Finance (No. 2) Bill

Debate between Lord Davies of Oldham and Lord Newby

Thursday 26th March 2015 Lords Chamber

[Lord Newby]

As my noble friend said, a nice try. The big theme of several speakers related to productivity, and I will deal with that as best I can. I should like again to correct the noble Lord, Lord Haskel, about GDP per capita. This year, 2015, it will in fact be 5% higher than it was in 2010, so it is simply not the case that while GDP overall has risen, GDP per capita has fallen.

There is, I think, widespread acceptance that we need to increase productivity. As the noble Lord, Lord Haskel, is aware, there has been a productivity gap between this country and some of our competitors in Europe and the States for a long time. It fell and has risen slightly again. There is an interesting argument to be had about whether, particularly in times of austerity, it is better to have rapid employment growth, even if productivity does not increase as quickly, than to have higher unemployment and higher productivity. Personally, I think that over the last five years the fact that there has been rapid employment growth has been of crucial importance. We are now beginning to see some increase in productivity, and I obviously share his view that we wish this to accelerate.

I should like, though, to tackle head-on the assertion of the noble Lord, Lord Haskel, that the Government have no view or strategy on improving productivity. How do we do it? One of the key points is that we have to improve the qualification and skill levels of the workforce. Everybody agrees on that. We accept that there are far too many people who have far too few skills. That is why, for example, we have accelerated the academies programme to improve teaching in schools.

[Lord Davies of Oldham]

Does the noble Lord recall the figures of the projected cuts in the further education budget for the trainers of a great number of these people without skills?

[Lord Newby]

Given the policy of the noble Lord’s party on further education, and given that if you talk to anybody in a university about their absolute fears about what will happen if a Labour Government comes in, with their policies to cut grants, and their views on what that does to university funding, I would have thought that the best thing for the Labour Party to do for the future of universities is to pursue a policy of as much silence as it can manage. In this Parliament we have seen record numbers of young people going to university, including record numbers of girls and of young people from poorer backgrounds. That is exactly the sort of change and development that I thought the Labour Party supported. We have recognised that there is a need to improve skills below university level. As I was saying, we have supported the creation of university technology colleges and overseen the increase in the number of apprentices to 2 million, which is vastly more than obtained during the previous Government.

The noble Lord, Lord Soley, quite rightly talked about the absolute importance of science and technology and the transfer of basic research into business success. We have maintained resource funding and increased capital for science in real terms during the lifetime of this Parliament. Over the period ahead, we are planning some £5.9 billion of investment in the science infrastructure. On how we get that science applied, we have consistently put money into the catapults, the purpose of which is to act as a bridge between universities and firms. These have been extremely successful: the high-end engineering ones have been very successful. I saw the National Composites Centre in Bristol, which is doing tremendous work. It is possible to do that work only because it is a partnership between government, the universities and business. This concept began under the last Government, but we have strongly supported it. We need to do more, first, because it is successful and, secondly, because all our competitors are doing something like it.

Furthermore, in science we have initiated a grand challenge fund, which will deliver some £400 million of funding on a competitive basis for new, world-leading scientific infrastructure. Within the overall area of science and technology, we have put a £100 million investment, for example, into the research and development of intelligent mobility, which is one of the leading potential growth areas on which this country wishes to be, and remain, in the lead.

The noble Lord, Lord Desai, reminded us that the Labour Party legislated to halve the deficit over a four-year period, which is almost precisely what has happened under this Government. On his radical plans for changing the basis of corporate taxes and taxation more generally, this Government increased indirect taxation on consumption by increasing VAT and they have reduced taxation on income by putting up the personal allowance. Clearly that process, at least as far as indirect taxation is concerned, will not be pursued by any party in the next Government, as we heard yesterday.

On the noble Lord’s more radical ideas on taxing consumption, I am not a tax radical, I am afraid, partly because I started my working life as a tax man. I think that grand taxation schemes often have a whole raft of unanticipated consequences. Of course, those who suffer from any tax change make about 100 times as much noise as those who benefit, so politically I wish the noble Lord luck with the sort of grand scheme that he has in mind, but I hope that I am never called upon to try to do something equally ambitious.

The noble Lord, Lord Soley, made a number of interesting and useful points. I am pleased that he welcomed the changes to gift aid, and I wish him well in finishing the funding for the Mary Seacole statue. Having been in charge of fundraising for the Lloyd George statue in Parliament Square, I know just how stressful the process is, and I hope very much that it is quickly brought to a successful conclusion.

I will pass back to my colleagues in the Treasury and the Department for Transport the point that the noble Lord made about subsidising the establishment of charging points for electric vehicles. I have considerable sympathy with what he said about the power of attorney. I have power of attorney for my mother, and trying to work out how to exercise it is really quite difficult. Having gone through the whole process, I found that it was remarkably anachronistic. As we are moving into a period where power of attorney will be required by more and more families, there is an argument for looking a bit more fundamentally at the whole thing and not just at the way in which it can be used once it has been granted.

Economy: Public Finances

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 24th March 2015 Lords Chamber

[Lord Newby]

My Lords, I thank the noble Lord for his optimism about my future career prospects. I agree with what he says about savings in particular. That is why the Chancellor announced at the Budget a new personal savings allowance of up to £1,000 for basic rate taxpayers, more flexibility in the operation of ISAs and a new Help to Buy ISA for first-time homebuyers.

[Lord Davies of Oldham (Lab)]

My Lords, is the Minister aware that Labour has today made a clear pledge to the British people that in government we will not raise the rate of VAT nor extend its coverage? Will the Minister, close as he is to the Chancellor, give a similar pledge to my party; or will the coalition parties follow the pattern of 2010, with the Liberals warning of a VAT tax bombshell and the Tories staying silent—and, in the weeks after, in coalition, increasing VAT from 17.5% to 20%?

Income Tax: Top Rate

Debate between Lord Davies of Oldham and Lord Newby

Monday 16th March 2015 Lords Chamber

[Lord Newby]

No, my Lords, it does not. HRMC estimates that if you reduce the top tax rate from 45% to 40%, the likely cost to the Exchequer will be about £1 billion.

[Lord Davies of Oldham (Lab)]

My Lords, does the Minister not acknowledge that in fact the very wealthy have various stratagems for reducing the impact of taxation? That is why, whatever the Government do, it does not produce the resources that the nation needs. Why does the Conservative Party not drop the idea that supporting the wealthy will somehow lead to a trickle-down advantage for the rest of the community, when the disparity between the wealthy and the poorest in our society is growing wider, and why do they not address themselves to the real issue, which is that the vast majority of people in this country are poorer under this coalition?

[Lord Newby]

My Lords, I do not know which bits of that question to deal with first. However, given the time, I just point out to the noble Lord that the group of the population whose income, by percentage and absolute amount, has suffered most and which has lost the most is the top 20%. They have seen a 3% cut in their income, which is a greater cut than has been experienced by any other tranche. The noble Lord does not like it because it is an inconvenient truth, but it does not stop it being a truth.

Entrepreneurs’ Relief

Debate between Lord Davies of Oldham and Lord Newby

Thursday 26th February 2015 Lords Chamber

[Lord Newby]

My Lords, it is far beyond my powers to cool the fevered brows opposite, but I repeat: we have been extremely successful in terms of private sector employment. Over 2 million additional private sector jobs have been created in this Parliament, which means that we now have more people employed in the UK than ever before, and the joint-highest rate of employment.

[Lord Davies of Oldham (Lab)]

My Lords, does the long-term economic plan, developed against a background where the Government have postponed the ability to eliminate the deficit, have as a constituent part no decision on the fundamental issue of aviation in terms of Heathrow or the third runway in the south-east? Does it also contain a commitment to continually run a low-wage economy and zero-hour contracts for an awful lot of the people who get new jobs?

[Lord Newby]

My Lords, growth in the UK this year is the highest in the G7. It will be, at worst, the second highest in the next year. Frankly, this is an economic position of which this Government are extremely proud.

Small Businesses: Finance

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 25th February 2015 Lords Chamber

[Lord Newby]

My Lords, the Government have been supportive of the peer-to-peer and crowdfunding lending sectors and have removed barriers to ordinary people making investments while limiting their exposure to risk. So far this support has included allowing peer-to-peer lending to be included in ISAs and to be eligible for bad debt relief, channelling investment from the British Business Bank towards peer-to-peer, and helping investment crowdfunding take off through the enterprise investment scheme.

[Lord Davies of Oldham (Lab)]

The Minister’s initial Answer suggests that he is utterly oblivious to the fact that we have a productivity crisis in this country, a massive balance of payments issue, and that small businesses are constantly emphasising that their access to finance is very limited and difficult for them. Does the Minister not agree that Labour’s commitment to a British investment bank is the next Government’s solution to this Government’s failure?

[Lord Newby]

The noble Lord will be amazed to discover that I do not agree with him at all. He has failed to point out that since this Government came into office private sector employment is up by well over 2 million and the majority of that is likely to be in small and medium-sized businesses.

Banking System

Debate between Lord Davies of Oldham and Lord Newby

Monday 9th February 2015 Lords Chamber

[Lord Newby]

No, I do not. As for the first part of the noble Lord’s question, the agreement with Switzerland, which he seems to deride, has generated £1.2 billion for the Exchequer. That is £1.2 billion more than was being generated under the previous Administration.

[Lord Davies of Oldham (Lab)]

My Lords, this information was available to the Government when they took office. How is it, then, that the former chairman and chief executive of HSBC during this period was made a government Minister?

[Lord Newby]

My Lords, the process by which people become Members of your Lordships’ House and are made Ministers involves them being vetted by the House of Lords Appointments Commission and the appropriate bodies within government. As far as I am aware, there is no evidence that the noble Lord, Lord Green, was involved in any of this sort of activity.

Taxation: Avoidance

Debate between Lord Davies of Oldham and Lord Newby

Monday 9th February 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I fear the House and the country are going to regard that as a fairly lame Statement in the light of the disclosures today. The Minister has not made any attempt at all to answer the questions that are being asked about past actions. We and the country want to know: why did the Prime Minister, first, appoint Stephen Green to this House when the information was already in the Government’s hands and, secondly, make him Trade Minister? Did they not address the issue of due diligence at all with regard to Mr Green’s past actions and responsibilities at HSBC, as chairman and before that as chief executive? When the information was received by the Government, why was it not acted on?

Why is it that we are now hearing from the Government that we have had one successful prosecution, but the French are talking about the very many successful prosecutions that they have carried out? Why are the Government now boasting about the fact that they have been able to persuade the French to release their information and be helpful to the British Government? That looks as if the French have set about the issue with the due seriousness and urgency that were required, and our Government have not.

Finally, despite what the Minister says about the actions being carried out, the amount of uncollected tax has risen year on year on this Government’s watch, from £31 billion in 2009-10 to £34 billion in 2012-13. When will this Government take real, meaningful action to tackle this tax gap?

[Lord Newby]

My Lords, as I explained at Questions earlier, before the noble Lord, Lord Green, was appointed to your Lordships’ House, he went through the normal rigorous vetting procedure that is undertaken by the House of Lords Appointment Commission, and the Cabinet Office went through its normal procedure. As for prosecutions, my colleague’s Statement in another place explained that HMRC received the HSBC data under very strict conditions which limited our use of them to pursuing offshore tax evasion, and prevented us from sharing the data with other law enforcement authorities. Under these restrictions, we have not been able to seek a prosecution for other potential offences such as money laundering. However, by pursuing the civil route, we have been able to recover some £135 million from people who were involved in this activity. The noble Lord is right in saying that, in monetary terms, the tax gap has increased very slightly but I think he will find that in real terms the tax gap has fallen.

Credit Unions

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 3rd February 2015 Lords Chamber

[Lord Newby]

My Lords, the Government support both those concepts. The right reverend Prelate will be aware that the Government have been working with the Archbishop of Canterbury’s task force on affordable credit and savings to institute the LifeSavers project, under which primary schools are working with credit unions to encourage young children into good savings habits and raise awareness of credit unions.

[Lord Davies of Oldham (Lab)]

My Lords, the House will have noticed just how vague the Government’s commitment is when they say that after the election—yet another commitment for “after the election”—they will introduce additional legislation. Does the Minister recognise that what the next Labour Government will do is to increase the levy on payday lenders in order to help the development of credit unions?

[Lord Newby]

My Lords, the Government have legislated several times to modernise the law in respect of credit unions. The proposals of the Labour Party are based on an assumption that payday lenders represent a large stock of cash. The way in which the payday lending industry is going suggests that there simply will not be that amount of resource available from the sector.

Wealth Inequality

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 21st January 2015 Lords Chamber

[Lord Newby]

My Lords, I make two principal points. The first is that the increased level of employment means that there are now 390,000 fewer children living in workless households, which sets a very important example in those households about their future life prospects. The other point to bear in mind is that there are now record numbers of people from disadvantaged backgrounds going to university, which, as we know, is one of the best ways of ensuring that people get a good, well paid job.

[Lord Davies of Oldham (Lab)]

My Lords, does the Minister not know the evidence which indicates that inequality in this country is increasing? The policy of looking after the rich, based on some kind of theory of a trickle-down effect, is not working. How can there be a situation, under this Administration, where the rich are getting wealthier but the average family is £1,600 a year worse off?

[Lord Newby]

My Lords, it is simply not true: income inequality has not risen under this Administration. The £1,600 figure—which was immensely dubious even when it was first used three years ago—is now completely outdated by the fact that wages are rising in real terms. The key thing in terms of prosperity and, indeed, income distribution is to increase the number of jobs, to increase the number of well paid jobs. We have increased the number of jobs and vastly increased the number of apprentices. That is the how we are going to enable people from the bottom end of the income scale to do better in the future.

National Insurance Contributions Bill

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 6th January 2015 Lords Chamber

[Lord Newby (LD)]

My Lords, in Committee, I outlined the Government’s intention to table an amendment to give effect to the important initiative regarding apprentices announced by the Chancellor of the Exchequer in his Autumn Statement on 3 December. I now move this amendment to the Bill. As noble Lords will be aware, the Chancellor announced that the Government will abolish employer class 1 national insurance contributions for apprentices under the age of 25 from April 2016. This builds on the removal of employer class 1 national insurance contributions for all under-21 year-olds from April 2015.

Amendments to Section 9 and new Section 9B of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 give effect to the Government’s intention to abolish employer class 1 NICs for apprentices under the age of 25 from April 2016 by introducing a zero rate of secondary class 1 NICs for employers of apprentices under the age of 25 on the earnings of those employees. The zero rate will apply to earnings below the upper earnings limit.

As the Chancellor made clear, apprenticeships are at the heart of the Government’s drive to equip people of all ages with the skills valued by employers. This measure is intended to support employers who provide apprenticeships to young people by removing the requirement that they pay secondary class 1 NICs on earnings up to the upper earnings limit for those employees. The measure is also intended to support youth employment. Under this Government, employment is at its highest ever level while unemployment is now lower than when they came into power. However, there is still more to do. The Government will provide a zero rate of employer’s class 1 NICs on the earnings of apprentices under the age of 25 from 6 April 2016. The measure will apply both to new and existing apprentices aged under 25 and is not time-limited.

The first main feature of the new clause is that there is a regulation-making power to define “apprentice”. There are existing statutory definitions relating to apprenticeships. For example, in England and Wales, the Apprenticeships, Skills, Children and Learning Act 2009 introduces the concept of an “apprenticeship agreement”, which is defined in part with reference to an apprentice. Because education and training is a devolved matter, and not all apprentices are employed under apprenticeship agreements, we will need to look at the approaches taken towards apprenticeships in the different devolved Administrations. The power will allow time to discuss the definition with stakeholders such as the Skills Funding Agency and its devolved equivalents. The power will also enable us to respond simply to changing statutory definitions and requirements in the future.

Secondly, there are regulation-making powers to vary the age group to which the zero rate of secondary class 1 NICs for apprentices applies. For example, the Government could in the future allow for an increase in the age bracket of apprentices falling into the zero rate band of secondary class 1 NICs. Thirdly, there is a regulation-making power to ensure that the benefit of the zero rate of secondary class 1 NICs for apprentices can be enjoyed only in respect of earnings below a certain level. In other words, the power will provide a means to introduce an upper secondary threshold for apprentices in the same way as we are doing for under-21 year-olds. This threshold will be set at the level of the upper earnings limit in the 2016-17 tax year.

The Government believe that this measure, alongside other initiatives on apprenticeships and the abolition of employer’s NICs for under-21s from April 2015, will help to address the problem of youth unemployment in the UK. I beg to move.

[Lord Davies of Oldham (Lab)]

My Lords, I begin with an expression of gratitude to the Minister. As he indicated in his speech, he was kind enough in Committee to indicate the thrust of amendments that would be tabled on Report. He duly fulfilled that promise. Therefore, when I received his letter dated 22 December—I give the House the opportunity to imagine just when I settled down to read this letter—it did not cause quite the degree of consternation that the Minister might have thought. It was not an unfortunate Christmas present but merely confirmed that the Government were in fact carrying out their intentions with regard to the Bill. Therefore, I thank him for his letter, timely as it was.

As we indicated at Second Reading and in Committee, we are supportive of the broad intent of the Bill and the form of the NICs position. We welcome the particular amendment, but nevertheless have some anxieties which I hope the Minister will assuage. What will be the level of scrutiny to ensure that this change to the NICs position in order to encourage apprenticeships does not result in a rerun in apprenticeships of some of the aspects we have seen of the Government’s obvious enormous delight in the number of self-employed people?

We are all too well aware that the increase in self-employment conceals in many respects great difficulty for people who cannot get work in any other way, so they engage in the most risky process of advancing and safeguarding their lifestyle. What reassurances can the Minister give that this extension of the reduction in national insurance contributions will not lead to unscrupulous employers using this strategy in order to reduce the taxation that ought to be paid?

The Minister must know that there are certain areas where self-employment is very significant. We should mention in particular the construction industry. All of us in the House recognise that that industry has particular patterns of labour engagement—that goes without saying. Nevertheless, we also know that evasion can be carried out with regard to taxation in this respect. The noble Lord must appreciate that the addition which this legislation presents as regards the under-25s, for example, might lead to difficulties.

The Government are passing this Bill without a clear definition of “apprenticeship”; they say that they are working on it. In due course a definition will be introduced in legislation which the Government say will meet the requirements. It is to be subject to secondary legislation at a date that is certainly some way in the future. Given that the Government are emphasising the importance of apprenticeships in this Bill, we would have hoped that the Minister would have got some way towards defining the term.

I can give him some illustrations of what a proper definition of apprenticeship might look like. It might indicate that the apprenticeship should normally last for two or three years at the least. It might indicate that apprentices should be new entrants to the area of work rather than existing employees. The fact that the Government have made no real attempt during the passage of the Bill to address these issues means that we fear that what they will do with it, if they have the chance, will reflect their present activities; namely, that a great number of apprenticeships involve merely rebranding workers who are already at a place of work and calling them apprentices without identifying what the skills acquisition and development actually involves.

--- Later in debate ---

[Lord Newby]

My Lords, as I mentioned in Grand Committee on Monday 15 December, the Government are bringing forward four minor technical amendments to Clause 2 and Schedule 1, which deal with simplifying the collection of class 2 NICs payable by the self-employed.

Amendments 2 and 3 are the Government’s response to the report of the Delegated Powers and Regulatory Reform Committee on the delegated powers contained in the Bill, which was published on 27 November. The report drew to the attention of the House the power in Clause 2 to amend primary and secondary legislation as a consequence of the reform of class 2 NICs. This power is currently subject to the negative procedure. The Delegated Powers and Regulatory Reform Committee said that in its view the justification given in HMRC’s delegated powers memorandum was not sufficient for the negative procedure to apply where the power allows for the amendment or repeal of primary legislation, and recommended that in this instance the power should be subject to the affirmative procedure. I can confirm that the Government have considered and acted on the report of the Delegated Powers Committee. Amendment 2 provides that regulations made under Clause 2 which amend or repeal primary legislation are to be subject to the affirmative procedure. Amendment 3 provides that the negative procedure will continue to apply to any use of the power set out in Clause 2 where a statutory instrument does not contain any regulations modifying primary legislation.

Amendments 4 and 5 are minor and technical amendments that the Government intend should be made to the draft legislation in the Bill that deals with simplifying the collection of class 2 NICs payable by the self-employed. Amendment 4 amends Schedule 1 to the Bill, which inserts new Section 11A into the Social Security Contributions and Benefits Act 1992. This is being made to ensure that the relevant self-assessment—SA—penalties apply to class 2 contributions collected through self-assessment by adding a missing reference to the self-assessment underdeclaration penalty contained in Schedule 24 to the Finance Act 2007. It was always the Government’s intention to align penalties for class 2 contributions more closely with those for SA as part of the reform of class 2 so that the self-employed are not subject to two different regimes, but this particular penalty was unintentionally omitted. Amendment 5 makes a corresponding amendment to the Social Security Contributions and Benefits (Northern Ireland) Act 1992. I hope that noble Lords will feel able to support these minor amendments.

[Lord Davies of Oldham]

My Lords, I have not the slightest difficulty in commenting favourably on technical Amendments 3, 4 and 5, which of course I understand the necessity for. I am glad the Government have brought them forward. Nor am I against Amendment 2—far from it, I am very much in favour of Amendment 2.

I merely draw to the attention of the House the very credible work of our colleagues in the Delegated Powers and Regulatory Reform Committee, which drew this issue to the attention of the Government in a way that gave them just sufficient time before Christmas to get their act together and indicate that they were going to table amendments on Report to give effect to the committee’s recommendation, which is to ensure that such a significant part of the legislation should be subject to the affirmative procedure and therefore much closer and more effective scrutiny in Parliament than the negative procedure. I am very much in favour of Amendment 2 and I congratulate our colleagues. I am sure the whole House is very appreciative of the work that is done by the committee. Once again it has done something that the House can take great pleasure in approving.

Childcare Payments Bill

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 17th December 2014 Lords Chamber

[Lord Newby]

My Lords, the key thing is to increase both the quantity and the quality of the childcare that is available. A welcome development is the fact that a larger number of primary schools are now providing nursery places. Also, the Government have been supporting, by way of grant, individuals to set up as childminders, as a result of which there are now several tens of thousands more places available than was the case a couple of years ago.

[Lord Davies of Oldham (Lab)]

My Lords, it may be the season of good will, but there is not much good will on the part of the Government to women. Will he confirm that 85% of the additional cash received by the Government through changes to direct taxes and benefits is in fact obtained from women?

[Lord Newby]

My Lords, that is a figure I have never heard and do not recognise. I would just remind the noble Lord that more women are now in work than ever before, that there is better support in terms of free childcare for young children, that free school meals are provided for all children at a young age and that the pupil premium means, in effect, that families with several young children now get several thousand pounds-worth of direct benefit each year. None of these things obtained under the previous Administration.

National Insurance Contributions Bill

Debate between Lord Davies of Oldham and Lord Newby

Monday 15th December 2014 Grand Committee

[Lord Davies of Oldham (Lab)]

My Lords, I rise to oppose Clause 1 standing part of the Bill, which ought to give the opportunity to explore in a little more detail the issues that we discussed previously. The Minister will appreciate that it was a fairly limited Second Reading, and I imagine he is anticipating that this Committee stage will also not be too prolonged. I certainly want to assure him that it is unlikely that I will ruin his Christmas Day and Boxing Day by giving him things to worry about on Report in the new year. We will move with some dispatch with regard to the Bill, because we are of course broadly in favour of it and have indicated that broad support at all stages. However, we have one or two anxieties, on which I would just like the Minister to give us the necessary reassurances that we have not detected thus far.

There are concerns about those who are going to be affected by the legislation. As the Minister will appreciate in particular, many who will be affected will be on low incomes, and therefore the issue of how and when payments are made is not a trivial matter but one that is bound to cause concern. We are worried about women claiming maternity allowance in the future. The Bill clearly recognises that pregnant women come into a particular category when it comes to claiming and we want to be certain about that, as well as about the rather broader category of those who claim universal credit. It would be very remiss if people on low incomes found themselves, as a result of this legislation, at a disadvantage when it came to claims for universal credit.

The self-employed will of course welcome the fact that the Bill introduces a simplification process and moves liability for NICs to the end of the tax year. However, that also means that there will be accumulated obligations that need to be paid, which for some low-paid workers could easily present very real problems indeed. We say this against the background of the Government making considerable play of the increase in the number of workers in the self-employed category. However, we detect that a very large number indeed are getting very little in terms of reward from this employment. We will come later on to those who were dangled a carrot—not, I hasten to say, by the Government but by unscrupulous intermediaries—about how to take a position with regard to the payment of NICs. We want reassurance from the Minister that he has fully taken on board the problems that may accrue for people who necessarily—we all know the evidence that establishes this—operate on the margin.

The Minister explained that the self-employed will continue to have the option of spreading the cost of paying NICs, but what is the method of payment? Is the Minister in a position to confirm that these payments may be made by monthly direct debit? That was the recommendation from the Chartered Institute of Taxation, and I would welcome his comment on that. Is the payment system due to be reviewed after implementation? We see it dealing with a group of people, some of whom—while many will find this very straightforward and will have welcomed the main proposals in the Bill, as indeed do the official Opposition—will find issues difficult. We wonder whether the Government have set in train a commitment to review the implementation of this part of the Bill.

The Government say that the simplification measure will help the self-employed, but of course it is the self-employed who have been the hardest hit in the cost-of-living crisis. A great number of the self-employed operate on very tight margins indeed, while those who have been self-employed for a considerable period of time, and are now subject to what may be an improvement in the way that NICs are collected, are likely to fall into the category of those who have lost significantly in recent years because average incomes have plummeted.

What other steps have the Government taken to address the impact that the cost-of-living crisis is having on self-employed people? It is clear that there has been a significant drop since this Government came into office, and therefore it would be a mistake on all our parts if, in thinking about the Bill as a progressive and helpful measure—a view that in broad terms we take—we failed to identify why those who are the hardest hit in our society might well find some difficulties in complying with the new arrangements.

[Lord Newby (LD)]

My Lords, I am extremely grateful to the noble Lord for his comments on Clause 1. He concentrated on the self-employed and the provisions for people to have a budget payment option available to them so that they can spread the cost. I assure him that budget payment plans will be operable and people can opt for them, paying by direct debit or standing order. They will allow an individual to decide the amount that they want to pay each week or month, change the regular payment amount, stop making payments for up to six months and cancel payments at any time. Indeed, even after they pay into the budget payment plan, an individual can choose to have the money repaid to them if they believe that there will be no eventual liability, or if they need it for another purpose. Indeed, we believe that this system is more flexible than what is currently available under the class 2 direct debit system, because someone is free to vary or cancel the arrangement at any time and there is no liability until a return is filed. They may request the money that they have paid through a budget repayment plan to be returned back to them, right up to the point when a future amount becomes a liability.

The noble Lord asked whether we would review the provision after implementation. The provision will indeed be kept under continuous review, because we are as keen as he is that everybody who operates it should be able to do so easily.

The noble Lord talked about the cost-of-living crisis as regards self-employed people and about the fact that, when many self-employed people become self-employed, they do so on a lower level of income than they were on when they were employed. That is undoubtedly true, but many people who start off on a lower level of income as self-employed build up a business and end up as well off as, if not better than, they were when they were employed. In addition, there is evidence that, for some people at least, being self-employed gives much more flexibility, which they welcome, and gives them a better work-life balance than they were able to achieve when they were in full-time employment.

The noble Lord talked about the cost-of-living crisis, but, as he is aware, the rate of inflation is low and falling and is likely to stay low; many prices—such as the price of petrol and food—are now falling and, as a result of the lower level of inflation, we are now seeing real wages rising across the board. All forecasters suggest that not just this year but for the next year and the next few years—indeed, for the entire forecast period—real wages are expected to rise. Therefore, while we do not in any way underestimate the impact of the recession on living standards, we believe that a very significant corner has been turned, and that the combination of low inflation, falling prices and rising real wages will mean that people will see greater prosperity than they have done as we have recovered from the great shock of 2008.

I hope that I have been able to give the noble Lord some reassurance on the specific questions that he raised.

--- Later in debate ---

[Lord Newby]

My Lords, the noble Lord asked me a number of specific questions about this clause. The first question, on staffing, asked whether HMRC had the appropriate level of staffing and whether staff had been transferred across from other parts of HMRC or recruited specifically. HMRC carried out a review of the resource required and is committed to ensuring that the appropriate resource is in place to introduce the new changes. As regards where the staff came from, some were transferred and some were recruited. There is a maximum pace as regards how quickly you can beef up this kind of compliance department, because it is highly technical work, and in particular people coming in from outside need to have a considerable amount of training to get up to speed.

The noble Lord made the point that self-employment was high in a number of sectors and he mentioned in particular the construction industry, which is absolutely right. Of course the construction industry is very cyclical, and people literally move about if they are skilled workers in that sector. It is therefore not surprising that self-employment is somewhat higher there than in many other sectors—and the same applies to offshore workers. However, I completely agree with him that we need to keep a very close eye on that and see how it develops and how the measure is working.

HMRC is introducing a quarterly reporting requirement from 6 April 2015 in this area, with the first return due by 5 August next year. This will provide HMRC with almost real-time monitoring to ensure that the measure in the legislation is being used effectively. Obviously, the whole purpose of doing that is to keep the issue under review and, if necessary, to take action to rectify any further problems that apply.

The noble Lord pointed out that the Swiss tax deal had had a shortfall, which shows how difficult it is to estimate the amount of cash that such deals might generate. The reason for that is of course not too surprising: people deliberately secrete their money out of the gaze of the taxman, so when the taxman attempts to guess how much money there is, it is extremely tricky to get that right. The Swiss deal did indeed bring in a smaller amount of revenue than was expected—or it has to date—but I think it is fair to say that the Liechtenstein disclosure facility has brought in more than was originally thought and has proved exceptionally effective. All that one can expect HMRC and the Treasury to do in these circumstances, when specific areas are targeted to repatriate funds to the UK, is, first of all, to do it—which previous Governments have failed to do—and, secondly, to make their best estimate of how much money might be involved. There is a considerable degree of uncertainty at the point when that estimate is made. The important thing is to close the loophole.

The noble Lord also referred to the tax gap. All I would say to him is that in monetary terms the gap has risen by £1 billion over a period, but in real terms, and in relation to the size of the economy, I think it is fair to say that that is a fall. Although over a long period we might see the monetary value of the gap rising modestly, the key question is: is it falling as a proportion of the total amount of tax payable? The figures he quoted suggested that, if anything, on that basis the tax gap was falling rather than rising.

Perhaps I could have the indulgence of the Committee briefly, before we finish our Committee stage today, to say a little bit about the amendments to the Bill that the Government intend to introduce on Report. As noble Lords will be aware, in the Autumn Statement on 3 December the Chancellor announced that the Government will abolish employer class 1 NICs for apprentices under the age of 25 from April next year. As the Chancellor made clear, apprentices are at the heart of the Government’s drive to equip people of all ages with the skills valued by employers. This measure is intended to support employers who provide apprenticeships to young people by removing the requirement that they pay secondary class 1 NICs on earnings up to the upper earnings limit for those employees. The measure is also intended to support youth employment. It will provide a zero rate of employer class 1 NICs on earnings between the secondary threshold and the upper earnings limit in respect of apprentices under the age of 25 from 6 April 2016. It will provide the power to define “apprentice” in regulations, allowing the time discuss the definition with stakeholders. It will also contain powers to alter the age range to which the zero rate applies and introduce a threshold for apprentices. As with the other changes to which I am about to refer, the Government intend to table amendments to give effect to these measures in advance of Report.

Noble Lords will also be aware that the Delegated Powers and Regulatory Reform Committee published its report on the delegated powers contained in the Bill on 27 November. It drew attention to the power in Clause 2 to amend primary and secondary legislation as a consequence of the reform of class 2 NICs. The power is currently subject to the negative procedure. The Delegated Powers and Regulatory Reform Committee has said that the justification given in HMRC’s delegated powers memorandum is not sufficient for the negative procedure to apply where the power allows for the amendment or repeal of primary legislation, and it has recommended that in this instance the power should be subject to the affirmative procedure. The Government have considered the report of the Delegated Powers and Regulatory Reform Committee and intend to table an amendment on Report so that, where regulations made under this power amend or repeal primary legislation, they will be subject to the affirmative procedure.

Finally, we intend to amend Schedule 1 to the Bill to ensure that the relevant self-assessment penalties apply to class 2 contributions collected through self-assessment by adding a missing reference to the self-assessment underdeclaration penalty contained in Schedule 24 to the Finance Act 2007. It was always the Government’s intention to align penalties for class 2 contributions more closely with those for SA as part of the reform of class 2 so that the self-employed are not subjected to two different regimes, but this particular penalty was unintentionally omitted. This minor technical amendment will correct that omission.

I hope that noble Lords will have found that helpful. We will be tabling those amendments as soon as we possibly can.

[Lord Davies of Oldham]

My Lords, I am sure that the Committee is grateful to the Minister for indicating his response to the Delegated Powers Committee—that obviates the necessity of the Opposition chasing the Government on Report. We are very much in favour of the suggestion about the affirmative procedure, so we will be ensuring that the Report stage moves with maximum effect on that.

The only thing that I would add is that there is a certain justification for adding second thoughts and developments to a Bill as it proceeds. The Minister will recognise that it took the Delegated Powers Committee to bring this to the attention of the Government. We are only a couple of weeks from Christmas so I suppose we are bound to get a certain Christmas tree effect, but one of the consequences of this fixed-term Parliament is that, basically, since we came back in October we have had dangling bits of additional legislation added to Bills, whether they fit or not. In this respect I have no particular criticism, but I think for instance of the Infrastructure Bill, of which the first four parts were concluded before the Recess but then the minor issue of fracking was added to the Bill after it. The Government are not to take the fact that the Opposition very much approve of this initiative, which we will be supporting on Report, as in any way a feeling on our part that the Government are full of good conduct when it comes to adding bits to Bills whenever it suits them.

Greater Manchester

Debate between Lord Davies of Oldham and Lord Newby

Thursday 27th November 2014 Lords Chamber

[Lord Newby]

My Lords, I absolutely agree with my noble friend that the airport has been a huge success. Transport links to the airport have been greatly enhanced and it now has one of the best intermodal hubs of any airport in the UK. Further funding is going in for roads—the A6 Manchester Airport relief road is being funded by the Department for Transport via the Greater Manchester Combined Authority. Any funding of the kind that my noble friend seeks for the A538 would most likely come from the growth deal process, which is now under way.

[Lord Davies of Oldham (Lab)]

My Lords, I declare an interest as I used to represent a part of Greater Manchester, namely Oldham, a town of which I am inordinately proud and eager to assist. However, how does the Minister think that the Chancellor can sustain the pretence of being a champion of the north when he has cut local government funding for northern cities such as Manchester, Leeds and Liverpool more than he has the wealthier areas of southern England?

[Lord Newby]

My Lords, we have to look at what has been happening to the Greater Manchester economy and the north-west more generally, where there has been a massive increase in the number of apprenticeships, for example, and a dramatic fall in unemployment. There is specific funding in terms of hundreds of millions of pounds of additional funding for rail developments and to innovative new world-leading developments in the Manchester area, such as the National Graphene Institute.

Income and Wealth Inequality

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 26th November 2014 Lords Chamber

[Lord Newby]

My Lords, as for how resources are allocated, and where people feel more could be done or less, it is a bit like squeezing air round a balloon. It is interesting that I do not think that there has been a single question in your Lordships’ House on one aspect of the Government’s policy—the level of support the Government have given to pensioners.

[Lord Davies of Oldham (Lab)]

My Lords, if the Minister is right that inequality has not increased then the Government are clearly failing in their objectives, because they certainly set out to reduce income tax on the more highly paid. We all know the excesses of chief executives getting 21% increases in pay when very many other people are seeing reductions, let alone increases, and cannot keep up with inflation. Is he aware that there are 1.4 million people on zero-hours contracts and that the average family in this country is £30 a week worse off under this Government?

Income Tax

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 19th November 2014 Lords Chamber

[Lord Newby]

My Lords, it is not always that I agree with my noble friend—but in this case I do.

[Lord Davies of Oldham (Lab)]

My Lords, how will the deficit be reduced if wages continue to fall, as they have done for 71 out of 74 months, and if, as has happened for virtually the whole of this Administration, wages fall in real terms, so that less tax is paid?

[Lord Newby]

My Lords, wages have fallen, but they have started rising in real terms. The OBR and every other forecaster that has made projections of real wages for the next few years in the British economy are firmly forecasting consistent real-wage growth.

Defence: Budget

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 11th November 2014 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, as on this day we look with sadness on the past, should we not also be constructive about the future? Does the Minister agree that the strategic defence and security review should be put on a statutory basis, brought before Parliament to ensure that it is robustly scrutinised, and that this process should take place once in each Parliament, as my party is proposing?

[Lord Newby]

My Lords, that is an interesting idea. However, the key thing is the content of the review, rather than the procedure.

Bank of England

Debate between Lord Davies of Oldham and Lord Newby

Thursday 30th October 2014 Lords Chamber

[Lord Newby]

It might be, my Lords, but as I said in my initial Answer, I suspect that there will not be any change.

[Lord Davies of Oldham (Lab)]

My Lords, Her Majesty’s Opposition are in favour of the retention of the name “Bank of England”. However, the Minister said that there is some urgency about future action, so will he say whether the Treasury has made any progress, and will he give us an update on that progress, in looking at the financial consequences of further devolution of income tax?

[Lord Newby]

My Lords, as the noble Lord will be aware, the various proposals on the table for the devolution of income tax were set out in the Command Paper that was published earlier in the month. The exact nature of further devolution of income tax is under consideration in the Lord Smith process. As part of that, the financial and political consequences of various possibilities in respect of income tax are being actively considered.

Banks: Bridging Finance

Debate between Lord Davies of Oldham and Lord Newby

Monday 20th October 2014 Lords Chamber

[Lord Newby]

My Lords, yes, I completely agree. It is important that those housing associations that provide specialist housing designed for older people—one of which is chaired by my noble friend Lord Stoneham—are encouraged to grow so that we can have more appropriately designed and sized accommodation.

[Lord Davies of Oldham (Lab)]

My Lords, the House will have noticed the Government’s concern about this relatively marginal problem of the asset-rich. What about the asset-poor who are forced to downsize under government policy on the bedroom tax?

[Lord Newby]

The noble Lord knows that 1.7 million households are waiting for social housing in the UK, and the spare room subsidy is intended to help move people into accommodation in those circumstances. I think that he would agree with me that the fundamental challenge that we in all parties face is how to increase the flow of housing, not just in aggregate but so that it is designed to meet the different requirements of different groups, including the elderly.

Income Tax: Top Rate

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 15th July 2014 Lords Chamber

[Lord Newby]

Yes, my Lords, and that is why the Government have taken a raft of measures which will ensure that those with the broadest backs pay very much more than the additional amount of income tax that they might have paid had the rate remained at 50%. For example, we have increased higher rate capital gains tax, raised the stamp duty on higher value homes and reduced the cost of pensions tax relief. These measures, taken with other measures, mean that the additional amount being paid by high earners was more than £1 billion last year and will be more than £2 billion this year and more than £4 billion next year. This is real cash coming into the Exchequer as a result of measures we have taken to hit those who otherwise were avoiding tax.

[Lord Davies of Oldham (Lab)]

My Lords, how can the Government claim that they are being fair when they cut the top rate of tax, giving a £3 billion tax reduction for millionaires? How does the Minister think that squares with the ordinary taxpayer in the country? To say that it brings in more revenue because people who have been dodging tax altogether actually decide that they will make a contribution scarcely sounds like good government.

[Lord Newby]

My Lords, there is no £3 billion, as I have explained. The effect of the cut is £110 million. The other measures we have taken will bring in over a three-year period some £7 billion extra from the same people. For people on ordinary incomes, the rise in the income tax threshold means that by next year the typical basic rate taxpayer will be £805 per annum better off and 3.2 million people who were otherwise paying income tax will not be paying income tax at all.

Economy: Public Sector Net Borrowing

Debate between Lord Davies of Oldham and Lord Newby

Monday 14th July 2014 Lords Chamber

[Lord Newby]

Yes, my Lords; my noble friend is absolutely right. The report to which he refers demonstrates two things: first, with an ageing population, there will over a long period be significant pressures on the public finances, everything being equal; secondly, that a number of steps which have been taken with cross-party support, such as raising the retirement age, are making those long-term additional burdens more acceptable and possible to deal with in a sensible fiscal framework.

[Lord Davies of Oldham (Lab)]

My Lords, did not the Government promise in 2010 to balance the books by 2015, and is it not now the case that they will be lucky—well, they will be out of office, but they would have been lucky—to have balanced the books by 2018? Is the Minister aware that in the early months of this year borrowing was £2 billion higher than in the same period last year? So it is not getting better.

[Lord Newby]

My Lords, it is getting better. It has got better in the year up to now. The OBR says that we are on track to reduce borrowing during this year. As the noble Lord knows, there were substantial economic headwinds from the euro area crisis, high commodity prices and the ongoing impact of the financial crisis. I am not sure whether he is really proposing that we should have cut the deficit more quickly by cutting public expenditure further or putting taxes up.

Finance: Fiscal Devolution

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 9th July 2014 Lords Chamber

[Lord Newby]

My Lords, I was waiting for the last part of that sentence. I am sure that all noble Lords will bear the noble Lord’s expertise in mind, should a commission be established. I think that, once we have the outcome of the Scottish referendum, all parties and all people who are interested in constitutional change in the UK will want to revisit the issue. The exact way we do it is also something that I think all the parties are thinking about as they draw up their manifestos.

[Lord Davies of Oldham (Lab)]

My Lords, the Government seem to be extraordinarily complacent about the response to increasing demand from our great cities for increased powers. The Minister said that it was all too complex, and then his noble friend from the Liberal Benches produced the usual note of cynicism that people never fulfil their promises when in government. I assure the Minister that we intend to have a thorough examination of the powers to allocate greater resources to our cities and regions, very much in line with the noble Lord, Lord Heseltine. Does the Minister agree?

[Lord Newby]

My Lords, I am always pleased when the Labour Party rethinks its policies. However, the premise of the point that the noble Lord raised was misguided. This Government, through the city deals, has devolved significant funding to the major cities for the first time. As I said earlier, with the growth deals which we announced at the beginning of this week, £12 billion is being devolved to the LEPs from what were central government allocations. This is a very big shift of economic and social decision-making going down to the cities and regions.

Economy: House Prices

Debate between Lord Davies of Oldham and Lord Newby

Thursday 3rd July 2014 Lords Chamber

[Lord Newby]

The Government have a comprehensive infrastructure plan, which includes a number of major new initiatives in the north-east of England. As the noble Baroness will know, over the years the Treasury has been very much opposed to hypothecating particular taxes for specific purposes, largely on the basis that they may be buoyant one year but may not be in another. Leaving aside stamp duty, the key point is that we have a comprehensive infrastructure programme in the north-east, and I believe that we have one for the next decade.

[Lord Davies of Oldham (Lab)]

Is the Minister aware of the town of Altrincham in the north-west? The Chancellor certainly is because it is close to his constituency. Altrincham is one of the most prosperous towns in the north-west. Is the Minister aware that house prices in Altringham are half those in three inner London boroughs—not Kensington and Chelsea but Hackney, Southwark and Lambeth? Does that not show how chronic the situation in London is?

[Lord Newby]

Yes it does, my Lords.

Children: Television

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 1st July 2014 Lords Chamber

[Lord Newby]

When I look back to my own childhood—it was a long time ago, although I am not that old—the BBC had a pre-eminent role in terms of children's television. It has continued in that capacity and in that role for many decades.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister was in self-congratulatory mood in response to the first Question. Does he accept that the Government’s television tax relief scheme is based on the hugely successful film tax relief introduced by the previous Labour Government? We would now like to know what is the impact so far of the measures that he is commenting on?

[Lord Newby]

My Lords, the noble Lord will know that we changed the basis of film tax relief. But as far as last year is concerned, some £868 million was generated by 37 major international firms making the UK their production base. As far as TV is concerned, the reliefs that we introduced last year—we have figures for only nine months—show that some £276 million worth of production has benefited from the reliefs, of which some 58% is from inward investment.

Economy: Interest Rates

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 18th June 2014 Lords Chamber

[Lord Newby]

The noble Lord is exactly right. One of the benefits of a gradual increase in interest rates will be that savers, who have had a very poor return on their savings, will start to get what they would consider a more normal return in the future.

[Lord Davies of Oldham (Lab)]

My Lords, will the Government contemplate giving forewarning of a rise in interest rates? It is quite clear that people have become used to this very low rate indeed, and the Minister is beginning to indicate that it is not going to be tolerated for much longer.

[Lord Newby (LD)]

My Lords, there is incessant speculation in the media about when interest rates might rise. The Governor of the Bank of England and the MPC’s inflation report help to guide people as to when this is likely to be the case. In February, the latest inflation report set out a number of criteria against which the Bank would judge when rates should rise. Anybody is capable of seeing how the economy is going and reading what both the governor and commentators say about when such rate rises are likely.

Airports: Heathrow Third Runway

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 17th June 2014 Lords Chamber

[Lord Newby]

My Lords, my noble friend raises a very important point—which is that whatever happens in terms of a particular airport in London in the future, it is very important that we have a range of airport capacity. Manchester Airport and Birmingham Airport play very important roles. My noble friend also referred to Gatwick. On current projections, Gatwick has spare capacity at the moment and will not fill it until about 2020.

[Lord Davies of Oldham (Lab)]

My Lords, will the Minister accept two propositions: first, that good aviation links are vital for Britain’s competitiveness and our future economic success; and, secondly, that to govern is to choose? What items in the manifesto of the two coalition parties carried the rubric, “We will make up our minds possibly in five years’ time on this issue”?

[Lord Newby]

My Lords, the noble Lord will have to contain his impatience as far as manifestos are concerned, I suspect. I would just point out to him and to the House that the five airports serving London currently offer at least weekly direct services to more than 360 destinations worldwide. That is more than Paris, Frankfurt or Amsterdam.

Payday Loans: Advertisements

Debate between Lord Davies of Oldham and Lord Newby

Thursday 3rd April 2014 Lords Chamber

[Lord Newby]

My Lords, that is exactly why the Broadcast Committee of Advertising Practice is looking at this issue. We expect to hear from it in the next few months and there may be consequences for the ASA code. I have some difficulties about the use of the word “grooming” in this context. It has come to have a specific meaning in relation to sexual exploitation, and, whatever the problems with payday loans—and there are very considerable problems—they are not of that degree of difficulty.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister has indicated that there has been a minor reduction over the past year, but the scale of payday loans is astonishing—and they are directed at children because that is a soft way to get at parents. Is this not something that we all ought to criticise and deplore, and on which we ought to expect authority to take action, because the only reason that daytime children’s television in particular is deluged with these loan advertisements is that it puts pressure on parents?

[Lord Newby]

My Lords, this Government have taken very strong action in respect of payday loans by giving the FCA very considerable powers in this area, which it has started to exercise. It is a sign of the times that yesterday DFC, one of the country’s three biggest payday loan providers, issued a profit warning and surrendered to a takeover, citing the tougher new regulatory regime. The weather is changing for payday loans.

Finance: Interest Rates

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 18th March 2014 Lords Chamber

[Lord Newby]

My Lords, one slightly surprising thing about the way in which the MPC has worked is the independence of its members vis-à-vis the governor. When it was established, I think that there was a view that it would be a poodle of the governor, because a significant number of members are other employees of the Bank of England. That has not proved to be the case, and governors have, if not regularly, then on a number of occasions been overruled by the rest of the committee over the years.

[Lord Davies of Oldham (Lab)]

My Lords, I have two questions, the second being short. First, the Government used to say that low interest rates were a sign of the success of their policies. Now that rates are beginning to edge up somewhat, they are saying that it is a further sign of the success of their policies. How does the Minister resolve this contradiction? Could he answer a second question: how many women are on the Monetary Policy Committee?

[Lord Newby]

On the latter question, I am sure that the noble Lord will join me in congratulating the woman who today has been the MPC’s latest appointment as deputy governor. On the first question, the success of the system was that it enabled the Monetary Policy Committee to “look through”—to use the technical phrase—a temporary peak in inflation, when it went up to 5% because of external factors, and keep interest rates low, which helped the recovery. I think that most people would agree that interest rates are at an unusually and historically low level and that, as the economy recovers, we would expect interest rates slowly to rise, although, as the governor said in the recent forward guidance, it is expected that any increase in interest rates will be very gradual and that the new equilibrium is unlikely to be as high as it was in the past.

Economy: Inflation

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 11th March 2014 Lords Chamber

[Lord Newby]

Yes, my Lords, the Government welcomed the decision by the current governor to issue forward guidance last August. We continue to support the concept of forward guidance.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister might try to wear his rose-tinted spectacles, but he knows the facts. He knows that ordinary working people on average have lost £1,600 a year since this Government came into office. He knows that families, through the Government’s tax and benefit changes, have lost £891 pounds a year and he knows from the most recent statistics that zero-hours contracts have increased threefold since this Government came into office. By heavens, they have a lot to do to make up for those deficits.

[Lord Newby]

There is a question over whose deficit we are talking about here. The noble Lord knows that since the 2010 election, employment has increased by 1.3 million; unemployment is down by 152,000; there are more women in work than ever before; and every single survey for the future suggests higher income, more people in work and a growing economy. That is a record to be proud of.

Economic Inequality

Debate between Lord Davies of Oldham and Lord Newby

Monday 10th February 2014 Lords Chamber

[Lord Newby]

My Lords, that is no doubt why we inherited such rosy economic circumstances.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister used the graphic phrase, “making work pay for everyone”. It certainly pays for bankers, as Barclays tomorrow will announce another £2 billion in bonuses, following the £2 billion that it paid out last year. Since 2008, banks will have paid out, in accumulation, £80 billion in bonuses—£1,000 for every man, woman and child in this country. How can the Government talk about us all being in this together when there is such an obvious imbalance in the economy?

[Lord Newby]

My Lords, as the noble Lord will be aware, bonus levels in the City—although he finds them outrageously high—are now very much less than they were. There is a now a raft of domestic and EU rules in play that will reduce the extent to which bankers can take bonuses, except over a period and when bonuses are linked to the performance of the bank.

Economy

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 28th January 2014 Lords Chamber

[Lord Newby]

My Lords, I have always taken what the noble Lord, Lord Myners, has said with the utmost seriousness; everybody across the House has done so as well and I will undoubtedly continue to do so. The most significant and impressive part of the growth in the economy and in employment has been that the preponderance of that growth is private sector led and the private sector invests only if it feels that the overall business climate—which is to a large extent set by the Government—is conducive to new employment and growth in investment.

[Lord Davies of Oldham (Lab)]

My Lords, my noble friend Lord Myners is sadly not in his place, but if he were, he would not have had the slightest difficulty in identifying for the Minister just why we should be somewhat worried about the development of the recovery. After all, the Minister and his colleagues in the House of Commons constantly emphasise that this recovery needs to be balanced. There are already indications that this recovery is partly housing driven, which is of course a reflection of the only area in which the Government have been directly active. Moreover, the recovery favours the south-east in circumstances in which other parts of the country are not doing anywhere near so well.

[Lord Newby]

My Lords, the unemployment figures show that the level of unemployment in London, for example, is significantly higher than that in Scotland or Wales. Economic growth is occurring across the whole of the country. As for where it is happening, I will give two examples: aerospace orders last year included new orders of some £39 billion and car production was at a six-year high. This is not froth; this is real high-tech manufacturing where, increasingly, Britain is leading the world.

Public Sector: Debt

Debate between Lord Davies of Oldham and Lord Newby

Thursday 23rd January 2014 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, “the party opposite” is critical of the Government for the obvious reason that, if you run an economy with such abysmal rates of growth as this Government have done over the past three years, you find yourself unable to hit the target for the deficit that the Chancellor himself identified in 2010.

[Lord Newby]

My Lords, I am sure that the noble Lord is an assiduous reader of publications by the IMF and will have seen that, within recent days, the IMF has upgraded its forecasts for growth to 2.4% next year and 2.2% the next year, which is higher than for France and Germany.

National Insurance Contributions Bill

Debate between Lord Davies of Oldham and Lord Newby

Thursday 23rd January 2014 Grand Committee

[Lord Davies of Oldham (Lab)]

My Lords, I am sure that the Committee’s affairs will not be too protracted today, as we clearly have a consensus from the House that the Bill is a pretty good thing. As the Minister already knows, it is the Opposition’s view that in general terms the Bill pursues a good policy and is vastly superior to the sad instrument that was relied on for the first three years of this Administration with regard to the holiday on national insurance contributions—which of course failed dismally in both its reach and its general effectiveness, with every conceivable expectation that the Government expressed before that Bill became law being disavowed by the process over the following three years. We are now in the business of recognising that the principle behind the Bill is far superior and is a position that we broadly endorse. However, it is incumbent on us to ensure that the policy works effectively and that the Bill that is the basis of that policy is fit for purpose in every respect.

The amendment would require the Government to carry out and publish a post-implementation review of the employment allowance, including HMRC’s assessment of its impact on jobs and wage levels, the overall take-up, the geographical spread of businesses that take it up and the effectiveness of HMRC’s strategy to promote it. I emphasise all these points because on every single one of them the previous policy instrument on NICs failed conclusively, and it is important that all those targets are effectively hit. That is why, although I am not underestimating the difficulties of these demands in some areas, we want to see an assessment, as far as the Government are able to provide one, of job and wage levels as a result of the measure.

We certainly want to be reassured on the overall take-up and the geographical spread of businesses taking it up. The previous Bill had a geographical element to it, which we the Opposition never understood —but we did not have to understand it because the Bill had such a limited impact for good anywhere that those who were left out had missed very little indeed. For obvious reasons, as the Minister will appreciate, we are concerned about significant regional disparities in the employment figures, particularly with regard to young people. That is why we want this review to cover a geographical dimension.

That also brings us on to the extent to which the Government will be successful in promoting the measure. After all, a great deal of the expectation is that the beneficiaries will be small and medium-sized enterprises. The medium-sized ones probably do an effective job in keeping up to date and four-square with government initiatives, and we know that the large corporations monitor the Government so effectively that not infrequently—we will come to this later—they pay a great deal less tax than perhaps they ought.

Small businesses inevitably have a problem with legislation. Part of the difficulty with the previous legislation was the conspicuous failure to promote the concept widely enough for take-up to be at the level for which people—certainly Ministers—had hoped. We want to see that rectified as far as this measure is concerned. The amendment, therefore, establishes the necessity for a report that would guarantee a review to provide early indications of the success or otherwise of the policy. We might, as a result, see the Government learning from difficulties that may be developing.

It took a long time for the penny to drop last time. I recall that it was three years before the previous amendment to the legislation on national insurance contributions was finally written off as being unsuccessful, which shows how slow the Government can be, and how blunt their antennae, in picking up the responses of people who are meant to benefit from the legislation. We want this review, therefore, to oblige the Government to face up to these questions—and to do so early.

The amendment we are proposing follows a clause which was retabled on Report in the Commons. We are retabling it in the Lords because of the difficulties of the earlier legislation; we cannot emphasise too strongly how much we want this to be successful. We note that the Government outlined in the Commons the complexity of some of these issues, but we think it is worth trying to measure the impact of this measure on employment and wages. It seems sensible at least to consider the relationship between the employment allowance and job and wage levels. The Minister will recognise that we have seen the benefit of some of the responses in the other place to this major proposition, but I hope that he has had time to reflect, that his officials have appreciated the anxieties that were expressed in the other House, and that today we will get from him a more constructive response than we obtained elsewhere. I beg to move.

[Lord Newby (LD)]

My Lords, the proposed new clause seeks to require HMRC to publish a post-implementation review of the employment allowance after one year. I would like to explain why this new clause is unnecessary.

The tax information and impact note already commits the Government to keep the scheme under review through ongoing communication with taxpayer groups affected by it. Moreover, in Committee in the Commons on 21 November last year, and on Report in the Commons on 10 December, the Exchequer Secretary agreed that the Government should publish information twice a year about the overall take-up of the employment allowance, including by geographical location. I am happy to repeat that commitment in the Moses Room today.

This amendment focuses on the number of jobs created by the employment allowance. However, while the employment allowance will clearly reduce the cost of taking on new staff for small businesses and charities, it will be up to those businesses and charities to decide how they use the resulting NICs savings. I remind the Committee of the comments made by the Institute of Fiscal Studies and by the Federation of Small Businesses at the evidence session in the House of Commons on 19 November last year, to the effect that it is impossible to get precise numbers. We cannot conduct the equivalent of a randomised trial with tax policy to determine the number of jobs created because of the allowance. As the IFS pointed out, there are a number of factors in the economy simultaneously influencing the number of jobs.

The Government have not set any target for the number of jobs we expect to be created, although survey evidence from the FSB suggests that 28% of small businesses will use the savings to employ additional staff. It would not, therefore, be possible to provide information about the number of jobs created as a direct result of this measure. Similarly with wage levels, the same research from the FSB suggests that 29% of small businesses would use the NICs savings to boost staff wages. However, it would be difficult precisely to quantify that effect, given that wage levels are subject to many different pressures, varying from business to business.

The new clause also requires an assessment of HMRC’s strategy to promote the employment allowance. HMRC has already been proactive in promoting the allowance, having spoken to various stakeholders—including representatives of software providers, charities and small and medium-sized enterprises—about the design and operation of the measure. There is continuing engagement between HMRC and those stakeholders on guidance for employers and publicity. As a result of these discussions, communications to raise awareness of the allowance will begin more widely in February and March this year to maximise impact in the crucial period running up to the introduction of the allowance in April, using a range of HMRC publications and products and the department’s national network of local Working Together groups. As a result, we are confident that employers across the UK will be ready to claim the allowance in April. These efforts will continue after April to support take-up from companies that have not done so at that point.

With these reassurances, and in the light of the Government’s existing agreement to make information about take-up available twice yearly, I hope that the noble Lord will withdraw his amendment.

[Lord Davies of Oldham]

My Lords, I am grateful to the Minister for the additional information he has given about the reinforcement of the necessary publicity to promote awareness among those who could benefit from the allowance. I recognise that the issue is being taken seriously. It cannot be taken seriously enough. The Minister is absolutely right to cite what the FSB thinks can be achieved, and we recognise that the Government have to set their sights for advantages within a fairly low range in the early days. It takes time for people to appreciate the advantages.

The Minister made one passing reference to charities. We have no anxiety about the ability of very large charities to keep up with legislation, although they tend to be more preoccupied with legislation that will affect them in other Bills before the House, rather than this more benevolent provision. However, the Minister will appreciate that we are anxious about other charities on that score. I am grateful that he mentioned them en passant—although not as strongly as I would have wished. Nevertheless, it was a constructive and helpful reply and, on that basis, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Newby]

My Lords, the proposed new clause would require that HMRC should, six months after the Act comes into force, prepare a review to consider whether there are any administrative or compliance costs that have been reported by employers claiming the allowance, and whether businesses, charities and community amateur sports clubs are having problems in claiming it. I hope that I can persuade the noble Lord that this proposed new clause is also unnecessary for two main reasons.

First, as I pointed out when commenting on the previous proposed new clause, the tax information and impact note already commits the Government to keep the scheme under review through communication with stakeholders affected by the measure. As part of this review, HMRC will speak to stakeholders to gauge their views of the allowance and to ascertain the ways in which it is being used. HMRC talked to various stakeholders over the summer and autumn about the design and operation of the allowance, including the claims process. There are continuing discussions between HMRC and these groups around guidance and publicity, and these will continue after the launch of the allowance in April.

A crucial part of this work has been discussions with software developers. As I said, HMRC has held discussions with representatives of charities, payroll software providers and businesses to help inform the design of the new system. In particular, in July last year the 2014-15 RTI technical pack for software developers was published on the HMRC website and specified that an employment allowance indicator would be needed on the employer payment summary. There is ongoing engagement with stakeholder groups around this draft employer guidance with a view to making employer guidance available early next month. However, this does not affect the calculations in the software packages.

HMRC will also target communications to key stakeholders and use HMRC publications, for example, the Employer Bulletin in February and March, to further build awareness. I hope that I can reassure the noble Lord that the difficulties that he is rightly concerned about are likely to be minimised by the fact that the allowance is very easy to claim. Employers will receive it through their routine operation of PAYE. They will simply need to confirm their eligibility via their regular payroll processes. Enabling the employment allowance to be claimed by employers through their payroll software will ensure that it is straightforward to claim. They will simply have to indicate yes, once, in their employer payment summary. The claim will continue from tax year to tax year.

After making the claim, employers will not need to pay their first £2,000 of secondary class 1 NICs. If their secondary class 1 NICs liability is less than that in the first month or quarter, dependent on whether they pay their PAYE liabilities monthly or quarterly, any unused allowance will be carried forward to the next month or quarter until it is exhausted. If an employer does not have an employer payment summary on his own software, he can use the free HMRC Basic PAYE Tools package. For the very small number of eligible employers—around 2,000—who still submit their returns to HMRC on paper, there will be a paper process to mirror the IT process.

The Government are very keen that this new proposal should have the maximum possible impact because we want to see it promote economic development. We have gone to considerable lengths to engage with the industry and provide the private sector and the charities sector with information in good time. We think that we have prepared well. The guidance will be out next month and there will be ongoing discussions with all the relevant stakeholder groups and individual firms and organisations that might claim it. In those circumstances, I hope that the noble Lord will withdraw the amendment with his proposed new clause.

[Lord Davies of Oldham]

My Lords, once again I am grateful to the Minister for fleshing out some of the arrangements that the Government will put in place to ensure that this operation is as straightforward as possible.

Reference was made to sports clubs. In my previous incarnation before the most recent general election, I had quite a bit to do with sports clubs and their administration. I have not the slightest doubt that the mega-clubs of the Premier League have no need for the Government to advise them on how they should organise their tax affairs. They seem to be pretty adroit in doing so at present. However, sports clubs run by a small number of people, where decisions are generally taken by amateurs, even if there are one or two professional employees, are a different matter. They will need to be provided with the easiest possible transactions to ensure that they benefit from this measure. We want to see sports clubs and charities as well as mainstream employers adopt a positive, outward-looking perspective as regards young people. After all, they are most likely to engage successfully with youngsters through the sport in which the latter engage.

I emphasise to the Minister that this is a probing amendment. I am grateful for his assurances that the ability of even the smallest employer to make the claim when it is due does not come down to much more than ticking one box, or even answering yes or no in that box. I am reassured on that front. I beg leave to withdraw the amendment.

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[Lord Newby]

My Lords, this proposed new subsection would require the Treasury to publish a review of the level of youth unemployment as of December 2013 and of the effect on the level of youth unemployment if the zero rate of employers’ class 1 NICs on the earnings of employees under the age of 21 were to be brought into force from 6 April 2014 rather than 6 April 2015.

I would like to explain to the noble Lord why I believe that the amendment is unnecessary. The Government are committed to increasing employment levels for all parts of the working-age population. Employment is now at its highest ever level and unemployment is lower than when the Government came to power. The Government recognise the challenges posed by youth unemployment, and dealing with them has long been a priority of ours and of the predecessor Government. For example, around 370,000 young people have been supported through the Work Programme since June 2011. Furthermore, the Youth Contract provides almost £1 billion in funding to support up to 500,000 young people into employment and education opportunities.

The employment figures published yesterday showed another significant fall in youth unemployment. Although it is not enough, it is not the first quarter in which we have seen such a fall, and now the overall aggregate of youth unemployment is falling significantly. As we have already debated, it is extremely difficult to say what proportion of the fall is attributable to one cause rather than another. However, overall, the improved economic environment and the Government’s policies taken together are clearly having a significant beneficial effect on youth unemployment.

The Autumn Statement, which gave another push in this direction by abolishing employer NICs for under-21s, builds on the policies already in place, and has been widely welcomed by industry. Indeed, John Cridland at the CBI said that the policy,

“will make a real difference and help tackle the scourge of youth unemployment”.

However, I see little point in the Treasury publishing a review of the level of youth unemployment. The Office for National Statistics is responsible for publishing statistics on employment, and these regular releases are available to the public through the ONS website. There is a limited case for the Treasury intervening and also publishing a review.

In addition, I do not think that there is any value in attempting to estimate the impact of a policy introduced at a theoretical date, and I am not sure that the noble Lord is pushing this element of the amendment particularly hard. The Autumn Statement announced that employer NICs would be abolished for those under 21 years of age from 6 April 2015. Attempting to deliver this a year earlier on 6 April 2014 would increase the administrative costs to business, and rushing the measure through in this manner would be likely to lead to cost, confusion and the failure of many employers to take it up.

Such a tight timeframe would not give employers, payroll software developers and HMRC sufficient time to update their IT systems. As regards HMRC, there would not be enough time to ensure that the policy was implemented in a way that does not disrupt its other important IT systems. These difficulties were recognised by the Chartered Institute of Payroll Professionals, which commented on the Autumn Statement:

“We … welcome the news that this will not be enacted until April 2015, giving the payroll industry time to plan properly.”

This is not a case of the Government being complacent or lacking in energy and drive; it is simply that I do not want to be at the Dispatch Box under the lash of the noble Lord because the Government have not implemented a policy with the maximum possible efficiency and effectiveness. The timetable that we have adopted, in our view, will enable us to do it in due time, so that employers and HMRC can prepare and, when the policy comes into effect, it will be well prepared for by all who need to implement it. The fact that it has already been announced means that employers can begin to think about how they will choose to benefit from it when it comes into force.

The noble Lord asked how much it will cost and how it will be funded. In its first year, it is expected that it will cost £465 million, rising to £530 million by 2018. Although the policy obviously carries a significant cost, overall, the Autumn Statement in which it was introduced was fiscally neutral and reinforced the Government’s commitment to reducing the deficit. It is worth repeating that this policy represents half a billion pounds-worth of support to young people in employment—so it is very significant and, we hope, will have an equally significant impact on youth unemployment.

In view of all those considerations, I hope that the noble Lord will withdraw his amendment.

[Lord Davies of Oldham]

I was certainly not underestimating the significance of the programme. We all know the magnitude of the task before the Government in dealing with youth unemployment, so the figures that the noble Lord has cited seem apt for the task in hand—except that we consider the scheme inadequate for the scale of young people’s difficulties, which we can already measure.

I am grateful to the noble Lord for giving us those facts and am reassured by them. On the question of delay, I sometimes think, on the issues that we have raised with regard to the compatibility of IT operations, that in the wonderful world in which we live, the magnificent speed with which computers can bring huge advantages to society have to be balanced against the fact that the introduction of legislation seems to be tied up in a computed timescale which all pen-pushers would regard as unacceptable. After all, what is the Minister saying to me? He is saying, “We recognise that the present policy that we are operating on the role that insurance contributions can make to improve employment is a dead loss to the country. It has such marginal utility that no one will weep for its passing”. But that policy has dominated three years of this Government’s life, and he is saying that its replacement will see the light of day virtually on the brink of the next Government coming to power.

Of course the Minister is right to say that proper consultation has to take place, that we must not add to the burdens on business unnecessarily and that computer systems are mightily complex and vastly costly when they go wrong. The Government are in quite a good place to assess the costs when computer systems go wrong, because they have a few instances on their doorstep at present. However, the implication is straightforward: the policy of using national insurance contributions and elements of alleviation has failed for three years, and it will make only a marginal impact over the duration of this Government’s life. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Newby]

My Lords, I am grateful to the noble Lord for introducing this debate, because it has given me the opportunity to make a suggestion to him about what we might replace the term GAAR with. I wonder whether he would be happy if instead of calling it GAAR, we called it GREAT, as in Great Britain: the general rule to eliminate the avoidance of tax. If we had done that, we might have satisfied the noble Lord, and summed up our emotion when we think of the new provision.

The noble Lord’s basic argument is that we are not doing enough. As a veteran of debates on GAAR over the past decade, I recollect that noble Lords in the previous Government—perhaps even the noble Lord, Lord Davies—explained to me why the GAAR was totally impossible, completely unworkable and the Government would not countenance it. Indeed, they did not; they did not do anything in this area. The fact that the noble Lord finds this inadequate is slightly sad, given their failure to act in this area.

The noble Lord raised a number of points of failure, as it were, but one of them was in respect of the agreement with Switzerland. The agreement with Switzerland has not brought in as much as was expected, but the Exchequer has received almost £800 million via that agreement. That is £800 million that we would not have had, £800 million that the previous Government showed no inclination to pursue. That is only one of a large number of measures that we have taken to ensure that people and companies who are avoiding or evading tax do not get away with it. In terms of personal taxation, the Lichtenstein disclosure facility has yielded a lot more than was ever envisaged and, along with the Swiss agreement, is part of driving down the ability of those with large resources to avoid tax.

The new automatic information sharing agreements, which have followed the FATCA legislation in the United States, are revolutionising the ability of HMRC to gain information about the tax affairs and bank holdings of British nationals, whether those are held in the Channel Islands or some Caribbean tax havens. Along with the Swiss and Lichtenstein démarche, that will make a big difference to our ability to get the money to which the Government are entitled. On companies, as the noble Lord knows, the work being done in the OECD, particularly on base-erosion and profit-shifting, is aimed to deal with the particularly egregious examples of large multinationals paying very little tax indeed.

As for domestic action, GAAR is only one plank in our overall strategy. HMRC published Levelling the Tax Playing Field alongside Budget 2013 to provide an update on the strategy and to set out the full range of measures being taken in this area. Some people have argued that because GAAR is tightly focused, it will not hit many of the targets and almost gives a green light to other forms of tax avoidance, but if you look at the whole raft of measures that we have taken in Budgets and Finance Bills—most recently, some announcements in the Autumn Statement—it becomes apparent that we have taken measures to protect several billion pounds of Exchequer revenue which might otherwise not have been agreed.

We have, for example, taken firm action to clamp down on stamp duty land tax avoidance, introducing the new annual tax on enveloped dwellings, and continue to close loopholes as quickly as possible after they emerge. In the summer, we publish a consultation entitled Raising the Stakes on tax avoidance, seeking views on proposals for a new set of obligations for promoters of high-risk tax avoidance schemes.

HMRC does an excellent job defeating tax avoidance schemes in court and making sure that people know that many of the schemes simply do not work, but we know that there is much more to do. That is why the consultation also encouraged users of avoidance schemes to settle their tax affairs after similar cases have been lost in court or tribunal. The GAAR is an important step to increase the pressure on the tax avoidance industry, but it is only one step, and we continue to take further action and devote more resources to the fight against tax avoidance in all its forms.

With those reassurances, I hope that the noble Lord will feel that he does not need to press the point.

[Lord Davies of Oldham]

I am grateful for both contributions to this debate. I particularly appreciate the noble Lord, Lord Razzall, coming along just to discuss GAAR with us in the hope that the Labour Party would make an almighty blunder by the amendment. Far from it; we are guided by safe hands. I also congratulate the noble Lord on finding the time to be present in the Committee when there are so many absorbing issues which affect his party, to which I have no doubt he is devoting an inordinate amount of time to get an effective resolution.

As for the Minister, I recognise that any returns from GAAR are to be appreciated. The fact is that the product thus far in several instances falls far below expectation and will, if we go on for much longer, leave the public enormously dissatisfied because we are not implementing an effective strategy to deal with significant employers, particularly the great multinationals. That disillusionment among the electorate will be so manifest that the Government will be driven to improve their performance.

We used the Motion on clause stand part to look at the way in which GAAR might contribute. A little is better than nothing; that is why I will not oppose the clause; but I tell the Minister that the present rate of progress on GAAR, which is evident in this measure but is certainly the case in much more significant terms across the country, falls so far short of public expectation that the Government will be much criticised on it.

However, that is probably a debate for another day, so I do not oppose the Motion that the clause stand part.

--- Later in debate ---

[Lord Newby]

My Lords, I am grateful to both noble Lords for their contributions to the debate. I apologise to the noble Lord, Lord Davies, for the fact that he has only just received the letter. As he pointed out and knows very well, it has been a somewhat unusual week in terms of my ordered conduct of business and the letter was sitting on my desk for rather longer than it should have been. It is only fair to point out that this is no failure on the part of officials to respond in a timely manner; it is my failure. I am sorry that the noble Lord has only just got the letter.

Two points have been raised. The second was raised by the noble Lord, Lord Razzall, with regard to consultation. He asked whether the legislation had gone beyond the proposals set out in the consultation document. The Government believe that it does not go further than originally proposed or go beyond the original policy intention. In fact, as a result of the consideration of the consultation responses, the Government dropped the first of the original two conditions which were broadly in line with the employment status tests, which would have meant that even senior partners in major professional firms might have been reclassified as employees. The second condition, which contains ownership or economic interest or risk tests, has been slightly broadened because of this change, but it is still a narrower measure than if both conditions had been implemented as originally proposed. The Government also made clear in Budget 2013 and in the consultation document that the proposals will apply to higher-paid staff in the professional services sector and the lower paid if they are LLP members who receive a largely fixed reward and carry little economic risk or interest.

As regards the status of the secondary legislation and the issue of retrospectivity, the noble Lord referred to two sets of secondary legislation. The first, in Clause 13, had already been published in draft and the second, in Clause 14, was, I believe, enclosed with the letter to the noble Lord and has been put in the Library.

This legislation introduces half of a series of provisions that relate to income tax and national insurance. Slightly unusually, we are legislating for the national insurance part first because we happen to have this Bill before us. The relevant identical provisions relating to income tax will be in the Finance Bill, which will be introduced later in the year and will become the Finance Act 2014. The intention is that the provisions in respect of income tax and national insurance will not apply retrospectively but will apply from April 2014. That is made absolutely clear and set out in the secondary legislation.

I am told that the use of the earlier date in the primary legislation follows precedent in respect of other pieces of legislation and does not mean that the Government will introduce this measure going back a decade or, indeed, going back at all. There are technical arguments for putting that earlier date in the legislation, but the secondary legislation, as I said, makes it absolutely clear that the provisions will come into force from this coming April. Therefore, there is no question of an undue degree of retrospection. I hope that the letter which I sent to the noble Baroness, Lady Thomas of Winchester, set that out clearly and, I hope, satisfies the committee and the noble Lord.

[Lord Davies of Oldham]

My Lords, if it satisfies the committee, it will certainly satisfy this noble Lord, because I hold the committee in the greatest respect and I know how thorough it is in its work and its cumulative expertise, which I could not hope to match—so I am reassured on that front, which is why I thought that I did not need to go into an inordinate degree of detail. I am grateful to the noble Lord, Lord Razzall. I have seen no communication from the Law Society, but one or two people have made representations to us. They do not represent any particular group or profession, but are people who look at these matters closely and thought that they had identified an area of difficulty, which is what I sought to air under the amendments.

I am largely satisfied with the Minister’s response and will of course not press the Motion. I wanted to give him the chance to identify the Government’s position. He knows that we will ensure that those who have made representations to us and others get the chance to examine this thoroughly. I appreciate that, in the spirit of good will that obtains in the Committee, and obtained on Second Reading, the noble Lord is looking forward to a fairly straightforward exercise on Report and at Third Reading. I think that I can go 97% of the way to promising that, but this issue concerns the 3%. I cannot give a full assurance at this stage, because I do not know what the response of others will be, but I am sure that he will have worked hard enough to guarantee that the response is favourable, particularly from the Delegated Powers Committee. I will not press the Motion.

Taxation: Personal Thresholds

Debate between Lord Davies of Oldham and Lord Newby

Monday 20th January 2014 Lords Chamber

[Lord Newby]

My Lords, the Government have looked at merging national insurance and income tax. It is one of those ideas that is perennially discussed but every time the Government look at it they back off because it is extremely difficult to achieve. The problem with what the noble Lord’s suggests is principally the cost. However, I would remind him that the Government are introducing in the National Insurance Contributions Bill a tax-free national insurance allowance of £2,000 which will benefit every firm but particularly small firms. The Federation of Small Businesses has said that the single biggest consequence of that change will be increased employment.

[Lord Davies of Oldham (Lab)]

My Lords, the noble Lord deserves an easy ride today given his other responsibilities as Liberal Chief Whip, so I will ask him a very straightforward question. Does he agree with Citizens Advice that, for many low-income families in work, any gains they make from this change to the personal allowance are swamped by the Government’s other changes to tax and benefit, and that working families are £1,600 each year worse off since this Government came to power?

[Lord Newby]

My Lords, we can improve the status and income of poorer families by having a robustly growing economy and an increase in average earnings and household earnings. This is now under way. Our job is to make sure that we continue it.

Taxation: Fuel Duty

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 15th January 2014 Lords Chamber

[Lord Newby]

My Lords, the Government will have eased the burden on motorists by £22.5 billion over the Parliament to 2015-16. The kind of differential that my noble friend describes in a small area is a classic example of a competitive market operating. I am told, although I do not have one myself, that if you have a certain kind of sat-nav it will automatically tell you the price of petrol at petrol stations in your vicinity at the time, which is a very good way of facilitating the market working.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister will however recognise that the Chancellor, through his VAT increase, increased the price of fuel by 3p. Why do the Government not go further and introduce a price freeze on domestic fuels?

National Savings and Investments

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 14th January 2014 Lords Chamber

[Lord Newby]

My Lords, as the House is aware, when we have very low interest rates, which have been necessary in the economic circumstances in which we have found ourselves, that helps very many consumers, households, mortgage holders and businesses and is on balance, in our view, beneficial to the economy. The downside, as the noble Lord mentions, is that savers get a lower rate of interest. I think it is unrealistic to expect NS&I to promote products with a higher rate of interest than market rates, because its remit is to get best value for money for the Government, but I am sure that the noble Lord and the whole House will welcome the news that inflation is down to 2%, which is the target level.

[Lord Davies of Oldham (Lab)]

My Lords, returning to the original Question, surely the noble Lord, Lord Naseby, is right: NS&I ought to be an exemplar of good practice in informing its investors rather than apparently seeking to catch up.

[Lord Newby]

My Lords, NS&I needs to be able to compete effectively with best practice across the financial services sector. The truth is that NS&I has been behind the curve. It is undertaking a major programme to get all its customers online. Bear in mind that NS&I has 25 million customers in this country. That is a massive operation. When it is finished, it will be able to give information to the standard that people expect from the best of the other high street brands.

Banks: Payment Protection Insurance

Debate between Lord Davies of Oldham and Lord Newby

Monday 13th January 2014 Lords Chamber

[Lord Newby]

My Lords, a great deal of publicity has been generated on this issue, and consumer organisations are looking at how they can do more. As I have said, a very considerable number of claims have already been made.

[Lord Davies of Oldham (Lab)]

My Lords, the noble Lord will recall that in 2011 the chief executive of Barclays said that the period of remorse and apology should now be over. Since then we have had this scandal, described by the noble Lords, Lord James and Lord Wrigglesworth, as breathtaking and utterly unacceptable. We have Lloyds Bank, which is still being funded from the public purse, in the middle of it. Since 2011, we have had the rigging of LIBOR and we have had RBS, another publicly supported bank, handing out massive bonuses while declaring a pre-tax loss. When are the Government really going to get tough with the banks and make sure that the Vickers reforms are honoured in spirit and in practice?

[Lord Newby]

I think that the noble Lord must have been somewhere else in recent months because I seem to remember spending many days over last autumn in your Lordships’ House putting through, under the banking reform Bill, the tougher new approval regime for senior bankers, instituting the new criminal offence of reckless misconduct and more generally looking at ways of vetting the suitability of bank staff to a greater extent. The legal framework within which the banks operate moving forward is substantially different from that in place when this Government came into office, and it will make it much more difficult, although not impossible, for many of the problems we have seen in the past to recur. It will be much easier for the regulators to take effective action if they think it is necessary to do so.

National Insurance Contributions Bill

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 7th January 2014 Lords Chamber

[Lord Newby]

My Lords, I thank both noble Lords for their broad welcome for the proposals in the Bill. I am very grateful to my noble friend Lord Razzall for setting the Bill in the context of all the other measures that we have taken to support business, particularly SMEs. The Bill contains useful and valuable measures but, as my noble friend pointed out, they are only a couple of pieces in the large jigsaw of provisions which, taken together, we believe will help to sustain the recovery and put Britain on the path to strong, prosperous growth in the years ahead.

The noble Lord, Lord Razzall, referred to the findings of the Federation of Small Businesses’ survey in this area and what small businesses said they would do with the additional resource. I thought that one of the more interesting aspects of that survey was that a substantial proportion of respondents said that they would increase wages. Given that I think both the Government and the Opposition are keen that wages at the bottom end are improved, if the measure does have the impact of increasing wages—as well as generating new jobs in other cases—that will mean that it has been effective.

The noble Lord, Lord Davies, slightly chided me on the fact that I had no support on my Benches. He will have seen support flooding in during this short debate.

[Lord Davies of Oldham]

If the Minister will allow me, the verb “flood” in the present circumstances is not the right one to use.

Taxation: Rental Income

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 3rd December 2013 Lords Chamber

[Lord Newby]

My Lords, as the noble Lord mentioned and the noble Baroness raised again, this is an extremely important and live issue, which I will raise again with my colleagues in the DCLG.

[Lord Davies of Oldham (Lab)]

My Lords, is the Minister, a member of the Liberal Democrat Party, in favour of a mansion tax, which would certainly go a long way to dealing with this in terms of transparency of who owns property? He should be a little careful if he denies the validity of that, because the Chancellor has an awkward habit at present of listening to what the Labour Front-Bench says one day and doing something similar to it the next.

[Lord Newby]

My Lords, I am sure that the whole House knows that the Liberal Democrats are in favour of a mansion tax. I remind the House that, in the recent Budget, the Government introduced an annual tax on high-value dwellings—so-called enveloped dwellings —owned by companies, which will generate from £15,000 a year for properties worth between £2 million and £5 million to £140,000 a year for properties worth more than £20 million.

Banking: Lending

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 12th November 2013 Lords Chamber

[Lord Newby]

My Lords, in respect of SME lending more generally, gross lending is now rising. The picture is clouded by the fact that a lot of SMEs are still paying back loans, so the net position is not as positive, but net lending is down by a much lower amount. As far as lending to SMEs as a whole is concerned, the picture is improving. The Business Bank was launched on 17 October and it aims to support economic growth by bringing together public and private sector funds to improve financial markets for SMEs. Very recently it announced its first commitment of £45 million from the initial £300 million investment programme.

[Lord Davies of Oldham (Lab)]

My Lords, does the Minister think that his answers thus far will have given any satisfaction to those vocal critics of the low level of lending by banks to business, who include the director-general of the British Chambers of Commerce, the International Monetary Fund and the Business Secretary, Vince Cable?

[Lord Newby]

My Lords, it is important to look at what is happening in the real world. The CBI’s SME trends survey, published yesterday, showed that SME business optimism was rising at the fastest rate since the survey began some 25 years ago. Among SMEs, output grew for the fourth quarter and is expected to grow more rapidly going into 2014. More generally, vacancies—the best indication of growing or falling demand for labour—are rising at the sharpest rate for more than six years.

Taxation: Tax Law Enforcement

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 30th October 2013 Lords Chamber

[Lord Newby]

My Lords, I absolutely agree with my noble friend. I would remind him that this Government reinvested an additional £917 million in compliance activities in the 2010 spending round. They added another £77 million in last year’s Autumn Statement. Therefore, we have a track record of providing HMRC with additional funding, should it come forward with proposals that result in additional tax yield. It is not inconceivable that HMRC might come forward with such proposals in respect of this year’s Autumn Statement.

[Lord Davies of Oldham (Lab)]

My Lords, should Ministers not be taking some initiative, irrespective of HMRC and its officials? Are Ministers aware of the level of anger in the country, and not just against the multinationals? We all recognise that that is a challenging nut to crack and needs international co-operation. Internal British companies—not least the energy companies—are able to locate their senior companies in offshore tax havens in order to avoid paying their legitimate tax. Is the Minister not aware that action is necessary from Ministers and not just from HMRC officials?

[Lord Newby]

I think the decision taken by Ministers to give an additional £1 billion for compliance activities was pretty clear. Many of the problems that we see with multinationals paying less tax than would appear appropriate are international by nature. That is why we have put a lot of resources into the OECD. We put another £400,000 into the work that it is doing following the G20 summit earlier this year. There is a determination across the international community, to a degree that has not been apparent before, that companies cannot get away with avoiding taxes. This must be dealt with internationally, and that is what we are promoting effectively.

Banking: Co-operative Bank

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 30th October 2013 Lords Chamber

[Lord Newby]

My Lords, the Co-op is undoubtedly having a significant change in ownership, but one would hope that even vultures will be able to see that the Co-op’s USP is its particular ethical stance. Its strength appears to me, at least, to be very much in that direction. So for the development of the Co-op, one would hope that they would see continuation of those traits being in their own interests, as well as those of anybody else. Of course, there are other mutuals that the discerning customer can put their money with; the Nationwide is very successful, as are other building societies. We must be clear on the difference between “for profit” and “ethical”. I would not want to brand every other high street bank as unethical just because they are also making a profit.

[Lord Davies of Oldham (Lab)]

My Lords, I am grateful to the Minister for his comments on the Co-operative Bank, which after all is one of the few which did not go to the Government and to the taxpayer for support during these difficult times. However, what is the Minister proposing to do about increasing bank competition? Some 55% of the British population have never switched their accounts. The degree of switching and of competitive banking is low. Large banks owe their pre-eminence to historical development and being early in the field. Surely the Minister is going to take advantage of the Financial Services (Banking Reform) Bill to enact some of the proposals from the banking commission, chaired by Andrew Tyrie MP, and also amendments being tabled by the Labour Opposition to increase competition in the banking sector, which it sorely needs.

[Lord Newby]

My Lords, the banking Bill incorporates many of the proposals of the Parliamentary Commission on Banking Standards. On switching, a new seven-day switching service was introduced last month. In its first month, there has been an 11% increase compared with the previous year in the number of people who switched their bank accounts. One would expect that number to increase as the service becomes better known. This year the big change in terms of new entrants to the market is that the regulators have greatly reduced the time that it takes to become a new bank and greatly reduced the amount of money it takes to establish a new bank. Those are key drivers for getting new competitors into the market.

Economic Inequality

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 23rd October 2013 Lords Chamber

[Lord Newby]

My Lords, one of the commission’s recommendations was that intergenerational equity could be improved if pensioners paid a higher share. That has not been the view that the Government have taken. Particularly given the very high levels of pensioner poverty, against which many noble Lords have campaigned over many years, we have taken the view that the real value of pensions should be protected during this period of fiscal consolidation. However, we accept that there may be more to be done. Indeed, for people who receive payments such as the winter fuel allowance, there are now a number of voluntary schemes under which they can make that payment available via charities so that it can be used for people on low incomes.

[Lord Davies of Oldham (Lab)]

My Lords, why did the Minister not respond to his Liberal Democrat colleague who asked the initial Question with total honesty by saying that he is a junior member of the junior party in a coalition, of which the majority party has in its DNA the promotion and preservation of inequality?

[Lord Newby]

My Lords, the biggest task in reducing inequality, as the commission points out, is to get more people into work, and this Government are doing that. For example, the number of NEETs has fallen consecutively over many quarters, the number of people in work increased by 155,000 in the last quarter and the proportion of the population in work is at a record level. We on this side of the House will take no lessons from him about getting people into work and earning good money.

Financial Conduct Authority

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 15th October 2013 Lords Chamber

[Lord Newby]

I am sure that that is the case, but we want to try to ensure that contracts do not have those unsatisfactory features in the first place and that, if they are unsatisfactory, either they are banned, which the FCA will be able to do, or the rules will be set in such a way that they do not become widespread in the first place.

[Lord Davies of Oldham (Lab)]

My Lords, the Opposition are of course pleased to endorse changes to the law that are being effected by the Government at present, although we still doubt whether they are going far enough. However, is there any evidence that changes in the law are effecting the necessary change in culture in the City and elsewhere to ensure that higher standards prevail and that the grievous abuses of the past will not continue?

[Lord Newby]

My Lords, two things have to happen. First, we have to make sure that the regulatory and legal framework is fit for purpose so that people do not adopt unacceptable methods of behaviour in the first place, and if they do, they can be caught and dealt with properly. Secondly, there is a big issue around the culture in the City, which the Parliamentary Commission on Banking Standards discussed at great length and which your Lordships’ House has discussed. The two have to go hand in hand. The pressure that this House and Parliament can put on the banking sector regarding culture should not be underestimated. Debates here are taken seriously by the banks. We need to keep pressure on them whenever we have dealings with them. This must be underpinned by law and by better regulation, but we need both.

Alternative Investment Fund Managers Regulations 2013

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 10th July 2013 Grand Committee

[Lord Davies of Oldham]

My Lords, I am delighted to have the Floor. I cannot think of anything more exciting than to discuss this SI with the Minister. It looks as though only the two of us will participate in this absolutely fascinating debate.

Of course, we agree with the broad terms of the SI. After all, the origins of the directive were derived several years ago from a position that we largely endorsed in government. The Minister will appreciate that we very much agree that supervision and control should be robust and effective, and we expect the Financial Conduct Authority to fulfil that function. The SI indicates the need of this important part of our investment and service economy to have the opportunity to seek custom right across the European Community.

The Minister may nod his head enthusiastically, because I know his views on the European position, but I notice a dearth of Conservative support in the Committee on this issue. On issues such as this, in the absence of some of those noble Lords who, like their colleagues on the Conservative Benches in the Commons, always smell a rat in anything to do with the European Community, one always worries whether any such indication exists as far as this SI is concerned. Certainly, our side supports it.

The Minister identified the issue of costs, which, it is clear from the documentation, are not negligible. However, I ask the Minister to come clean on something that I do not think occurred in the other place. When this SI was being considered and the consultation had taken place with the industry, how is it that the Government, with extraordinarily adroit timing, also included in the Finance Bill £150 million of tax cuts to the industry? In this a case once again of the Government, with their well-known friends in the City and conscious that some costs are involved—I am not underestimating the costs—thinking that some softening of the impact must be made by other aspects of government policy?

All I can say is that I do not agree with that. I am not at all convinced about the necessity for that. After all, as the Minister was at pains to point out, and as was also made clear in the other place, there are considerable benefits from what the noble Lord referred to quite clearly as a passport for effective operation in Europe. That is not a negligible thing. Ordinary citizens pay for a passport when they have the right to go abroad, so I am not clear why the costs appear to have been partially defrayed by the Government acting in another legislative capacity to moderate costs for the industry with the tax concessions that they have made. After all, it is not as if the industry has not for some time been quite adroit at lobbying on this issue—with considerable effect, I might add.

I apologise if I am a little slow in understanding the position but perhaps the Minister can spell it out. I understand entirely the €500 million threshold on activity and the €100 million base, but I take it that those who fall below that threshold yet are in this category of activity are subject to some regulation from the Financial Conduct Authority. I was not quite sure whether the Minister had spelt that point out. I apologise to him in advance if he did and I merely missed it.

We endorse this SI and hope that it will bring to the industry the opportunities of using the passport for effective operation in Europe. I have one last question. The Minister referred to the date by which we were obliged to comply. What are the prospects of the other 27 states complying with that timetable? He says, “Well, we haven’t gold-plated this particular SI”. No, but fair is fair and a level playing field must exist across Europe. We therefore want some assurance that other actors on the European scene will meet the same obligations with the same degree of scrutiny and control as is to be applied in the United Kingdom.

[Lord Newby]

My Lords, I am most grateful to the noble Lord for his intervention. Since he referred to the timing of this debate, I must apologise that we have chosen to have it on a particularly exciting afternoon in the first test. Australia were 19 for two when I last heard.

[Lord Davies of Oldham]

That is almost the best news that the Minister has ever presented to me in any Committee, or in the House.

[Lord Newby]

I do not want to dampen the mood but the noble Lord will know the score at which England were all out, so I am pleased to have been able to assist him marginally.

Regarding the noble Lord’s questions, he raised the point about whether the decision in the Budget to abolish Schedule 19 stamp duty reserve tax was a sop to the industry that was being hit by this directive, to which the answer is no. It is not, if for no other reason than that the firms covered by this directive were not bearing the stamp duty. This directive covers hedge funds and private equity, which were not paying the stamp duty reserve tax in the first place, so that is not the case. The reason for abolishing that relatively modest bit of stamp duty was that we were undertaking a package of reforms designed to enhance the competitiveness of the funds industry, and to help secure our status as the global asset management centre. The scope within the EU to expand that kind of activity of fund management is considerable, in our view, and we do not want to constrain it by unnecessary burdens of any sort.

The noble Lord asked about the state of play in terms of the implementation of the directive elsewhere. We are aware that Austria, Bulgaria, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Romania, Slovakia and Sweden have stated that they will implement the directive by the deadline. The majority of those member states now have relevant legislation being considered by their parliaments. I am afraid that I cannot give the noble Lord any information on the state of implementation in Belgium, Estonia, Greece, Hungary, Lithuania, Poland, Portugal, Slovenia or Spain. However, as far as we are aware, there is no reason to believe that any of those jurisdictions will miss the deadline.

The noble Lord asked whether sub-threshold managers are authorised by the FCA. Yes, they are. All sub-threshold managers will be subject to at least the same regulatory standards and oversight by the FCA as they are now, so they are not unregulated. I hope that I have answered the questions posed by noble Lords and, on that basis, commend the regulations to the Committee.

Bank of England: Monetary Policy Committee

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 9th July 2013 Lords Chamber

[Lord Newby]

My Lords, the Government are looking at a number of ways of increasing investment in all those areas of infrastructure. We set out in the spending review our plans for doing that in 2015-16 and subsequently. Plans or programmes already in place, such as the finance for lending scheme, are already having a significant impact on new housing construction.

[Lord Davies of Oldham]

My Lords, would not a word of caution be apposite at this time? Is not the American experience—where it has been difficult for the Federal Reserve to press on the monetary brake without destabilising the markets, as we have seen—a lesson that we need to learn for the British economy, particularly if there is any pick-up at all and the possibility of rising inflation?

[Lord Newby]

My Lords, the American experience demonstrates how tricky it is for central banks to give forward-looking guidance without it having an effect on the market. However, as the MPC said at its meeting just last week, it viewed the implied rise in the expected future bank rate as not warranted by recent developments in the domestic economy. It is trying to be cautious and reduce any potential volatility.

G8: Eurozone and UK Growth

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 2nd July 2013 Lords Chamber

[Lord Newby]

My Lords, the key thing now is to drive unemployment down by continuing growth. That is the way in which consumption will rise. A key element of that is making sure that interest rates stay at a low level, which is the centrepiece of what the Government have been seeking to achieve. I absolutely agree with the noble Lord, Lord Peston, that one should not count chickens, but I think that he is almost wilfully failing to count those very small chickens that may be poking their beaks out into the sunshine.

[Lord Davies of Oldham]

My Lords, at the summit, did the Prime Minister take the opportunity to discuss with the President of the United States the strategy that it has pursued over recent years? The United States has had a 6% growth rate over that period. That is the growth rate that the Chancellor predicted for us in 2010 and, of course, we have achieved negligible growth over that period. Is it not quite clear that the Government have to change the strategy that they have been following and failing on over the past three years?

[Lord Newby]

My Lords, the Prime Minister has had very constructive conversations with the President of the United States around the key pillars that will provide the basis for growth: an active monetary policy, addressing global imbalances, restoring medium-term fiscal sustainability, and structural reforms.

Economy: Fiscal Framework

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 4th June 2013 Lords Chamber

[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?

[Lord Newby]

Yes, my Lords.

Taxation: Income Tax

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 6th March 2013 Lords Chamber

[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.

Banking Reform

Debate between Lord Davies of Oldham and Lord Newby

Monday 4th February 2013 Lords Chamber

[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.

Bank of England

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 22nd January 2013 Lords Chamber

[Lord Newby]

There is no quick and easy answer to dealing with these issues, but the Government will listen very carefully to what Mr Carney says when he arrives.

[Lord Davies of Oldham]

My Lords, is it not abundantly clear that monetary policy can only do so much and that the whole question of the rate of inflation is marginal to our position in terms of the need for growth in the economy, as the noble Lord, Lord Forsyth, indicated? When will the Government realise that, as we tremble not on our fiscal cliff but on the brink of the possibility of a third recession, it is necessary to address the real economy and abolish plan A?

[Lord Newby]

My Lords, I do not think that people struggling to make ends meet think that inflation is irrelevant. Keeping inflation down is a central aim of government policy. In terms of what is happening in the broader economy, I remind the noble Lord that the CBI industrial trends survey published today echoes the views of the British Chambers of Commerce quarterly economic survey published a couple of weeks ago: namely, that there is an improvement in confidence; that orders are increasing; and that employment expectations are improving. The noble Lord should not overdo the doom and gloom.

Taxation: Tax Havens

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 9th January 2013 Lords Chamber

[Lord Newby]

Absolutely, my Lords. That is why the Government agreed to put another £900 million during the lifetime of this Parliament into this kind of activity and why we announced in the Autumn Statement that we would add to that another £77 million, which we reckon will bring in £2 billion. The other important thing, in addition to this equalisation of technical expertise, if you like, is that consumers should continue to shine a spotlight on companies that may not be paying the amount of tax that most people would think is reasonable.

[Lord Davies of Oldham]

My Lords, although I welcome the progress made with the Channel Islands and the Isle of Man, perhaps I may ask the noble Lord on what basis Crown dependencies and overseas territories could refuse information to the Government on this crucial issue.

[Lord Newby]

As the noble Lord knows, my Lords, any arrangement with any overseas territory or Crown dependency has to be a formal arrangement and agreement. We are not a dictator going into these countries. We are negotiating agreements with them on the FATCA principles and I hope very much that we will conclude those agreements relatively soon.

Taxation: Avoidance

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 11th December 2012 Lords Chamber

[Lord Newby]

The Government have yet to establish a good guys’ website but it is an extremely good idea. In the mean time, I suspect that the noble Baroness will just have to read the newspapers.

[Lord Davies of Oldham]

My Lords, the worry would be that if the Government constructed a good guys’ website they would not be on it. The Minister is absolutely right: we need international action. However, the significant European countries taking action with regard to places such as Monaco point a very accusatory finger at the UK Government, with our plethora of regimes that are in fact tax havens. That is why the Government should be taking a lead, not following others.

United States Budget: Economic Impact

Debate between Lord Davies of Oldham and Lord Newby

Monday 10th December 2012 Lords Chamber

[Lord Newby]

No, my Lords, the situation is quite the opposite. The fact that the Government took decisive action in 2010 to effect a fiscal consolidation over a number of years—and then flexed that, given the severe headwinds that we faced from the eurozone—means that we are not faced with a fiscal cliff and we are now looking to a period of growth next year that will be higher than that anticipated in, for example, the eurozone.

[Lord Davies of Oldham]

My Lords, it is all right for the Minister to wish the Americans well, but why do the Government not emulate them? Is he unaware of the fact that the American economy has been growing at 2%, while we are teetering on the edge of our own cliff towards a third recession?

[Lord Newby]

My Lords, I agree with President Obama on this.

Banks: Funding for Lending Scheme

Debate between Lord Davies of Oldham and Lord Newby

Tuesday 4th December 2012 Lords Chamber

[Lord Newby]

The important thing is that the big banks have got a very clear offer. RBS, for example, has launched a £2.5 billion fund for SMEs specifically under this scheme, with the rate of interest charged being 1% less than would otherwise be the case. Lloyds TSB has also reduced its rate by 1% and noble Lords will no doubt have seen the double-page ads that it has taken out in the papers to persuade small businesses to take out a loan. Barclays has introduced a 2% “Cashback for Business”. So the big banks are already absolutely on the case; the smaller banks, which have signed up over a period, are, indeed, developing their offers.

[Lord Davies of Oldham]

My Lords, the Minister is surely guilty of great complacency. Is this scheme not going the same way as Merlin and various other efforts under this Government? Will he not acknowledge that £500,000 is a flea bite in terms of investment in our society and in business at the present time? Will he accept the fact, which he did not mention in his figures, that lending for business over the past quarter as a whole decreased by £3.3 billion? What on earth the Minister is doing producing complacent responses to these questions, I do not know. Do we not quite clearly need a British investment bank, backed by the Treasury, that can ensure that funds are made available to industry and business in order to guarantee recovery?

[Lord Newby]

My Lords, only a Labour Party Front-Bench spokesman could say that £500,000 is a flea bite. The figures show clearly that there is a realignment of activity in the lending market towards new entrants, which is exactly what the Government and, I think, the Opposition have been seeking to bring about. If we look at a bank such as Aldermore, it is just about the best performer in terms of increasing its size of offer. I am sure that noble Lords will be particularly pleased to see that the building society sector, with Nationwide very much in the lead, has significantly increased its lending specifically because we have the Funding for Lending scheme in place.

Financial Services Bill

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 24th October 2012 Lords Chamber

[Lord Newby]

My Lords, this small group of government amendments are of a purely technical nature. Amendment 193J amends Section 120 of the Banking Act 2009 to reflect the terminology of Scottish law, under which documents are “lodged” with the court.

Amendments 201A, 201B and 201C are concerned with the rulebooks that the new authorities will use. The FSA’s rulebook is currently made up of around 9,000 pages of rules. In the new system, these rules will become FCA rules, PRA rules, rules shared by both the FCA and the PRA, or Bank of England rules in relation to recognised clearing houses. Noble Lords will no doubt be aware that the Government intend that the new regulatory system will be put in place on 1 April next year. The Government are working closely with the FSA and the Bank of England on the practical aspects of transition to the new regulatory system, while listening to representations from industry on how disruption can be minimised in the run-up to the new system being put in place.

The amendments will give greater precision to the transition of the rulebook by enabling the new regulators to adopt relevant sections of the FSA rulebook, and its supporting materials, by designating the relevant regulatory material to the PRA and/or the FCA, or the Bank, and to make any necessary modifications. The amendments also permit the FSA and the PRA to appoint a set of persons to undertake this designation exercise. The recruitment processes to appoint members of the boards of the new regulators are well under way and the amendments will permit the future PRA and FCA boards to be appointed so that they, rather than the current boards, can make the decisions on the designation of rules.

The new rulebooks will not come into force until 1 April next year but we need the new boards to be able to make and publish their new rulebooks as early as possible in advance of 1 April next year so that industry and the public have certainty and sufficient notice to get ready. These are technical but practical and helpful amendments and I beg to move.

[Lord Davies of Oldham]

My Lords, it may be a source of some surprise on the Government Bench that I rise to speak on these purely technical amendments, but I merely ask Ministers to recognise that, their having looked kindly on three amendments that I proposed earlier today, I have kept my silence on three groups of amendments that they proposed and which have gone through without dissent.

Financial Services Bill

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 17th October 2012 Lords Chamber

[Lord Davies of Oldham]

My Lords, I rise briefly to say that it gives me considerable and indeed a rare pleasure to agree with the noble Lord, Lord Flight, and we support his amendment.

[Lord Newby]

My Lords, what we are talking about here is how we make sure that all those who should be consulted are consulted in respect of the work of the European supervisory authorities, the EU institutions and other international organisations. We are talking about the international dimension of the work of the financial services authorities as opposed to the domestic work that we have been looking at up to now.

We agree absolutely that consultation is an important part of the formulation of policy at the international level as well as the domestic level. It is perhaps worth starting by saying a bit about the way in which the international bodies themselves have sought to consult. The EU, following the Lamfalussy report in 2001, has increasingly appointed expert groups comprising industry, academics and consumers as the first stage of formulating policy. The UK has provided many distinguished members of those working groups. For example, the Commission set up a financial services user group, whose members included Mick McAteer, who was a founder director of the Financial Inclusion Centre, and Robin Jarvis, professor of accounting and head of SME affairs at Brunel University. We have therefore had strong UK representation on those European bodies for a long time.

One of the other main pillars of the international regulatory framework is of course the Basel Committee on Banking Supervision. It has consulted widely on its proposals for Basel III, and the Financial Stability Board’s charter clearly states:

“In the development of the FSB’s medium- and long-term strategic plans, principles, standards and guidance, the FSB should consult widely amongst its Members and with other stakeholders including private sector and non-member authorities”.

So at the international level, there has been growing recognition that the board itself needs to consult, and in many ways that will be the most effective level of consultation in respect of provisions that the board is making.

National regulators also have an important role to play in the consultation and feed their views through to the European supervisory authorities. The FSA already takes that responsibility extremely seriously, and the PRA and the FCA plan to do the same.

The regulators will be required to consult on any proposed new rules that are required to implement EU or international regulatory initiatives, except in cases of urgency. The FSA already does that. For example, in July this year, the FSA published a consultation asking for views on how to transpose Solvency II into the UK rulebook. In addition, the FCA and PRA’s contributions to international policymaking processes will be informed by engagement on an ongoing basis with the industry and other relevant bodies. That means that the views of affected parties will be considered at all stages of the policymaking process.

The UK practice has been a mixture of formal and informal consultation, which has meant that the regulatory bodies—the FSA and the Treasury—when going into negotiations in Brussels or at Basel, have taken a lot of trouble to gauge the views of the UK financial services sector and have sought to reflect them effectively. I may be wrong, but I think that the sector feels that that is the case.

Regarding the question asked about why the MoU does not deal with PRA-FCA co-ordination with the ERAs, the PRA-FCA memorandum of understanding is covered in new Section 3E(3)(a) on page 31 of the Bill. I am afraid that I cannot read that out at the moment, but I refer noble Lords to it.

My noble friend Lord Sharkey asked an extremely good question but, as I have explained regarding the way that the authorities are approaching co-ordination, even though not every last detail will be set out in a memorandum of understanding—and some clearly are—the authorities plan to take consultation extremely seriously. Apart from anything else, they have learnt through harsh experience that unless they have done that and are able to carry the industry with them, it just stores up more problems for the future.

I am convinced that the culture of the regulators is that they consult widely with relevant stakeholders and will continue to do that, and that it is not necessary to have an explicit provision in the Bill to ensure that that continues well into the future.

Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2011

Debate between Lord Davies of Oldham and Lord Newby

Wednesday 7th September 2011 Grand Committee

[Lord Newby]

My Lords, in view of the statement by the Deputy Chairman at the start of our proceedings about about the photographer, I am now tempted to give a 45-minute speech just to make sure that I get my picture taken in action to prove that I do things in your Lordships’ House other than turn up. However, I probably will not.

I am extremely grateful to the Minister for his introduction to the order, because it filled out the information in the Explanatory Memorandum. The phrase “sale and rent-back” is new to me; I am used to the phrase “sale and lease-back”. My first question relates to that terminology: is there a difference in law between sale and rent-back and sale and lease-back? When I think of sale and lease-back, I have commercial activity in mind. I remember that Tesco was notoriously involved in sale and lease-back of properties via the Cayman Islands a few years ago. I wondered whether this regulation meant that commercial companies involved in those kinds of deals on commercial properties are now brought into the legislative net, or whether the phrase “sale and lease-back” is already recognised in law. If I decided that I wanted to buy a Tesco store and lease it back to them, would I be covered by something that already exists or would this newly apply to me?

My other questions relates to Article 6 about the sunset clause. Within a year, more or less, of this provision coming into force a report has to be produced on how effective it has been. Presumably, the intention is that between then and 2015, if the report suggests that it has been effective, a subsequent order will be made, which no doubt will cover lots of other things as well but would continue this provision. I cannot remember, from when the Financial Services and Markets Act was going through, how this sunset provisions worked. If, as I suspect, we would expect a successor order to this one to be introduced before 1 January 2015, how long would that last for? Is this a rolling series of orders that have to be renewed every five or 10 years? Subject to that, this seems to be a sensible additional component in the consumer protection framework.

[Lord Davies of Oldham]

My Lords, I am somewhat shocked that the noble Lord, Lord Newby, feared that our proceedings might be concluded before the photographer arrives; I have my customary one-hour speech on a statutory instrument, so there is no call for anxiety on that front.

I thank the Minister for both the clear way in which he presented the issues around the SI, and for the sympathetic way in which he addressed himself to those who may be involved in this exercise by being forced by financial circumstances to engage in this operation. As he rightly says, there is an obvious imbalance between the professional service of those who provide the resources and seek to strike the agreement and the householder who most often is already entering into these arrangements through fairly dire financial circumstances. As the Minister accurately said, they are unlikely to think of recourse to financial advice or even to be able to afford it anyway, even if they thought it was a good idea.

This is consumer protection legislation, after all, and we are at one with the Government in seeking to enhance it, particularly as it is derivative from the 2009 Act passed by the previous Labour Administration. However, I ask the Minister to address himself to several points. First, because the order follows reasonably quickly from its predecessor, it is suggested that there was no need for further consultation. On the whole, all such SIs of this kind, prepared by the Treasury and other government departments, should be subject to consultation beforehand. After all, the previous consultation took place against different terms from this order. I am therefore somewhat surprised that no consultation took place specifically on this order.

Secondly, will the Minister address himself to the important point that the noble Lord, Lord Newby, expressed? I am sure that the Committee will be grateful for the clarification—and, I hope, confirmation—that the Minister will be able to give about the nature of the rent position regarding the law and this order.

National Insurance Contributions Bill

Debate between Lord Davies of Oldham and Lord Newby

Monday 28th February 2011 Grand Committee

[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?

--- Later in debate ---

[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.