United Kingdom: Productivity

Lord Flight Excerpts
Tuesday 8th September 2015

(9 years, 3 months ago)

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Lord Flight Portrait Lord Flight (Con)
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My Lords, I will focus, separately, on the unusual period of 2007 to 2015 and the general long-term structural weakness in UK productivity growth. The UK economy did not get back to its 2007 level until the beginning of 2015, but with some 6% more people employed, remarkably. In a sense, this was socially good. Historically, after a financial crash, thousands of people may have been thrown out of work, but generally companies kept them employed. The companies may have reduced their hours, but there was not a massive rise in unemployment. One has to face up to one of the main reasons for that, which is that labour was cheap—labour costs could be cut—and, in turn, the reason for that was income tax credits. Former Chancellor Darling has admitted that tax credits, which were intended to boost living standards for those on low pay, have served to freeze or reduce pay, in turn causing productivity to fall: there is no need for employers to pay if the state is going to top up pay. The cost of income tax credits, originally around some £7 billion, has gone up to £34 billion.

We have been here before. In the late 18th and early 19th century there was something called the Speenhamland system, named after the village where it was invented, under which pay was subsidised. That led to massive labour hoarding, largely in the agricultural sector. When it was eventually ended in 1834, there was a huge shake-up, and agricultural employment fell by roughly one-third. Indeed, labour was released to go and work in the new industries that were coming up, causing the great economic success of the 1840s. One has to face up to the fact that if you are stuck with tax credits—and I believe we should not be—the only way to reduce their effects is to have a much higher minimum wage. This is of course why the Government are introducing the NLW. Personally, I do not like Governments interfering in pay, and I think our growing regional differences in the cost of living need to help determine pay rates locally. However, a higher minimum wage is unavoidable if government is continuing to subsidise pay.

A second big factor during the period was the growth in regulation and regulatory burdens. Many more regulators were employed in the financial services industry and many more staff were employed by companies—tens of thousands. There was also huge growth in energy and agriculture. In all these areas, output did not increase at all but the number of people involved rose dramatically.

Interestingly, productivity during the period was actually up in manufacturing but down substantially in services and in the public sector—I very much welcome what my noble friend Lady Noakes had to say about the public sector. Also, despite its strained infrastructure, London performed much better than the rest of the country in terms of productivity—29% above the UK average. However, colleagues on all sides of the House whom I have spoken to rather agree with me that the big issue causing the fall in productivity was the knock-on effect of income tax credits.

As has already been pointed out, the long-term poor productivity trend goes back more than 100 years. The average increase pre-2007 was 2.4% per annum, and of course poor productivity restricts growth. Indeed, successful recovery and continuing economic growth requires much better productivity. The only other way it can be made up is by growth in the labour force, which is one of the reasons why the UK has permitted significant immigration going back nearly 50 years. The figures show us to be poor versus the US, Germany and France: the UK is some 19% below the G7 average for productivity and 31% below the US. Interestingly, among the G7, only Japan has been worse than us.

I believe that the statistics are materially wrong. Living standards are a knock-on symptom of productivity growth and, remarkably, living standards in the UK are just as good as in much of the rest of the EU—in some cases, better. In many ways, the UK has done better over the past 35 years generally. I very much welcome the fact that Charlie Bean will be reviewing the statistics.

The main difference between the UK and the economies that have performed better is that we have had such a low savings rate for a long time. Never forget Keynes’s famous dictum that investment equals savings and savings equals investment. If you have a low savings ratio, you are likely to have less investment. The UK has got by on borrowing other people’s saving surpluses and selling the family silver to finance it. We have had a £700 billion current account deficit built up over 15 years. Now, for example, 46% of city properties are foreign-owned and 53.8% of listed UK-domiciled companies are foreign-owned. The UK always used to have a big net surplus of foreign assets; there is now a substantial deficit of international assets that we own versus UK assets that are foreign-owned. It is clear that a low savings rate generally leads to low investment, and that that leads to poor productivity growth. That has been the biggest single factor contributing to our poor productivity growth.

Today, investment is not so much about old-fashioned physical plant but about intangible knowledge-based assets. I suspect accounting may often treat such investment, important though it is, as expenditure rather than investment. In the UK, we have, over the past few years, had a major growth in entrepreneurship: 1.5 million new companies in the past two years, not just in London and the south-east, many in new, digital technology. We have been much more successful in that context than the rest of Europe. Also, the UK may have effectively rationed its investment better than others—than Japan, for example, which has been building bridges to nowhere to keep the economy afloat.

There are clearly some useful things in the Government’s plan, but I felt that it mostly cobbled together various policies already in place, such as cutting corporation tax and freeing up planning, and attaching all that to a productivity plan label. I found nothing hugely innovative or major. There are some positive things: upping the annual investment allowance to £200,000; a new compulsory apprenticeship levy; and a new 2020 road fund. UK infrastructure is clearly fundamental, particularly in the south-east, where the road network is wholly inadequate and has been neglected for a long time. The 95% target for superfast broadband is good news. The Government can contribute ingredients, and macro policy can help. Improved skill training is obviously a good idea. No one speaks up for the university technical colleges of my noble friend Lord Baker, which will be incredibly important in improving the flow of people through education into skill training and into work—the more the better.

I question the Government’s initiatives to raise exports. We have heard a lot about them for a long time but nothing much happens. The crucial thing is export finance, which needs to be more easily available and cheaper to be competitive with that in France and the US.

Above all, now that the economy is back on its feet, there is a clear need to increase the savings rate if we want higher investment and productivity. It is not happening; indeed, the savings rate is falling. We need better fiscal incentives for people to save—dare I say it, making it clear to people that if they do not save, they may not be able to rely on the state in their old age because, as the baby boom explodes, that will simply not be affordable. Above all, we need a savings rate that averages 10% per annum. That would underpin a considerably better performance in productivity.

Income Per Capita

Lord Flight Excerpts
Tuesday 14th July 2015

(9 years, 5 months ago)

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Lord O'Neill of Gatley Portrait Lord O'Neill of Gatley
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My Lords, I am very pleased to hear that one Member of the opposition Benches has read the productivity report in detail. On the specific question, as we showed in the Budget documents and in parts of the productivity document, we believe that when all the measures are looked at in total, eight out of 10 working households will be better off as a result of the personal allowance, the national living wage and the welfare changes announced collectively in the Budget.

Lord Flight Portrait Lord Flight (Con)
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Does the Minister agree with Alistair Darling that the Government subsidising wages tends to depress wages and leads to overemployment, and thus poor productivity growth?

Lord O'Neill of Gatley Portrait Lord O'Neill of Gatley
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My Lords, I suggest that Alistair Darling has made many interesting contributions towards improving Britain’s economic performance and productivity performance, including that observation.

Budget Statement

Lord Flight Excerpts
Wednesday 25th March 2015

(9 years, 8 months ago)

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Lord Flight Portrait Lord Flight (Con)
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My Lords, voters in this country understand that the Government have done a pretty good job in bringing the economy back after the worst depression since the Second World War. I will only make the point that, first, it was that much worse here than in most of the European countries because of the importance of the financial sector; and secondly, one of the main reasons for the decline in 2010-11, as Professor Collins pointed out, was the mistaken reduction in the money supply in 2009, which was exactly the wrong monetary policy for that time. For the past five years, the fiscal monetary mix has been about right and the austerity Keynesian mix has been about right. As I have said before, there has been a greater explosion of entrepreneurial activity, particularly in new, high-tech industries, than I have ever known or seen in my lifetime, not just in London but all over the country.

To some extent the savings rate overlaps with some of the excellent points made by the noble Lord in his speech. The savings rate in this country has been significantly too low for at least 20 years, if not since the Second World War, which has led to two different sorts of problem. The first is completely inadequate provisioning for retirement and care home expenses going forward, which, sadly, contrasts with Britain having been the leader on pensions and retirement saving in the 1980s. An average pot of some £230,000 is needed to provide the standard two-thirds of income in retirement. The average size of the pot is now only about one-tenth of that. The tipping point will come in 20 years’ time when retirement incomes will start to fall materially. Therefore, without more saving, there will be a big problem down the line.

The second is the economic and strategic impact, to which the noble Lord, Lord Hunt, drew attention. Whereas we were a major creditor nation, owning a lot more around the world than the world owned of us, 25 years of current account deficits totalling some £700 billion on a cumulative basis have been financed by selling off assets, such as businesses. We cannot do Hinkley Point without the Chinese and the French. The strategic loss showed up first in the utility sector, but it is dangerously spread across too much of our economy, as the noble Lord, Lord Hunt, pointed out. Even here in London, one of the reasons why young people cannot buy houses in central London is that 49% of them are owned by people from abroad and an astonishing 49% of City property is now internationally owned. We got away with doing that for a long time. We discovered in the 1980s, following the ending of exchange controls and a floating exchange rate, that current account deficits, which had been such a big issue previously, got funded automatically by capital inflows. I am certainly not against the abolition of exchange controls, and I believe in open markets, but if you have an inadequate savings rate, what has happened here is what will happen. The Government still spend £90 billion per annum more than tax revenues and the household debt to income ratio is up to 172%, which is higher than it was in 2007-08. The savings rate now is about 3%. We need a savings rate of at least 10% on average to be in a more balanced situation. Never forget that savings equals investment, so one of the reasons why investment has been inadequate and productivity growth has been disappointing has been lack of savings. In summary, Governments can borrow other countries’ savings for quite a long time and, as it were, get away with it, but it eventually comes home to roost, and we are now at that stage.

There is some good news. Between 1997 and 2010, four-fifths of growth came from consumption and only one-fifth from investment. Since 2010, investment has increased four times faster than consumption. Last month we had the best current account deficit for 15 years. Auto-enrolment is still in its early days but there is scope for contributions from employer, employee and government to increase and lead to a reasonable accumulation of pensions. The need is perhaps less than forecast because it is very clear that many people do not want to retire as they enjoy the companionship of work. Indeed, if we go back to the late 1990s, some 80% of the total increase in economic activity came from people working longer. I am sure that it will become perfectly natural for people not to want to retire until they are 70 or even 75, with people living much longer.

I hope that this will be a watershed Budget for trying to revive the savings culture. The Budget measures for ISAs have been helpful and important and saving by ISAs is now something like seven times individual money purchase pension scheme saving. It has become extremely important for the self-employed, a growing part of the population, and its great advantage is that it is simple and straightforward. Free interest income up to £1,000 will, I hope, encourage people to save more. I am less keen on limiting pension pots to £1 million. It would have been better to have reduced the tax credit to 20% for everyone and to have got rid of both the maximum that you can have in a pension pot and the maximum that you can put in every year.

The savings rate is far too low, and coming out of a recession that is, perhaps, unavoidable. But over the next decade, if whoever is in power does not take measures to increase the savings rate, there will be growing strategic problems in running the economy and there will need to be stick as well as carrot to achieve what is needed.

Small Business, Enterprise and Employment Bill

Lord Flight Excerpts
Wednesday 11th March 2015

(9 years, 9 months ago)

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Baroness Neville-Rolfe Portrait The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
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My Lords, these amendments relate to Clauses 122 and 123 which remove the requirement for face-to-face meetings in insolvency proceedings.

I am grateful to the noble Lord, Lord Stevenson, and my noble friends Lord Flight and Lord Leigh for their questions about when face-to-face meetings should be held and the position of small creditors. I have also met R3, the trade body representing insolvency practitioners, as I promised to do in Committee, and am grateful to it for the valuable insight that it provided.

After further consideration, the Government intend to expand the thresholds so that a face-to-face meeting may be requested by 10% of the total number of creditors or contributories, as well as 10% by the value of their claims, which was, of course, the Government’s original proposal. This would mean that on average three or four creditors could trigger a meeting in a liquidation case. Moreover, to account for the larger insolvency cases with lots of small creditors, a further threshold of an absolute number of 10 or more creditors or contributories—a third 10—has also been introduced.

I thank the Delegated Powers and Regulatory Reform Committee for its recommendations on this part of the Bill. We have listened to its concerns and moved the various thresholds to the face of the Bill so that they will appear in the Insolvency Act as amended. Any changes to these thresholds will also now be subject to the affirmative resolution procedure.

Before I sit down, I should like to comment on another insolvency issue raised in Committee by my noble friend Lord Flight. This was the temporary exemption from the scope of the no-win no-fee reforms in Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 for insolvency officeholders to bring civil proceedings. The Government have listened to the concerns raised in this House and elsewhere. As a result, we announced on 26 February that we would defer commencing the no-win no-fee reforms for proceedings brought by insolvency officeholders beyond April 2015.

I am most grateful for the input of noble Lords on all sides of the House and I hope they will agree that we have found a sensible solution on all these issues. I beg to move.

Lord Flight Portrait Lord Flight (Con)
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My Lords, I thank the Minister for listening to the various concerns in this territory and for the government amendments. I am aware that the insolvency industry is comfortable with the legislation as it now stands. It understandably has the view that it hopes creditor meetings will not disappear as they can be extremely useful. However, a most satisfactory compromise has been achieved, for which I thank the Minister.

Lord Stevenson of Balmacara Portrait Lord Stevenson of Balmacara (Lab)
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My Lords, as the Minister said, in Committee we were concerned that, rather than increase creditor engagement, the original clauses in the Bill would reduce it. We reported that the Federation of Small Businesses believed that the proposal would be detrimental, the British Property Federation had concerns and that R3, to which the Minister referred, wanted the Government to think again about the issues.

We take the view that creditor engagement is a core part of a strong, transparent, fair and trusted insolvency regime. Indeed, we have such a regime in our country. Creditor meetings are an essential part of that and build trust and confidence in that regime. Although the clauses also included proposals on virtual meetings—we are not against that—we wondered whether it was a bit previous to suggest that they might entirely replace face-to-face meetings. I am delighted that the Government have listened to the arguments from all around the House and have agreed to come forward with these amendments, which we support. The noble Lord, Lord Flight, has been assiduous in his attendance and has pressed amendments without number. There were so many, it was hard to keep track of them. I think that only one has landed, but I am glad it is this one on no-win no-fee conditions, which will make a big difference. I am grateful to him for his support for this.

Entrepreneurs’ Relief

Lord Flight Excerpts
Thursday 26th February 2015

(9 years, 9 months ago)

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Lord Newby Portrait Lord Newby
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My Lords, the Burt report contains a whole raft of really interesting proposals, which the Government will consider. The latest figures that I have show that some 990,000 SMEs are led by women. At about 20% that is a record high, as far as I am aware.

Lord Flight Portrait Lord Flight (Con)
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My Lords, are the Government aware of the tremendous success of entrepreneurial endeavour—

None Portrait Noble Lords
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Oh!

Lord Flight Portrait Lord Flight
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Excuse me. I apologise for my extremely embarrassing mobile phone. Is the Treasury monitoring the extent of entrepreneurial activity and success in this country? Never in my lifetime have I known such an explosion of entrepreneurship, particularly among all the new technologies, where other government measures are helping. This is a sort of Schumpeterian thing that is happening, which ensures our future. I find it quite difficult to access detailed figures—for example, on how many of the 1.5 million new companies over the last two years are new enterprises or other things. Is the Treasury monitoring the amazing thing that is happening in this country?

Lord Newby Portrait Lord Newby
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My Lords, the Treasury is keeping records and noting the number of businesses. There are a record number of private sector businesses in the country at the moment, with an increase of 760,000 compared to 2010. There is of course a whole raft of measures, from having a long-term economic plan that has kept interest rates low to much more specific measures to support small business, which is helping this phenomenal growth.

Pension Schemes Bill

Lord Flight Excerpts
Tuesday 27th January 2015

(9 years, 10 months ago)

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Lord Flight Portrait Lord Flight (Con)
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My Lords, I, too, have some reservations about the guidance arrangements, in two different types of area, which I hope can be put at rest. First, imagine that an individual with a pension of £20,000 goes to get guidance. Is the guidance likely to say, “Go on—pay the tax, take the money and spend it”? The main guidance will be divided between buying an annuity or entering into a draw-down. The pension might be a bit small for the mechanics of a draw-down, so one is likely to be guided towards an annuity. For the present and foreseeable future, we all know that bond yields are artificially low, and that anyone who buys an annuity today will look back in five, seven or I do not know how many years’ time, when bond yields are back to normal, and say, “My God, I got a really bad deal when I bought that annuity. I know that I cannot sue the Government because it was guidance, not advice, but it was pretty bad guidance to suggest that I buy an annuity when what it was based on—mainly bond yields—were artificially low”.

The second thing that worries me is that people will, as it were, be left in the air. Their guidance might sort out whether they would be right to buy an annuity or right to do something else, but let us say that the guidance is, perhaps, that they should leave their money in the pension scheme and draw down only when they want to. They will then need someone to manage those investments. As a result of what I believe to be the very mistaken RDR reforms, most financial advisers are not willing to take on individuals with less than a substantial sum of money. How, therefore, will the individual get from the position of government guidance on what type of product they might buy to selecting a fund manager or a fund, if they are not able to get financial advice? As a result of the contortions that we have got into in financial regulation, people cannot get such advice from the government guidance bodies because the Government cannot give investment advice. I think a lot of people will end up feeling that they are left hanging in mid-air, even if they have gone through a very good guidance process, as to where they should go to choose the right product.

Baroness Turner of Camden Portrait Baroness Turner of Camden (Lab)
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My Lords, it was very kind of my noble friend on the Front Bench to mention me in his very interesting summary in support of this amendment. This is a Bill that involves a number of risks for the individual. That is one of the reasons why the individual benefiting from it should also have access to very reliable advice. That is what this amendment is all about: ensuring that the Government make quite clear that individuals have a right of access to reliable information. This has to last them for a long time, and it is on a risky basis unless they have proper guidance before they enter into it.

National Infrastructure

Lord Flight Excerpts
Thursday 22nd January 2015

(9 years, 11 months ago)

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Lord Flight Portrait Lord Flight (Con)
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My Lords, I add my congratulations to the noble Lord, Lord Adonis, both on his speech and on his prize. He is clearly speaking very much to the converted. However, I have some reservations—and need to be convinced—about his argument for a commission. Over the past four years we have not done so badly given the difficult economic climate. Crossrail has gone well and projects have advanced, and the 2014 NIP plan is a big improvement on the 2001 plan.

I will point to some specific issues that other noble Lords have raised. A key problem for major infrastructure projects remains the excessive regulatory, environmental and consultation requirements. These cause delays and costs and eventually lead to indecision, as was pointed out by the noble Lord, Lord Adonis. There is too much centralisation, and the regions need to be empowered.

I agree with my noble friend Lord Ridley that the biggest inadequacy is in our road network. While I am aware of inadequacies to the north, this applies particularly to southern England. For a long time we have desperately needed a motorway from Dover to Bournemouth, going through the middle of my former parliamentary constituency. There are still ridiculous traffic queues every day at Worthing and Arundel.

It is slightly wrong to think of infrastructure investment as part of the public sector. The major investor and manager of projects is the private sector, which accounts for something like 70%. Like my noble friend Lord Marland, I have rather greater confidence in the private sector’s ability to manage projects than in that of the public sector, which is not a natural for the purpose. I will add that there is no problem with financing proper projects, and I trust that my noble friend Lord Deighton would support this. If anything, we do not have enough projects lined up for the pension funds, the sovereign wealth funds and economies such as China to finance.

In 2010 I went to hear the shadow Chief Secretary present the infrastructure plan of the time. It consisted of roughly £200 billion of energy investment and £200 billion of communication, transport and digital investment, but with no particular timeframe. Indeed, I asked him when these projects were likely to take effect, and he could not answer. What has actually happened over the last four difficult years has been surprisingly good, in a way. We have averaged £47 billion per annum of investment, making a total approaching £250 billion over the last five years. This is also some 15% more than infrastructure investment in the previous Parliament.

The 2014 NIP is extremely good. There is an organised pipeline of £554 billion of investment, of which £303 billion is in energy and £176 billion in transport. Again, the financing of this is 64% private, 23% public and 13% mixed.

Before I sit down, I refer to the specific point of co-operation with China on infrastructure, which was raised by my noble friend Lord Sassoon. I understand that China has some concerns that the Hinkley joint venture project, which is 49% Chinese and 51% French, is in a state of stalemate. This is partly because the French do not have the funds, and partly because of political problems here about whether the National Security Council views China as a security risk for investment in nuclear energy. I hope that my noble friend Lord Deighton can sort this out, because I believe that it is causing some evaporation of Chinese support.

Small Business, Enterprise and Employment Bill

Lord Flight Excerpts
Wednesday 7th January 2015

(9 years, 11 months ago)

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Baroness Neville-Rolfe Portrait Baroness Neville-Rolfe
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I thank the noble Lord for his helpful intervention. Indeed, like him, I feel that we need greater awareness of the potential of GOV.UK and the internet for communicating with business, especially small business, in a much simpler and easier way. That is exactly Matthew Hancock’s intention. The plan is that this website, if it does not do so already, will cover all the sorts of things that you are talking about. Do have a look at it and if you feel there are other things that we should do, I am sure that we can. I am sorry about the parliamentary impropriety of referring to the noble Lord as “you”.

That brings me to a couple of final points. Just last month, which is a year since the publication of Small Business: GREAT Ambition, we announced that we had met a large commitment in that document by launching the Business Growth Service, joining up all of our support available for those businesses that have the right level of ambition, capability and capacity to improve and grow. So we are making progress with this overall and trying to bring together the offer for small business, which I feel is a theme that we will probably agree on in the course of this Committee.

The House can look forward next month to a report by my noble friend Lord Young of Graffham, the Prime Minister’s adviser on enterprise, who will produce his definitive paper on what impact the last five years of government work has had on small businesses in this country. I will ensure that interested Lords receive a copy.

Therefore, while I fully agree with the intention behind the amendments, I agree with my noble friend Lady Wheatcroft that we have enough reports. I do not believe that it is necessary to achieve the outcome that the noble Lord seeks in the way that he has proposed. I hope that he has found some reassurance from my lengthy explanation and is willing to withdraw the amendment.

Lord Flight Portrait Lord Flight (Con)
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My Lords, I first declare an interest as chairman of the Enterprise Investment Scheme Association. This issue falls under the Treasury rather than the BIS, so it often gets ignored in terms of its crucial importance in raising equity capital for small businesses. Once you have the equity capital, you can gear up with borrowing. EIS, under Governments of both main parties, has raised more than £12 billion since it started; over the past three years, the amount raised has doubled in each of those years and is now well in excess of £2 billion for the current year. When the present Government came into power, one of the constructive things that they did was to go back to negotiate with the EU to widen the parameters of the EIS, which had been unhelpfully narrowed during the previous Labour Government. Equity finance for small business is almost more precious than debt finance, and there is a wider range of providers of debt finance now increasingly available. I want to register the point on a BIS Bill in a BIS debate today that the Treasury and the EIS is crucially important for small business.

Lord Cotter Portrait Lord Cotter (LD)
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Before we move on, I thank the Minister for her response so far. Within the Bill there is this talk about the annual report and the need for the Government to address the issues in that sort of way. On behalf of the small business sector, I feel that we need to continue to look at issues in the Bill—but also particular issues, to one of which I shall refer the Minister. With the annual report, there is a very serious issue with the small business sector and finance, with regard to late payment to them from big businesses. There is a significant issue there, with 50% of big businesses not paying small businesses on time. I hope that monitoring and reporting back on such issues will be something that is ongoing throughout this Bill.

For example, there is a prompt payment code, which is voluntary—or it has been a voluntary code in the past. I very much hope that as part of the annual report Ministers will agree to look at the code and consider whether it is strong enough and whether it has been implemented enough by the businesses involved and by the Government themselves. Late payment is a serious issue when it comes to finance for small businesses; they should have that money available to invest and employ people in the local area.

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This group of amendments comprises effective, proportionate and very workable suggestions which are good for SMEs and those who wish to see growth triggered through the creation of competitive and properly functioning markets. The Government are to be applauded for trying to tackle this issue but it is clear that the Bill is likely to fall short. I hope that they will give full and due consideration to our amendments. I beg to move.
Lord Flight Portrait Lord Flight
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My Lords, Amendment 5, and its sister Amendment 25, have been tabled on the back of some excellent research undertaken by Grant Thornton in its impact assessment of the Bill. The research focuses on the fact that some small and medium-sized businesses qualify as SMEs for the purposes of the Government’s definition of those qualifying for R&D tax credits, but for the purposes of this Bill they are treated as large companies. The amounts and definitions here are interesting in that the R&D tax credit definition of a small company is one with a turnover of up to €100 million, assets of up to €26 million and with up to 500 employees. I draw the Committee’s attention to the fact that I believe that there is a printing error in the amendments and a pound sign was inserted instead of a euro sign. For the purposes of the Bill, the definition of SMEs is enterprises with a turnover of less than £25.9 million, assets of less than £12.9 million and a maximum of 250 employees.

The number of businesses to which this point relates is 2,851, according to Grant Thornton, with a combined turnover of £151 billion, an average turnover of £53 million and some 30,000 employees. The key point about businesses in this sector, which I will define as small SMBs, is that they have played the biggest and most disproportionate role in contributing to economic growth in this country. They have outperformed small companies and large businesses on employment growth, profitability growth, R&D and capital investment. This group is arguably more important than the very small SMEs that the Bill addresses.

The challenge that we face here comes under two different categories. First, as the Bill stands, small and medium-sized businesses will not benefit from the new provisions for providing access to finance and credit information, although they need this just as much as very small companies. Secondly, they will face increased regulatory requirements and costs arising from the requirement to publish reports on payment practices and the rather more demanding and expensive requirements in relation to the public register of significant ownership in businesses.

When the Bill was drafted, I am sure that the Government cannot have meant it to have the unintended consequence of being positively damaging to the most important entrepreneurial sector in this country. I am equally sure that the noble Baroness, Lady Neville-Rolfe, who I believe when she was a senior executive at Tesco railed against the ever-increasing amount of regulation imposed on business, will not want to see yet more regulation being imposed on small and medium-sized businesses.

In essence, Amendments 5 and 25 insert the R&D tax relief definition of an SME. To press home the point, under R&D tax relief it is inappropriate for small and medium-sized businesses to report on payment practices. Late payment for them is as much an issue as it is for small businesses. Indeed, medium-sized business find that it takes on average 48 days to be paid, against the average across the G8 of 42 days and only 32 days in Germany. In addition, such reporting on payments would be a costly and tedious regulatory requirement on what are still small companies. Amendment 5 deliberately sets a threshold of 499 employees and a turnover of £100 million, in line with the R&D tax credit, and Amendment 25 similarly defines a limit for the purposes of benefiting from credit information and credit facilities.

I put in a plea for the Government to consider these points. The Bill has a lot of virtue; it is there to try and help small businesses. Its definition of small businesses is, unwisely, too small for the purposes of what really matters. Small SMBs are not just equally important but potentially more important than small SMEs to the fortunes of our economy.

Lord Stoneham of Droxford Portrait Lord Stoneham of Droxford (LD)
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My Lords, I wish briefly to comment on the amendments, particularly following the comments of my noble friend Lord Cotter, who spoke on this issue of late payments.

Obviously, late payments are invidious. They affect small businesses severely, particularly in terms of cash flow. However, in looking at these amendments, there is a balance that we have to get right. There is a danger, certainly in some of the amendments, that we will overregulate. I refer particularly to Amendment 6, which has a requirement for quarterly reports and indicates that all payments to suppliers made more than 30 days after the date indicated have to be listed in some way, unless a formal query has been made on the invoice. The danger is that if one overregulates, all that will happen is that businesses will be inundated with formal queries as a way of avoiding the reporting.

Also important—if one is going to require all this information to be collated—is the reality that in many sectors balancing the payment of bills, whether we like it or not, sometimes protects the cash flow of certain companies that otherwise could be in difficulty. If this information is made more public in detail, there could be consequences for the management of the credit of those companies. So there are problems of overregulation that could be bureaucratic and inflexible, and could damage the businesses that we are trying to help.

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Moved by
5: Clause 3, page 4, line 14, at end insert—
“( ) it qualifies as a small or medium sized business for the purposes of the Research and Development Corporation Tax relief”
Lord Flight Portrait Lord Flight
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My Lords, I am not quite clear what the Minister was actually offering here, but I should stress that it is clearly completely inappropriate to treat companies with a turnover in excess of £25 million and more than 250 employees as large companies, which is what the Bill presently does. These small and medium-sized businesses are as much the victims of late payment as smaller companies. It is clear—and I trust that both sides of the Committee would agree—that the definition needs changing to an appropriate size, whether by using the R&D definition that fits reasonably well and on which Grant Thornton has done the research, or another definition. However, the SME definition is clearly inappropriate. I beg to move.

Baroness Neville-Rolfe Portrait Baroness Neville-Rolfe
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My Lords, I have already responded to my noble friend Lord Flight. This matter will be discussed again, not least under some later amendments. We have listened to what he said but, at this point, I would ask him to withdraw his amendment.

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Lord Flight Portrait Lord Flight
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That is not entirely satisfactory but let us wait for further discussions. I beg leave to withdraw the amendment.

Amendment 5 withdrawn.
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Lord Stevenson of Balmacara Portrait Lord Stevenson of Balmacara
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My Lords, we have a few amendments in this group and I will speak to just a couple of them. Two of them deal with matters to do with the Regulatory Reform Committee, which I think will be dealt with by the Minister when he comes to respond. The amendments would simply implement the proposals that have not already been dealt with by the previous discussions.

Amendment 19 is a probing amendment. In this set of amendments we deal with the third leg of a three-legged stool that tries to address a set of arrangements around the failure to commit to a financing model for small businesses at the individual level. This is a different attack on the same problem we have talked about throughout the whole of this afternoon: why finance does not flow as well as we would all like to this sector of our economy. The amendment is designed to suggest to the Government that there would be merit if one could extract some lessons from the process, whether or not it also includes the proposals just spoken to. That would add another dimension. We will see how the Government respond to that.

In the context of there being a small business in need of financing, a set of traditional lenders to whom it may or may not have applied, alternative suppliers and others who have expertise and knowledge about that, it would make sense for there to be some lessons learnt from these processes. The suggestion is made in the amendment that the Government might wish to think about providing an annual report to Parliament so that we have a sense of how these things operate. This is to some extent uncharted territory. It may feel like another administrative burden. In some senses, being a probing amendment, the wording is not to be taken at face value. However, this is interesting and new ground. We need to learn the lessons from it and to get the information that we gather out to as wide a group as possible. I hope the sensibility of that would commend it to the Government in some way. I look forward to a response on that.

The converse side of this argument is to be found in Amendment 21. This was slightly touched upon by the noble Baroness, Lady Wheatcroft, who I am afraid is not now in her place. I recognised what she said in her intervention on the last group. We would all be worse off if the credit referencing agencies and those others involved in this stool of three legs that I have talked about were fed information that was wrong. There has to be some means or mechanism for those who feel that the information held on them in these agencies is correctable. The noble Baroness was right to say that this has a sense of the googlisation issue, where you might have the right to correct your own information if you do not like it, but that is not where we are here. We are saying that if it is factually incorrect or in some senses paints a distorted picture, there ought to be some redress mechanism.

There are probably already reasonable direct relationships that could be invoked for that. Of course, there is the Financial Ombudsman Service, which plays a great part in dealing with many issues. I suspect that the people we are talking about in the SMEs, particularly the smaller ones, would find it helpful to have a body like the FOS to which they could pray in aid for help to correct information, question whether information held is correct and iron out any problems. The amendment is there as a suggestion, to the extent that there may even be other systems that would be better able to take this on. If there are not, why should the FOS not be invited to do so? The reason for tabling the amendment was that, in researching this, it turned out that there is a rather low limit for the size of institution that can approach the FOS. It would perhaps be helpful if, as a result of this discussion, the Treasury took this back and looked at it again. It seems wrong to cut off an area that is clearly effective in trying to get things resolved and to get the economy moving and things going. I hope that that is a helpful contribution.

Lord Flight Portrait Lord Flight
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My Lords, as I have already pointed out, Amendment 25 really goes with Amendment 5. Very simply, and hence why it comes up in this section of the Bill, it endeavours to slightly widen the size of SME which can benefit from the provisions on credit information availability by substituting the R&D tax credit definition of an SME for the definition currently pertaining in the Bill.

There is quite an important point here, which is that the crucial measure of the ability of a company to command lending services is really its EBITA. Most companies with an EBITA below £5 million have problems in sourcing capital investment finance. Basically, the argument runs that the definition used for an SME is really too small and that small and medium-sized businesses are in just as much need of assistance in sourcing credit and investment as are smaller companies.

Lord Newby Portrait Lord Newby
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My Lords, I begin by repeating that the Government are completely committed to ensuring that SMEs can access the finance that they need to grow and create jobs. That is why the Bill seeks to build on the progress that the Government have already made on this agenda by bringing forward further innovative solutions to ensure that businesses can borrow and succeed. These include ensuring that alternative lenders can access credit information on smaller businesses to help them make lending decisions, and creating a new process for rejected smaller businesses to be offered the opportunity to use government-designated platforms that will help match them with alternative lenders. I will go through the amendments in turn.

Amendment 18A relates to providing financial advice as part of the finance platform offer. The new process provided for by Clause 5 has been designed to address a specific problem affecting smaller businesses’ ability to secure finance: namely, the evidence suggests that a smaller business will go straight to its main bank when it needs to borrow. If the banks says no, the business will give up its search there in the belief that it is already at the end of the road, as the noble Lord, Lord Mitchell, pointed out when we discussed an earlier amendment. However, alternative sources of finance for smaller businesses are coming on stream all the time.

The new process will address this problem by requiring banks to offer businesses that they reject for borrowing a new option alongside making an appeal or going to see a broker. To be clear, going to designated platforms will be a route that rejected businesses can take alongside or in tandem with existing avenues available to them, such as seeking professional advice. It is right therefore that the platforms process remains focused on addressing the issue of access to finance, which is where the real problem is. Of course, platforms will also be able to add additional services on top of the minimum legislative requirements—the Government want to give platforms freedom to compete with each other to offer the best possible service. My noble friend will therefore be pleased to know that the Government’s discussions with the industry have indicated that the majority of providers interested in securing designation intend to support advice for businesses as part of their value added services. However, we do not believe that adding the specific amendment that he suggests is something that we should contemplate at this point.

Amendments 19 and 24 relate to parliamentary scrutiny. I hope that noble Lords will be reassured by, and be happy about, the government amendments that we have just debated, which accept the recommendation of the Delegated Powers and Regulatory Reform Committee to move to the affirmative procedure. The only thing I would say about Amendment 19 is that, in speaking to it, the noble Lord said something slightly different from what the amendment says. The amendment says that the Government should report on the number of times the regulations are used within a year. It does not say that it should be a broader report of the sort that he suggested in his speech. It is unlikely that these provisions will be used many times in a typical year, and the very fact that they will now be dealt with by affirmative resolution means that Members of both Houses will have a much clearer sense of exactly what has happened in any given year, because those who are interested in them will have been debating them.

Banking Act 2009 (Restriction of Special Bail-in Provision, etc.) Order 2014

Lord Flight Excerpts
Monday 15th December 2014

(10 years ago)

Grand Committee
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Lord Newby Portrait Lord Newby
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My Lords, as I was saying, the BRRD is part of this global push to make banks resolvable. It is designed to ensure that European member states have a harmonised set of resolution tools that can be used to manage the failure of a bank. It also puts in place mechanisms to facilitate co-operation between member states in planning for and managing failure. It covers banks, building societies, investment firms and banking group companies. The BRRD builds on the existing UK resolution regime in the Banking Act 2009, ensuring that many of the powers introduced in the UK will be replicated across the EU.

I now turn to each of the instruments in turn. First, the Bank Recovery and Resolution Order makes substantial amendments to the Banking Act 2009 to ensure that the UK special resolution regime is fully consistent with the BRRD. It inserts a new section into the Banking Act 2009 which gives the Bank of England a set of pre-resolution powers. They are designed to be used where, in the course of resolution planning, barriers to the effective resolution of the firm are identified.

These powers enable the Bank to require a firm to take action to ensure that the Bank could use its resolution powers effectively in the event that an institution fails. Where barriers have been identified, the Bank may, for example, direct a firm to dispose of certain assets or cease lines of business or change its legal or operational structure. To support these new powers for the Bank of England and its exercise of the stabilisation powers, the order gives the Bank new powers to gather information from firms. This includes a power to appoint an investigator to investigate a possible failure to comply with a direction. It also includes a power to apply for a warrant to enter premises in order to obtain documents that are required for the exercise of its functions.

Failure to comply with a requirement of the Bank of is an offence. This section replicates existing offences in the Financial Services and Markets Act 2000, which relate to requirements imposed by the PRA or the FCA in their role as regulator. Here, however, it relates to requirements imposed by the Bank of England. The Bank of England may delegate its enforcement of these powers to the PRA or FCA.

The order makes some amendments to the special resolution objectives, set out in Section 7 of the Banking Act. These amendments are designed to ensure full compliance with the BRRD, providing clarity and certainty for firms. There is nothing which fundamentally changes the objectives, which include ensuring the continuity of banking services, protecting financial stability and public funds and protecting depositors covered by the Financial Services Compensation Scheme.

The order adds a new section to the Banking Act 2009, which requires that relevant capital instruments of the firm—that is common equity, additional tier 1 capital and tier 2 capital—are either cancelled, reduced or converted into common equity at the point where a firm fails. This ensures that capital instruments do the job they are intended to do, which is to fully absorb losses at the point of failure. This write-down must occur before or at the same time as a stabilisation power is used. It may also happen in the absence of any resolution, either because the write-down is enough to restore the viability of the firm or because the firm is entering insolvency instead of being resolved.

The BRRD also introduces a new stabilisation option, the asset management vehicle. The Bank of England may transfer certain assets of the failing firm into an asset management vehicle, where they are then sold or wound down over time. This prevents destabilisation of the market through the immediate sale of the assets. It also prevents the assets being sold at an artificially low price.

The directive introduces a harmonised bail-in power across the EU. Bail-in is a tool which enables the Bank of England to cancel or modify contracts which create a liability for a failing bank. This allows the Bank of England to recapitalise the firm, stabilising it while the fundamental issues that have lead to its failure are addressed. The Government have had a policy to introduce bail-in powers for some time. Following significant progress on bail-in at an international level, and as part of the negotiations on the BRRD, the Government introduced bail-in powers via the Financial Services (Banking Reform) Act 2013. This order amends those provisions to ensure full consistency with the BRRD. In order to ensure that the bail-in is effective, it is necessary to prevent counterparties of the firm in resolution from closing out their contracts in order to avoid being subject to bail-in. The order therefore specifies that a range of contractual termination rights do not arise solely by virtue of the fact that a stabilisation power has been exercised.

The Bank of England is also given a power to impose a temporary stay on contractual obligations and security interests to which the firm in resolution is a party. This allows a short period while the firm is being stabilised, during which those obligations need not be met. This stay is very strictly limited in time to avoid having a disproportionate effect on affected parties.

This order also gives the Bank of England powers enabling it to support a resolution carried out in a foreign country. Where the Bank is notified by a foreign jurisdiction’s resolution authority that it has taken action to resolve a firm, the Bank must make an instrument that either recognises that action or refuses to recognise it. Recognition of a foreign resolution action will confirm that it has effect in the UK. This provides legal certainty about the effectiveness of resolution actions in other jurisdictions, reducing the risk of challenge and making cross-border resolution more effective. The Bank of England may refuse to recognise a third country’s resolution action, or any part of it, where certain conditions are met. These include a determination that the recognition would have an adverse effect on financial stability in the UK or the rest of the EEA, or that UK or other EEA creditors would be treated less favourably than non-EEA creditors with similar legal rights. The Treasury must approve any refusal by the Bank of England to recognise a third-country resolution action.

I move on to the second order, which puts in place safeguards for certain liabilities that may be subject to the bail-in tool in the event of failure. It protects certain types of set-off and netting arrangements that are respected in the event of insolvency. The provisions here ensure that they are also respected in bail-in. The order requires that liabilities relating to derivatives or financial contracts or covered by certain master agreements must be converted into a net debt, claim or liability prior to bail-in. Other types of liability covered by the safeguard must be treated as if they had been converted into a net liability. The order also puts in place arrangements for dealing with any breach of the safeguard. Where there has been a breach, the affected party is entitled to have that breach remedied. The remedy aims to ensure that the affected party is returned to the position that they would have been in had the safeguard not been breached.

The third order requires compensation arrangements to be put in place following the use of the bail-in powers. They are designed to ensure that the shareholders and creditors of the firm do not receive less favourable treatment than they would have done had the institution simply failed, without the exercise of the stabilisation powers. This is commonly known as the “no shareholder or creditor worse off” safeguard.

The fourth order implements the requirements of the BRRD on depositor preference. The majority of deposits in the UK, including all deposits of individuals, are protected by the Financial Services Compensation Scheme up to a value of £85,000 per depositor per institution. The Financial Services (Banking Reform) Act 2013 enhanced this protection by amending the Insolvency Act 1986 to add deposits covered by the Financial Services Compensation Scheme to the list of preferential debts. These debts are paid out first in insolvency, and are entitled to be paid out in full before other creditors receive any payments. This means that the majority of depositors in UK banks already have their deposits preferred.

The depositor preference order creates a new category of preferential debts, called secondary preferential debts. These are paid out after ordinary preferential debts but before other debts. All existing preferential debts, including covered deposits, will be ordinary preferential debts. The order designates amounts in deposits eligible for protection from the FSCS but above the £85,000 compensation limit as secondary preferential debts. Only deposits of individuals, micro-businesses and SMEs are given this preference. This change further reduces any chance that these depositors will be exposed to loss if the firm fails and either enters insolvency or is resolved using the powers in the Banking Act. This furthers the objective of protecting depositors.

I apologise for speaking at such length, but as the orders make extensive revisions to existing legislation I felt that they merited a thorough run-through. Taken together, they significantly enhance the UK’s resolution regime. Along with the other reforms that have been implemented to date, they will equip us well to deal with future bank failures in a way that protects taxpayers and the financial stability of the UK.

Lord Flight Portrait Lord Flight (Con)
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My Lords, I would just like to put on record some concerns about the bail-in arrangements and what they are broadcast as achieving.

My first point is that, as the CEO of the Association of Corporate Treasurers recently said to the Lords EU Economic and Financial Affairs Sub-Committee, once there is any whiff of concern about a bank, any company will withdraw its deposits immediately. It is not going to hang around and wait for the bank to be subject to a bail-in. One thing that the bail-in arrangements do is actually accelerate the possibility of runs on banks. It will not be just corporate deposits; any form of lending to a bank will be subject to bail-in. If there is any whiff of trouble about that bank, that money will be withdrawn as soon as possible.

The second point, which perhaps has not been learnt from the recent banking crisis, is that the key thing that hugely accelerated the downturn in the economy in 2009 was allowing the money stock and the money supply to contract substantially, just as happened in America in the 1930s. If you are going to do a bail-in on a bank and its capital is going to get exhausted, it will have to contract its balance sheet dramatically, all other things being equal. While I note the comment that the Bank of England will come in and help, effectively it would have to be the state that came in and recapitalised banks or, again, the result would be a massive contraction of the money supply if any of the major banks were in trouble and thus required bail-in. Unless that happened, again, it would have the knock-on effect of a major economic contraction.

The bail-in arrangements make sense—we know what they want to achieve, which is to eliminate or at least reduce the extent to which the taxpayer has to bail out banks in a crisis—but people are kidding themselves if they believe that it is as simple as that. Fundamentally, even as a result of how the bail-in arrangements operate, unless the Government are there to replenish capital—whether they do so as the Bank of England or directly—you would have a huge monetary contraction, which would be damaging to the economy.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, it is a privilege to be in Grand Committee again—and its packed rows—to address some affirmative orders. I thank the Minister for setting out the orders and indicate, as a generality, that the Official Opposition welcome the ideas behind the various Acts and the orders that make them operational. I will not make a contribution on the individual orders, but just a few comments about the concepts that are swept up in the orders, taken together.

I put on record my thanks to Catherine McCloskey, who was unfortunate enough to have her telephone number beside her name in the Explanatory Memorandum. Although I have sat through most of these banking debates and participated modestly in some of the amendments, I have to say that if you are not continuously involved with this, the whole shape of this legislation is impossible to retain in one’s mind. As a result of her tutelage, I think I have a reasonable view of the shape of the legislation and the orders and that I can claim that the Opposition have done their duty in probing the overall direction of the legislation and the effectiveness of the orders in bringing that legislation into effect.

However, I have some comments. As I understand them, the orders give effect to the BRRD and refine it for the UK environment—a sort of merging of our thinking and the thinking behind the directive. Everything becomes effective from 1 January next year, which strikes me as a good piece of clarity. As I recall, it was originally envisaged that there would be a period of British-only rules and then European rules, and so on. I commend the Government on meeting those timetables.

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Lord Newby Portrait Lord Newby
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My Lords, I thank noble Lords who have spoken on the debate on these orders. Their concerns fall into two parts. The first relates to whether this is a sensible way to do it, and what the negative consequences will be, and the second is a series of practical issues raised by the noble Lord, Lord Tunnicliffe.

The noble Lord, Lord Flight, said that these provisions could accelerate the possibility of runs on banks when it looks as though they are getting into difficulties but before we have got to resolution, and that if you get to resolution there will be a contraction of the money supply. If you have a banking crisis, whatever you do in advance, or even during the crisis, it will be extraordinarily difficult to deal with the crisis without there being costs somewhere. We are trying, with this regime, to ensure that the costs are minimised, for several reasons, and that the concept of “too big to fail”—that is, that the Government should be required to bail out banks if they get into difficulty—should no longer obtain.

First, we want the very fact that these provisions exist to have some impact on behaviour before we get to a crisis. We hope that well before you get to a crisis, shareholders and creditors will hold banks to account to a greater extent as regards their decisions. I hope that these provisions will give them an incentive to do that.

As regards the money supply, the Monetary Policy Committee monitors the money supply as part of its objectives and has a number of tools at its disposal to deal with that. Of course, resolution itself is intended to protect financial stability rather than the money supply, but the Bank has other tools in its locker to address the position as regards the money supply.

Lord Flight Portrait Lord Flight
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If a bank loses its capital—and there are rules about how many multiples of its capital its expansion can be—it has to contract its expansion dramatically. That is the key problem: if you have a bail-out situation, it will most certainly remove all the bank’s capital, and that bank will have to contract dramatically. The question is: how will that be handled as regards the money supply?

Lord Newby Portrait Lord Newby
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I accept that, my Lords, but if a bank gets into difficulties there are only two broad ways of dealing with it. One is for the Government to bail it out, and the other is for it to contract its capital in the way that the noble Lord describes. I think that there is a consensus internationally that we must get to the position that these orders will bring us to, where the primary responsibility will fall on the banks. As I say, it inevitably has an impact on the money supply—I do not deny that for a minute—but the simple point I was making is that the Bank of England has other tools in its locker to look at money supply.

Autumn Statement

Lord Flight Excerpts
Thursday 4th December 2014

(10 years ago)

Lords Chamber
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Lord Flight Portrait Lord Flight (Con)
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My Lords, in his absence, may I add my congratulations to my noble friend Lord Rose on his maiden speech and welcome him to the House? I would like to put on record my congratulations to the Chancellor on what I am going to call an Autumn Budget, both in an economic and political sense. Others have said much about the surprising success of the UK economy over the last five years, particularly in comparison with continental Europe. I will focus in particular on the entrepreneurial explosion that is going on—the greatest I have known in my business lifetime and something that will be extremely good news for the future.

As well as that, the Chancellor, supported by the OBR, has set down his long-term plans for the economy, which are, amazingly, to achieve a budgetary surplus of £23 billion by 2018 and to bring public spending down to 35.2% of GDP by 2019-20. That is a commitment to a competitive, low-tax economy, which is the only way in which we are going to generate the tax revenues to finance the constantly increasing costs of the National Health Service.

I will point to one or two interesting statistics that came out of the Autumn Statement. The first are simply the revised figures, showing 8% growth of the UK economy since 2010. I am not sure whether the noble Lord, Lord Skidelsky, was up to date with the revised figures. Secondly, although the deficit remains too high—indeed, as the noble Lord, Lord Desai, pointed out, we have had a strong element of Keynesian support of the economy—the annual deficit is now down to 5% of GDP, a halving of its extent since 2009. Thirdly, we have all heard that business investment is far too low, yet I note that rather than being growth of 4% it is actually growing at 27%, which must be one of the highest growth rates on record.

The decline in youth unemployment is extremely good news. The whole issue of what is happening to wages is also quite interesting. The Statement points out that, for those in employment, increase in pay is currently running at 4% per annum, even though the average is far lower, largely because of all the new jobs for the young. I was interested to note some recent comments by former Chancellor Darling, to the effect that he was saddened that, while tax credits had been introduced with the intention to boost living standards, they had served largely to keep down wages: why would employers pay when the Government would top it up? That has had a material impact on wage growth and on poor productivity figures.

A key political measure has been reform of the extremely unfortunate stamp duty “slab” system, which the Labour Government brought in. Some 98% of the population will benefit from that. Moreover, the rather harsh 12% stamp duty charge on properties worth more than £1.5 million will serve to kill, one way or another, the wholly impractical mansion tax proposals.

I will highlight one small measure for which I have campaigned for a number of years, which is that the surviving spouse can now inherit her husband’s or his wife’s ISAs intact, with their tax benefits. It always struck me as unfair that, while that occurred for pension saving for retirement, a lot of self-employed people use ISA savings for retirement, so that the widow was quite often, to my mind, robbed of the tax incentives that ISAs offer. I am grateful to the Chancellor for having finally implemented that.

To comment on some of the measures to raise taxes and address things that needed addressing, I would just say that the 12% stamp duty at £1.5 million is on the high side and anti-aspirational, particularly for people living in London. Secondly, on the additional £4 billion of tax on the banks by disregarding 50% of past losses, I am pleased to note that the Government excluded new banks from that for their first five years. However, I think that there is some risk. If you want the banking system to lend more, it needs more capital, with capital requirements going up. If it is constantly being fined due to extra amounts being taxed, there is only one thing that can happen, which is that bank balance sheets contract and lending reduces. I think that that needs to be borne in mind.

While the 25% special tax on multinationals transferring profits is certainly justifiable, when put together with the big increase in non-doms taxation, we need to be careful not to kill the goose that lays the golden egg. This country has benefited hugely from talented entrepreneurs—I refer to the likes of my noble friend Lord Rose—coming to the UK and living and establishing their businesses here. If we get the reputation of being tax-unattractive, that can be nothing other than damaging. However, overall this is an excellent Statement and it demonstrates that this Government have done remarkably well with our economy in very difficult times.