EU: Financial Management
Lord Eatwell Excerpts(14 years, 2 months ago)
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Lord Sassoon
My Lords, I am very grateful to my noble friend for recognising the practical steps that the Government are taking to get round this issue. I very much respect his many years of involvement in European issues. We are working very practically. Only next week, my honourable friend the Economic Secretary is meeting the three Commissioners who have responsibilities for the budget and the audit of the budget. She plans to meet the Court of Auditors and she has met the one and only state Minister who is solely responsible for the management of EU funds. We are very much on the case in making sure that EU funds are handled in a much simpler and transparent way in the future so that control can be improved.
On the question about a debate, I shall take that suggestion on board. In another place, I believe they have a debate in committee which normally takes place in January or February before ECOFIN considers the annual discharge. We shall consider that suggestion.
Lord Eatwell
In his first answer to the noble Lord, Lord Campbell of Alloway, the Minister referred to the development of the process of financial regulation. As that term usually applies to regulation in the private sector, I was a little unfamiliar with its use in respect of the public sector. Can he explain what practical measures of financial regulation are relevant in this case?
Lord Sassoon
My Lords, I am not responsible for some of the curious terminology which the EU uses, but I believe that financial regulation is the term it uses in this context. The relevant issue about which the Government are concerned is reducing the administrative burden on how expenditure is handled, particularly at member state level. We are worried about some specific questions: the proposal, for example, that loans might be used by the Commission to purchase EU buildings, which is something that the Government oppose; and the question of introducing a concept of tolerable risk of error within the accounting framework, which we oppose. I said before but I will say again that we want to push for much greater transparency in how assigned revenue is used. A host of issues come under that heading, but I cannot be responsible for the terminology.
Economy: Government Policies
Lord Eatwell Excerpts(14 years, 3 months ago)
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Lord Eatwell
My Lords, this has been a fascinating debate, enhanced by excellent maiden speeches from the noble Lord, Lord Hussain, and the noble Baroness, Lady Stedman-Scott. Reflecting on what was said by the noble Lord, Lord Lawson, in his customarily elegant introductory speech and on the remarks of many noble Lords opposite, it occurred to me that the economic policies being pursued by the Government may be characterised as good—good politics, that is.
Two elements of the Government’s stance bear the mark of good politics. First, it is always a good idea to have a scapegoat. We have today heard numerous references to the so-called “economic mess” inherited by the Government and to the “record deficit”. With a good scapegoat, you can justify almost anything. It is good politics. Secondly, it is good politics to inflict the maximum pain on the electorate in the first years of a new Government and save up all the sweeteners for the 18 months or so before an election, when the Government can triumphantly declare deliverance from the misery that they themselves have created. All this is good politics, but it is rotten economics.
On the scapegoat point, noble Lords might have noticed that yesterday in the Budget the Chancellor admitted that the UK debt ratio will peak at 71 per cent. I wonder how many noble Lords were puzzled by that statement. How could that be when there is purportedly such an awful financial mess and so-called record deficits that our debt ratio will peak at a level lower than in every other G7 country other than Canada, and at a level lower than in Germany when it entered the crisis? However, let us not go into another debate about debt ratios, use silly expressions such as Britain being on the brink of bankruptcy, or make foolish comparisons with Greece, Ireland or Portugal.
The scapegoating approach is rotten economics, not because the Government convinced themselves of this nonsense but because they have convinced the markets and business, too. By their own politically advantageous hysteria, the Government have, as my noble friend Lord Myners noted, destroyed business and consumer confidence. It is not surprising that the OBR revealed yesterday that business investment growth is down and has locked Britain into a bond-market straitjacket from which it is now almost impossible to escape without abandoning the scapegoating slogans. It is good politics, but rotten economics.
On the timing of sweeteners and elections, unfortunately that is rotten economics, too. The problem is that you cannot be sure that the economy will have recovered in time to deliver the goodies. As the Bank of England’s Monetary Policy Committee minutes published yesterday record, it is,
“not yet clear that the weakness in output growth seen in the latter part of 2010 would prove temporary, particularly in light of the latest indicators of a further weakening in consumer spending”.
That is the Bank of England’s view. This is before the savage government spending cuts hit the economy next month.
The low growth and increased unemployment that the Government’s policies have produced have, as my noble friend Lord McKenzie, also pointed out, cut projected tax revenues for the next five years. I repeat; they have cut revenues for the next five years, so there will be a lot less to give away. The fall in revenues and the consequent increase in government borrowing revealed in the Budget are an indication that we may have entered a terrible downward spiral in which higher taxes and spending cuts result in low growth and unemployment that in turn result in lower revenues, higher welfare payments and a growing deficit—exactly the scenario painted in the OBR’s economic report. That is what the noble Lord, Lord Higgins, should be afraid of. Instead of falling, borrowing is rising.
However, the real failure of this budget is the subject of today’s debate—the failure to promote the rebalancing of the economy that is necessary to enable Britain to grow its way out of recession, and out of deficit. Consider the measures that the Chancellor claims will create growth. Research and development tax changes sound good, until you realise that these will benefit just 7,000 out of the 4.8 million small firms in this country. The entrepreneurs’ relief sounds good, until you realise that the benefit will go to just a few hundred people. The new apprenticeships that will reach 12,500 young people sound good, until you realise that 60,000 young people have become unemployed in the past year alone, adding to the 1 million young people currently unemployed. The enterprise zones sound good—until one looks at all the academic evidence that demonstrates that they are the most expensive means available of creating jobs, because so many of those jobs would have been created anyway. Enterprise zones are just a neat way of avoiding taxes—perhaps in Cornwall, too.
What of the cuts in corporation tax and fuel duty? The OBR's verdict is that the effects will be “minimal”. No wonder, since the cut in corporation tax has been paid for by cutting investment allowances. How stupid is it to take from companies that invest and hand out the money as a tax cut to all companies, whether they invest or not?
The OBR's verdict on this Budget for growth is that:
“We do not believe that there is sufficiently strong evidence to justify changing our trend growth assumption in light of policy measures announced in Budget 2011”.
That is it: no change.
The real damage to the hope of rebalancing the economy is to be found not in the failure of the Budget but in the announcement on the day before that inflation was at 5.5 per cent, and in the Government’s admission that inflation is likely to stay that high for the rest of this year, and to be higher than previously forecast for the next five years. That point was emphasised by the noble Lord, Lord Griffiths.
This country has one goose that can lay rebalancing golden eggs: British manufacturing, as the noble Lords, Lord Renton, Lord Empey and Lord Paul, and the noble Baroness, Lady Hooper, noted. Over the past year, manufacturing has performed very well, with rapid export growth stimulated by the sharp fall in the value of sterling. However, the competitive advantage derived from the devaluation is being eroded by our relatively high inflation rate. Moreover, the high rate of inflation is likely to bring forward the day when the Monetary Policy Committee raises interest rates and seeks to reduce inflation by raising the exchange rate, weakening further the stimulus to exports. We have only one goose and we are in danger of killing it.
The danger derives not just from the Government's failed macroeconomic strategy, important though that failure is, but from the timidity of the growth strategy laid out in The Plan for Growth published yesterday. The essence of the plan is summed up under the heading: “What the Government will do now”. The main headings are: “minimise regulatory burdens”, “reform the planning system”, “improve the corporate governance framework”—by removing the need for audits—“provide finance for new and growing businesses”—by small tax incentives—“further improve innovation in the UK”—by small but useful measures—and, “improve competition”.
The clear theme is to reduce the role of government—something that surely pleases the noble Lord, Lord Ahmad—and create a slightly biased playing field relative to our major competitor countries. This is not what Britain needs, as my noble friend Lord Haskel pointed out. We do not need a biased playing field; we need a new game, as the noble Lord, Lord Bates, suggested. The rules of the new game can be learnt readily by studying the success of other economies—something that the noble Lord, Lord Risby, might care to do. What is needed is a secure, plentiful and stable flow of finance to fund industrial investment, together with a structure of corporate governance that fosters a commitment to long-term innovation and investment. Neither of these conditions is present in Britain.
Our fundamental problem is illustrated by the fact that more than 70 per cent of purchases and sales of industrial stocks and shares over the past year have been by day traders and short-term investors. British industry is owned by people to whom the long-term future of a company is irrelevant. The mantra that the duty of the board of a company is to pursue the best interests of the shareholders is vacuous when the shareholders change by the hour. Instead of secure sources of finance for industry, we have a fragile banking system that is overly dependent on short-term wholesale funding and in which a significant proportion of financial innovation is driven not by the demands of economic efficiency but by the desire to avoid taxes and/or the strictures of financial regulation.
Of course, better regulation would not be enough to secure the industrial financing that we need. That will require a fundamental reform of the UK's financial sector that goes far beyond the terms of reference of the Independent Commission on Banking. The reform should encompass not just the welcome creation of the green investment bank but the creation of an industrial investment bank, as called for by my noble friend Lord McFall, with the funding muscle to make a real difference to Britain’s small and medium-sized industries—the industries from which innovation and jobs predominantly come.
Nothing so radical was evident in yesterday’s Budget. Indeed, there was nothing radical at all. Whether there is fuel in the tank is debatable, but everyone can see that all the tyres are flat. That is because the other crucial component of a growth strategy is missing. The Government have chosen to throw away the ignition key. What will ignite growth is demand. Investment will take place only if there is the prospect of stable, growing demand. Without prospective demand, it does not matter how cheap or reliable funding might be, how generous the tax breaks or how innovative the technology. Without prospective demand, you simply stand to lose your money, and there lies the central failure. By consciously suppressing demand, the Government are consciously suppressing growth. That is why growth is down—not just now but for the foreseeable future. The noble Lord, Lord Lawson, described this as being least needed economically. I must say that I prefer the noble Lord of the Lawson boom rather than the one of fiscal masochism.
The OBR’s forecasts show growth recovering after 2013. However, one should not be misled, as the noble Lord, Lord Newby, has been. The OBR made it clear that its medium growth forecasts are based on the forecasts of potential growth—that is, on capacity and not on demand for that capacity. Only if there were some magic fairy that ensured that capacity was fully utilised would those growth rates be attained.
There is no magic fairy. This Chancellor has undermined Britain’s recovery from the consequences of the international financial crisis. Worse than that, by making the wrong choices at the wrong time he has weakened the growth prospects of the British economy for years to come. The characterisation of this Budget as a “Budget for Growth” is a title worthy to stand alongside Orwell’s Ministry of Truth. It was a Budget for stagnation. However worthy the micromeasures, the verdict remains that of the Office for Budget Responsibility—no impact on long-term growth. No impact at all.
Financial Crime: Legislation
Lord Eatwell Excerpts(14 years, 3 months ago)
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Lord Eatwell
My Lords, “Dictum meum pactum”—“My word is my bond”—has been the motto of the London Stock Exchange since 1801. It embodies an important statement about the role of trust in the operation of markets—not just financial markets but the capitalist economy in general. Trust is a fundamental component of the operation of any successful capital economy. In the absence of trust—trust in the financial system; trust in the rule of law; trust in the ultimate fairness of economic and social organisation—the efficient operation of a market economy is seriously compromised.
The importance of today’s debate does not rest on the specifics of legislation on bribery, tax avoidance, corruption and money-laundering. After all, all these activities have a very different legal status. Bribery is not yet illegal in the manner that Parliament intends, and the Minister must explain why the declared will of Parliament is being frustrated by the Government’s persistent delay in introducing the Bribery Act. The noble Lord, Lord Hodgson, should recall that just the same sort of fears as those that he expressed preceded the introduction of anti-insider trading legislation.
Tax avoidance is not illegal—that would be evasion—but it is clearly undesirable, and I applaud the Government’s request to Graham Aaronson to lead a study as to whether to establish a general anti-avoidance rule.
Corruption is in principle illegal but in practice not as illegal as it should be. For example, the Dodd-Frank Act that reforms US financial regulation also requires US-listed companies involved in extractive industries anywhere in the world to report all payments that they make to Governments project by project and country by country. Those that fail to do so will be excluded from US capital markets. Will the Minster tell us whether the Government would support a similar law here, and will the Government legislate to ensure that reporting failures identified in US legislation, whether at home or abroad, result in exclusion from the London financial markets as well?
Money-laundering is illegal, principally because its very definition relates to criminal or terrorist activities. What unites all these activities, legal and illegal, is that they destroy justice and fairness, and, by destroying trust, they weaken both our society and our economy. Particularly today, when the many are suffering from the greed and folly of the few, restoring trust should be at the very heart of the Government’s legislative programme.
A persistent argument—we have just heard it again—against legislation in all these areas, with the possible exception of money-laundering, although perhaps not, is that an honest economic environment will be an uncompetitive one: contracts will be lost to the foreign firm willing and able to grease a sufficient number of palms. It would be a serious error to fall into the trap of the “Everyone’s doing it, therefore so must we” argument. Condoning illegality, dishonesty or even just sharp practice is no foundation for building a strong economy or a vibrant international financial centre.
Indeed, one characteristic of the British economy which is an unambiguous success story is the recent history of financial innovation. However, Britain’s success has a dark underbelly. The very innovation that has multiplied the volume and sophistication of financial transactions has also multiplied the opportunities for money-laundering and tax evasion. A significant proportion of all financial innovation is driven not by the demands of economic efficiency but by the desire to avoid taxes and/or the strictures of financial regulation. In such an environment, bribery and corruption follow not far behind.
As a world financial centre, the UK has a peculiar responsibility to maintain the highest standards of transparency and accountability, and to have the very strictest legislation covering financial transactions and taxation. The world of finance cannot operate without trust. Lose trust and London is finished.
If a general anti-avoidance rule is to be effective in limiting tax avoidance, then fundamental structural reforms are required to the tax system. Complexity and obscurity in taxation are the mother and father of tax avoidance; simplicity and clarity are the enemies of the cheats; and because even simplification will not eliminate avoidance, in the interests of fairness and trust there should be a minimum tax—a rate that no accounting artifice can reduce.
We must not be complacent. Ten years ago Transparency International’s corruption index ranked Britain tenth among the countries of the world, with Finland and Denmark being the least corrupt. In 2010, Denmark was still ranked least corrupt—Finland had slipped to fourth—and our ranking had plummeted to twentieth. The abuse of economic power undermines the economy and destroys trust, and it destroys Britain’s reputation as an international financial and trading centre. Practices that are unfair divide and weaken. That is why effective legislation to tackle bribery, tax avoidance, corruption and money-laundering is of far greater value than the monetary value of the offence. It is also why the Government’s failure to implement the Bribery Act is doing so much damage to Britain’s economy and reputation around the world.
Independent Commission on Banking
Lord Eatwell Excerpts(14 years, 4 months ago)
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Lord Sassoon
My Lords, I certainly agree with my noble friend. He has been thinking about these things for many years and I very much value his thoughts on them. I absolutely agree that the UK wants to do the right thing, but the remit that the commission has been given also reflects the international and global contexts, of which we have to be mindful. I wait with interest to see what the commission says and repeat that I do not want in any way to prejudge its thinking.
Lord Eatwell
My Lords, the Statement that the Chancellor of the Exchequer made on bankers’ bonuses contained a peculiar sentence about the Independent Commission on Banking. It said:
“I should make it very clear that nothing that I will say today about the settlement that we have reached with Britain's banks … in any way prejudges the outcome of the commission”.—[Official Report, Commons, 9/2/2011; col.310.]
What was peculiar about this sentence was that he was answering a question that nobody had asked. Will the noble Lord confirm that in recent weeks there have been threats of resignation from the commission if its remit is in any way constrained?
Lord Sassoon
My Lords, I am attacked one week for not answering questions that have been asked, and now my right honourable friend is being queried as to why he answers questions that he has not been asked. He wanted to make it absolutely clear, which he did in the Statement on Project Merlin, that nothing there pre-empted or in any way cut across the independent remit of the banking commission. I think the position remains clear.
Banking
Lord Eatwell Excerpts(14 years, 4 months ago)
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Lord Eatwell
My Lords, I am grateful to the noble Lord for repeating the Statement made by the Chancellor of the Exchequer in another place. What a pathetic performance—not, I hasten to add by the noble Lord, who read very well, but by the Chancellor. It was described this evening by “Channel 4 News” as lying,
“somewhere … between charade and sham”.
This was a Statement hatched in a smoke-free room in Downing Street, probably not over beer and sandwiches but maybe over smoked salmon and champagne. It sees the unwelcome resurrection of that distinguished and unlamented figure of the 1970s, Mr Solomon Binding. It is not only in their policies that this coalition Government seek to return Britain to the past; they are returning to the old methods of back-room deals masquerading as proper governance.
Before turning to the fundamental issues raised by the Statement, could the noble Lord clarify some of the aspects of the agreement, as published by the banks? The agreement states that there is,
“a commitment by the Government to the stabilisation … of the relationship between the Government and the banks”.
What exactly does that mean? Moreover, the agreement states that the Government accept,
“the right of self-determination by bank boards”.
What could that possibly mean, other than that the Government agree to let the banks do whatever they want?
Let us turn to the fundamental question: what is this for? More importantly, how will it help the recovery of the UK economy? Take first the question of bonuses. The essential problem with bonuses, apart from the sheer immorality of the quantum of money involved, has been that they embody perverse incentives. They encourage excessive risk-taking and reward mediocrity. They absorb resources that could be used to rebuild bank balance sheets and expand lending to the real economy. They attract to an essentially non-productive activity people with skills that could be deployed to perform productive tasks elsewhere in the economy—less financial engineering, more real engineering. Indeed, by their grotesque distortion of pay relativities, bank bonuses devalue the hard work of talented people in the public sector, in manufacturing and industry, and in non-financial services.
What now is to be done about bonuses, over and above the measures already being enforced by the European Union, such as the requirement that bonuses be paid predominantly in shares? In the Statement the Chancellor claimed:
“Britain has the toughest and most transparent pay regime of any major financial centre in the world”.
Will the Minister confirm that this statement is incorrect? Will he confirm that the US banks in receipt of TARP funds not only have to provide more wide-ranging disclosure of the details of remuneration, but have to do this for past years, too? This is all detailed in the recent report on bank bonuses by Mr Andrew Cuomo, Attorney-General of the state of New York. Finally, in the section of the agreement on bonuses, we find the wonderful clause 3.5, which is destined to have enduring fame as the ultimate get-out clause:
“Nothing in this statement derogates from the obligation of the banks, and their boards and remuneration committees, to manage pay policy in a way which protects and enhances the interests of their shareholders”.
In other words: “Get lost, Mr Osborne, we’ll do what we want”.
Given that nothing of any matter has been achieved on bonuses, what of the much trumpeted agreement on lending? The agreement clearly states that any increased lending—any of it—must be on commercial terms. If it is on commercial terms, would it not be done anyway? After all, that is what the banks are supposed to be for. We are told that the banks will increase their gross lending to £190 billion in 2011. However, this is a deception, for gross lending is not the relevant figure. What matters is net lending—new lending minus repayments. It is net lending that defines the amount of new spending power funding the investments of British industry. If gross lending increases but repayments increase too, the net benefit to Britain will be negligible. Will the noble Lord tell us: is there an agreed target for a net increase in lending? Will refinancing of current financial facilities be deemed to be new gross lending or not?
Then there is the commitment to a new £1.5 billion business growth fund, building up,
“over a number of years”.
Not too much too soon. That is less than 1 per cent of current gross lending and, moreover, it is not at all clear that this will be new money. There is nothing at all in the agreement about the cost of credit, other than the reference to “commercial terms”. However, ask any small business and they will tell you that it is the price of credit, rather than its availability that is often the problem. It is so easy to avoid making a loan by pricing it out of the reach of the small business borrower.
We are told in the agreement that there is to be an appeal mechanism for those denied credit, managed by “a senior independent reviewer”. Who is this reviewer to be? Who will appoint him or her? What will be the terms of reference? What sanction will there be on those banks that the reviewer deems to have failed in their commitment? Will the reviewer be able to assess all the terms of the credit, including the price? What arrangements have the Government made for the publication of the banks’ lending data to include data on credit refused, so that lending behaviour can at least be subject to some public scrutiny?
This is not the way to make economic policy. Three facts must be obvious to all. First, this crisis was inflicted on the economy by the profligate lending policies of the banks. Secondly, a sustainable recovery of the British economy requires a steady secure flow of affordable credit to British industry. Thirdly, to attain this goal there must be a fundamental reform of banking in this country. Those three propositions will be shared on all sides of this House, other than probably on the coalition Front Bench. This Statement addresses none of those three challenges. It does nothing to limit profligate lending—indeed, I suppose it tries to encourage it—it does nothing to secure a steady flow of affordable credit, and it is irrelevant to the cause of fundamental reform. Let us hope that this tawdry so-called deal will stimulate Sir John Vickers and his committee to address these issues with enhanced vigour.
The Government’s overall policy towards the banks was summed up perfectly in today’s Financial Times, which stated:
“With much noisy showmanship, the Conservative-Liberal Democrat coalition is puffing demands that are little more than cosmetic. A slight change in a levy on bank balance sheets and a commitment to greater small business lending and transparency in bankers' pay may play well politically. But they are no way to fix the banking system”.
I agree.
Equality
Lord Eatwell Excerpts(14 years, 4 months ago)
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Lord Sassoon
My Lords, the Government take extremely seriously the question of fairness, which is why we introduced for the first time a distributional analysis to show the effects of not only our Budget but also our spending review decisions. In the measures that we have announced so far, in what is a very difficult fiscal situation, there is a fairness premium of £7.2 billion. The Government are putting these issues centre stage. In relation to bankers’ pay, my right honourable friend the Chancellor of the Exchequer has announced today that the levy on banks will be brought forward, so that the banks will be taxed at a higher level than under the previous Government’s one-off spending plans. We will await further developments in relation to discussions ongoing with the banks.
Lord Eatwell
My Lords, in the noble Lord’s reference to his Government’s policy on this matter and to the Budget, was he not being a little misleading, as the equality analysis in the Budget included the measures introduced by Mr Darling in March? When the measures introduced by the coalition are taken alone, they do not contribute to greater equality.
Lord Sassoon
My Lords, we took some very difficult decisions about which of the previous Government’s measures we would continue with and which we would not. The principal measure of the previous Government that we did not continue with was the full national insurance tax—the jobs tax—which would have been a significant drag on the growth prospects of this economy. Of course it was right that we should take into account the distributional effect of the total package of measures that we put through as a Government this year in the Budget and in the spending review. That is just what we have done.
Budget Responsibility and National Audit Bill [HL]
Lord Eatwell Excerpts(14 years, 4 months ago)
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Lord Eatwell
My Lords, the passage of the Bill through your Lordships’ House has been an excellent example of the importance of this House as a scrutinising and revising House. On behalf of these Benches, I thank the Treasury Bill team; Miss Jessica Levy from my office, who managed most of the relationship with the Bill team; and the Ministers, notably the noble Lord, Lord Sassoon, for the way in which they have approached the discussions and constructive negotiations on the content of the Bill.
The Office for Budget Responsibility established by the Bill is a peculiar institution. It is both outside government and of government. We need to ensure that legislation provides a framework for its independent operation as far as possible. That is what, working together, we have managed to do. We have clarified the role of non-executives, we have removed the statements in the Bill that seemed to qualify independence, we have enabled the OBR to consider issues of national risk, and we have enabled a process of external review of operations.
A number of factors remain. We on this side of the House are not entirely content with the budgetary provision for the OBR, or with the role of the charter as a qualifying agent that qualifies the OBR’S independence and instructs it.
The Countess of Mar
May I ask the Leader of the House whether it is normal to make a speech like this on the Question whether the Bill do now pass?
The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
It is unusual, but it is in order. I think that the noble Lord, Lord Eatwell, is about to wrap up his remarks, but he was being constructive and helpful.
Lord Eatwell
I am indeed. It is appropriate to thank people, when a Bill has gone through in this co-operative manner, for what has been achieved.
I know that the Government think that this side of the House has taken a somewhat belt-and-braces approach to the independence of the OBR; I am sure that Sir Humphrey, or perhaps Sir Nicholas, does. However, it can do no harm to the OBR’s reputation to have a belt in place when the braces fail.
It is the Government’s responsibility now to ensure that this important experiment in economic governance is a success. We on this side wish Mr Chote and his team well.
Lord Myners
My Lords, my words are very much in the same direction as my noble friend’s. This has been a superb example of the House working well. We had long and detailed discussions in Committee. The Minister listened attentively and reserved his position, but came back with constructive amendments, and at all stages he kept fully informed everyone who is interested in the Bill by writing to us and keeping us up to date. It is a better Bill as a consequence of the House working effectively in the way that it did.
Currency Markets
Lord Eatwell Excerpts(14 years, 5 months ago)
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Lord Sassoon
My Lords, I think that we had better see how this plays out. It is encouraging that the European financial stability fund was able to make a successful bond issue at the end of last month. There was something like €45 billion of demand, which, in the technical phrase of the markets, was considered a blow-out—a hugely successful deal. That brings into question whether the terms can in any way be softened, but we had better wait to see how this evolves.
Lord Eatwell
My Lords, the noble Lord has said on numerous occasions to the House and again today that the stability of the eurozone is in Britain’s best interests. He has also told us today that Britain will participate in the design of the new stability mechanism. Will he tell us whether Britain will participate fully in the operation of the new stability mechanism, once designed, or will we continue to hover irrelevantly on the sidelines when Britain’s interests are at stake?
Lord Sassoon
My Lords, I have been completely clear, as has my right honourable friend the Chancellor of the Exchequer on numerous occasions, that while we wish to see a stable eurozone, which is indeed in Britain’s best interests, we will not be a part of the new permanent European stability mechanism, which is a matter for the eurozone countries. However, that does not mean that we are not rightly concerned, as I have just explained, to make sure that the stability mechanism is established in an appropriate way. Just as we played a constructive role in relation to Ireland, we will continue to play a constructive role in relation to all these matters as we go forward.
Banking: Royal Bank of Scotland
Lord Eatwell Excerpts(14 years, 5 months ago)
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Lord Sassoon
My Lords, the Royal Bank of Scotland is due to announce its results on 24 February. It normally makes its remuneration disclosures on or around that date, so we will have to wait. I have no knowledge of the number of bankers who might or might not be getting particular levels of bonus. Our relationship with the Royal Bank of Scotland is managed on a commercial, arm’s-length basis through UK Financial Investments.
Lord Eatwell
My Lords, as has been well-publicised, the Treasury and the Chancellor of the Exchequer have been entering into negotiations with the banks on bonuses and other activities. Will the noble Lord give me a categorical assurance that the results of those negotiations will in no way prejudge, constrain or compromise the findings of the committee into banking structures headed by Sir John Vickers?
Lord Sassoon
My Lords, with regards to the proposed possible settlement with the banks in Project Merlin, discussions are ongoing with the intention of seeing that the banks pay smaller bonuses than they would otherwise; that they are more transparent about their pay; that they make a greater contribution to local communities and the regional economies; that they treat customers fairly; and that they lend, materially and verifiably, more than they were planning to the businesses of Britain—especially small and medium-sized enterprise—so that they can grow and create this year. If we do not get such a settlement, my right honourable friend the Chancellor has made it clear that nothing is off the table. As to the Independent Commission on Banking, it is an independent banking commission and it will do its own thing as it sees fit.
Monetary Policy Committee
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Lord Sassoon
My Lords, I am grateful to my noble friend because, while again I will resist the temptation to second-guess the Bank of England, it has indeed attributed the recent rise in inflation, which has been significantly to the depreciation of sterling, to the increase in VAT which the last Government put in place and to the rise in energy prices. These are external factors.
Lord Eatwell
My Lords, the noble Lord in his Answer earlier referred to temporary factors accelerating inflation and reducing the living standards of the British people. Is not one of the most important temporary factors that are accelerating inflation through the rest of this year the increase in VAT to 20 per cent?