Guardian’s Allowance Up-rating Order 2012
Lord Eatwell Excerpts(13 years, 9 months ago)
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, I am pleased to introduce the draft Tax Credits Up-rating Regulations 2012, the draft Guardian’s Allowance Up-rating Order 2012 and the draft Guardian’s Allowance Up-rating (Northern Ireland) Order 2012. In my view these regulations and orders are all compatible with the European Convention on Human Rights.
The regulations and orders before the Committee put into effect a number of reforms to tax credits announced in Budget 2010 and the Autumn Statement last November. The changes I will now outline will ensure that we tackle the deficit in a fair way and that tax credits are targeted at those who need them most. Tax credits are made up of a number of different elements for people in different circumstances. Some of these elements will continue to be increased by the CPI at 5.2 per cent, including elements for disabled workers and severely disabled workers, for children, disabled children and severely disabled children. However, the couple and lone parent elements of working tax credit will be frozen and the basic element and 30 working- hour element will remain frozen.
The family element of child tax credit is currently payable to families with an income of up to £40,000. From April 2012, this threshold will be removed and therefore the family element will be withdrawn immediately after the child element. A disregard of £2,500 for falls in income will be introduced, meaning that any in-year falls of less than £2,500 will be disregarded when recalculating the award. The 50+ element of working tax credit will also be removed. This is time limited to one year and will not affect anyone who is currently claiming. Couples with children will need to work at least 24 hours combined, with one partner working at least 16 hours per week, to qualify for working tax credit. Previously, depending on a family’s circumstances, new claims and changes of circumstance could be backdated by 93 days. From April 2012, this will be reduced to one month.
The changes the Government have made will ensure that we tackle the deficit in a fair way and ensure that tax credits are targeted at those who need them most. Reforms to tax credits included within these regulations and orders mean that support for higher income households will be reduced by increasing the rate at which tax credits are withdrawn while reducing the threshold at which tax credits are paid. Under the previous system around nine out of 10 families with children were eligible for tax credits. This reduced to closer to seven out of 10 families in April 2011 and will be reduced further to six out of 10 from April 2012.
Spending on tax credits has increased from £18 billion in 2003-04 to an estimated £30 billion in 2010-11. The system of tax credits under the previous Government was not only unsustainable in fiscal terms, it was also unrealistic in terms of meeting its stated policy objectives. Let me be clear that this Government are committed to making work pay. The best way to help working people is by taking them out of tax altogether. In April 2012 we will make a £630 increase in the income tax personal allowance, taking it up to £8,105. This is in addition to the £1,000 increase in April 2011. Together, these increases will benefit 25 million individuals and take 1.1 million low-income individuals out of tax from April 2012.
Universal credit will unify the current complex system of means-tested out-of-work benefits, tax credits and support for housing in one single payment. The award will be withdrawn at a single rate, with the aim of offering a smooth transition into work and encouraging progression in work. For parents on working tax credit, the Government continue to provide support for 70 per cent of childcare costs, up to a weekly limit of £175 for families with one child and £300 for two or more children. This support will be extended under universal credit to those working fewer than 16 hours, allowing 80,000 additional families to receive help with childcare costs. This will give second earners and lone parents, typically women, a stronger incentive to work.
This Government are committed to restoring the country to sustainable growth and prosperity. We know that it is not an easy path to tread and we have not shirked our responsibility to take the tough decisions to return the UK to economic stability. It is in that context that I commend these regulations and orders to the Committee.
Lord Eatwell
My Lords, once again these indexing procedures are being used as a stealth tax. As the noble Lord has actually admitted, the shift imposes a significant cost on the poorest families. He has described this as providing an incentive to work. When the economy is growing at 0 per cent a year, there are no extra jobs. What is the point of an incentive to work when there are no jobs for people to work in? In these circumstances, the overall effect is exacerbated by the number of technical changes and by a failure to uprate various thresholds even at the rate of the CPI.
Will the Minister tell us the net benefit to the Treasury—that is, the net loss to the receivers of tax credits—of the changes that are made in these orders? The changes that derive from uprating less than the CPI, and various technical changes, represent one set of losses to the recipients of tax credits. Will he also tell us the overall impact on recipients of tax credits of using the CPI rather than the RPI? Those are the two components of the extra burden that the Government have decided to impose in increasing the incentive to work—while their policies are destroying jobs.
Will the Minister also confirm that the shift from the RPI to the CPI is deemed by the Government to be a permanent aspect of future policies rather than a measure to deal simply with any fiscal difficulties that the Government are encountering? Will he tell us the Treasury’s estimate of the reduction in tax credits by the time the universal credit is introduced?
Finally, the Explanatory Memorandum contains the extraordinary statement:
“This instrument has no impact on business, charities or voluntary bodies”.
Surely this cannot be the case. All charities and voluntary bodies that provide services—for example, to poor children, to the disabled or indeed to anyone struggling to get by—will be shocked by this pathetic excuse for failing to estimate the impact of the Government’s actions. How can the Government justify the statement that there is no impact on the charitable or voluntary sector, which at its most obvious and trivial level is untrue?
Lord Sassoon
My Lords, let me deal with some of those questions. I do not like to do this, but I think this may be a case where I had better go away and follow up by writing to the noble Lord, Lord Eatwell, and the noble Baroness, Lady Lister of Burtersett, because I suspect that I will not cover all their questions in the detail that they merit. I shall make one or two broad points in response and then, as I say, I will follow those up with detailed answers.
The noble Lord, Lord Eatwell, talked about the context in which these orders and regulations are coming forward. It is clear that the level of unemployment is higher than the Government would wish to see. Of course that is the case, but nevertheless, it is a level of unemployment within which the private sector has been vigorously generating new jobs—in excess of half a million new jobs in that sector in the past two years. On the specific point raised by the noble Lord about the availability of jobs, the latest monthly figures show that there are some 476,000 vacancies in the country.
It is simply not the case that jobs are unavailable, and the private sector has been investing vigorously in what are very difficult economic circumstances as we rebalance the economy from an overreliance on the public sector and on excessive leverage. It is critically important that we press on with everything we are doing to encourage people into work, partly through the construct we are talking about this afternoon, by raising the starting rate of tax and with the other measures we are taking.
The noble Lord, Lord Eatwell, raised the question of RPI and CPI. Again, this is not a measure that we take lightly or will reverse in some way. It is a change that we are making because, as I explained in our previous debate and on other occasions, we believe that CPI is the better measure in this instance.
The overall impact of the effects of the measures is best looked at in the distributional effects set out in each of the Budgets and Autumn Statements since the election. These distributional analyses were never published by previous Governments. They are all laid out. If one looks at the cumulative impact on households of tax, tax credit and benefit reforms introduced up to the Autumn Statement, and including the previous fiscal events, the critical thing is that the top income decile sees the largest reduction in income, both in cash terms and as a percentage of net income. In cash terms, the top income decile sees losses 9.8 times that of the bottom decile. The cash losses of the bottom expenditure decile are less than one-tenth—in fact, 6 per cent—of that for the top expenditure decile.
The Government have been concerned to make absolutely sure that the distributional effects of the measures taken as a whole are progressive and that the top 20 per cent of households will make the greatest contribution to what is a challenging deficit reduction.
Lord Eatwell
My Lords, would the noble Lord concede that the impact on the upper decile is almost entirely due to the 50 per cent tax rate introduced by my right honourable friend Mr Alistair Darling?
Lord Sassoon
What I will concede is that we look at the effects of tax, tax credits and benefits together. Therefore, whatever makes up the bundle—some of it inherited, some not—comes in to that mix. Regardless of where individual measures came from, it is important to look at them in the round, which is what we have done and will continue to do.
In relation to the questions of the noble Baroness, Lady Lister, I concede that I will probably fall into the trap of answering in a way that does not quite get to the nub of one or two of them, but I will come back to them. In headline terms, regarding the impact of the Autumn Statement on the number of children in relative income poverty, analysis shows an estimated increase of around 100,000 in 2012-13 on the measure used previously. However, this does not represent a forecast of the actual change in child poverty year on year because the measurement does not take into account, among other things, the value of public services that benefit children such as education and healthcare. These are very important in improving life chances, particularly among poorer households. Again, we have to be very careful here about whether we are using measures that properly capture the full effect of government policies.
In relation specifically to childcare, as I am sure the noble Baroness knows, the Government are investing a further £380 million a year by 2014-15 to extend the offer of 15 hours’ free education and care a week to disadvantaged two year-olds, and to cover an extra 130,000 children. Under the universal credit we are investing an extra £300 million so that 80,000 more families will get help with their childcare costs. However, I have not had a chance to see what has been published today. As I say, I will write on those points.
As I said in my opening remarks, the employment situation in this country is not easy. However, we had to take urgent action to tackle the deficit that we inherited, particularly the unsustainable welfare bill. I have mentioned the extraordinary increase in expenditure on tax credits in seven years from £18 billion to £30 billion a year. It is spending that is poorly targeted and totally unsustainable. The reforms to tax credits in these regulations and orders that we have been discussing are a fair and proportionate way to deal with this very difficult inheritance, as I have explained.
Essentially we have ensured that those most able to contribute to the deficit do so while those with the lowest incomes continue to be supported. It is because of that commitment that the highest decile of earners will make the greatest contribution towards reducing the deficit both in cash terms and as a percentage of their income, as I think the noble Lord, Lord Eatwell, recognises. In that context, the orders and regulations before the Committee are an important step towards realising our ambition to restore the UK to economic stability, but in a way that drives prosperity and means that we tackle the deficit in a fair and responsible manner. I commend the orders and regulations to the Committee.
Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2012
Lord Eatwell Excerpts(13 years, 9 months ago)
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2012 has been laid under the Government Resources and Accounts Act 2000. It is intended to give the Comptroller and Auditor-General public audit responsibility for auditing the accounts of a number of public sector bodies and companies. It also removes the Comptroller and Auditor-General from auditing a number of public bodies and companies because they have been abolished, merged or ceased to meet the criteria for public sector audit.
The main provision in the order is to give the Comptroller and Auditor-General statutory audit responsibility for 34 English probation trusts. The English probation trusts are currently subject to audit by the Audit Commission. As noble Lords will be aware, the Audit Commission is to be abolished and it is necessary to find suitable auditors for the probation trusts to take the Audit Commission’s place. While there are plans to introduce an Audit Bill to implement a new local audit framework, the parliamentary timetable is uncertain. In line with discussions with the probation trusts, it makes sense to make the change now, using the powers in the Government Resources and Accounts Act 2000.
It is already the case that the Comptroller and Auditor-General exerts his influence over the external audit of trust accounts by the issue of group instructions. Those instructions are necessary to obtain the assurance needed to certify the consolidated accounts of the National Offender Management Service. The new arrangements envisaged under this order will not lead to any loss of autonomy for the trusts.
The Horserace Betting Levy Board is also included in the order. It is not the role of government to be involved in horseracing matters and Ministers are exploring how the body might be reformed or replaced. Until final decisions are made on the future of the levy or the board, it remains a central government body and should be audited by the Comptroller and Auditor-General. This order also removes four museums from the C&AG audit, as they have been subsumed within the new National Museum of the Royal Navy and their accounts will be consolidated with the accounts of the new body. The National Museum of the Royal Navy is one of the companies made subject to C&AG audit, thus retaining parliamentary accountability for the museums. The other two companies are HS2 Ltd and UK Anti-Doping. I think that that is not to do with horseracing explicitly but with other aspects of sport. We will come to that later.
HS2 was set up to carry out a feasibility study for a new rail line in the UK. Following a triennial review of its future, it was decided that HS2 should remain a non-departmental public body and continue to focus on the West Midlands line from London to Birmingham and the link to Heathrow. As a non-departmental public body, it is right that HS2 be audited by the Comptroller and Auditor-General. As the principal adviser to government on drug-free sport, UK Anti-Doping is responsible for protecting sport from the threat of doping in the UK. It is an NDPB and therefore also should be audited by the C&AG.
Finally, the order removes three non-profit-making companies from the scope of the Government Resources and Accounts Act 2000 (Audit of Non-Profit-Making Companies) Order 2009 because they are no longer eligible for audit by the C&AG either because they have been moved into the private sector or have ceased operation. These companies are Firebuy Ltd, Phoenix Sports and the School Food Trust.
In conclusion, the proposals in the draft order confirm the Government’s commitment to achieve consistency in the public audit arrangements for public bodies and provide a net gain for Parliament and the public. I commend the order to the Committee.
Lord Newby
My Lords, I am sorry to detain the Committee. A number of years ago I was an adviser to the School Food Trust and I should simply like to ask which of the two categories it falls into. I believe that it has become a private sector body rather than abolished. Both the Explanatory Memorandum and the Minister’s speech have failed to clarify into which of those two groupings it falls.
Revenue and Customs Appeals Order 2012
Lord Eatwell Excerpts(13 years, 10 months ago)
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the order before us today makes a small but important change to the Tax Credits Act 2002. It inserts a reference to the First-tier Tribunal in Great Britain into Sections 63(5) and 63(8) of the Tax Credits Act. This corrects an error in the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009.
As the legislation currently stands, the settlement process at the review stage of the appeals process for tax credits applies only to appellants living in Northern Ireland. This order will update the legislation so that appellants in Great Britain are also covered, just as they were before the functions were transferred from the former appeals bodies to the new tribunals.
Let me provide further detail on the appeals review process. There has been an appeals review process in place since April 2003, when tax credits were first introduced. When a claimant lodges an appeal against a tax credit decision, the first step is for HMRC to confirm whether the information used to make the tax credit decision is correct. This is a substantial undertaking on the part of HMRC. In 2010-11, for example, HMRC had to deal with around 40,000 appeals against a tax credit decision. By actively seeking settlement, however, around 80 per cent of those cases have been revised and agreed at the settlement stage. Where HMRC’s review indicates that the original decision is incorrect, HMRC will revise it, but if the appellant does not agree to settle then the appeal will be sent to the tribunal to decide.
Once the tribunal receives the appeal request, it will contact all parties to arrange for the case to be heard and may require the appellant to present his case. Even at this stage, if the parties involved agree a settlement, then the case will not proceed to the tribunal and the appeal is withdrawn. Of the 20 per cent of cases that go to the tribunal, HMRC’s decision is upheld 87 per cent of the time.
This brings me to the need for this order today. According to the appeals process as it currently stands in legislation, all tax credit appeals in Great Britain should be sent directly to the First-tier Tribunal, without HMRC having the opportunity to review the case and offer the possibility of a settlement. As I am sure your Lordships will appreciate, the settlement process saves appellants from going through what can be an emotionally demanding and challenging process in the tribunal. I reassure the Committee that HMRC none the less has continued to review cases since 2003 and has aimed for settlement of appeals in the normal way.
The order before us today embeds that process in law for the whole of the United Kingdom, not just Northern Ireland. It ensures that the legislation is restored to the intended policy position in the whole of the UK, when the former appeals bodies in Great Britain were abolished and their functions transferred to the new First-tier Tribunal. This important reference to the First-tier Tribunal in Great Britain was inadvertently omitted when tax tribunal functions were transferred to a new tribunal system in 2009. The omission occurred when amendments were made to the Tax Credits Act 2002, and came to the department’s notice only early in 2011.
I therefore hope that noble Lords will recognise the need for this order so that individuals appealing tax credit decisions in Great Britain do not by law have to have their case heard by a tribunal. It ensures that we embed a fair, efficient and transparent system of tax credit appeals across the entire UK, and it avoids the unnecessary and burdensome process of taking tax credit appeals to tribunal, freeing HMRC time to focus on its core function of collecting tax revenue. I commend the order to the Committee.
Lord Eatwell
My Lords, I am most grateful to the Minister for introducing the order in such a thorough manner. Of course, no impact assessment was made in the explanatory information but there was a helpful reference to the impact assessment made at the time of the Transfer of Tribunal Functions and Revenue and Customs Appeal Order 2009. The questions that I wish to put to the Minister arise from assessing the arguments made in that impact assessment, or from attempting to project them on to this case.
First, the impact assessment made the point that the transfer to the new tribunal system would involve what it described as,
“a slight increase in administrative burdens on small businesses and individuals”.
Here, with respect to tax credits, we will be talking predominantly about individuals. The description of the regularisation of the process of tax credit appeals that the noble Lord has put forward will still contain the 20 per cent of appeals going on to the tribunal. Has there indeed been an increase in administrative burdens on tax credit appeals and, if so, how significant is that burden assessed to be? Moreover, since it is now nearly three years since the general transfer was made, I wonder whether the recognition that there has been an increase in administrative burden in general for income tax appeals was indeed forthcoming; and what the impact on appeals has been.
Secondly, at the time of the transfer, a strong case was made by many stakeholders that the transfer from the general commissioners of income tax to the tribunal system involved a significant increase in the burden on appellants, given that there was a reduction from 400 geographic divisions to just 130. Has this affected the appeals with respect to tax credits? If so, what is the assessment of the impact on appellants?
Thirdly, in the impact assessment there was some general assessment of the economic advantages of the new appeals system. It was argued that costs would be reduced from £3 million to £2.75 million per year. Has that cost saving been realised? It was also argued that the set-up costs would simply be £1.25 million. Was that the figure, or was it greater or lesser? What is the estimated cost, if any, of the introduction of this order?
Lord Sassoon
My Lords, I thank the noble Lord, Lord Eatwell, for his focused contribution, even if it sets me some challenging questions about the burdens involved.
The easy question to deal with is the one on burdens. There has been no increase in administrative burdens or in the burden and costs on appellants. That is key, I think, for the narrow discussion this afternoon—
Lord Eatwell
My Lords, can the noble Lord tell me how he can confidently assert that there has been no increase in burden on appellants? What evidence does the Treasury have?
Lord Sassoon
My Lords, these things are tracked by HMRC, which put together the underlying information in the original impact assessment.
In essence, I think that we need to look at two aspects of these questions. First, what continued to be done as a matter of administrative practice by HMRC was in line with what had happened before the new system came in and what was intended by the policy set out by the previous Government. In that sense, what we are doing this afternoon is neutral in terms of burdens and costs, as the noble Lord, Lord Eatwell, recognises—I see him nodding. I hope that he accepts that that is indeed the case. The assessment is that there has been no increase in burdens on appellants and no increase in costs.
On the question of the set-up costs and annual costs given in the original impact assessment, which is a perfectly fair and more broadly relevant question but does not, I suggest, touch on the narrow question of costs relating to sorting out the wording provided by the order this afternoon, if it would be acceptable to the noble Lord, I will see what other information is available at reasonable cost. I hope that he will understand that, on the narrow point, I have given him the assurance and, on the wider one, we will look at the matter and, if the information is available without inordinate cost, I will see what other information I can give him on the costs of the new regime.
The critical issue, which I come back to, is to reassure the Committee that no claimants have been affected by this missing reference in the Tax Credits Act. HMRC has continued to seek settlement for appeals in the normal manner in Great Britain as well as Northern Ireland. Where the appellant agrees with the settlement, the appellant is asked to withdraw the appeal; it is only in cases where the appellant does not wish to settle a case that it is passed to the tribunal to decide and, even then, there remains the option of reaching a settlement. So, in that sense, this is a neutral piece of tidying up. This order seeks legally to embed that process for the whole of the UK and to ensure that legislation is restored to the intended policy position for the whole of the UK. I commend the order to the Committee.
Individual Savings Accounts: AIM Shares
Lord Eatwell Excerpts(13 years, 10 months ago)
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Lord Sassoon
My Lords, first, I explained the reasons why the Government decided—as the previous Government rightly did—not to make AIM shares eligible. On the other hand, I am happy to summarise some of the measures to support small businesses that the Government are taking—for instance, credit easing, with up to £20 billion of lower-cost lending; £1 billion through the business finance partnership for mid-sized companies through non-bank lending channels; greater tax relief for EIS and VCT schemes; more than £500 million going into venture capital funds, including through business angel co-investment funds; and the extension of the enterprise finance guarantee. I could go on.
Lord Eatwell
My Lords, the noble Lord referred to the problem of devaluing the brand by including riskier assets. To what degree was the brand devalued when ISAs were extended from cash ISAs to share ISAs?
Lord Sassoon
My Lords, it is entirely appropriate, because ISAs are the main savings vehicle for people in this country, that a range of products, both cash and equity and debt products, should be eligible for an ISA. As I explained, there is an appropriate line to be drawn, and it is where the previous Government and this Government drew it. This Government are fully continuing on AIM with the previous Government's policy.
Taxation: Avoidance
Lord Eatwell Excerpts(13 years, 10 months ago)
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Lord Eatwell
My Lords, the issues raised by the noble Lords, Lord Dykes and Lord Phillips, have recently been the subject of two important reports. First, the report of the Public Accounts Committee into tax disputes, published on 20 December last year, revealed what can only be described as a scandal. It demonstrated a quite extraordinarily cosy relationship between HMRC and major companies, particularly international companies, in the determination of tax liabilities. It also demonstrated a failure to follow proper procedures in the resolution of tax disputes, and a consistent bias towards the favourable treatment of large companies compared with small companies and the ordinary taxpayer.
Everyone in this country who is settling their tax assessment this month, knowing that they will incur a fine and interest charges if they do not pay up on 31 January on the dot, will be astonished to discover that large companies may be given 10 years to settle their tax obligations. They will also be furious that up to £20 million in interest has been lost because of HMRC errors, while, for reasons that are still not clear, the department decided it would not reopen negotiations with the relevant company—a decision that it appears was taken without legal advice. The PAC report says that,
“the Department did not even take the most basic step of making its own note of meetings with the company concerned, relying instead on the record kept by the company”.
To compound this record of complacency and connivance, the department failed to be open with the PAC investigation and was,
“less than clear and consistent in the evidence”,
given to the PAC and to the Treasury Select Committee in another place.
It is important to remember that HMRC is, quite rightly, a non-ministerial department, thereby removing Ministers from any suspicion of involvement in individual taxpayers’ affairs, but this scandal goes beyond matters that can be remedied at arm's length by more effective management and the appointment of extra Revenue commissioners. It strikes at the very heart of the fair and impartial management of the tax system. It reveals systemic failures that have resulted in unfair and partial treatment verging on favouritism, and it demands the exercise of ministerial responsibility, for it undermines public confidence in the probity of government and the integrity of the Revenue.
If the failings exposed by the PAC were an isolated set of events—an aberration—the measures taken so far by HMRC to put its house in order just might be regarded as sufficient. Regrettably, this is not the case. As we have heard from the noble Lords opposite, it is a widely held view that tax avoidance is rife in this country, and that wealthy individuals and large companies that can afford sophisticated tax advisers can avoid attacks by abusive means.
The term “abusive means” has been defined by Mr Graham Aaronson QC as,
“contrived and artificial schemes which are widely regarded as an intolerable attack on the integrity of the UK’s tax regime”.
This quotation is taken from a report entitled A Study to Consider whether a General Anti-Avoidance Rule should be Introduced into the UK Tax System, published in November last year, which was authored by Mr Aaronson and commissioned, to give them due credit, by Her Majesty’s Government. I applaud the initiative. Mr Aaronson concludes that a general anti-avoidance rule should be introduced, and proposes practical means by which this might be done. In his report, he argues that certainty in the tax system makes an important positive contribution to the economic and business environment. The presence of tax loopholes, and their exploitation by the unscrupulous, undermines that certainty. Moreover, competitive pressure forces firms to adopt more and more elaborate tax avoidance measures.
Competitive advantage can be gained by companies that go down the tax-abusive route, and hence firms that attempt to take a high moral stand, as the noble Lord, Lord Phillips, points out, are placed at a competitive disadvantage and may be eliminated from the marketplace. All must join the race to the bottom. Tax avoidance by businesses therefore undermines certainty, forces firms to adopt the tax-avoidance policies of the lowest common denominator, undermines any perception of fairness in the tax system and imposes a dead-weight loss on the economy by spawning a socially useless tax avoidance industry. It is damaging not just to the Revenue, but to the performance of the economy as a whole.
The source of this pernicious burden on our economy, the foundation of the tax avoidance industry, is the complexity of the tax system. It is complexity that by its very nature creates the exceptions and loopholes that can be legally exploited by the enthusiastic, well resourced tax avoider. If we are to tackle the disease rather than the symptoms, complexity should be the target. An important reason for the complexity of the tax system is that Governments attempt to manipulate behaviour via tax allowances and reliefs to incentivise people to behave in a particular way—to invest in new businesses or to undertake more R&D, or to recycle waste, or whatever. What is remarkable is that years of academic study have demonstrated that very few of these incentives actually work. Tax allowances to stimulate investment, for example, do not tend to result in more investment. Instead, they are a subsidy to investment that would have taken place anyway.
Another important source of complexity is a government belief that it is appropriate to differentiate between revenues from different sources, so that benefit deemed to derive from capital gains, or, more scandalously, from carried interest, is taxed differently from benefit derived from income. The treatment of interest on debt as a cost, and hence being tax deductible, is a major factor distorting the funding of business in this country. All this is a rich source of tax avoidance. Then of course there are the tax benefits handed out to specific social groups with the most powerful lobbying voices—the non-doms come immediately to mind.
Whether it derives from good intentions, perceived policy objectives, or mere cowardice and/or patronage in the face of the powerful and well funded, complexity is the fundamental source of avoidance. Without tackling complexity, the avoidance industry will never be significantly reduced. I therefore applaud the establishment by the Government of the Office of Tax Simplification and look forward, in hope rather than expectation, to its efforts bearing fruit. In the mean time, while we wait for the simplified promised land, Mr Aaronson concludes that all current approaches to curb tax avoidance,
“are not capable of dealing with some of the most egregious tax avoidance schemes”.
He might have added, if he had had the PAC report before him, that all attempts to limit tax avoidance are undermined if there exists the cosy relationship between the HMRC and big business identified in the PAC report.
With the PAC report and Mr Aaronson's report before him, the Minister must address a number of questions. First, when did Ministers first know of the matters identified in the PAC report? Were they fully informed, or have they made further investigations? What have their investigations, if any, revealed about further abuse and, if so, what sort of abuses? What action do the Government intend to take to correct the systemic deficiencies in the HMRC? Is it not time for a full investigation into the practices and substance of the taxation of large companies, in order to re-establish public confidence in the probity of government and of the Revenue? Secondly, do the Government accept the conclusions of Mr Aaronson's report? When do they intend to introduce a general anti-avoidance rule, with the institutional support outlined by Mr Aaronson? Thirdly, when can we expect a report from the Office of Tax Simplification that deals specifically with business taxation and tax avoidance?
Confidence in the tax system is, as noble Lords opposite have said, fundamental to our democracy. If confidence in the fairness and probity of the state is lost, effective revenue raising is undermined—colourful examples, perhaps from the Mediterranean, can be imagined. The issues identified in the Public Accounts Committee report and in Mr Aaronson’s report demand an urgent response. I hope we will hear from the Minister today the concrete steps that the Government intend to take to curb abusive behaviour towards the tax system. If practical steps are not forthcoming, the Government will have some explaining to do to this House and to the British people.
Lord Phillips of Sudbury
The noble Lord raised some extremely pertinent points about HMRC, but does he agree that the Government reducing the staffing at HMRC over the next few years by 12,000 is scarcely likely to increase the effectiveness of tax collection?
Lord Sassoon
My Lords, as I am sure my noble friend would recognise, all government departments are having to tighten their belts; otherwise, the deficit is not going to be tackled. I hope to reassure him by explaining where HMRC is focusing its efforts. The recruitment of over 1,200 staff in new posts to tackle non-compliance is significantly upping HMRC’s efforts in this area and will bring in significant additional revenue in each tax year, so the answer to his question is yes.
The customer relationship model that HMRC uses has considerably improved its ability to identify risk and to handle these issues. The report by the National Audit Office on HMRC’s 2010-11 accounts, which underlay one of the reports referred to by the noble Lord, Lord Eatwell, noted that HMRC’s high-risk corporate programme has brought in a yield of over £9 billion and that it contributed to reduced avoidance activity by major companies. The investment is there. On another point made by my noble friend Lord Dykes, we do not forget the cash economy in those efforts.
I am grateful to the noble Lord, Lord Eatwell, for drawing attention to the question of the general anti-avoidance rule, the GAAR. We are exploring that option to see whether such a rule could help to deter and counter tax avoidance in a fair way. Attention has been drawn to the work of Graham Aaronson and his colleagues and their report. We received the report in November last year. We will be considering it and are actively discussing its implications with businesses and tax professionals. We will respond to the report at the Budget and set out our plans if appropriate. We have said clearly that we would not introduce a GAAR without a further formal round of public consultation, so that is very much work in progress.
I am also grateful to the noble Lord, Lord Eatwell, for applauding the introduction and the work of the Office of Tax Simplification. The complexity of the tax system has been much remarked on, and I can echo many of the remarks made by noble Lords on that. The OTS has started its work and published recommendations on tax relief, avoidance legislation and IR35, as well as an interim report on small business tax. More is coming down the pipeline and this ongoing work will be an important part of what we all want to see: a simpler tax system that is easier for individuals to comply with. I may disagree with the emphasis of my noble friend Lord Phillips of Sudbury on some things, but I certainly agree that this is fundamentally about individuals doing what they are required by the law to do.
Another critical component of preventing avoidance is the way in which HMRC engages with the largest taxpayers proactively to identify and tackle avoidance. We do not have the time to go into the detail of this but, in response to some of the somewhat one-sided interpretation and selective quoting of the recent Public Accounts Committee report, I draw the attention of the House to HMRC’s detailed rebuttal on many factual points in the conclusion of that report. In brief, to be clear, this effort with large businesses is not in any way HMRC being soft on large business or on those with complex tax affairs. HMRC treats all taxpayers even-handedly and does not allow them to settle for anything less than the full amount due. It is through its engaged and intelligent approach to tax avoidance that the additional revenue to which I have already referred is coming in.
Lord Eatwell
The noble Lord referred to erroneous statements in the PAC report. Did they include the observation that senior HMRC officials had had lunch and dinner with the companies that then had a reduced tax burden?
Lord Sassoon
My Lords, the substance of the issues to which HMRC takes exception is to do with the size of unresolved tax bills and some of the details of cases in which errors were found that HMRC disputes. That is the substance, rather than the question of who met whom with what refreshments laid on. We should stick to the substance.
Other noble Lords have been scrupulous in keeping to their time. I am conscious that, with the interventions, I risk going over my time, so I will press on. I want to answer just one more question, raised by my noble friend Lord Dykes, about the tax treatment of overseas companies. I just confirm that we are reforming the controlled foreign company rules very much to protect against the artificial diversion of profits to low-tax jurisdictions, just as our general reforms are being made to make the UK a good place for global corporates to have their headquarters. Having said that this is a matter for individuals, I will not comment on the affairs of any individuals.
In conclusion, I have very briefly explained our strategy for tackling tax avoidance to ensure that everyone pays their fair share. This is an important topic and I am glad that we have had this debate. The Government are taking real, decisive, concrete action to close the tax gap. We are making good progress, but there is much more to do. We will ensure that every sector of society pulls in the same direction to tackle the deficit and the woeful economic legacy left to us by our predecessors.
Taxation: Inheritance Tax
Lord Eatwell Excerpts(13 years, 11 months ago)
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Lord Sassoon
My Lords, I hear clearly what my noble friend says and I am sure that the Ministry of Justice will want to move faster, but I am just giving what the backstop date is.
Lord Eatwell
I think that everyone is in agreement that the structure of inheritance tax at the moment is unsatisfactory, as illustrated by the data that the Minister presented in his Answer. It has stimulated a large avoidance industry and it contains perverse incentives. In the spirit of the season, may I offer the Minister the gift of a constructive proposal? We should cease to levy inheritance tax on estates and instead should levy it on recipients. That would significantly reduce avoidance and would incentivise the wider distribution of wealth.
Lord Sassoon
My Lords, as I said, we have no plans to review the law, but we are always interested in constructive suggestions, wherever they come from.
Economy: Private Capital Investment
Lord Eatwell Excerpts(13 years, 11 months ago)
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Lord Sassoon
My Lords, we are very interested in anything that keeps credit flowing. However, although my noble friend is very good at reminding us of that issue, we are getting a bit far away from fiscal measures.
Lord Eatwell
My Lords, I am sure that the Minister will agree with the noble Lord, Lord Empey, that, however low interest rates may be and whatever fiscal incentives may be in place, ultimately investment is determined by business confidence. Is he aware that the Institute of Chartered Accountants in England and Wales produces an index of business confidence? In its latest report, it says:
“The Confidence Index has suffered its largest quarterly decline since the survey began”.
The survey began in 2004. Is it not clear that the destruction of business confidence is the main outcome of the Government’s economic policies?
Public Service Pensions
Lord Eatwell Excerpts(13 years, 11 months ago)
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Lord Eatwell
My Lords, it is important to remember that what we are discussing is the reduction in the lifetime living standards of a significant proportion of the people of this country. We are discussing the fact that the real incomes of public service workers will, in retirement, be significantly lower than they had every right to expect when they took up their positions in the public service. When the noble Lord speaks of “reform” of public service pensions, he means reduction of public service pensions, and when he speaks of saving,
“the taxpayer tens of billions over the decades to come”,
he means reducing the incomes of pensioners by tens of billions over the decades to come.
Noble Lords will be aware of the difficult choices that we all face over the question of pensions. The excellent report a few years ago by the noble Lord, Lord Turner, and the recent study by my noble friend Lord Hutton have spelt out the consequences of lower birth rates and greater longevity for the provision of pensions. Given that the standard of living of everyone depends on the goods and services produced by the working population, the smaller the working population is in relationship to the whole the more difficult it becomes to provide for the non-working pensioners. The choices that need to be made when facing such a major, secular shift in demography and in the economy should have been the subject of bipartisan national debate. They should have been approached with the clear understanding that what is under consideration is the decision to reduce lifetime living standards.
In his report, oft cited by the Government, my noble friend Lord Hutton stressed the need to approach these issues in a careful and balanced way, with particular care for the impact of any increased contributions on lower-paid public service workers, and the need to sustain high-quality, reliable pensions provision. Having people retire into poverty, dependent on state benefits in their old age, cannot be an answer under any circumstances. In taking up my noble friend’s points, the Government failed on both counts by seeking to impose a steep rise in contributions and a permanent switch in indexation from RPI to CPI, neither of which measures formed part of my noble friend’s recommendations.
The consequence of this arbitrary and authoritarian approach to reducing the lifetime incomes of some of the lowest-paid people in the country was 10 months of stalemated negotiations and then strike action, in many cases by people who had never dreamed that they would ever go on strike. The strike on 30 November, a strike that could and should have been avoided, seems to have brought the Government to their senses. We on this side of the House are pleased that the people who rely on public services, as well as millions of public sector workers, can approach the holiday season knowing that proper negotiations are taking place at last and that a solution that is fair to pensioners and fair to taxpayers may be on the horizon.
We are pleased that the Government have at last recognised the need to protect the lowest-paid from unaffordable increases in contributions, the need to reassure older employees worried about how long they will have to work and the need to ensure that people who dedicate their working lives to our public services can expect a decent income in retirement. It is important that, in any proper national consideration of how best to tackle the changing demographic factors behind pensions provision, the Government should provide the fullest and clearest information on what is proposed and on the consequences for public service workers at all levels of income.
For each of the four schemes under consideration, what are the new proposals for contribution increases? What is the timetable according to which they will be introduced? How do the Government intend to ensure that the new contributions are affordable for lower-paid workers, including part-time workers? What assessment have the Government made of the impact that their proposed changes might have on the number of public service workers opting out of the scheme, of the impact that this may have on future pensioner poverty and of consequential demands on state benefits? In taking steps to increase the pension age, what allowance do the Government intend to make for those in physically demanding jobs where the current retirement age from that particular line of work may indeed be appropriate?
Most importantly, the Government must now realise that a pensions agreement in the public services should be for the long term and should be part of the fundamental relationship between Government and people, whichever party is in power. How will the Government make good on their promise to deliver a deal that is secure and sustainable for the next 25 years? Will they learn from their errors of the past year and understand at last that a properly informed public debate, and an appropriately negotiated agreement with strong bipartisan support, is the only way to achieve a fair and lasting agreement?
Consumer Insurance (Disclosure and Representations) Bill [HL]
Lord Eatwell Excerpts(13 years, 11 months ago)
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, I beg to move Amendment 1, which leaves out Clause 2(5). This subsection was added to the Bill following acceptance of an amendment in Committee. I will also speak to Amendment 2, which proposes an alternative and—I hope that the House will agree—improved approach to addressing the Committee’s concerns about renewal of insurance contracts. Having considered the amendment accepted by the Committee, we felt it was necessary to come forward with alternative drafting to achieve what noble Lords had in mind through the original amendment.
Taken together, these two amendments will mean that insurance companies are expected to have to show that they told their policyholder that answering questions on renewal was important. However, they also avoid some unintended consequences of including this requirement in its current form as part of Clause 2.
These amendments address something which the Bill Committee touched on extensively in its deliberations. There was much discussion of the implications of the Bill for consumers renewing insurance. Renewal involves entering into a new contract and consumers are therefore under the same obligation as when first purchasing their policy—that is, they must take reasonable care to answer the insurer’s questions, or the insurer may be entitled to refuse a later claim. Noble Lords were concerned that consumers might not recognise the significance of questions asked on renewal, as they may not understand that it is a new contract, and as a result might not take sufficient care to answer these questions.
The Government agree that insurers should take measures to ensure that their consumers are aware of the importance of responding to questions which they are asked at renewal. However, as I mentioned, to ensure that the effect of this change to the Bill reflects the wishes of noble Lords, we felt that it was necessary to come forward with alternative drafting. There are some relatively small drafting points.
The inserted text splits subsections of the current clause which need to run together, and the phrase “make clear” may be a difficult standard. However, most importantly, it leaves no remedy for an insurer who has not included the right wording, even if the consumer’s failure to reply was a deliberate or reckless misrepresentation. I am sure that the Committee did not intend to give consumers a “get out of jail free card” in circumstances where they knowingly and deliberately deceived their insurer. The amendment therefore removes the drafting accepted in Committee stage and substitutes an alternative in Clause 3. That explicitly adds to the list of factors that a court may take into account, when determining whether a consumer acted reasonably, whether the insurer communicated the importance of answering questions on renewal. Both the Association of British Insurers and the Investment and Life Assurers Group agree that that is a more suitable approach.
There are many ways in which an insurer may communicate the importance of answering questions at renewal. The Committee discussed whether wording which explicitly told the consumer that they were entering into a new contract would achieve that. That is indeed one way in which an insurer may communicate the importance of answering questions as required by the amendment.
It might be helpful if I set out for noble Lords current market practice at renewal and the effects of the amendment in this context. An insurer will often send the consumer a letter to say that their insurance is up for renewal. Market best practice is usually to send a list of the facts that the consumer told them the last time. The consumer is asked to read and consider the list, and to contact the insurer if the facts have changed.
In motor insurance, it is common practice for insurers to renew the policy even if the consumer fails to reply. It is now a criminal offence for a motorist to allow their car insurance to lapse without notifying the Driver and Vehicle Licensing Agency and we therefore welcome any practice which makes renewal a simple process for the consumer. If nothing has changed, there is no need for the consumer to reply, but if something has changed and the consumer fails to respond, this is capable of being a misrepresentation. As my noble friend Lady O’Cathain stated during the last Committee sitting, it may be that nothing has changed in relation to your car insurance. Alternatively, you may have been convicted of a new driving offence which you should tell your insurer about. As a result of this amendment, the insurer should clearly communicate the importance of mentioning such changes. If the letter is poorly laid out or in very small print, or if it fails to tell the consumer that failing to mention changes may lead to claims being refused, then a consumer may act reasonably in overlooking it.
In circumstances where the consumer fails to respond because they did not understand the implications, the insurer would be expected to show that they told the consumer how important it was to respond to the questions at renewal time. The insurer would know that it could not just point to the consumer’s oversight. This last important point was teased out in Committee and was, I believe, noble Lords’ real intention. I believe that the amendment addresses the concerns raised by noble Lords during those discussions.
Lord Eatwell
My Lords, as I have stated throughout our proceedings, we on this side of the House fully support the Bill as a measure which makes a major improvement to the relationship between insurer and insured in consumer insurance. We have sought to improve the Bill, making clear elements of the drafting which were unclear or which, on careful examination, did not correspond to the declared intentions of the Law Commission and therefore required amendment. Accordingly, in Committee I proposed the amendment to which the noble Lord has referred and which in due course the Committee passed almost unanimously, the only dissenting voice being that of the Minister himself.
Before dealing with the substance of the Minister’s amendments, I first ask him whether he consulted the Companion before tabling them. Paragraph 8.133 states that,
“an issue which has been debated and voted on in committee can be reopened, provided that the relevant amendment is more than cosmetically different from that moved in committee”.
When we look for the meaning of “cosmetically different”, earlier in the same paragraph it is stated that amendments must not be identical or of identical effect. Consequently, the Minister cannot argue that this amendment has identical effect. If he does, he must withdraw the amendment.
Lord Sassoon
I wonder whether it would be helpful at this stage to confirm that the government amendments have been drafted in full recognition of what the Companion says. As I tried to explain in setting out the rationale for the amendment, I do not believe that it has the same effect because it provides greater clarity and, I believe, delivers what, in Committee, noble Lords wanted to achieve. My understanding of the process is that, if there had been a problem with the technical raising of the amendment, the Public Bill Office would have raised questions on it. Therefore, I believe that both in substance and in form the right things have been done.
Lord Eatwell
I think that the noble Lord is contradicting himself. He said that it was what noble Lords wanted to achieve when they voted on the amendment in Committee, yet he says that it is not identical in effect. That does not seem consistent. However, let us move on.
Turning to the substance of the amendment, I accept that its placement in the Bill is superior to that which I proposed in Committee, and for that I am grateful. However, the intention of the Committee was that insurers would be required to make clear to consumers that when a policy was renewed, it would in fact be a new policy, and consequently the importance of questions asked would be of the same order as when new business was written. As many noble Lords argued in Committee, they were not aware of this—indeed, I believe that the Minister himself admitted that he was not aware of it—and they could well understand a consumer failing to be aware of it too. This lack of awareness might result in the consumer taking insufficient care in answering questions posed by the insurer.
The Government’s amendment does not refer explicitly to the fact that a renewal is a new contract and hence this is not of identical effect. Instead, it proposes the vague test of,
“how clearly the insurer communicated the importance of answering those questions (or the possible consequences of failing to do so)”.
That is a very vague rendition of what was intended by the amendment in Committee. Instead of being explicit, the matter is now to be left to the courts to decide. However, I note that the Minister stated that explicitly telling the consumer that they were entering into a new contract would be “one way” in which the insurer could communicate the importance of the questions asked at renewal. I fully expect that the ABI and the ILAG will draw this passage in Hansard to the attention of their members and that it will form a background to any subsequent court proceedings. On that basis, I shall raise no objection to the government amendment.
Finally, I would be grateful if the Minister would clear up the matter raised in Committee by the noble Lord, Lord Goodhart, and not subsequently resolved. That is the relationship between Clause 5(1) and Clause 5(3). As the noble Lord, who is in his place, pointed out, they seem to duplicate one another and hence, potentially, they are a source of confusion. As we still have a chance to sort this out at Third Reading, perhaps the Government could enlighten us about the reasoning behind this dual oddity of drafting.
Independent Commission on Banking
Lord Eatwell Excerpts(13 years, 11 months ago)
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Lord Eatwell
My Lords, I am most grateful to the noble Lord for repeating the Statement made by the Chancellor of the Exchequer in another place. However, I regret that effective scrutiny by this House has been limited by the Government providing the 80-page response only half an hour before the noble Lord got to his feet.
As the Statement makes clear, banking policy in this country has two potentially conflicting goals: first, to ensure that a stable domestic financial system supports the real economy with a steady and reliable flow of appropriately priced credit, together with other domestic and international banking services; and secondly, there is the goal to sustain the City of London and other UK centres as the world’s premier offshore financial centre, providing a wide range of financial services that transform and repackage saving flows from all around the world. This was the core conflict highlighted by the Independent Commission on Banking—the trading activities of the offshore centre can inflict instability and contagion on the domestic economy. The proposal of the ring-fence that the Government are endorsing today is a response to that core conflict. It is an inadequate response, but perhaps something is better than nothing.
Why is it an inadequate response? Noble Lords may be surprised to learn that more than three years on and contrary to the assertions of the ICB in its final report, nothing in these policy proposals would have prevented the collapse of Northern Rock. The reason is that there are two serious flaws in the ICB approach. First, there is the belief, echoed by the noble Lord, that moving to a 10 per cent capital to risk-weighted assets ratio will provide the resilience to the banking sector required to head off a serious crisis. This belief is a fantasy without empirical foundation. For example, Allied Irish Bank had capital in excess of the maximum now being proposed by the Government prior to its collapse. It was not enough. In a real financial crisis, no feasible capital ratio will be enough. While on the subject of risk-weighted assets, do the Government intend to maintain the Basel II approach that leaves the calculation of these risk-weights to the banks themselves? With respect to other primary loss-absorbing capacity, what is the Government’s view of the buoyancy of the market for these instruments on which they put so much weight and which do not at present exist?
Secondly, the report maintains the outdated and indeed discredited approach of focusing on the asset position of the banks and has very little to say about the liabilities side of the balance sheet. Hence, the ring-fencing proposals are all about what is done with depositors’ assets and the capital needs are related to that dubious measure of risk-weighted assets. But in the case of Northern Rock, the collapse was entirely attributable to what was happening on the liabilities side of the balance sheet. It was the inability to turn over short-term funding that resulted in the taxpayer needing to provide a £30 billion rescue. The ICB’s claim that current liquidity proposals could have prevented this is, I believe, wishful thinking. By the way, in the glance that I have been able to give the Government’s response, I would suggest that the illustrative diagrams of balance sheets on page 28 are profoundly misleading as the boxes do not represent the proportions of liabilities and assets as they are presumed to do. I shall return to the issue of the liabilities side of the balance sheet later. For the moment, I give one cheer to the Government’s endorsement of the ICB’s approach. At least it is better than nothing. Ring-fencing is the right thing to do even if they put the fence in the wrong place.
Crucial to the entire approach will of course be the construction and policing of the ring-fence. Can the noble Lord tell the House whether the Government have accepted all—I stress, all—of the ICB’s proposals on the construction of the ring-fence? In particular, the Government seem to suggest that ring-fenced banks will be permitted to hedge risks to which they are exposed in derivative markets. If they are allowed to hedge, how is the line to be drawn between hedging and speculation, and who is to draw that line? A major hole in the ring-fence as it now stands—or perhaps it is a flexible thing as it now waves in the wind—is that banking activity for large companies can take place either within or without the ring-fence. This means that organisations that produce well over half the UK’s GDP will have banking services outside the ring-fence. In that case, will not banking operations outside the ring-fence be too big to fail, because they could bring down major British companies, and will not the exposure of the taxpayer that the ring-fence is supposed to eliminate be almost as great as it ever was?
More generally, it is a well known outcome of regulatory activities that they stimulate a creative response from the banks, creative in the sense that they work out ways to circumvent and/or evade the regulations. Hence there will be a need to keep the operations of the ring-fence under continuous review. How do the Government intend to do that? The response states:
“The Government believes that the location of the ring-fence should be flexible”.
What does this mean—it sounds like a fine opportunity for lobbying to me—and who will determine the location of this “flexible” fence? Would it not be appropriate to keep the ICB in being and charge it with the task of reviewing regularly the performance of the ring-fence?
One of the declared objectives of the ring-fence, which the noble Lord repeated, is to protect the assets of depositors from the casino operations of the investment banking divisions of the banks. Where a ring-fenced bank is the wholly owned subsidiary of a bank holding company and that holding company fails, perhaps due to casino-style activities, will its creditors have access to the assets of the ring-fenced bank? If not, why not? If so, what is the value of the ring-fence?
I turn to the liabilities side of the balance sheet. Am I right in saying that the Government have no intention of limiting the wholesale funding of the balance sheet other than through the imposition of a leverage collar that fails to discriminate between deposits and wholesale funding? Why are the Government therefore intent on penalising banks that have a strong deposit base—banks that proved to be the most resilient during the financial crisis? Of course, the FSA’s proposals on liquidity and a leverage collar will improve the situation, but surely they are not enough. Why do the Government not take note of the research that demonstrates that deposits by families and firms are “sticky”, while wholesale deposits embody greater risk? On the other hand, what is to be the role of the interbank market within the ring-fence?
On competition, the noble Lord made it clear that the higher levels of capital and loss absorbency will apply just to UK banks. What of the branches of non-UK banks operating in the UK, such as Deutsche Bank? What is the Government’s assessment of the competitive impact on UK banks of branches of European or other banks operating in the UK not being required, as the response states, to have the same levels of loss absorbency?
On timing, the ICB said that the ring-fence should be in place as soon as possible and well before the Basel III deadline. The Statement refers to compliance with the legislation on ring-fencing being as soon as “practically possible”. Who is to determine what is practically possible and what are the criteria for that determination?
What do the Government expect to be the impact of these recommendations on the supply of credit? Given the abject failure of the Government’s Project Merlin and the desperate need to increase lending at reasonable rates to UK SMEs, the Bank of England’s executive director for financial stability has suggested that the ratio of capital requirements to risk-weighted assets should be lowered, not raised as the ICB and the Government recommend. Do the Government agree with the ICB or with the executive director of the Bank of England?
I welcome the Government’s announcement on the Royal Bank of Scotland. These are changes that we on this side have urged for some time. This is a taxpayer-owned bank and it should pursue the taxpayer interest.
I therefore give one cheer for a faltering step in the right direction. We will seek significantly to improve the approach when the Government bring forward their legislative proposals.