EU: Credit Rating Agencies

Lord Foulkes of Cumnock Excerpts

Monday 3rd October 2011 Lords Chamber

Asked By

[Lord Foulkes of Cumnock]

To ask Her Majesty’s Government what discussions they have had with other European Union Governments about the role of private credit rating agencies.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Government have discussed the role of private credit rating agencies with other European Union Governments in numerous meetings. These include the Financial Services Committee, the Economic and Financial Committee and ECOFIN, attended by Economics and Finance Ministers. The Government have also discussed this issue in depth with your Lordships’ EU Sub-Committee on Economic and Financial Affairs, and International Trade during its recent inquiry on sovereign ratings.

[Lord Foulkes of Cumnock]

My Lords, I am grateful to the Minister for a full reply, but does he recall that these credit rating agencies actually promoted the sub-prime mortgages which precipitated the crisis? They have been accused of a conflict of interest as they vary the ratings of both banks and countries, which exacerbates the crisis and can advantage the owners of these agencies? I asked in a previous Question whether the Minister would consider promoting an intergovernmental agency to take on this role. If he is not prepared to do that for ideological reasons, will he, with his EU colleagues, at least ask the competition authorities within the European Union to see what they can do to curb the excesses of this cartel and break up what has become an insidious oligopoly?

Global Economy

Lord Foulkes of Cumnock Excerpts

Thursday 11th August 2011 Lords Chamber

[Lord Oakeshott of Seagrove Bay]

My Lords, I thank my noble friend Lord McNally for that and for this invitation back to the Front Bench for one day only.

I declare my interest as a pension fund manager for the past 35 years and an active investor in British shares and property. The noble Lord, Lord Eatwell, mentioned rating agencies. I have never taken a blind bit of notice of them in my life, which is probably why I still have a job. I well remember how wrong they were when I was warning about the dangers of Iceland.

We on these Benches believe that the Chancellor is right to stress the need for Britain to stick to a determined deficit-reduction plan and keep interest rates low while we have to keep borrowing so much because of—let us be frank about this—Labour’s legacy. However, I agree with the noble Lord, Lord Eatwell, that low government bond yields are not a guarantee of a strong economy. They can be a sign of weakness, as they were in Japan. I would be interested if the noble Lord, Lord Sassoon, could comment on that. Are we not now in danger of keeping the confidence of foreign investors but losing the confidence of British consumers? Some noble Lords will, like me, be old enough to remember Harold Wilson complaining that his economic recovery plan had been blown off course. That has clearly been happening in this country since the Budget. Even looking through—I am bound to say—the Minister’s rather rose-tinted spectacles at the GDP forecast, does he agree with the Governor of the Bank of England, who said:

“Headwinds to world and domestic growth … are becoming stronger by the day”?

I thought that was a striking comment from him yesterday. I agree with it; does the noble Lord?

Does the Minister also agree with the Business Secretary, the Chief Secretary to the Treasury and all Liberal Democrats that the priority, if and when there is room for tax cuts, is not to help the 1 per cent of taxpayers who pay the 50p top rate, but the millions of ordinary people who will spend any tax cut they get—and desperately need—to boost demand and jobs? Does he also agree with our calls, from Vince Cable and others, for more quantitative easing from the Bank of England to boost growth, so that we do not risk slipping into the Japanese morass, and much more bank lending to small businesses? Royal Bank of Scotland, the bank that we own, has just missed even its own soft Project Merlin target for gross lending to small and medium-sized enterprises by £1.5 million over the first six months. Is it not now time that we seriously considered imposing a net lending target on the nationalised banks, as was flagged up in the coalition agreement, so that they take their foot off the throat of small business?

[Lord Foulkes of Cumnock]

My Lords, the Minister and the Chancellor have prayed in aid of their argument the credit rating agencies. Is it not strange that these credit rating agencies, which downgraded the economy of the United States of America, are private companies—private sector institutions such as Standard and Poor, Fitch, Moody and all the other credit rating agencies. Does the Minister not agree that they have, by their actions, exacerbated the economic crisis and that, as a result, some of their friends and interests have benefited? Would it not be better if our Government and those of other countries, particularly members of the European Union, were to get together and look at ways in which credit rating can be done on a public sector basis in the public interest, and not on a private sector basis in the private interest?

[Baroness O'Cathain]

My Lords, I thank my noble friend for repeating the Chancellor’s Statement. I have a copy of it here. One of the things that stands out is:

“We need an international framework that allows creditor countries like China to increase demand and debtor countries to make the difficult adjustments necessary to repay them”.

I should like to ask: what are the chances of this happening? What is the mechanism? Is it the autumn meeting of the IMF and the G20? I come back to my point about what the chances are. There is no question that if we could stimulate China to increase its demand for products from our country and Europe, we would be well on the way to restoring the confidence of our small and medium-sized enterprises to get more involved in that market. Leading directly on from that, my noble friend said that more supporting measures will be produced in the autumn. Can I make a plea on behalf of small and medium-sized enterprises for something to be done to limit the huge burden of regulation, which disproportionately falls on small and medium-sized enterprises? They wish to carry on but find international trade really difficult.

--- Later in debate ---

[Lord Lea of Crondall]

My Lords, perhaps I may make two comments and ask two questions. First, it has already been remarked on that the Faustian pact between China and the United States over the past 10 years has been an ultimate, if not the principal, reason for slow world growth. Secondly, although the Minister dismisses so perfunctorily what my noble friend Lord Eatwell said, I suggest that he reads Hansard tomorrow, because my noble friend made a very carefully considered analysis of the world and European situation. I suspect that in terms of economic analysis my noble friend would probably get a higher mark than the Minister on the current situation.

Six months ago, I and many of us were on record as saying that all this would lead to a double dip. It is a quite different scenario from the Thatcher period when there was a reasonably good international position. The prediction of the IFS and others was that if you are going to cut £200 million-worth of output through the crash, the deficit would actually rise from 3.5 per cent in 2008 to something like 11 per cent now. That was without adding to it through austerity measures. We are talking as if austerity measures apply to all circumstances.

My first question is: will the Minister, the noble Lord, Lord Sassoon, consider inviting Chancellor Merkel over here to give her a personal tour of Britain to show her how a modern economy can best succeed—an economy where manufacturing all around works at the rate of Siemens and BMW?

[Lord Foulkes of Cumnock]

This is irony.

[Lord Lea of Crondall]

I had better spell it out as sometimes it does not get across.

That tour could demonstrate that the higher economic growth rate in Britain than in Germany could help solve the German problem. I have a second question arising from that. My noble friends will not be aware of this but I asked a Written Question about the relative position of German multinationals and Britain’s multinationals and the proportion of value added in Germany and Britain, the home country. It is pretty obvious from the FT Global 500 employment figures that Germany, which has only about half the number of multinationals as Britain, is miles more successful. Employment in Germany—that is the value added as a proportion of the German economy—is far, far higher than in British multinationals.

My question, which I shall repeat, asked the Government to give me the statistics. I had the most perfunctory reply in one sentence from the noble Lord, Lord Sassoon, that the Government are not interested in such statistics and that it was not their job to collect them. The Department for Business knows what the figures are, and the relative value added of our multinationals in Britain and the relative value added of multinationals in Germany. Will the Minister today say that he will look at the matter more carefully and give me, the House and the Library a less perfunctory answer?

--- Later in debate ---

[Lord Sassoon]

I will take away the noble Lord’s question. Forgive me, but I cannot now remember when we are committed to making regular updates, and it may be that we should wait until the next regular update. I will see whether any more can be said, but maybe we should be patient. I understand that he would like a quiet bilateral discussion, but I cannot promise him early information. The important point that he and other noble Lords make is that we have to work very hard to ensure a suitable range of channels for access to both debt and equity finance.

Incidentally, on the other point made by the noble Lord, Lord Harrison, I was taken away from some European-related reading yesterday. I had just got to the chapter in Edward Heath’s biography on the first negotiations for our European entry, so I have a few years to go before I get to the latest report from your Lordships’ committee. If I am allowed to go back on holiday, I will get there as quickly as I can.

The most reverend Primate the Archbishop of York raised another critically important point, which was about inflation. Clearly, inflation makes an enormous difference to the spending ability of individuals and has a significant effect on the costs for businesses. As we have discussed in this House on many occasions recently, it is critical that the Monetary Policy Committee continues to have free rein and is not constrained by the Government in any way in meeting its mandate. I commend to the most reverend Primate the words of the Governor of the Bank of England in his latest report, issued this week, in which he acknowledges that inflation may go over 5 per cent in the short term but says that he expects inflation to moderate in the medium term and to come down to slightly below the target that the Chancellor has set of 2 per cent. As my noble friend Lord Oakeshott will know, in the context of that discussion the governor made some interesting remarks about the possibility of quantitative easing. No doubt when the MPC’s minutes next come out we will look to see what was discussed at its last meeting, but clearly this is a live topic.

My noble friend Lord Flight gave a perceptive analysis of the markets. I do not think that he asked me a question in that, but I agree with a lot of his analysis.

The noble Lord, Lord Lea of Crondall, raised questions about the UK and Germany and made reference to BMW. All that I would ask him is why BMW has announced in recent months a further massive investment, of hundreds of millions of pounds, in its car manufacturing in this country. I suggest that that is because the best of our manufacturing is at least as good as and in some cases significantly better than the best of manufacturing in Germany, fine manufacturing economy though it is. We have in this country—Mini exemplifies this absolutely—design skills that are second to none. If the noble Lord would like to fire off at me another Written Question or three, I will be happy to try to answer better next time his points on relative added value, but I do not think that we have anything to be ashamed of—far from it—in a comparison between the best of our industry and the best of German industry.

[Lord Foulkes of Cumnock]

My Lords, will the Minister try to answer the question—I know that it is a difficult one—that I asked about credit rating agencies, which was also raised by the noble Lord, Lord Oakeshott, and by my noble friend Lord Harrison? I know that the Minister has travelled a long way to answer the debate, but I have travelled a long way to ask just the one question, so I would appreciate an answer.

[Lord Sassoon]

I am happy to answer the question that the noble Lord, Lord Foulkes, asks. I do not believe that nationalised institutions of any kind, including nationalised credit rating agencies, are the best way to go. Europe and the international organisations are looking at the appropriate form of regulation for credit rating agencies. That is ongoing business and it is quite proper that it should be done. Others question whether the whole rating system should be completely liberalised and say that one should not have a small number of institutions running the show. I recognise that that is an important debate and both Europe and the G20 continue to look at the issue.

I am conscious that I should wind up. I just go back to some of the fundamental points that underlie the interesting debate that we have had this afternoon. Noble Lords are well aware that when the coalition Government came into office we inherited the UK’s largest ever peacetime deficit. Tackling that deficit has been and continues to be our number one priority. The recent events that we have been discussing this afternoon vindicate that approach. It is by securing Britain’s AAA rating and the very low bond yields that we now have that we underpin the prospects of recovery. As the Governor of the Bank of England highlighted yesterday, 500,000 UK jobs have been created by the private sector over the last year. We should not forget that.

We have always said that recovery will be choppy but both the bank and the Office for Budget Responsibility forecast growth to continue through this year and the next. The decisive action taken by the Government to deal with the nation’s debts and restore private sector growth has meant that the UK has been in a better position to withstand the very considerable global uncertainties. Abandoning our plans would be disastrous, resulting in rising interest rates, falling international confidence and undermining the recovery.

Egypt: Mubarak Family Assets

Lord Foulkes of Cumnock Excerpts

Wednesday 16th February 2011 Lords Chamber

[Lord Foulkes of Cumnock]

My Lords, will the welcome action that the Minister describes be extended to cover our home and overseas dependent territories?

[Lord Sassoon]

It is important that the overseas territories recognise, as they do, and have a desire to be fully compliant with, international best practice in these areas. We encourage them to take any action in parallel with that taken domestically.

Banking: Royal Bank of Scotland

Lord Foulkes of Cumnock Excerpts

Tuesday 1st February 2011 Lords Chamber

[Lord Sassoon]

My Lords, the tax rules around deferred compensation are complex and depend on the sort of instrument being paid. Some tax on certain instruments is levied up front and some is levied later, so it depends very much on the circumstances of the individual instrument and the taxpayer. But, of course, some tax might indeed be levied later on.

[Lord Foulkes of Cumnock]

My Lords, will the Minister confirm that some of these millionaire and billionaire bankers, and indeed other millionaires and billionaires, use tax havens to salt away their money so that they do not actually have to pay tax to the United Kingdom Treasury? What are the Government doing to clamp down on these tax havens?

[Lord Sassoon]

My Lords, we are doing a lot more than the previous Government ever did. We have set aside an additional £900 million of expenditure for HMRC over the next spending round—the noble Lord may shake his head but that is a fact—and that will result in millions-worth of additional revenue each year being collected compared with what the previous Government did.

Comprehensive Spending Review

Lord Foulkes of Cumnock Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Foulkes of Cumnock]

My Lords, it is a great pleasure to follow my noble friend Lady Hollis, who is probably the greatest expert on welfare in this House. I hope that the Government will take some account of her very carefully argued contribution today—they would be well advised to do so. When we eventually get to the end of this debate, I shall go outside and look at the colour of the moon because today is an interesting day, for I agreed with almost everything that the noble Baroness, Lady Kennedy of The Shaws, said. That is most unusual. Given such a coalition, we must be arguing in the right direction.

Speaking very much as a layman and not as an economist—we have heard contributions from some very eminent economists on our side—I want to make only three points. The first is a detailed but vital matter relating to the budget of the Department for International Development, in which I used to work. That budget is rightly protected in the CSR, but it is protected because of the pressure that we put on the Government when they were in opposition. We got assurances that they would protect that budget. However, it is vital that DfID’s budget is not raided for funds by other departments, especially the FCO, which has its beady eyes on some aspects of DfID’s budget, and the Ministry of Defence. The latter’s expenditure in Afghanistan needs to come under the defence budget and the work being done by DfID needs to be clearly humanitarian. Great pressure will be exerted by the FCO and the Ministry of Defence, but it must be resisted.

My second point relates to the manifestly false claim of fairness in the CSR, which all my colleagues have commented on. The cuts to welfare have been swift and severe—as we heard from my noble friend Lady Hollis and from the noble Baroness, Lady Campbell of Surbiton, in a powerful and moving contribution—but there has been almost nothing at all relating to tax dodgers, who could contribute a huge amount more to our revenues. There has been some indication that HMRC will get some more money to deal with illegal tax evasion, but there has been nothing at all about tax avoidance, which has been described by the Deputy Prime Minister, who I remind some Members opposite is still a Liberal Democrat, as immoral. It is immoral at the best of times, but particularly at present. Nothing has been done to start closing the loopholes offered by the tax havens of our own overseas territories. There is no international co-operation with other countries to deal with tax avoidance. The noble Lord, Lord Oakeshott, made a powerful argument in that direction, but the power of his argument is perhaps detracted from by the fact that he is in the strange limbo of being a Liberal Democrat spokesperson rather than a Minister. If he was a Minister who was incorporated into the Government, we might have greater confidence that some work would be done on tax havens and tax dodgers.

Reference has also been made to the bankers. I find it appalling that some of those who caused this crisis in the first place are still in charge of the banks and stuffing their pockets with huge amounts of money.

One lighter moment came in a delightful spat over the cap on housing benefit, when our well beloved Mayor of London described the effect as being like that of ethnic cleansing in Kosovo. He was then forced to withdraw the remark, no doubt due to some public school loyalty. However, what was missing from that argument was the reality. Housing benefit payments are so high in the centre of London because rents are so high, and they are pushed up by people who are rich. Ordinary workers can no longer afford to stay and live in London, whether in rented or in any other kind of accommodation, without some support.

My third and main point is that, although I agree with everyone who has said that we must cut down waste and increase efficiency in the public sector—indeed, that is what the Labour Government wanted to do—I cannot accept, having thought about the matter again and again, that the pressure on government to cut the deficit is as strong, compelling and powerful as Ministers pretend. I just do not believe it. To whom do we owe this money? Who are the debtors? We have not had any mention of them so far. Do we owe the money to some celestial pawnbroker or some global loan sharks, who will come and do us in if we do not repay?

If the Chancellor and the Government’s spokesman today in the Lords are to be believed, the money is owed to foreign Governments and to foreigners, who are prospering at our expense. I wondered whether that was right, so I tabled a parliamentary Question, which the noble Lord answered. In fact, the debts to all the foreign countries and foreign private bodies taken together represent less than 30 per cent of our total indebtedness. Of the rest, which is more than 70 per cent, 30 per cent is owed to UK insurance corporations and to pension funds—no doubt some of our pension funds here—and 27 per cent is owed to the Bank of England, 10 per cent to other financial institutions, 7 per cent to banks and the rest to households, local government and public corporations.

In his introduction, the Minister claimed that the coalition Government’s actions are responding to the demands of our debtors. Perhaps in his reply he could say where those demands are coming from. Which of our debtors are demanding that we take this action? I certainly do not see it. Perhaps the credit rating agencies were demanding it, but I sometimes wonder whether too much attention is paid to them, given that they are private organisations based in the United States, Canada and Japan. Surely we as a country can join together with other countries and take some responsibility, and some control and authority, over what the credit rating agencies say.

I believe that the CSR is not only unfair but unnecessary. The Tories are using it as a totally false pretence to justify what they have wanted to do for a long time for ideological reasons. The Liberal Democrats are their hapless human shields. They deserve the greatest blame for these cruel and unfair cuts, because of what they said before the election and what they are now doing, which is entirely the opposite.

--- Later in debate ---

[Lord Foulkes of Cumnock]

We have sat through nearly eight hours of debate to which a large number of Members have contributed. Would it not be courteous to this House if the Minister actually replied to the debate instead of repeating the speech he gave earlier?

[Lord Sassoon]

I am struck by the contrast of the optimism that we have heard today from businessmen in this House and those who are not businessmen but have clearly been talking to business people on the one hand, and the pessimism on the other hand of the academic economists and others who, even though we have had three quarters of strong growth, want to see disaster coming round every corner. I do not make any judgment about who is responsible for the growth, but I think we can agree that we have had three quarters of strong growth. Yes, the recovery will be choppy, but we have heard from my noble friend Lord Bates just how business in the north-east of England is looking forward and generating jobs for the future. We have heard similarly from my noble friend Lord Plumb about how agriculture will play its part. My noble friend Lord Allan of Hallam has explained how the use of data and technology will assist the recovery. These are the pointers that show us how the economy is going to generate sustained growth. The noble Lord, Lord Eatwell, keeps saying that nobody knows. It is the businessmen of this country who write letters to the papers, urging us on with the deficit reduction we are set on, who know how the recovery is going to be sustained for the future.

While I do not agree with the doubts of noble Lords opposite about the overall judgments made by the Government, I do agree with some of the noble Lords opposite in a lot of what they said—the noble Lords, Lord Myners and Lord Haskel, for example, on the need for better infrastructure. That is precisely why we added nearly £9 billion of expenditure on infrastructure in this spending review. I agree with them on the need for investment in innovation, which is why we are investing £220 million in innovation centres and why we are investing £1 billion in the critical new technology of carbon capture and storage. Similarly, my noble friend Lord Newby identified science and apprenticeships as critical to growth. That is why we are protecting science spending in cash terms and why we are significantly gearing up on the number of apprenticeships compared with the plans of the previous Government.

Overall on growth, I was particularly struck by the contributions of my noble friends Lord Lamont of Lerwick and Lord Stewartby. They remind us that Conservative Governments have been here before, that Conservative Governments have taken us out of recession and rebalanced the economy, and we will do it again. For example, in the early 1990s, the public sector was reduced not by 490,000 but by 690,000 employees. At the same time, in the 1992 to 1996-7 period, the private sector generated 1.7 million jobs. I have every expectation—Members opposite may not—that the private sector again will rise to the challenge.

The second principle that I set out at the beginning is that our choices should be fair. We have heard some powerful speeches today, particularly from the noble Baronesses, Lady Hollis of Heigham and Lady Campbell of Surbiton, reminding us just how difficult it is to reshape the welfare system in the radical way that we intend at a time of considerable retrenchment in the public finances. I shall take away the points that they and others have made. In particular, I note carefully the concerns of the noble Baroness, Lady Campbell, about the mobility component of disability living allowance.

The spending review focuses support on those who need it most. It shifts the focus from welfare payments to services that improve social mobility in the longer term and to work incentives. The Government have sought to protect the most vulnerable. Working-age women, for example, tend to benefit disproportionately from health spending, which we have protected, and older women also benefit from additional resources for social care.

The universal credit will clarify and increase work incentives. Work will pay and will be seen to pay, but we must not rush the universal credit. As the noble Baroness said, it will take us two Parliaments to do that, because it is a difficult project and we must get it right.

We have also heard a lot on how young people will progress from care to university—points were made in different ways by the noble Earl, Lord Listowel, and the noble Baroness, Lady Nye. The Government are concerned to make sure that young people from the most disadvantaged homes get every opportunity. We are encouraging social mobility through maintaining Sure Start and extending early-years care. From 2012-13, we will introduce for all disadvantaged two year-olds substantial school premiums. The Government are also protecting the ability of those on lower incomes to go into higher education, including through a scholarship fund of £150 million by 2014-15.

Taxation: Avoidance

Lord Foulkes of Cumnock Excerpts

Wednesday 20th October 2010 Lords Chamber

Asked by

[Lord Foulkes of Cumnock]

To ask Her Majesty’s Government what specific proposals they have to reduce tax avoidance.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

The Government announced at the June Budget that they are strengthening the legislative framework to reduce the opportunities for tax avoidance. They are doing this through policy reform, by targeting areas of the tax system that present the highest avoidance risks and examining the case for a general anti-avoidance rule.

[Lord Foulkes of Cumnock]

But did the Minister hear the Chancellor say in his Statement, which the Minister is going to repeat, that,

“those with the broadest shoulders should bear the greatest burden”?

The Deputy Prime Minister, Nick Clegg, said that tax avoidance, as opposed to evasion, is legal but morally unacceptable, so is it not the case that if the multimillionaires, including those in the Cabinet and the Prime Minister’s business advisory committee, had paid their fair share, some of the cuts and some of the job losses that have been announced today could have been avoided?

[Lord Sassoon]

My Lords, I could trade names of Members all round the House but I am not going to stoop to that. The critical issue is indeed, as the noble Lord says, that tax avoidance as opposed to tax evasion is legal, but we want to make sure that taxpayers pay what is due. In that connection, we will take a broad, strategic approach to reduce the complexity of the tax system, to make sure that the tax code is legally robust and to make sure that we attack and challenge unreasonable avoidance in a focused and expert way.