us all that the Economic Affairs Committee of your Lordships’ House will, I hope, play an important part in the broader ongoing debate about stewardship when it comes up with its current report into the role of auditors.
Lord Davies of Oldham
When thousands of our fellow citizens are losing their jobs and millions are subject to a pay freeze and the bosses of industry are rewarding themselves very high increases indeed, is it not time that institutional and all shareholders had votes on the remuneration of executives and that the votes should be binding?
Lord Sassoon
My Lords, these are important issues and they are precisely why my right honourable friend the Business Secretary has a current consultation out to look at the question of shareholder engagement in relation to the effective running of the capital markets.
Deficit Reduction
Lord Davies of Oldham Excerpts(13 years, 10 months ago)
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Lord Davies of Oldham
My Lords, the Minister has made clear that he expects to reap the rewards from Labour’s investment and make profits in due course. Will he be a little clearer to the House about the banks? Will the Government introduce criteria on the effectiveness of banks in lending, for example, and even, perhaps, control of bank bonuses?
Lord Sassoon
Well, my Lords, it has come to a pretty pass when the noble Lord characterises the investment in the banks as some sort of voluntary investment to make a return. It was necessary to bail out and save the British economy because the previous model of financial regulation had completely failed. Under the stewardship of the new Government, we will do our best to get back the investment, and hopefully more, that was necessarily put in by the previous Government. That is what we are doing.
Loans to Ireland Bill
Lord Davies of Oldham Excerpts(13 years, 11 months ago)
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Lord Davies of Oldham
My Lords, I suppose that, as it is almost the last day before the Christmas Recess, it is right that the Minister should have a good day. He got the Consolidated Fund Bill through the House in four minutes and here he has another Bill that has produced consensual responses from all parts of the House. Indeed, Her Majesty’s Opposition support the measure that the Minister has introduced, which means that he can bask in the general approval of the House for doing so.
However, the Minister would not expect to sit through an hour and a half’s debate without having to reply to a few questions. He would not expect an entirely straightforward ride. I am glad that tonight’s debate has ranged so widely and that we have heard so many expert and considered opinions. The Minister will have a tough job in responding to it. The debate has put the Bill and the Irish loan into context, and for that we should be grateful.
Indeed, I was grateful to the noble Lord, Lord Bew, who put our relationship with Ireland into an historic context. Other noble Lords, including my noble friend Lord McFall, emphasised the ties between the United Kingdom and Ireland. It is right that we should come to the aid of a nation in great need with which we have close ties and, as the Minister said in his opening remarks, that is also in the British national self-interest. It is important that we put a stop to the catastrophic developments that have set the world back during the past two to three years. Unless those are tackled in a forthright and effective fashion, they will adversely affect our own people in the years to come.
I am grateful to my noble friend Lord Liddle for emphasising that there are no easy solutions to the situation—and certainly not for Ireland. We see the price that has to be paid for the loan. It is also important to recognise that, given the degree of interconnectedness of our economies, the British response to the situation needs to be one of concern for our neighbours. We have already heard of the significant role that the Irish economy plays in relation to the British economy, but, in terms of a wider Europe, we recognise that without growth in Europe there is no possibility of the British economy developing on an export-led basis out of the present position and into a degree of prosperity and security. We should recognise just how much this Government have invested in such a strategy and that, without growth in Europe, there is no possibility of the British people being able to enjoy the fruits of the sacrifices that we can see are being made on all sides following the Government’s fiscal tightening, of which we have seen only the first stages.
The Minister must also respond to the wider debate reflected in the points made by my noble friend Lord Liddle and, from a different perspective, by my noble friend Lord Davies of Stamford. As regards the different issues that the noble Lord, Lord Tugendhat, mentioned, we recognise that there was a sophisticated debate about the nature in which Britain should relate to Europe—two somewhat different perspectives about future possibilities. I must say that Her Majesty’s Opposition are more in favour of the analysis put forward by the noble Lord, Lord Tugendhat—namely, that of course Britain must be close to Europe and integrate with Europe in crucial economic decisions. That is bound to be the case as a result of the sheer size of the British economy in relation to the European position and the levels of trade that we carry on. However, there is a strong case for a degree of independence that gives us a position in relation to Europe and also enables us to pursue our own strategies.
The noble Lord, Lord Pearson of Rannoch, takes that point to the outer extreme by calling for withdrawal from the EU. We are all familiar with the onslaught on the European Community that he has presented tonight with his usual fervour. It is as though he does not recognise that the American economy, which is bigger than Europe’s, has been in colossal trouble over the past couple of years. It is as though only Europe is being faced by these challenges. Of course, that is not so. Another big, major continental economy—the United States—has been suffering the most acute strains. One does not have to go anywhere near Detroit or any of the other major cities—
Lord Pearson of Rannoch
My Lords, the noble Lord makes an interesting point. However, can he tell us who bailed out the United States?
Lord Davies of Oldham
Well, who has bailed out Europe? We are talking about an economy in Europe that is receiving some assistance—that is the Irish economy. I hope that the noble Lord, Lord Pearson, is not forecasting that it will not be long before the British are bailing out the German economy, or anything as ridiculous as that.
Given that many great economies have suffered serious difficulties in the past few years, we should recognise that this Irish crisis is reflective of a global crisis. The problem means that we have to have solutions wider than the national perspective. It also means that the solution proposed for Ireland is not in fact a solution but a bailout. The bailout creates time for the Irish economy and prevents it from descending into the abyss that it had faced. However, let us not pretend that the package is a solution to the needs of the Irish economy and the Irish people or that we will see health in European economies without more obvious programmes and developments on a more extensive scale than we have seen thus far.
I hope that the Minister will recognise that, in the early days of the crisis when Lehman Brothers was in collapse and when the British banks were under tremendous pressure, the previous Administration adopted a global process in response. The then Prime Minister, Gordon Brown, was concerned to obtain a degree of consensus that would enable the world economies to come to each other’s aid and to present a development that gave some security about growth. We are still looking for that. The Bill is important to one beleaguered economy in Europe but—as the strength of the debate on all sides has shown—it has to be put in the context that we need wider solutions to the issues than bailouts. We are faced with a global crisis.
It is also quite clear that, despite the myth which the Opposition seeks to perpetrate about the British economy, the crisis was not caused by government overspending but by the banks, which had got their structures and investment wrong. That is a common feature across all the significant world economies, and that needs to be recognised.
The Irish are of course to be involved in some degree of austerity, as are the British people under this Government’s perspective—excessive austerity in the view of Her Majesty’s Opposition in comparison to what is needed. The Government have set a limited time in which fiscal balance has to be achieved, but it must surely be recognised that austerity alone is not the answer. After all, the Irish have been through several years of austerity and for 17 continuous months their economy showed negative growth, but they have not been able to avoid the need for a bailout despite the fact that they have been subjected to exactly the fiscal solutions that this Government suggest are the answer for this economy.
I have one or two key questions for the Minister, who I know will enjoy himself before Christmas only if there is sufficient challenge in the debate. He has already been blessed by the consensual approach, on which the whole House is to be congratulated, but I should like to ask him one or two questions. First, is he aware that the size of the UK’s contribution to the rescue package will, over the spending review period, more than outweigh the debt interest savings of which the Chancellor made such play in the spending review Statement? On the basis of the Chancellor’s approach, we are loaning that which we have saved. Secondly, why are we able to find billions for Ireland but could not afford £90 million of strategic investment for Sheffield Forgemasters and the role that it could play in the future of our economy? Thirdly, when will the Government accept the obvious point that, unless we have an approach to the broader issues faced by Europe, we will not get the growth necessary because the markets will not be there to purchase the goods that we hope to produce?
Finally, does not the crisis in Ireland remind us all that the economic crisis was global and that the Government, with their full responsibility for the economy and the welfare of the British people, must recognise that the solutions lie only within a global framework and not in one pursued alone?
Individual Savings Accounts
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Lord Sassoon
My Lords, without wishing at all to cast aspersions on the quality of AIM companies, it is nevertheless the fact that you can come to the AIM market without a trading record and with no minimum number of shares in public hands. Also, the UK Listing Authority does not usually vet the prospectus of AIM-listed companies and there is no minimum capitalisation requirement. Therefore, there are different requirements and obligations on AIM companies from those that apply to listed companies.
Lord Davies of Oldham
My Lords, will the Minister recognise that, with his reply, he has disappointed a wide range of opinion in the House, including— to complete the position—Her Majesty’s Official Opposition? He will know that earlier this year we were looking positively towards this issue. We would have thought that the present Government would adopt something more than just a straightforward negative stance on a situation where it is quite clear that, with SIPPs being able to invest in these companies, there is a good case that ISA investors should be able to as well.
Lord Sassoon
I did not want to be controversial in the week running up to the holidays. I pointed out that ISAs were introduced by the last Government and that they have been a successful channel for savings. I gently point out, however, that the last Government had from 1999 to May 2010 if they had wanted to make AIM shares eligible for ISAs, but they chose—rightly, I think—not to do so. We have not taken a decade to mull over this, but we have thought about it carefully in the last few months.
Bankruptcy
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Lord Sassoon
I completely agree with my noble friend. That is indeed it. I was looking at the Oxford English Dictionary this morning and I saw that one definition of “bankrupt” is,
“one who has brought himself into debt by reckless expenditure or riotous living”.
I would not presume to accuse the previous Government of riotous living.
Lord Davies of Oldham
My Lords, the successive attempts by the noble Lord to define bankruptcy have looked quite pathetic.
Lord Davies of Oldham
Well, his latest definition would indicate that every mortgage holder in Britain was bankrupt because they have substantial debts. The issue is whether these debts can be managed. He must draw a distinction between the situation of Ireland at the present time, or of Greece in recent times, and that of the United Kingdom, where, as has been indicated, our debt repayment is over a 14-year period.
Lord Sassoon
My Lords, leaving aside the fact that the mortgage payers of this country would be somewhat upset to be thought of as having brought it upon themselves by reckless expenditure, the point is, as the IMF succinctly put it in its report of 27 September 2010:
“The consolidation plan and implementation of early measures to tackle the deficit—one of the highest in the world in 2010—greatly reduces the risk of a costly loss of confidence in fiscal sustainability and will help rebalance the economy”.
That was what the IMF had to say.