Autumn Statement
Debate between Lord Deighton and Lord Higgins(10 years ago)
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Lord Deighton
As I explained to the noble Lord earlier, we have made a very detailed analysis of infrastructure spend, which is running on average at £47 billion per year. The majority of that, more than 60%, is financed by the private sector, which of course is a great sign of the success of this Government. Every scheme which has been announced has a clear funding plan attached to it. The real transformation that has taken place with this Government is that instead of having a plan for roads one year at a time—if there is a bit more money you can tell the Highways Agency to build a road; if there is no money, you tell it to stop, which results in a very inefficient road-building programme—we have given it a proper organisation, a proper strategy and a proper financing plan over the next six years.
Lord Higgins (Con)
My Lords, does my noble friend agree that it is very good news that we have now reached the point at which the deficit has been halved, and that the Government are determined to eliminate it completely? This raises broad macroeconomic issues that we can debate tomorrow. Does he also agree that this is an extraordinarily imaginative Autumn Statement? Perhaps I may take just one example, that of the Chancellor’s decision that hospice charities should no longer be subject to VAT. That is an example of the good things in the detail of the Statement which will be very much welcomed.
Lord Deighton
One of the things I have enjoyed about working with my right honourable friend the Chancellor is that, right through to the end of this Parliament, the Treasury is looking at new measures and trying to continue to implement the plan that has been laid out with such effectiveness. To be sticking to the target of getting the deficit down within the context of a very challenging economic environment, while being focused on structural issues and other important things that affect the economy and broader society, is indeed the sign of a good Statement.
Autumn Statement
Debate between Lord Deighton and Lord Higgins(11 years ago)
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Lord Higgins (Con)
My Lords, I very much welcome many aspects of the very imaginative Autumn Statement. Regretfully, I have to deplore once again the fact that many aspects of it were leaked in advance. I would have thought that the Treasury would have learnt the lesson from a previous Budget experience that this is not a good way of handling public relations—and is very discourteous indeed to Parliament. Parliament has the right to hear these matters first.
The good news, certainly, as my noble friend has just said, is that the economy is recovering faster than expected. Perhaps I might comment on why this has happened. There are, I think, two particular aspects. The first is that the deficit has not been cut as fast as we hoped and that consequently, the economy has picked up a little more, because of the effect on aggregate demand. None the less, I welcome the fact that the Chancellor has now set out a very firm timetable for getting down not only the underlying cyclical deficit but also the structural deficit. This is something to be welcomed. Up to now, we have rejoiced in the fact that we have cut the deficit by a third, but we are still continuing to borrow at two-thirds of the appalling rate that we inherited from the previous Government. It is very important that my noble friend agrees that that should be tackled.
The second reason, which gives more cause for concern, is the substantial reduction in saving—apparently the biggest fall in saving for 40 years. People have been using their savings, which has accelerated the growth of the economy, which may lead to concern. Given his particular responsibility for infrastructure, does my noble friend agree that it is absolutely crucial that we get savings up? The finance has to be provided for the infrastructure that the Government envisage.
In that context, I will ask one particular point. We seem to have got away from financing infrastructure in the usual way: that is, by allowing capital to be provided by whoever is launching the operation and then working it up in the usual way. Instead of that, we have been allowing monopolistic enterprises in particular to increase the prices on existing consumers. That has been the way in which we have been financing, for example, the railways and energy. Will he look particularly at whether this is the right way to proceed—because we are also then depending very largely on foreign investment rather than our own domestic savings and ownership?
Lord Deighton
I thank my noble friend for those incisive observations. He is absolutely right to say that the deficit was reduced in a measured fashion, which is part of the reason why the economy has been able to recover so quickly. He is also absolutely right that there is still a structural deficit, so we cannot simply allow for the natural recovery through the economic cycle to take care of our borrowing problem; we must continue to drive savings through the system. On the fall in consumer savings, again, my noble friend is absolutely right that it is a sign of a healthy economy to have a strong savings rate. On consumer behaviour, it is not surprising that, after a few years of belt-tightening, there has been a desire to begin spending again.
On the overall economy, as I mentioned, the recovery in business investment is the single most important change in the recovery of the economy over the next year. We anticipate that the recovery in consumer demand will give business the confidence it needs to increase its level of investment, which is what should sustain the recovery.
On infrastructure, my noble friend is correct. Essentially, there are two ways to finance it: directly from taxpayers or indirectly through the private sector and into the utilities, which then recover the investment through consumers paying. Of course, that is governed by independent regulators, who set the prices in those industries. It is absolutely part of our national infrastructure plan continually to assess the balance between the interests of the investing institutions and consumers’ affordability over the longer term.
Financial Services (Banking Reform) Bill
Debate between Lord Deighton and Lord Higgins(11 years ago)
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Lord Deighton
I was just getting to that. The Government believe that there is a superior approach to strengthening the law in this area by clarifying the requirements on regulators to meet auditors enough times to accomplish their objectives. I think we agree that the periodicity should not be the constraint, although perhaps we could deal with that by a requirement to disclose the frequency of meetings with certain types of firm to ensure accountability. Such an approach would, in the view of the Government, be superior and retain proportionality and the judgment-based approach while increasing accountability. If the noble Lord will withdraw his amendment I will be willing to return to it at Third Reading, subject to further consideration of these issues.
Lord Higgins
Before my noble friend sits down, can we be absolutely clear what he is saying? He is saying that he is going to come forward with an amendment at Third Reading to put this measure on a statutory basis, but leave the frequency point on one side. Is that what he is saying? If not, we should reach a decision on this.
Financial Services (Banking Reform) Bill
Debate between Lord Deighton and Lord Higgins(11 years, 1 month ago)
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Lord Deighton
My Lords, the ICB considered in detail the case for a ban on proprietary trading in the UK, but decided in favour of ring-fencing. The PCBS heard evidence from a wide range of sources that prop trading does not appear to play a large role in the UK at the moment—as my noble friend Lord Lawson pointed out—nor did it play a significant role in the financial crisis. The noble Lord, Lord Turnbull, has already addressed the question of my noble friend Lord Higgins, but it should of course be noted that the ring-fenced banks will be banned from proprietary trading as well as from market-making and other forms of trading activity that would expose them to risks from global financial markets. Therefore, from a prudential perspective, much of the risk posed by prop trading can be addressed by a suitably robust ring-fence which is, of course, the thrust of our legislation. This was the point made by the PRA in response to questions from the PCBS.
It is also worth noting that the evidence heard by the PCBS also suggests that prop trading is not necessarily the sole avenue for the cultural contamination of banks. For example, the PCBS highlighted in its excellent report the serious failings in culture and standards at HBOS, a bank which did not engage in any prop trading at all. Indeed, it is perfectly possible to run an integrated securities business with full integrity in a way that manages any potential conflicts of interest quite satisfactorily, so they do not necessarily follow. It is far from clear, therefore, that prop trading is the real problem facing the UK financial system, or that structural solutions address cultural problems. In light of that, and of observations about the practical difficulties of a ban on prop trading, as it is being attempted in the US through the Volcker rule, the PCBS did not recommend a ban on prop trading.
It is not wholly clear what further evidence would support a different conclusion to that reached by the PCBS in its own assessment, so it is unclear what a further review into proprietary trading within such a short period of the PCBS’s own report would add. Still less is there a need for such a review to be followed immediately by an independent review of the same question. Of course, we have no issue with reviews as a matter of principle: we are just not sure that, in this case, legislating for one in advance really does much for us.
As the findings of the PCBS do not suggest that prop trading presents a serious prudential risk at this time, I do not think we need to legislate for the regulator to carry out a further review. The absolutely valid point made by my noble friend Lord Lawson was that this could change in the future. That is what we are trying to address. Should that happen, the PRA has made it clear that it already has the powers it needs to bear down on prop trading where it endangers the safety and soundness of a firm or where the risk incurred is not consistent with the publicly stated risk appetite of a bank.
Moreover, monitoring and reviewing all risks to a bank constitutes an essential part of the PRA’s work. The PRA’s approach is to insist that firms adopt and follow a risk appetite that is consistent with the PRA’s statutory objective to promote the safety and soundness of firms that it regulates. This will include regular monitoring and review of all risks, not limited just to those associated with prop trading. Therefore, to require the PRA by legislation to undertake such a review seems unnecessary. Should we legislate for a review of how reference rates are set, for example? Should we legislate for a review of mis-selling practices? Why, therefore, should we do it for prop trading? It is not apparent to me what problem a review would solve. While I think that reviews can play a useful role, in this case we are not sure that it is justified in advance.
We need to give the regulator the space to allocate its resources in a way that is appropriate and proportionate when considering all the different risks to the UK financial system, not only focusing on one particular risk. Our more widely framed reporting requirements allow for this. For all of these reasons, I do not think that a review on the particular issue of prop trading is necessary. The regulators are already subject to extensive reporting requirements. I expect the PRA to make the Treasury, and Parliament, aware of any emerging risks it identifies, whether through prop trading or anything else. The deputy governor for financial stability has already written to the chair of the Treasury Committee, offering to discuss arrangements for reporting. I therefore ask the noble Lord to withdraw his amendment.
Lord Higgins
My Lords, the Minister says that we do not want to have the regulator wasting resources. However, if we ban an activity, it would not waste resources. I am also not absolutely clear—I thought I was—that we are going to say that proprietary trading by a ring-fenced bank is absolutely banned. If that is so, ought we not to make it absolutely clear in the Bill?
On the point made by the noble Lord, Lord Turnbull, we have to distinguish between proprietary trading and other activities such as hedging as there may be a case for the bank operating on behalf of its clients by hedging for a foreign exchange risk or whatever. However, that is not at all the same as what is normally meant, certainly by Paul Volcker, whereby banks use a client’s money to take on particularly risky investments which have nothing to do with the client.
Lord Deighton
I was trying to be clear but I shall reinforce my comments. I think this issue was covered on the first day in Committee when we dealt with the details of ring-fencing. It is clear that proprietary trading for ring-fenced banks is not allowed; it is an excluded activity, as defined. As my noble friend implies, there are some exceptions to that which are predominantly related to a bank’s own hedging activities to deal with its own surplus liquidity. My noble friend’s phrasing was accurate and the issue is included in the Bill.
Financial Services (Banking Reform) Bill
Debate between Lord Deighton and Lord Higgins(11 years, 2 months ago)
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Lord Deighton
On the noble Lord’s question about transitional arrangements, the structure with respect to group liabilities will generally be to ensure that liabilities that are particularly relevant to the newly structured organisations that fall out of the ring-fencing arrangements are consistent with the businesses that they are in, so that an operating unit is created which has liabilities which match the business that it is running. If there was a lease at the group level and the ring-fenced bank was the organisation leasing the building, you would expect there to be an inter-company arrangement which would pass the cost down to that level. That is the principle and I think that most banks operate on that basis anyway because one is trying to put the costs and revenues where the business is. There is a provision under Part 7 of FiSMA which allows for transfer of business schemes if one is moving other businesses, but that is a separate point.
On the question of banks and trustees, it is for the banks to work out the practicalities. The legislation defines the objectives to make sure that the ring-fenced bank is protected and that the trustees and pension arrangements are protected in each case, which is why the provisions here ensure that the regulator is contacted in each case. Essentially, the cost of making this work, so that the pensioners are, at a minimum, indifferent to the outcome, will sit with the bank. That is the principle behind this. There may be some costs involved for the banks to leave the pensioners no worse than indifferent, and those costs are an intrinsic part of this separation and the advantages that it brings us.
Lord Higgins
Will my noble friend perhaps consider between now and Report whether there is not a strong case for the two schemes to be quite separate? There may well be a conflict of interest between the pensioners of one part of the bank and those of the other part; for example, on whether it should be a final salary scheme or a defined contribution scheme and so on. Will he consider whether one should not leave it to the banks but determine that they shall be separate pension schemes?
Lord Deighton
We will certainly review the question in that light. The principle behind this is that they would be separate pension schemes. They may be very similar schemes which are separated, but the notion here is that the ring-fenced bank would have one scheme and the rest of the group would be under different arrangements, the key objective being that the ring-fenced bank would not have an exposure to the pension liabilities that arise elsewhere in the group. That is the key principle here.
Financial Services (Banking Reform) Bill
Debate between Lord Deighton and Lord Higgins(11 years, 2 months ago)
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Lord Deighton
My Lords, Amendments 6 and 81 insert two new sections into the Financial Services and Markets Act 2000 and make a consequential amendment to new Section 142J. The first new section, new Section 192JA, gives the PRA a power to make rules over the parent companies of ring-fenced entities. Ring-fencing will require banking groups to make large structural changes to ensure the independence of the ring-fenced bank from other entities in its group. The PRA may need to make rules to ensure that the groups in which ring-fenced banks sit are structured and governed appropriately. Rules over parent companies may be needed to ensure that this is the case.
It is important that the regulator has the ability and flexibility to tackle parent companies. They can influence subsidiaries in a number of important ways—through their attitude to risk management throughout the group, for example. This obviously has implications for the incentives faced by a ring-fenced bank. This amendment, therefore, further enables the regulator to strengthen the ring-fence.
I also expect the PRA to use this power to require groups containing ring-fenced banks to adopt a so-called “sibling structure”. This means that a non-ring-fenced bank cannot own a ring-fenced bank and vice versa. Both the ring-fenced and the non-ring-fenced bank will sit directly underneath the holding company. In this way, the PRA will be able to supervise banking groups more effectively, by having a clear divide between the ring-fenced and non-ring-fenced parts of a group. As development of the ring-fencing policy has progressed, the PRA has identified additional supervision benefits to a “sibling” arrangement such as this. I also understand that the Bank of England is encouraging banking groups to issue loss-absorbing debt from the holding company level, which is likely to lower the marginal cost to banking groups from adopting the sibling structure.
New Section 192JB will give the PRA and the FCA, as appropriate depending on the nature of the firm, the power to impose rules on qualifying parent undertakings to require them to make arrangements which would facilitate the exercise of resolution powers in relation to the parent or any of its subsidiaries.
Lord Higgins
Can my noble friend explain precisely what is meant by “resolution powers”?
Lord Deighton
The resolution powers all relate to the Bank of England’s powers essentially to step in in advance of a bank’s insolvency so that it can change, for example, the creditor arrangements.
The PRA and FCA already have powers to require regulated entities to take actions that would facilitate the resolution of a firm in the event of its failure. This may include requiring it to raise additional capital, issue debt to the market or make structural changes to enable the firm to be resolved.
However, banks may be organised in a number of ways. Many have a structure whereby the bank is owned by a financial holding company, which may not be regulated. Banks may also be part of corporate groups which contain non-corporate banking entities. In these cases, the existing powers may be insufficient to deliver some of the changes that the regulator feels are necessary to make a bank resolvable. This is because the regulated entity may not have the level of control required to make the change. This may be the case where, for example, capital and debt are issued out of the parent undertaking before being downstreamed to a bank. It may also be operational in nature; for example, where a service company which is not owned by the bank but sits in another part of the group provides critical services in the bank.
The amendment will address these cases and ensure that the PRA and the FCA have the necessary powers to make banks resolvable for all types of corporate structure. It amends new Section 142J to ensure that any reviews by the PRA of “ring-fencing rules” under that section must also cover rules made under the power given in new Section 192JA in relation to parent undertakings of ring-fenced bodies.
Lord Deighton
It is a valve which goes only one way; it cannot be upstreamed—otherwise the noble Lord is right that the ring-fence would not work.
Lord Higgins
My Lords, the clause as I understand it seems to be absolutely essential if the powers involved are to be able to ensure that there is a separation between one part of the bank and the other, in which case it is rather extraordinary that the amendment has suddenly appeared at this stage.
If I understand the clause correctly, it has both national and international implications. My noble friend, in response to my inquiry, referred to the Bank of England, but the clause also apparently refers to any similar powers exercisable by the authority outside the United Kingdom. That gives me cause for concern. It would be very useful if all the actions taken in this country, in the European Union and in the United States worked on the same basis. However, as I understand it, that will not be so. The line will be drawn in rather different places in the United States compared with the European Union and in the European Union compared with the United States or this country. How precisely are the FCA and the PRA to set about ensuring that they can separate the two parts of the bank effectively? I am not clear from the amendment how they will do that.
Government Spending Review 2013
Debate between Lord Deighton and Lord Higgins(11 years, 5 months ago)
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Lord Deighton
My Lords, first, I thank all noble Lords for their insights, ideas and challenge. It has been a most fascinating exchange and I congratulate the noble Lord, Lord Davies, on holding up the Opposition’s end there. I will address his question about morality straightaway. To me, this is a very simple issue: unless we are able to create a state that can actually afford to sustain itself, those who are most vulnerable will be the most exposed victims of the fall-out from that kind of financial crash. We have to get our ability to afford a welfare state in the right state so that we can sustain it. That is the way that we protect the vulnerable in the long run.
The Chancellor was back with another spending round because we had not defined the spending plans for 2015-16. We took the opportunity to lay out the investment programme through to 2021 because, as I explained in my earlier remarks, we think that it is the right way to provide an environment in which people can plan investment correctly. On the general question of whether anything is really being done about growth for the future, the point is precisely to begin to deliver a programme from which future Governments will benefit. They can quibble over who was responsible for the earlier decisions. These kinds of investments have very long lead times and our planning is trying to break the link between the political and economic cycles. There was some misunderstanding there, in that I do not think anybody was trying to claim more; we were just trying to claim that there is a long-term plan. Public sector gross investment in this decade, 2010 through to 2020, is slightly higher on average than in the previous decade, if you smooth out the peaks and the troughs and take the average.
In terms of delivery today, the noble Lord, Lord Davies, is correct that projects from 2021 and onwards, or in five years’ time, have an impact later. However, the projects we are undertaking now are having an impact. Crossrail is being delivered now—the money in the spending round is for the feasibility study for Crossrail 2. Crossrail will be open in 2018-19 and we are spending something like £15 billion on it. It is the biggest urban infrastructure project in Europe and is going on now, right under our feet. That a very good example of delivery. Similarly, we have upgraded 150 stations, completed more than 30 road projects, opened more than 80 new free schools, delivered more than 84,000 affordable homes and done an enormous amount in rolling out 4G mobile services. There is a significant amount of delivery going on now and we are trying to plan for future delivery. We are trying to accelerate it and make it better value all the way through. I accept the point of my noble friend Lady Noakes that it is not necessarily a good thing just because it is an infrastructure project. We have to evaluate them all, which is what we did in the plan through to 2020. We re-evaluated them all on a zero-budget basis and approved the ones that we thought were most powerful.
My noble friends Lady Kramer and Lord Northbrook both asked about the welfare cap. It will apply to welfare, of course, but does not apply to state pensions. As my noble friend Lady Kramer implied, it will work off the OBR forecast. If the spending is forecast to breach the cap, the Government will have to explain what action has been taken. We will put a buffer in place to ensure that any policy actions are not triggered by small changes. That is how that one works. For the information of the noble Lord, Lord Northbrook, the areas being capped are all in social security: housing benefit, disability benefits, pensioner benefits and tax credits.
The noble Baroness, Lady Kramer, also asked whether we would be focusing on the quick wins in infrastructure and leaving the longer-term strategic projects because they have a longer lead time. It is the portfolio that works; I addressed this earlier. Lots of delivery is going on at the moment and we are trying to put a consistent long-term plan in place. We will, of course, look at local funding of infrastructure projects, of which TIF is one example. Another example is the single local growth fund. The European funds we are allocated will be put into the single pot and be part of that as we devolve responsibility.
I was delighted that the discussion got around to our international competitiveness—I thank the noble Lord, Lord Risby, for giving us the detailed example of what is going on with Algeria. I have spent a lot of my own time dealing with inward investment. This country has a tremendous advantage. Overseas investors really want to invest here. They trust us. They believe in our rule of law. There are many things they like about the opportunities we create here. We are working very hard to exploit this to the country’s fullest advantage. On export promotion we are continuing to fund UKTI. It is in the process of transforming our approach to trade and its support to a very focused business approach.
We had a very powerful discussion about our fiscal position and whether we are moving quickly enough to address what I accept are still very high levels of borrowing. It is absolutely critical that people understand that the deficit each year is extra borrowing—it is adding to the stock of borrowing. I do not think that that is generally perceived or understood more widely. The implications of understanding that properly should focus attention on addressing the deficit as fast as possible.
In defence of the pace at which the Government are addressing the deficit, we are still focused on reaching a balance by 2017-18. We are on that path. There is a plan in place. I am very open to challenges about the paradigm shift, as my noble friend Lady Noakes suggested, that we could be more radical in some of the ways we deliver public services and in some of the ways we have structured the Civil Service. That is a challenge we should set for the next tranche of cost improvement. Without that it becomes very difficult to continue—again, in my noble friend’s words—to “salami-slice”.
My noble friend Lord Shipley asked about whole-place budgets. Community budget pilots have demonstrated that it is possible to do much more by joining up local authorities; I do not think there is any question about that. That is why we talked about the £3.8 billion social care budget that we have set aside. We have also set up a £200 million pot to accelerate joint working among local authorities. Whether we can release the borrowing cap on HRAs is another matter. If we were to do that it would add another £7 billion to public sector borrowing every year. Most of the schemes which creatively try to allow more borrowing at the local level are captured and increase public sector borrowing. That is always the constraint that we are trying to manage.
My noble friend Lord Northbrook asked for a response on public pension cuts. My noble friend Lord Newby and I will certainly get back to him on that.
The noble Lord, Lord Empey, asked why UK pension funds are not investing in UK infrastructure. He is correct to say that that industry is highly fragmented compared to its counterparts overseas. That is why we have worked with the industry to consolidate funds into a pension infrastructure platform of £1 billion. Ten funds have come together so that they can gain economies of scale, develop the expertise to assess those credits and provide us with the scale to begin to get them into that business in the same way that, for example, the Canadians have so effectively prosecuted over the past few years.
I could not agree more with the noble Lord, Lord Haskins, that we need to rationalise the number of funding streams going into skills training. That is why we have set up the single local growth fund so that we can begin to provide that kind of rationalisation.
The noble Lord, Lord Empey, asked about VAT and how it is applied to building. I will get back to him in writing on that.
I thank noble Lords for a very stimulating debate.
Lord Higgins
What is the assumption on interest rates in calculating debt interest payments?
Lord Deighton
I thank my noble friend Lord Higgins for reminding me of that question; I was intending to deal with it directly. There is a ready reckoner in the OBR. Our debt is fixed-rate, so the effect of interest rates going up increases over time as debt matures and as we borrow more. For example, if we had a 1% increase in gilts rates, by 2015-16 that would be costing us just over £4 billion more per annum in debt service costs. That gives a sense of the sensitivity. By 2017-18, it would more or less double to just over £8 billion.
Lord Deighton
That is the impact, but those are not the assumptions. We must consider the impacts, so the assumption is on a stable basis, but that is the sensitivity to change. That is how we measure it.
Spending Review
Debate between Lord Deighton and Lord Higgins(11 years, 5 months ago)
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Lord Deighton
My Lords, I am working on the assumption that we have fulfilled those, but I am sure somebody will tell me very quickly if we have not. It is not a stipulation I am familiar with.
Lord Higgins
My Lords, when the coalition was formed, I stressed that it would be far more difficult to reduce the deficit than was generally supposed. Having been involved in spending cuts in previous Governments, I would certainly not underestimate the task facing the Chancellor. None the less, there is a danger that we are underestimating what still needs to be done. The Government keep repeating the mantra, “Oh well, we have reduced the deficit by a third”. Actually, this means that we are borrowing more at two-thirds of the rate that we inherited from the previous Government.
We are still living way beyond our means, in part because we are paying for Gordon Brown’s proposals, for which there was no money then and for which no money is available now, except by borrowing. Does my noble friend agree that we really have to press on with much more determination in tackling this whole issue and that it would be wrong to say that we are all right just because we reduced the deficit by a certain amount?
Lord Deighton
I agree with my noble friend that managing the public finances responsibly will be a continuing exercise of considerable discipline. On managing current spending, we have introduced the welfare cap on the overall budget as well as the cap on specific benefits that we saw in the previous Budget. Departmental budgets are being managed with discipline. There has also been a real focus on switching from current expenditure to capital expenditure, which should support the enhancement of the productive capacity of the economy and thus help us with tax revenues. Those components should continue to be an urgent and aggressive focus of the Government’s fiscal management.
Economy: Credit Rating
Debate between Lord Deighton and Lord Higgins(11 years, 9 months ago)
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Lord Higgins
My Lords, does my noble friend accept that we were supposed to have this Urgent Question much earlier in our proceedings, and that if this does not happen the Whips should rise and say what is going on?
As far as the substance is concerned, does my noble friend agree that it is absolutely crucial that the Government should continue with their existing policy? The reality is that they have not managed to reduce the deficit as fast as we would have liked. The Labour Party is saying that the reduction is being done too quickly and by too much, but clearly the reason why we have had this reassessment of our position is that it has not been done as quickly as international opinion might feel would have been appropriate.
If we are going to take this attitude, it is essential that aggregate demand should be maintained. In that instance, a further increase in quantitative easing would be appropriate. However, we are in some danger of having economic management split between an unaccountable Monetary Policy Committee and the Treasury. Perhaps this point also should be taken into account.
Lord Deighton
I thank my noble friend for those observations. As for the timing of the Statement, I think that it was simply a matter of the earlier session not finishing on time. I, too, have been here for an hour and a quarter ready to talk about this Question.
On the economic substance, my noble friend raises a number of extremely important points. I do not think that we can evaluate the current economic situation in terms of a direct trade-off between growth and fiscal consolidation. The essence of the situation that we find ourselves in is that fiscal consolidation is an absolute prerequisite for recovery and for the confidence of the markets which allows us to borrow to finance this extremely high deficit. My noble friend is right that an array of other policy weapons is available to prosecute a growth agenda. That includes multiple supply-side reforms to make our economy more efficient, and the Government are fully embarked on those. An activist monetary policy plays an important part, but—I agree—within a constraint of managing very carefully any inflationary risk.
Banking: LIBOR and EURIBOR
Debate between Lord Deighton and Lord Higgins(11 years, 10 months ago)
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Lord Deighton
My Lords, I absolutely accept the noble Lord’s observation that it is really a swingeing indictment of the financial system that a benchmark as critical as LIBOR—which is responsible for settling about $300 trillion-worth of transactions—could be manipulated in this way. Once this was uncovered, however, the Government have moved extremely swiftly, appointing Martin Wheatley, the chief executive-designate of the Financial Conduct Authority, to do a review. He came up with a 10-point plan, which has been implemented in full. The Financial Services Act was amended to make sure that LIBOR activities were brought within statutory regulation; we created a new criminal offence to ensure that it could be followed up in that way and the FSA has now been given the power to compel banks to participate in LIBOR setting.
Lord Higgins
My Lords, would my noble friend agree that the general public are somewhat bemused by the large sums of money involved in these transactions and are even more puzzled as to why there seem to be very few people who have been either prosecuted or convicted with penalties affecting the individuals concerned? Could my noble friend comment on that?
Lord Deighton
My Lords, with respect to the sanctions and penalties, I would point out that there are ongoing criminal investigations with the Serious Fraud Office. Three arrests were made at the beginning of the year, so it is clear that we are determined to follow through on picking up on criminal activity where that can be proven to have taken place.