FSA Investigation into LIBOR

Debate between Lord Higgins and Lord Sassoon

Monday 2nd July 2012 Lords Chamber

[Lord Sassoon]

My Lords, if the noble Lord will hear me out, we know that there was attempted manipulation from the evidence that has already been made public. I do not know on what basis the American authorities have come to that conclusion, and it may just be semantics, but the authorities are currently investigating whether LIBOR was actually manipulated.

It is also worth bearing in mind that, in the case of Barclays, it was the dollar LIBOR rate and not the sterling LIBOR rate that was the subject of the attempted manipulation that has come out. I completely agree with the noble Lord, Lord Myners, that these investigations need to carry on, but we cannot come to any conclusion about the answer.

Lastly, I answered a question about the fine last week, but I will repeat it in summary. This is the largest fine that the FSA has ever handed down, which indicates the seriousness of this matter within a UK context—the US has a completely different approach to the way it imposes penalties. The most important and relevant point is that this is the largest ever fine in the UK handed down by the FSA.

[Lord Higgins]

My Lords—

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[Lord Sassoon]

My Lords, I am sure that the FSA will listen to the analysis given by the noble Lord, Lord Elystan-Morgan; and if it has not already got to the bottom of it, it will take his points on board. The authority is acutely aware that it needs to press on, but the noble Lord, Lord Turner of Ecchinswell, has made it clear that it is very difficult, which is why the FSA seems to be taking the lead on this.

[Lord Higgins]

My Lords, it would seem that Barclays’ defence is, “We had to cheat in order to preserve our reputation”. That suggests that the bank is seriously misguided in the way it looks at these matters. Certainly there is a case for a parliamentary investigation, which I support. It is equally true that we should be absolutely clear that the terms of reference are the right ones for such an investigation.

If I may, I will make a very narrow point. As I understand it, the proposal is that the Joint Committee should be chaired by the Member for Chichester, Mr Tyrie, for whom I have the very greatest respect. However, as I was myself chairman of the Treasury Committee for some 14 years, I question whether it is appropriate that his energies should be diverted from the Treasury Committee, where he is doing an excellent job, by being chairman of this authority. This is too heavy a burden for one person, however talented, to take on, and we ought to consider that point.

[Lord Sassoon]

My Lords, on my noble friend Lord Higgins’ first point, there were two distinct periods during which Barclays was found to have attempted its manipulation. The first period was before the financial crisis, when its traders appear to have been driven by pure greed and tried to drive rate up. The second period was during the financial crisis when the preservation of Barclays’ reputation seemed to be the main driver and it was attempting, it seems, to move the interest rate down. I think there were those two distinct motivations.

Regarding the committee chair, notwithstanding the suggestion that the chair of the Treasury Committee chairs the Select Committee, I would guess that the formal position is that the committee itself will decide who the chair will be. I imagine that this will be taken up either in the Motion itself, in which case your Lordships will have a chance to take a view on it, or the committee will decide who the chair will be in due course.

Debt

Debate between Lord Higgins and Lord Sassoon

Tuesday 29th May 2012 Lords Chamber

[Lord Sassoon]

My Lords, I think we shall need a little longer on the latter part of the question. The noble Lord, Lord Bilimoria, raises an important point in that the first thing we have to do is to ensure that interest rates are kept low. I need hardly remind the House that 10-year interest rates, as of last night, were at almost record lows at 1.75%. We want to see the benefit of those low interest rates flow through to businesses, which is why, among other things, we have the national loan guarantee scheme. In the time of the noble Lord, Lord Barnett, there was not 3% inflation but it peaked at 26.9% and interest rates were more than 10%. That is why I know he is sympathetic to the challenge we have and why my right honourable friend the Chancellor is doing such a fantastic job in these difficult headwinds.

[Lord Higgins]

My Lords—

[Lord Eatwell]

My Lords, yesterday’s government announcement on VAT will add £110 million to the annual deficit and hence cumulatively to the public debt. Will the Minister explain to the House why the announcement on VAT was not first made in Parliament, in compliance with the Ministerial Code? Will he also tell us what alternative ways of spending the £110 million of petty cash were considered? Does VAT now apply to humble pie?

[Lord Sassoon]

My Lords, I am glad that in the space of three minutes the party opposite’s definition of petty cash has come down from £1 billion to £110 million. On a number of issues, including the VAT changes, we said that we would consult. We have consulted and we have come up with what we believe is the right approach, having talked to a range of interested parties.

[Lord Higgins]

My Lords—

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[Lord Sassoon]

My Lords, we are ranging a little widely at this point. My understanding is that discussions with the Welsh Assembly are going on. We intend to report back by the end of the year. A Barnett floor is one of the ideas that I know has been put forward, among others, and is subject to the discussions with the Welsh Assembly.

[Lord Higgins]

My Lords—

[Lord Low of Dalston]

In the debate on the Queen’s Speech, the noble Lord assured the noble Lord, Lord Skidelsky, that sustainable recovery was already under way, as he has again said this morning in response to the noble Lord, Lord Barnett. How does he reconcile that with the fact that we are actually plunging deeper into recession? Is this recession denial?

[Lord Sassoon]

My Lords, if one looks, for example, at job creation over the two years since the election, the private sector has created more than 600,000 jobs at a time when some 400,000 public sector jobs have been lost. The latest figures show that unemployment is at a seven-month low. Of course we would like to see growth sustained and at a higher level, but we should not run down the very considerable achievements of the private sector in generating jobs and exports in the economy.

[Lord Higgins]

My Lords—

[Lord Higgins]

My Lords, as we have been told time and again by the Opposition that the Government are cutting the deficit by too much and too fast, would it take much longer to reduce the deficit if we were to adopt the policy of the Opposition?

[Lord Sassoon]

Yes, indeed.

Economy: Budget Statement

Debate between Lord Higgins and Lord Sassoon

Thursday 22nd March 2012 Lords Chamber

[Lord Sassoon]

My Lords, I welcome the debate that we have had today and the valuable contributions that have been made, including particularly those from noble Lords in all parts of the House who have drawn attention to the many initiatives in the Budget that I did not have time to highlight in my opening speech. I am grateful for the opportunity to reply to as many of the points raised as I can, but I will not have the time to reply to everything—there have been a lot of questions.

I reiterate this Government’s number one economic priority: tackling the record peacetime deficit that we inherited from the previous Government and restoring economic stability. We will stick to our deficit reduction plans; I assure my noble friend Lord Flight of that. I noted the contributions from a number of Peers—the first was probably from the right reverend Prelate the Bishop of Chichester—acknowledging the need for a fiscally neutral Budget at this time. As my noble friend Lord Higgins pointed out, a combination of tight fiscal policy and loose monetary policy is the balance that we are taking forward. I assure my noble friend that the Bank’s holding of gilts under quantitative easing is completely transparent; it is updated day by day on the Bank’s website and the position will be unwound in due course.

Nevertheless, we have a steady stream of noble Lords from the Benches opposite who still preach the idea of free spending with as much money as is out there, with no fiscal discipline. They do not seem to have learnt lessons. I am not surprised by the noble Lord, Lord Liddle, espousing that but I am a little surprised at the noble Lord, Lord Desai, saying that we should spend this £28 billion from the Royal Mail pension plan. We inherit £28 billion of assets but we inherit liabilities to the pensioners that are considerably higher than that. Is it really right that we should spend that money? No, we will not. As for suggestions that we might like to recook the books, I think that we had enough of cooking the books under the previous Government. We will not go there. As it happens, the noble Lord, Lord Desai, was doing what I had been doing a little earlier to look for the GDP number. I assure him that it is there in table D2 of the Red Book, but I agree that you have to look some way into the document.

We will stick to fiscal rectitude. Even if we were to decide to hand out vouchers, which we will not, I do not know how we would be assured about where they would be spent—we could not be sure that they would all be spent on goods produced in this country.

I was rather hoping to keep away from too much historical analysis of how we got to where we are, but perhaps I should be grateful to the noble Lord, Lord Eatwell, for drawing our attention to chart 1.5 of the Red Book. He seemed to suggest that it showed what a good job the previous Government did to keep the deficit under control. Perhaps he would like to look closer at that chart. It exposes to the full glare of daylight exactly what the previous Government were doing. It shows that the Labour Government continued to borrow £30 billion to £40 billion a year while the sun was shining. That illustrates precisely the nature of the structural problem that we inherited: running budget deficits year after year to create the illusion of growth until the credit card finally ran out. We will not go back to that.

Having talked about the basic stance of the Government, let me deal with the question of leaks, because it relates directly to the way that the previous Government used to conduct their business. As the Chancellor said in the Budget Statement, a Budget produced within a coalition is different. The days of the Chancellor coming up with a Budget in secret are—whatever we think about the rights and wrongs—gone. This was not a Conservative or a Liberal Democrat Budget, it was a coalition Budget, as we have heard from the broad agreement from coalition Peers this afternoon. As the noble Lord, Lord McFall of Alcluith, recognised, that makes this Budget different.

In the course of coalition Budget negotiations, various proposals were raised, discussed and debated. I come back to what we have been used to in previous years. It has been more widely debated than in previous years, when the Chancellor briefed the Prime Minister on what was in the Budget the day before, if the Prime Minister was lucky, and even more than in the dying days of the previous Government, when the Prime Minister told the Chancellor what should be in the Budget the night before. We do not need lessons from Members opposite on how to conduct ourselves in the run-up to a Budget.

[Lord Higgins]

That was not quite the point I was making. I understand about negotiations within the coalition, but it appears—for example, from the front page of the Financial Times—that officials told the Financial Times before the Budget was announced what was going to be in it. I believe that the House of Commons has the right to hear first.

[Lord Sassoon]

That issue has been the subject of an Urgent Question in another place this afternoon, and the Government have explained their position in an answer there.

I have said that we will stick to our fiscal position. That means that there continue to be tough choices to be made. Some of those tough choices have been highlighted this afternoon. I start with my noble friend Lord Newby, who gave a fair and good analysis of the issues about pensioners and the fair deal that they are getting. However, because the noble Lords, Lord McFall, Lord Myners and Lord Davies of Oldham, and others raised the issue, let me underline it again. The Government are committed to supporting pensioners. The IFS confirmed today that that is indeed the case. Pensioners will get the largest ever rise in the basic state pension this April to £107.45 a week. The Government are protecting pension benefits, including winter fuel payments, free prescriptions and eye tests, free bus travel, free TV licences and, of course, the triple lock on the basic state pension is being introduced. The single-tier state pension will be introduced and has been estimated to be likely to be £140 in current terms. I refute the suggestions that pensioners have been poorly treated. We are all in this together.

My noble friends Lord Fink and Lord Sheikh have quite properly raised the issue of tax transparency. I agree with them on the importance of the new annual statements, which will show everyone who pays tax what they are paying and where the money will be spent across the different categories of expenditure. I am sure that will raise a healthy debate.

On tax reform, I am very confused about where the Opposition stand on the 50p tax rate. Are they really still saying that the Chancellor of the Exchequer should justify the continuation of a tax that is shown to produce next to no revenue for the country and which materially affects our global competitiveness? The noble Lord, Lord Eatwell, quotes approvingly the Institute of Directors, but the main part of the institute’s statement after the Budget called for the tax rate to be reduced to 40p. Is that what the noble Lord, Lord Eatwell, wants? The noble Lord, Lord Wood of Anfield, who is not in his place at the moment, questioned whether the Government had been fully transparent on this. The forestalling number that he was looking for is set out in bold type on page 51 of the Red Book, a complete contrast to what the previous Government did in not even recognising that there was a forestalling problem. The tax raised less than a third of the estimates that they put out. I believe that they are in no position to question the basis on which we have looked at the evidence in coming forward with a 45p rate.

Eurozone Crisis

Debate between Lord Higgins and Lord Sassoon

Tuesday 17th January 2012 Lords Chamber

[Lord Sassoon]

My Lords, first of all I welcome the compliment paid to my Answer by the noble Lord, Lord Barnett. He asked me a yes or no Question. I gave him a very full Answer and some extra things he did not ask about, so I am glad that he appreciates that. I am not going to speculate on our negotiating position because this is all very fast moving. All I can reiterate is that we are working very hard with our European partners to see a resolution of all aspects of the crisis. They have invited us to be at the table to discuss the arrangements that the eurozone countries are making among themselves and we are active and positive participants when we are invited to be there, as we are at those discussions.

[Lord Higgins]

My Lords, does the Minister agree that it is very much easier, technically, for a country to join the single currency than to leave it? Does he accept that the contingency plans which he mentioned—and which are welcome—need to be designed to ensure that, for anyone leaving, the process is completed as soon as possible? It is not just a question of having the notes and coins available but of having an extensive programme, including provision for exchange controls. I welcome my noble friend’s reply but stress that this is a very complex question.

[Lord Sassoon]

My noble friend makes some interesting and relevant points. I shall not speculate on what precise aspects the Government are looking at in their exercises but, as he points out, none of this, under a range of scenarios, would be at all simple.

Independent Commission on Banking

Debate between Lord Higgins and Lord Sassoon

Monday 19th December 2011 Lords Chamber

[Lord Sassoon]

My Lords, I can confirm to the noble Lord, Lord McFall of Alcluith, that the Joint Committee’s report, which was published only today, will be taken very seriously on governance and all the other matters that are contained in it. As to switching accounts, I hear what he says about number portability, which is not at all an easy issue, as he well knows. All I would say is that the ability for seven-day switching, including all direct debits, credits and standing orders—which we now have the banks’ agreement will be implemented by September 2013—is a significant advance that will help millions of consumers.

[Lord Higgins]

My Lords, the report by the ICB is very large, comprehensive and detailed. It says that it would be desirable for the Government to express a view on it as soon as possible, which they have done. However, the Statement appears also to include one or two items that—I think I am right in saying—are not in the report. In particular, I understood my noble friend to say that there would be a tightening up of the Basel proposals, or that the Government would propose that. Secondly, he said that there would be depositor preference, which does not appear in the report unless I am mistaken. Will that require primary legislation and, if so, when are we likely to have that? Overall, it seems that we have just had another Statement, which has become available only recently. When will we have an opportunity to debate it? We have not really had any opportunity to comment on it now, since it appeared only a few moments ago.

Finally, on timing, there are two things. I agree very much with my noble friend Lord Lawson about the timing of the legislation. The banks need to know what is in the legislation. We should get that through the House at the earliest possible moment. Saying that we will do it in the course of this Parliament means that it will take far too long. Waiting until 2019 for the overall implementation is absurd. To suppose that there will be no financial crisis that is related to these proposals until 2019 would be the height of optimism. We have to get it through before then.

[Lord Sassoon]

My Lords, on the tightening up of Basel III, as my noble friend puts it, the provisions around loss absorbency of 17 per cent and the bailing provisions are items that go beyond Basel. They are welcomed on a global basis. We now have to make sure that the way in which the EU implements Basel III is not only compatible with Basel III itself but allows the UK to go further for as long as the global community is entirely comfortable with that. Depositor preference requires primary legislation. In relation to primary legislation, discussion of all this and the process, the next major stage will be a White Paper, setting out in greater detail how the remaining important detailed matters will be handled in the draft legislation. The draft legislation will then come. I believe that there will be plenty of opportunity, in a staged way, for noble Lords to consider all the detail.

Autumn Budget Forecast

Debate between Lord Higgins and Lord Sassoon

Tuesday 29th November 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am grateful to the noble Lord, Lord Empey, for drawing attention to this critical issue because it is potentially an important structural change in the economy. We want to make sure that in the labour markets in all the regions of the country there is no unfair competition or crowding out in any way of the ability of the private sector to hire people. Private sector pay has to be reflective of local market conditions where until now public sector pay has been set on a national basis. We have said that we will be asking the independent pay review bodies to consider how pay can be made more responsive to local labour market conditions, and they will report to us by July 2012.

[Lord Higgins]

My Lords, I think that it is perhaps rather unfortunate that the Statement was not repeated today because it is very well worth repeating. It includes a remarkable number of individual proposals that are going to help the recovery without endangering the Chancellor’s overall objective of maintaining what I think has become known as plan A, which will result in the deficit being reduced. Is it not rather surprising that the shadow Chancellor in another place continues to say that the proposals of the Government are cutting too fast and too soon? We have seen how very difficult it is to make cuts quickly, and in fact that is one of the problems we have had to face.

In answer to the noble Lord, Lord Myners, saying just now that the Government’s proposals are not respectable, does my noble friend accept that the OECD—perhaps as respectable a body as one could possibly imagine—has warmly endorsed the overall drive of the Chancellor’s policy? Moreover, is it not clear, since we have the advantage of the IBR forecast taking into account what is in the autumn Statement rather than making a forecast based on not knowing what the effects of the Chancellor’s Statement would be, that what the Government have proposed in the autumn Statement will effectively bring matters back on course so that the plans that the Chancellor originally had will be fulfilled?

Having said that, there are some concerns about the situation with regard to monetary policy. Paragraph 3.53 in the forecast of the OBR is very strange. It is important that we should maintain growth in the money supply if we are to see recovery. Can my noble friend tell us what the situation is so far as the money supply is concerned?

[Lord Sassoon]

I am grateful to my noble friend Lord Higgins. I wondered whether we would get through this debate without mention of the money supply, but he has not disappointed me. We have had it as well. I agree absolutely with his analysis of the situation. As the OECD said yesterday, the UK’s consolidation programme strikes the right balance between addressing fiscal sustainability and preserving growth. I can also confirm what my noble friend says. The OBR analysis shows that we are on track to meet the fiscal mandate set out by the Chancellor last year. In respect of monetary easing, I can only draw my noble friend’s attention to the stance taken by the Bank of England with an additional £75 billion of asset purchases, which it believes is necessary in order to ensure that there is no undershoot of inflation, and the package of credit easing measures. The noble Lord, Lord Myners, did not seem to want to see it this way, but that package has been designed to complement the monetary easing with which the Bank of England is driving ahead.

EU: Member States’ Budgets

Debate between Lord Higgins and Lord Sassoon

Tuesday 29th November 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am not going to say who should be complaining about what. All I would say is that the eurozone has got itself into a position where it really needs to get on and strengthen its own governance arrangements. We will do everything to encourage it to do that but we, as the UK, have a particular position that we will also protect to make sure that Parliament is able to scrutinise our budget first.

[Lord Higgins]

My Lords, given the UK opt-out, is it the case that the final part of the noble Lord’s initial Question is not correct as far as UK is concerned?

[Lord Sassoon]

No, my Lords. I believe that the whole of my Answer was completely correct.

EU: Economy

Debate between Lord Higgins and Lord Sassoon

Wednesday 2nd November 2011 Lords Chamber

[Lord Sassoon]

My Lords, we hold out a hand of friendship to all our EU partners and to many other countries, but it is for Greece to make its own decisions. I am not going to lecture the Greeks, but it is clear that all parties to the deal last week have to deliver on their commitments.

[Lord Higgins]

My Lords, is it not high time that the usual channels got together and arranged for a debate in this House on the crisis in the eurozone, since we have had no opportunity other than on Statements and Questions to pursue the matter so far? In particular, should we not have some views expressed on the contingency plans which need to be made should a country leave the eurozone?

[Lord Sassoon]

My Lords, without wishing to encourage a huge rush of additional speakers, we already have a decent number of very interested and expert noble Lords down for a debate on Europe tomorrow. Indeed, this House is taking the matter very seriously.

Eurozone Crisis

Debate between Lord Higgins and Lord Sassoon

Thursday 27th October 2011 Lords Chamber

[Lord Sassoon]

First, it is probably not productive to rake over too much of the history of this. An awful lot of those who advocated the creation of the euro and the UK’s participation in it have been proved completely wrong by the way that events have unfolded over recent years. Therefore, arguing about whether competitiveness should have come before or after the creation of the euro is more for historians. That is why it was in my right honourable friend the Chancellor’s Statement that the competitiveness of the euro-periphery countries, vis-à-vis Germany as the benchmark of economic and industrial efficiency in Europe, is a critical issue that has to be addressed; and that the second dimension is the competitiveness of the EU as a whole in a global economy. I completely agree with the noble Lord that this has to be central to the solution going forward.

As to who should or should not be in the euro and what the size of it should be, that is for the euro to work out. The Government have no view on whether euro membership is inviolable. We simply say that that is a matter for the eurozone. What we want to see is these issues of competitiveness within and without the eurozone very high on the agenda. As far as dealing with internal competitiveness is concerned, that inevitably means a degree of closer fiscal co-ordination, the inevitability of transfer payments between members and all the logic that flows from that.

The competitiveness of the EU27 and the outward-facing euro are completely different matters that do not require similar questions of political union. We have a very good paradigm in which the EU27 can co-operate. It is just a matter of them focusing on the structural, market, competition and financial regulation issues, none of which requires any closer political union. They are technocratic, single-market trade and economic issues.

[Lord Higgins]

My Lords, I congratulate the Chancellor on the extremely active and skilful way in which he has defended British interests in the course of these very complex negotiations. As far as the possible costs of the operation are concerned, will my noble friend clarify the situation? Is he saying that under the arrangements that are now put forward there can be no cost to the UK taxpayer? It would seem to be true of the first part of the Statement. The position with regard to the IMF seems a little obscure because, if I understand it correctly, the Chancellor is saying that he is prepared to contribute more to the IMF but will not contribute if that money is going towards bailing out the eurozone or members of the eurozone. Will my noble friend say how that is to be achieved because, from my experience of the IMF, I am not at all clear?

As far as the banking side of things is concerned, my noble friend suggests that the Government may get involved in the process of recapitalisation if other methods do not succeed. Will he tell us what the likely or potential cost of that could be and, in particular, if we are going to contribute to the recapitalisation, is there any implication as far as ownership of the banks is concerned?

Finally, I shall pick up the point just made. At the end of the day, as far as I can see, none of these huge amounts of money being thrown around will make a significant difference to the competitiveness of, let us say, the Greeks. If the IMF is involved, then perhaps it will because it imposes very stringent conditions which, on the whole, have been enforced, but all this money is simply flowing around to bail out the Greeks. It is not making them more competitive. Indeed, is it not fairly apparent that the Greeks joined the eurozone at an exchange rate at which they were not competitive? As far as one can see, it is inconceivable that they will become competitive. These measures certainly do not do much to achieve that. In that case, are we simply delaying the day, sooner or later, when the Greeks have to leave the euro?

[Lord Sassoon]

My Lords, let me try again on the IMF because my right honourable friend and I seem to have failed so far to get this clear. I will have another go. There was a proposal under the previous Government, which was endorsed by this Government—and voted against by the Opposition in another place even though their party had previously put it forward—for the IMF to increase its resources to match the growth in the global economy. It has nothing to do directly with the eurozone but is to do with the size of the global economy and the IMF’s global mandate. We support that increase in resources.

I should say again that no member shareholder of the IMF has lost any money on the back of the IMF’s contribution to the many adjustment programmes that it has entered into for many years. In relation to Europe and the eurozone, the IMF is involved in the three eurozone programmes. We have no difficulty about the IMF being involved. That is what it is there to do, provided it is entering into adjustment programmes related to eurozone countries on the same basis as it has done to this point and as it would do with any other country. That is absolutely fine. However, the IMF should not contribute to some special eurozone fund—that is not what the IMF is there for—and I have no reason to believe it will do that. We certainly would not be part of any such special use of IMF resources.

It is not correct to say that there will be any UK contribution to the recapitalisation of the eurozone banks. If there is a contribution from the public sector, the taxpayers of Europe, it will come from those countries that have contributed to the ring-fenced fund, the EFSF, and the UK is not part of that fund. We have recapitalised our own banks. We are not contributing to the recapitalisation of the eurozone banks. I hope that that is also clear.

Greek competitiveness is addressed by the adjustment programme agreed with the EU and the IMF. The challenge is to make sure that, under the normal ongoing monitoring programme over the next few years, Greece is held to its commitments. But, critically, there are, in its adjustment programme on which its bailout package is conditional, all sorts of conditions aimed to increase Greek competitiveness.

Independent Commission on Banking

Debate between Lord Higgins and Lord Sassoon

Monday 12th September 2011 Lords Chamber

[Lord Sassoon]

I am grateful to the noble Lord, Lord Barnett, for welcoming the Statement. Clearly, there is a series of different sorts of recommendations in the report. Some of them relate to ring-fencing and the adequacy of capital, where the date of 2019 fits in with the move to implementation of Basel III. So there is a clear logic for making sure that the construct that we are putting in place here is targeted at the same date as the related international recommendations in the same area. On the other hand, of course there are recommendations in areas such as competition, connected, for example, with the ongoing disposal of Lloyds branches, where the timetable is rather different and where the commission, quite rightly, is looking to see action on a shorter timescale. We need to look at the pacing of some of the reforms in relation to 2019, that being the date of Basel III implementation, and others in relation to the individual merits of the case. That is the approach we will take.

[Lord Higgins]

This is certainly a massive and comprehensive report which is rightly welcomed by the Government. I have two questions. First, there is certainly a point of view which says that the right answer is to have complete separation of investment and retail banking. The commission has not come down in favour of that but in favour of ring-fencing. The danger is that there are loopholes in the ring-fence. Could my noble friend say in what circumstances resources might flow from one side of the ring-fence to the other, thereby continuing, albeit perhaps in a more limited form, the dangers which arise if there is a degree of connection between investment and retail banking?

Secondly, as far as timing is concerned, I understand the point my noble friend is making about Basel. However, it has also been suggested that, given the state of the economy, it would be dangerous to implement these changes too quickly, because it would inhibit the continued recovery. Would my noble friend agree that it is right to review that aspect of timing as we go along, and not set in concrete the idea that we should wait until 2019 before going ahead with the ring-fencing proposals?

[Lord Sassoon]

My Lords, I regret that I may fail to satisfy my noble friend Lord Higgins in my answers. On his first point about the design of the ring-fence, and whether there are loopholes, the commission has been quite clear in relation to one or two major structural elements of the ring-fence. It has recommended that discretion should be allowed to the banks as to whether the lending business to large industrial companies should be on one side of it or the other. That will be the first of a number of detailed issues that need to be looked at in the design work. I would not wish to pre-empt that work, other than noting that my noble friend’s question of loopholes and how they might come about will be, I am sure, very much in the minds of those doing the detailed work.

On the speed of implementation, I do think it is important—as it was with the Basel III work, and the European directive that flows with it—that the banking industry, taxpayers and all those who deal with the banks have a clear understanding of what the end position will be. There is a separate question as to what the appropriate implementation timetable will be. I am sure that the commissioners thought very carefully about this when they put forward the date of 2019. I repeat that—as my noble friend will know—it is the same date as the Basel implementation. I am sure they thought about that very hard.

Monetary Policy Committee

Debate between Lord Higgins and Lord Sassoon

Wednesday 6th July 2011 Lords Chamber

[Lord Sassoon]

I would always hesitate to hold up and criticise the characterisation of the Bank of England MPC’s target by the noble Lord, Lord Myners. However, as I have made clear, it has one primary target—to maintain price stability, with the target that I have already confirmed—and it is doing a fine job in extremely difficult circumstances, when oil prices are 40 per cent higher than they were at the end of last year and agricultural prices are 60 per cent higher than a year ago. Against that background the MPC is doing a fine job in very difficult conditions.

[Lord Higgins]

Having not got an answer on the first Question, I shall try again. Would my noble friend agree that much of the problem is that the present inflation is imported rather than domestically generated, and that needs to be taken into account in making these decisions? None the less, the MPC also has responsibility for growth. Given the low rate of growth, and the low rate of growth in money supply, is there not a further case for more quantitative easing?

[Lord Sassoon]

I apologise to my noble friend for cutting him off earlier, but I am glad that he has got in now. It is certainly a bit of a puzzle that there is continued weakness in broad money growth at a time when nominal GDP is growing. I am no macroeconomist, but when I look at the tables I see that, among other things, the velocity of the circulation of broad money is increasing. I cannot see behind me to see whether my noble friend is nodding, but I think he is, so I am all right on that one. Any question of additional quantitative easing or withdrawal of quantitative easing will be decisions for the MPC whenever it sees fit.

Office for Budget Responsibility

Debate between Lord Higgins and Lord Sassoon

Wednesday 6th July 2011 Lords Chamber

[Lord Sassoon]

I would love to be able to tell noble Lords what was in the mind of Robert Peston or whoever was being quoted, because it certainly was not the Chancellor. It was somebody interpreting the mind of the Chancellor.

Of course, there are certain ways in which there is flexibility within the numbers, because the automatic stabilisers operate as the economy fluctuates. In that sense there is flexibility, but I have no idea otherwise what that particular commentator had in mind. It certainly had nothing to do with use of the reserve.

[Lord Higgins]

My Lords, has my noble friend noted that the recent report of the IMF on the UK economy suggests that the Chancellor’s plan A, as the noble Lord referred to it, is on the right course? However, is not the growth forecast referred to in the Question none the less pretty disappointing? Is this not a reflection to a considerable extent of the slow rate of growth in the money supply? Given that that is so, is there not a case for considering a further extension of quantitative easing?

[Lord Sassoon]

My Lords, I am grateful to my noble friend for pointing out the IMF’s recent assessment that endorses the deficit reduction plan, as has the Governor of the Bank of England and just about every other commentator I can think of. That is the plan to which we stick. The third Question this afternoon is on matters related to the Monetary Policy Committee and maybe it would be better to talk about monetary matters then.

Greece: Default Contingency

Debate between Lord Higgins and Lord Sassoon

Monday 20th June 2011 Lords Chamber

[Lord Sassoon]

On the role of the EFSM, I would refer the noble Lord to the words of the French Finance Minister, Christine Lagarde, when recently interviewed on the BBC. She talked about the package for Greece being one of bilateral loans, and she saw the likelihood of any future support for Greece as a continuation of that bilateral arrangement. So there has been no question of using the EFSM in the context of Greece. As for the question on the Bank of England, I am certainly not going answer for what the Bank of England does or does not take in—nor would the noble Lord, Lord Myners, for one minute begin to think that I would start answering questions about the bank’s collateral policies. As to the capitalisation of the ECB, that is an entirely hypothetical question, as the noble Lord knows full well.

[Lord Higgins]

My Lords, is it not apparent that the Greek economy cannot become competitive in the foreseeable future at its present exchange rate? Greece will be condemned to an endless succession of deflation and bailout unless it leaves the euro. Is it therefore not extremely important that discussions by the British Government and in the European Community should take place on how to minimise any collateral damage should that come to pass?

[Lord Sassoon]

My Lords, I am not sure that I entirely accept my noble friend’s starting premise. The position is that Greece is a member of the eurozone, and the eurozone will continue to be the eurozone. We want to see the strengthening of fiscal and economic discipline within that zone. When the IMF put together and led the programme that Greece signed up to—which had elements of fiscal consolidation, structural fiscal reform and wider structural reform—it was done precisely in the context of Greece continuing to be a member of the eurozone, and that is the continuing position. The package has been put together and the new Government have some decisions to take. The IMF is coming up to its regular review before the next drawdown of the package, but that is entirely in the context of Greece being able to finance itself on an ongoing basis within the eurozone.

Regulatory and Banking Reform

Debate between Lord Higgins and Lord Sassoon

Thursday 16th June 2011 Lords Chamber

[Lord Higgins]

My Lords, I welcome overall this Statement and the speech last night made by the Chancellor on related matters. In many ways, the Chancellor’s speech spelt out what he intended rather more clearly than was done in the Statement today. However, I am very glad that he is sticking to his plan A for the economy, which was so clearly endorsed by the IMF recently. In response to the question of whether it was time to adjust macroeconomic policies, it gave the clearest possible answer—no.

As to regulation, it must be right that the Chancellor is scrapping the tripartite agreement, which had such disastrous consequences. The position was not quite clear from my noble friend’s reading of the earlier Statement. My understanding is that what is being proposed is what the IMF calls a triple peak arrangement; that is, a new prudential regulator, a new financial conduct authority and a new macroprudential authority. Am I right in thinking that there are three bodies rather than two?

I turn to the other question in relation to regulation and to the question of ring-fencing. Personally, I would have preferred the more radical solution of complete separation. I realise the arguments about cost of capital, competition and so on but, after all, American banks did survive quite successfully for a long time under the Glass-Steagall arrangements. But when we come to the question of ring-fencing between the investment part of a bank and its retail part, I am not clear whether it is intended that the ring fence should have holes in it or whether there is to be a complete ban on capital flowing from one side of the ring fence to the other. There seems to be some discussion at the moment which suggests that the ring fence would not be as solid as perhaps some of us would wish it to be.

The other thing that is not clear about whether something is too big to fail is whether, following the establishment of the ring fence, the part of the bank concerned with investment banking, no matter how large, would be allowed to fail but the retail side would not. In other words, there would be an absolute guarantee that the retail part of a bank would be protected by the Government. If that is so, it raises very serious questions of moral hazard. The extent to which the retail banking section has not been devoid of the recent problems arising from risk-taking creates a real problem. Obviously, we will be much clearer about this when we see the White Paper and the pre-legislative scrutiny which takes place. But perhaps my noble friend would clarify precisely what is meant by ring-fencing in this context.

[Lord Sassoon]

My noble friend’s first question was about whether this is twin peaks, triple peaks or whatever. I have always found that a somewhat stale way to analyse the issue because over the past decade constant comparisons were being made between single peaks, twin peaks and so on, so I am reluctant to be drawn into characterising what we are now proposing as any number of peaks. All I can say is that it is emphatically not a triple-peak solution in that the macroprudential and the micro in the PRA are going to be in one body in the Bank of England. So although characterising it as twin peaks is closer to the models that have been analysed by academics and others over the last few years, it gets us back to language that I am not sure is entirely helpful. However, it is certainly not a triple-peak solution.

On the questions around separation and permeability of the ring-fence, the Government will be guided by the independent commission’s final report. But it is also important to recognise what the ICB’s interim report did and did not say. To put it simply, it certainly was not a division between retail and investment banking. The commission acknowledged that a balance has to be struck between imposing very high costs on an important sector and the degree of safety. The point of firewalling is not to eliminate all risk, but to minimise the risk and cost to the taxpayer should a bank fail. The ICB is now focused on these issues between now and September. The principal issues to be looked at by the Government and the Bank of England will be the powers to manage the collapse of any investment bank, were that to happen in the future. As I hope was clear from my honourable friend’s Statement, one of the principles in establishing the ring-fence is to make sure that the taxpayer is not exposed on either side of it. Therefore, getting rid of the risk of moral hazard is at the centre of the construct that we are looking to put in place.

Consumer Insurance (Disclosure and Representations) Bill [HL]

Debate between Lord Higgins and Lord Sassoon

Monday 13th June 2011 Grand Committee

[Lord Sassoon]

I am grateful for that, because some of this has been a touch technical and some rather fundamental. I will talk about the process in a moment, as my noble friend Lord Higgins asked about the procedure for Law Commission Bills. The fact that it is a Law Commission Bill and has, as my noble friend pointed out, been the subject of a big report subsequently consulted on by the commission means that we can be fairly confident that all the fundamentals of the law have been considered in great detail. Otherwise, this Bill would not be going through this procedure. This is the first Bill to go through the Law Commission procedure since the procedure was made permanent last year. I am pleased that, as my noble friend Lord Higgins recognised, this innovation has allowed for parliamentary time to be found for this legislation, which would clearly otherwise have been difficult.

On what happens next, the important thing is that this is not in any sense a fast-track procedure, because the Bill will follow the usual parliamentary process but for two exceptions. First, the substantive Second Reading debate is held in Committee—that is what we are doing this afternoon—rather than on the Floor of the House. Secondly, the Committee stage will be, as the noble Lord, Lord Eatwell, said, taken by a Special Public Bill Committee, which is indeed empowered to take evidence from witnesses as well as to conduct the usual clause-by-clause examination of the Bill. I have no present intention to suggest from the Government’s side that we should call witnesses, but that is allowed for in the procedures. For the benefit of my noble friend, I draw the Committee’s attention to paragraph 8.44 of the Companion to Standing Orders, which says:

“The House agreed in 2008, on a trial basis, that second reading debates on certain Law Commission bills should be held in the Moses Room … The Committee debates the bill, and reports to the House that it has considered the bill. The second reading motion is then normally taken without debate in the House, though it remains possible, in the event of opposition, for amendments to be tabled or a vote to take place on the motion. Law Commission bills are normally committed to a special public bill committee”.

I hope that that is as clear as it can be. I do not know whether that allows for speakers lists, gaps and things this afternoon, but I am grateful that my noble friend got to his feet and contributed to the discussions in his usual lively way.

As I said in opening, we believe that this Bill is necessary in order for the law to catch up with best practice. It will also ensure that the legal duty of consumers is reasonable and clear. In answer to the questions asked by the noble Lord, Lord Eatwell, in this area, I am not sure whether it is right to look on it in the context of shifting the onus of good faith. It is clear that it is up to the insurer to ask the questions and to the consumer to answer them, with the potential consequences of misrepresentation in the way that I outlined in opening. The effect of this is to shift the burden between the insurer and the consumer in the consumer’s favour as against the law as it stands in the 1906 Act. That is entirely appropriate.

It is worth reiterating in this context—I think that this is the point on which my noble friend Lady Kramer asked for confirmation—that any information that the consumer misrepresented or failed to disclose must be proven to have been relevant to the content and/or the price of a policy before the insurer is entitled to a remedy. There is a shift in the legal position, but it is a shift towards a position that is in line with industry best practice and the standards that are currently imposed by the Financial Ombudsman Service.

I am particularly grateful to my noble friend Lady Kramer for drawing attention to a shocking but classic case of the sort that this Bill is intended to obviate and to ensure does not happen in future. The case that she put forward was interesting because it was a question not of unreasonable loss to the consumer—as I understand it, after a two-and-a-half-year struggle, the FOS found in favour of the insurer—but, as was explained to us, of the very real distress and the time and effort that had to go into getting to the right answer. That should be eliminated in similar situations as a result of this legislation.

As I said in opening, the industry will benefit, as we anticipate a reduction in the costs of handing complaints internally and with the ombudsman. In that context, I can confirm to my noble friend Lady Noakes that we will be mindful of the burdens of implementation on the industry. She rightly and helpfully pointed out the various other initiatives that will bite on training, information and standards of scripts, whether in relation to the retail distribution review or simplified advice. Her points are well taken.

My noble friend Lord Higgins referred to paragraph 10.30 of the Law Commission’s report, which discusses the pros and cons of giving legal effect to industry guidance. My noble friend quoted from paragraph 10.30, but the report discusses the issue at some length in paragraphs 10.32 to 10.43. The Law Commission decided not to include such a provision for the reasons set out in paragraph 10.38, principally because the role of guidance is different from that of legislation. I think that the discussion is extensive in the Law Commission’s report.

[Lord Higgins]

I am most grateful to the noble Lord. The trouble on these occasions is that the Hansard reporters tend to remove the relevant documents. I am most grateful for his clarification.

[Lord Sassoon]

Good. I, too, am grateful that we have nailed that one.

On the other questions raised by the noble Lord, Lord Eatwell, there is first this difficult issue about permissible questions and specifically questions of gender and race. They are made particularly difficult by the recent judgment of the court in relation to motor insurance. This issue is dealt with elsewhere and not in the Bill, which is solely focused on the transmission of information in the context of underwriting risk. It is not part of the scope of the Bill to discuss questions of discrimination or equalities legislation—nor should it be.

On the definition of consumers and micro-businesses, we discussed informally last week what would happen with respect to the insurance of the foot of a ballet dancer or a footballer. Maybe we could call this the “David Beckham’s foot” question. The Explanatory Notes on Clause 1 define a consumer as,

“an ‘individual’ who is acting wholly or mainly for non-business purposes. Thus the consumer must be a natural person, rather than a legal person (such as a company or corporation). The definition expressly provides for mixed use contracts”—

for example, the insurance for a personal car that is sometimes used for business travel to be defined as a consumer insurance contract. It means that the Bill will not apply to individuals purchasing insurance that is mainly for purposes related to their trade, business or profession, which would clearly be the case in some of the examples that have been discussed.

Lastly, on the cost of insurance, HM Treasury has not made an estimate of the impact of the Bill on insurance premiums. However, we have estimated that the net impact will be savings for the industry—that is, when we take account of the initial training costs and the savings as a result of fewer FOS complaints among other factors. On the basis that the industry should have net savings from this Bill being enacted, there is absolutely no reason to believe that there should be any additional cost passed on to consumers. In relation to the overall cost of insurance, these are relatively small marginal costs but ones that would impact favourably—that is, downwards—on insurance costs.

Oil Prices

Debate between Lord Higgins and Lord Sassoon

Wednesday 8th June 2011 Lords Chamber

[Lord Sassoon]

My Lords, I completely agree with the figures given by the noble Lord for the very considerable increases in commodity prices over the past year. Those are, of course, driven by global factors, but they impact very severely on consumers and businesses in this country. That much I agree with. He referred to low interest rates. This is absolutely critical. We have almost record low interest rates on our 10-year gilts at the moment—3.33 per cent, I think, last night. That is a recognition of the confidence that the Government have in the underlying fiscal policy but it also reinforces that the Government’s contribution is to make sure that we continue to have a prudent view on public finances and do not deviate from the course that we set for reducing the fiscal deficit that we inherited.

[Lord Higgins]

My Lords, is it not clear that the mechanism set up by Mr Gordon Brown for controlling inflation is not working and that the Monetary Policy Committee of the Bank of England is taking a number of other factors into account in addition to inflation? That being so, would it not be appropriate to revise and improve the remit given to the MPC rather than the Governor of the Bank of England having to write letter after letter after letter to the Chancellor of the Exchequer explaining why inflation is above target?

Public Expenditure: Reserve

Debate between Lord Higgins and Lord Sassoon

Monday 9th May 2011 Lords Chamber

[Lord Sassoon]

My Lords, first, in relation to this discussion about borrowing costs, I am pleased to say that as of last week the UK’s 10-year borrowing costs, the benchmark for our gilts, hit practically the lowest that they have ever done, while the margin we pay in relation to the German bund has hit its best position since the general election. We absolutely must do these things to make sure that our interest rates remain low. As to how the reserve operates, I am happy to copy to the noble Lord the published rules that the Treasury uses. However, they are for consideration only in exceptional circumstances and would not be linked to the sorts of factors that he sets out.

[Lord Higgins]

My Lords, did the European bailout of the Greek Government deplete this reserve and would any extension of that process deplete it?

[Lord Sassoon]

No, it did not and I will not talk about hypothetical situations.

Banking

Debate between Lord Higgins and Lord Sassoon

Wednesday 9th February 2011 Lords Chamber

[Lord Higgins]

My Lords, the Minister repeated a very complicated and extensive Statement on what the Government propose to do. One thing is clear: they are right to get rid of the tripartite agreement that was so disastrous under the previous Government. It would seem that the Government are now adopting a very balanced view. They have a very difficult task in maximising revenue from the City while at the same time not driving people abroad who would otherwise contribute an enormous amount to the British economy.

When the previous Statement was made, I expressed concern that in the discussions that the Government were having, they confused the situation by appearing to say, “We will be soft on bonuses, provided you lend”. In the event, it is clear that the Government are being extremely tough on bonuses and have reached a separate agreement on increasing the amount of lending, which is so important.

The public anger on this matter is very much related to the expression “bonus”. In the public mind is the simple thought that any amount extra that is paid ought to reflect performance. However, what has been so clear in the banking sector is that bonuses continue to be paid on a huge scale while performance has been lamentable. Can my noble friend say to what extent the restrictions that are now being placed on bonuses will ensure that they reflect the performance of the various individuals and banks concerned? The idea of a pool of bonuses among the banks when their performance has been very poor is, I think, a serious problem. The bonuses for individuals seem to be related hardly at all to performance.

Finally, I welcome the fact that much tougher action has been taken with regard to the banks which have been rescued by the taxpayer and that the remuneration committees and, in particular, UK Financial Investments Ltd will make sure that in future these matters are looked at on a commercial basis while ensuring that bonuses are not excessive.

[Lord Sassoon]

I am grateful to my noble friend Lord Higgins for pointing out that at the heart of the failure of the system and the mess that this Government have had to pick up and sort out was the failure of the tripartite system of regulation, which of course we are sweeping away. Seeing the noble Lord, Lord McFall of Alcluith, opposite reminds me that he very perceptively characterised it as a Rolls-Royce system when it sat on the shelf but an old banger when it got on the ground. I wish that I had his turn of phrase, but the tripartite system was indeed at the heart of it.

As to bonuses and their linkage to performance, that is absolutely at the heart of what the Government have agreed with the banks today. I think that the critical new element is the linkage between the performance of the banks on meeting SME lending targets and the pay of the chief executive and the other senior executives who are directly responsible for that line of business. Therefore, it is a crucial point. It is well made by my noble friend and it is at the heart of this agreement.

Banking: Bonuses

Debate between Lord Higgins and Lord Sassoon

Tuesday 11th January 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am not going to stand here and listen to the ridiculous tirade from the noble Lord, Lord Myners. If he had all these brilliant ideas, why did he not implement a single one of them when he was in office? It ill behoves him to come here with this litany of ideas, which may or may not be good but are given to me not in the spirit of co-operation but as a lecture telling me what we are not doing. I could repeat—but it would bore noble Lords interminably—the Statement of my right honourable friend, which gave a great list of things that we are doing and have done. The Government of the noble Lord, Lord Myners, left only 25 banks with any sort of disclosure requirements. We have extended that figure to 2,500. His Government managed to get a paltry four banks signed up to the much lauded taxation agreement. We now have the top 15 banks signed up. I could go on. It is no good the noble Lord giving me a lecture about what we should do. He had years to deal with the matter and completely failed. We are getting on in a very practical way to make sure that the banking industry and regulatory system is fixed.

[Lord Higgins]

My Lords, is my noble friend aware that the Government are absolutely right to get rid of the failed tripartite agreement that caused many of the problems that we now face? Does he agree that we are making some progress in reducing cash payments, deferred bonuses and so on? However, I have some difficulty with his argument that bonuses are all right so long as the banks lend more. That seems to be a non sequitur, except in the sense that if we agree to the bonuses, the banks may lend more. However, they ought to be doing that anyway. The two issues are not connected except in the sense of, “We will be soft on you if you do what we want”. That is not the right approach.

As far as concerns RBS and the other banks that have been bailed out by the Government, I understand my noble friend's point about the agreement made by the previous Government. However, given the extent of participation in those banks, ought there not to be clear representation on behalf of taxpayers and the Government on the boards of the banks so that those directors could take appropriate action—because at the end of the day it is the board that decides these matters—with regard to bonuses?

[Lord Sassoon]

I am grateful to my noble friend Lord Higgins for recognising the progress that we are making on reform of the regulatory structures, and in relation to bonuses. We are absolutely not going soft on the banks, which is why, as we speak, discussions are ongoing to make sure that bonuses this year are lower than otherwise they would have been, and, in parallel with that, that banks will lend in a verifiable way more than they would have lent. We are not back-pedalling on any of this and are continuing to work actively with the banks.

As far as concerns the management of RBS and Lloyds, the basic construct put in place by the previous Government ensured that the banks would be managed on an arm’s-length basis without the Government directing their day-to-day operations. That is the broad principle to which we are sticking. Nevertheless, it is important that the Government, as a significant shareholder in RBS and Lloyds, make their views very clear on all matters including bonuses.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Higgins and Lord Sassoon

Monday 6th December 2010 Grand Committee

[Lord Higgins]

My Lords, we are grateful to the Minister, who has clarified a number of points. I will come back to an obvious and fundamental one. I am still not in the least clear why we will have both an OBR forecast and an official one from the Treasury that will be useful for Ministers. I simply do not understand this.

[Lord Sassoon]

Perhaps I may clarify that. There will be one official forecast, which the OBR will produce. The Treasury will retain a modelling and forecasting capability, but it is absolutely not the intention, and will not be the case, that there will be another official forecast from the Treasury. Ministers simply require the Treasury to retain that capability, so that if, in circumstances that we do not at all anticipate, the Chancellor or the Treasury want to take a different view from that of the OBR, they will retain the capability of doing so. There is absolutely no intention that there should be anything other than one published forecast, which will be put out by the OBR.

--- Later in debate ---

[Lord Higgins]

I find this rather difficult. The Minister raises his eyebrows. I simply do not understand what the purpose of this forecast is going to be. Perhaps I may expand on that for a moment. We had an official forecast and we presume that the Government will operate on that basis, but apparently there is to be an internal forecast on which Ministers will base their decisions. The noble Lord is shaking his head.

[Lord Sassoon]

My Lords, there will not be another official internal forecast. There will be the forecast of the OBR, but that does not mean that the Treasury should not have the capability to—and it will—look at underlying assumptions on which the forecast is based, to make sure that it understands where the OBR is coming from and feels comfortable with it. There will not be some other internal official forecast; there will merely be a capability within the Treasury—and it is important that there should be such a capability—whereby Treasury officials can look at and understand the assumptions on which the OBR’s forecast is made. That will not require, and there is no intention for, the Treasury to produce any separate forecast of its own.

--- Later in debate ---

[Lord Sassoon]

I love it when noble Lords preface their remarks by saying, “This may not be the place in which to discuss these things”, and then go into freshwater and saltwater fishing. The noble Lord, Lord Eatwell, has already said that his study of the 20 spreadsheets has raised some questions that he will address directly to Mr Chote. If my noble friend Lord Higgins would like me to relay his questions to Mr Chote, I will be happy to do so—or he may wish to write directly. Either way, I will return to the amendment. We have so much transparency already that it is provoking lots of questions that I am sure Mr Chote and his colleagues will be happy to answer. I will be happy to act as postman if that would be helpful.

[Lord Higgins]

I gladly accept that offer and beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Sassoon]

In summary, I cannot promise that there is any way of making all this clearer. I think that there is consensus among us as to what we are trying to achieve in this area. I shall think hard about whether we can make it even clearer. On that basis, I ask my noble friend Lord Higgins to consider withdrawing his amendment.

[Lord Higgins]

My Lords, that is a very sensible reaction on the part of the Minister.

--- Later in debate ---

[Lord Higgins]

My Lords, the amendment, which has a whole clause to itself, is not difficult to understand. The Bill as drafted states:

“The Office must aim to carry out its functions efficiently and cost-effectively”.

The amendment seeks to delete the words “aim to” so that it reads, “The Office must carry out its functions efficiently and cost-effectively”. There would be a loophole if the office could simply say that it was aiming to do this when it may not achieve that objective. More sensibly it should be mandated to operate efficiently and cost-effectively, otherwise it may overspend its budget by an enormous amount and say, “Do not worry, these are unforeseen circumstances. We aim to do it”. I beg to move.

[Lord Sassoon]

My Lords, of course the OBR should be cost-effective and efficient—there is no question about that—and the amendment seeks to increase the requirement for it to be so. However, in reality the amendment would not change in substance the requirement on the OBR because, if it was ever challenged on this point, the challenge would be subject to what it would have been reasonable for the OBR to have done. I agree with my noble friend that it would be nice if we could have more direct language here but I am advised that the amendment would make negligible difference. That is because if it was ever tested in a legal context—one hopes it will not be—the reasonableness of what the OBR had done would be encapsulated in the words “aim to”.

At the risk of the noble Lord, Lord Eatwell, jumping up again, I have to say that this is the same as the requirement on the National Audit Office, as set out in Part 2. It is not necessarily a good defence; I merely observe—

[Lord Sassoon]

Of course, in the wider context, the accounting officer will have to answer for the OBR’s cost-effectiveness and efficiency and it will be subject to the normal governance and scrutiny arrangements for public bodies. Those scrutiny arrangements will include an audit, I say advisedly, by the NAO, which will have the power to examine and report to Parliament on a number of matters, including the economy, efficiency and effectiveness of the OBR.

I thank my noble friend for trying to tease out what is going on here. It has enabled me to ask questions and to establish that the words as originally drafted essentially encapsulate the test that a court would use if the OBR was ever challenged. On the basis that we are trying to arrive at the same point, I hope he will withdraw the amendment.

[Lord Higgins]

It will be a question of it coming not to court but to the NAO, which is dealt with in the second part of the Bill. It seems to me that the office would have been on much stronger ground if it was simply told that it must carry out these functions than if it merely said, “Oh well, if it’s all right, I was aiming to but I’ve failed”. None the less, to a degree I take the point made by my noble friend and I beg leave to withdraw the amendment.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Higgins and Lord Sassoon

Wednesday 1st December 2010 Grand Committee

[Lord Sassoon]

I hope that I can be helpful on that point. The Government expect the appointment process for the BRC to match up to the high standards of public appointments. A bespoke appointment process has been put in place for the BRC executive members involving advertising, independent involvement in the interview process and so on, and that process has been designed to be open and transparent. It is up to the OBR to design the process for the non-executive members but we would also expect that to be open and in line with the principle of transparency. We have high expectations of the quality of the process and I hope that that gives the noble Lord some comfort.

[Lord Higgins]

Am I to understand that the Treasury Select Committee said that it wanted to be involved in the appointment of the chairman and executive members but that it did not want to be involved in the appointment of the non-executive members? If so, that seems a rather extraordinary position to take, but I will accept whatever the Minister says.

--- Later in debate ---

[Lord Brooke of Sutton Mandeville]

My Lords, perhaps I may make an analogy which is completely separate from that that we have been discussing. The SAS is now one of the finest fighting forces in the world, frequently in much demand from the United States Army to work in conjunction with it. That organisation was founded in the desert in 1942 and people were asked to volunteer to join it. If they had been asked to resign all relationship with their previous regiment, I am not at all sure that they would have joined at that stage; nor that we would have had evolving out of 70 years of history the remarkable fighting force that we have.

[Lord Sassoon]

My Lords, we need to step back and, in answer to the fundamental challenge of my noble friend Lord Higgins, remind ourselves of just what is going on here. We need to remember that the people who were making these forecasts under the old way of doing it were essentially Ministers and their advisers, who plucked out from the numbers that the fine Treasury officials were putting in front of them, in some non-transparent way, the forecasts and published them.

In the new construct of the BRC we have Robert Chote and his two fellow members as the body charged with producing the forecasts. We should not lose sight of the fact that that is where the fundamental responsibility for decision on the forecasts will be made. What is needed under the new model—as it was under the old model—is the best possible group of forecasting expertise. The Government recognise that, yes, it needs to be independent and expert. The principal guardians will be the three independent members of the OBR, who must be allowed to hire the best staff. The arguments put forward by the noble Lords, Lord Turnbull and Lord Burns, and my noble friends Lord Newby and Lady Noakes are very persuasive. We do not want in any way to constrain the OBR from hiring and firing whoever it wants to hire and fire. But if we were to exclude it taking civil servants because civil servants would have to resign from the Civil Service, with all the consequences that that might mean for their terms of employment, pension and so on, that would significantly reduce the pool of relatively talented people that the OBR should be able to employ.

Sir Alan Budd, in his advice on the permanent OBR, noted the benefits of the office being established as a Civil Service employer. The noble Lord, Lord Myners, makes an important point, which is that as well as the OBR having freedom, the non-executive directors will take on a role, which is to consider the overall mix of people. There is not remotely a question of complacency here, but we should not invent a problem where there is not one and significantly restrict the potential pool of relevant expertise on which the BRC will need to call.

In answer to some of the questions from the noble Lord, Lord Barnett, about the situation at present, the OBR has 13 full-time staff. They are Treasury employees on secondment because, for as long as it takes noble Lords in this House and Members in another place to pass the legislation, they cannot be employed by anyone else. As soon as the legislation is passed and we put the body on a statutory basis—the sooner, the better, I say—lots of things will be put on to their proper basis, because the OBR will under paragraph 8(1) of Schedule 1 become an employer in its own right. Under the well established terms for Civil Service employment, staff can be transferred, remain within the Civil Service and maintain their Civil Service terms and have the ability to move. They might not necessarily move back to the Treasury, but take a completely different direction in their career.

There are 13 staff now supporting the BRC. Of the three BRC members, Robert Chote is full time and Stephen Nickell and Graham Parker are working, on average, three days a week at the moment. There is no question about the non-execs, because they do not exist. That is how it is at the moment. As the noble Lord, Lord Turnbull, indicated, the expectation is that the steady state of the OBR will be about 20 employees, but that is a matter for Robert Chote. He will make those decisions.

[Lord Higgins]

I intervene because I think that the Minister is winding up on this amendment. Why is it assumed that the staff of the OBR have to be people seconded from the Treasury? It is not as if the world is short of economic forecasters. One has only to look at the list of economic forecasters in the summary which the Treasury produces. Why do we feel that we have to second people from the Treasury rather than recruit them on a competitive basis?

[Lord Sassoon]

It is simply a matter of fact at the moment, because the OBR is not yet constituted on a statutory basis, that the employing body has to be somewhere else and, at the moment, it is the Treasury. The staff do not have to come from the Treasury. Indeed, I understand that an advertisement is out now publicly before the OBR to recruit an economist. It can recruit from wherever it likes; it has the resources to do that. The OBR will recruit to have an appropriate mix of knowledge and expertise, but the critical thing is that that it should recruit from wherever it would like to without any unreasonable hindrance. All the recruitment will be led by the independent, externally recruited members of the BRC. Even though it is not a formal employer at the moment, it is getting on and doing all the recruitment, totally independently.

--- Later in debate ---

[Lord Higgins]

I presume that the Minister was seeking to be helpful to the Committee so that we should have it in advance of our discussion.

[Lord Sassoon]

The letter was intended to be helpful in advance of our discussion. It was sent around by e-mail earlier today, but noble Lords may not have seen it. I do not know who received it and I am not sure exactly what time it went out. Hard copies are available here in the Moses Room and it is now, or soon will be, on the Bill’s website. We tried to distribute it in as wide a way as we could.

[Lord Higgins]

In fact, as my noble friend has discovered, the letter was also available to the Committee today. In it, this complicated issue has been very condensed, and we will no doubt wish to return to it later.

As I say, I still have problems in believing that the OBR will carry out its duty in the terms that I quoted earlier unless it can take into account the Government’s general economic policy, which is one of the means in subsection (2)(b) by which the Treasury intends to achieve its fiscal policy, otherwise known as the fiscal mandate. In any event, it seems to clarify the situation if we accept the wording in the amendment.

Amendment 27, proposed by the noble Lords opposite, is, rightly, linked with this amendment. It raises an important point: what is meant by sustainability? The essence of what I understand that the OBR is going to do is report on whether the fiscal policies—and, I thought, the economic policies—are sustainable. At this stage, so that we have some idea what we are talking about, we need a clear definition from the Minister of what is meant by “sustainability”. One problem, of course, is that one can sustain the finances at various levels. Without knowing what the economic policy is, it will be difficult to know at what level it is proposed to sustain the financial side of the Government’s operations. We need to know, since it is in the Bill and it is important, what “sustainability” means.

--- Later in debate ---

[Lord Sassoon]

Indeed. The question is: what is appropriate to put in the legislation? There is an element here of risking treating the OBR inappropriately by telling it to do things that are clearly already self-evident to the OBR, in that it has already started to make significant comments on sustainability but is not rushing to final conclusions or making it the subject of a separate major piece of work. Therefore I am absolutely sympathetic to the principle but I am not sure that we should get into the game of writing down everything that the OBR is to do. The question this provokes in my mind is whether anything more should be said about this point in the charter. If there is any more to be said, it should be in the charter, and it is in that context that I should like to reflect on the substance of Amendment 27.

Amendment 18 makes an explicit link between the OBR and the Treasury’s objectives and mandate. I absolutely agree that it is important for the OBR to work in the context of these objectives and the mandate. Therefore, the purpose behind my noble friend’s amendment is entirely appropriate but I am a little concerned that, taken particularly with Amendment 30, it would not provide sufficient protection to keep the OBR out of what could become broader and politicised debates about policy scenarios.

I have thought about this carefully. I believe that the current design achieves a balance for the broad remit for the OBR with a sufficiently clear focus on government policy, and any amendment in this area would need to ensure that that careful balance was protected. I am worried that the amendment might challenge that. As I said, I believe that the substance of what is intended is already in the Bill. I very much took to heart the words of noble Lords on this area at Second Reading, including those of the noble Lord, Lord Burns, who noted the importance of the OBR not being drawn into wider political debates and not opining on alternative policy options. We have to keep the OBR focused on the fact that its forecast has to be of the economic policies that have been decided by the Government. However, we should not through inappropriate drafting risk taking the OBR into debates about the policy itself.

I shall continue to think carefully about whether we have got the balance right, but I hope my noble friend understands that we may risk drawing the OBR into something wider than I suspect he intends. I ask him to withdraw the amendment.

[Lord Higgins]

My Lords, we are in danger of getting involved in metaphysics rather than econometrics. The absolutely central thing in the Bill is that the main duty of the office is to examine and report on sustainability. To say, “Oh well, the OBR itself will decide what is meant by that” when it is in the Bill is not a satisfactory situation. We have to have some idea of what is meant by it.

As far as the individual is concerned, it is fairly clear: if your expenditure is more than your income, the position is not sustainable—except, of course, that you can delay the proceedings by borrowing and so on. The same is not totally untrue as far as the Government are concerned. In the light of the earlier clauses to which I referred, is the OBR going to say, “The way the Government are going will not work. Their fiscal objective”—in the simple terms I have just outlined for an individual——“is not sustainable”? The same would have been true if the OBR had been reporting earlier on the position of the Irish Government. It could have said, “This is not sustainable. You will either default, have to be bailed out—which may or may not be a sustainable position—get out of the euro, or whatever”. Is the OBR going to say, as perhaps it might have said to the previous Government, “What you are doing is not sustainable”?

We have taken the clear position as an incoming Government that what the previous Government were doing was not sustainable; in short, they were going to go bust unless they could continue borrowing enough to stay afloat. Is this what is meant by sustainability? It probably is but, if so, we at least need confirmation from the Government—not from the OBR—that it means, “You cannot go on doing this without various other consequences following”.

[Lord Sassoon]

My Lords, I tried to make clear in summary what the Government understand by “sustainability”. It encompasses the thinking of my noble friend, which is the bare minimum that anyone would understand by “sustainability”. I want to allow the OBR to interpret it further. The noble Lord, Lord Peston, shakes his head. I say it is the bare minimum but I want to give the OBR the freedom to interpret “sustainability” in as wide a way as it thinks appropriate. Of course the OBR can and should say that the public finances are not sustainable if it considers that to be the case. It has written on sustainability already and will do a lot more work. I do not want to constrain it with a government definition that people may criticise. Having said that, there is a need for further consideration to ascertain whether the matter of sustainability can be reflected in the charter. However, it should not be done in a way that lays down a government definition of it.

[Lord Higgins]

That is a very helpful reply, if I may say so, but we cannot go along with the main object of the whole thing not being more clearly defined. Could my noble friend discuss it with the OBR and, before Report, get some idea of the answer?

[Lord Sassoon]

My Lords, as I have said, I am happy to discuss it with the OBR again, but it clearly believes that this is a very difficult issue, which is why it has made some opening comments, if you like, on sustainability in both its June and its November documents. It will make it the subject of a self-standing report—I assume, a significant one—next year, which is in its programme. It has already said that sustainability in its full richness cannot and should not be rushed or reduced to a simple formula. It wants to lay its thinking out in detail, and we should allow it to do that.

[Lord Higgins]

I beg leave to withdraw the amendment, but as the noble Lord has kindly produced a letter on the earlier part, perhaps he might try, before Report, to produce a letter on this issue.

--- Later in debate ---

[Lord Sassoon]

Again, I am advised that the drafting of the amendment would not necessarily achieve that end. If we include “in the light of economic policies”, even if it was widely interpreted, does that mean we should refer also to other aspects of sustainability, such as, for example, the impact of external shocks? I believe that the subsection works, even as drafted. We absolutely agree with both noble Lords in terms of what we expect to be taken into account, but we do not consider that the amendment will help. Its drafting does not do the trick and, I am advised, aims at something which is not necessary because we have it in Clause 5(3).

[Lord Higgins]

I have, in fact, tabled an amendment to Clause 5(3)—Amendment 30, which we shall come to in due course. However, long experience in these matters suggests that occasionally when one is discussing a Bill, it becomes apparent at what stage the parliamentary draftsman had a nervous breakdown. If the advice given by the parliamentary draftsman is that in some way Clause 5(3) is helpful in defining the point that we are discussing, I find that very surprising.

--- Later in debate ---

[Lord Higgins]

My Lords, Clause 5(3) on page 3 of the Bill is the subject of Amendment 30. However, I entirely agree with what the noble Lord said a moment ago: one cannot conceivably construe that subsection as in some way qualifying the issue that we are now debating. If that is the advice that my noble friend is getting from the parliamentary draftsmen, who of course are paid far more than anyone else in the Civil Service, it is an extraordinary answer.

[Lord Sassoon]

Perhaps I may try again. Under Clause 4(1) it is the duty of the office to examine and report on the sustainability of the public finances. For the reasons explained by the noble Lord, Lord Burns, it would be difficult to report on the sustainability of the public finances without having regard to a lot of things, including—critically and at the centre—government economic policy. That links to what is laid out in the charter. If there is any doubt about whether the office will take account of government economic policies, as opposed to any other economic policies, we should look at Clause 5 for guidance on how the main duty is to be performed. The first point, which is important, is that the office has complete discretion, subject to certain subsections. Therefore, there will be a raft of approaches and other considerations that it can bring in if it considers them to be relevant.

We may then go on to subsection (3), having established that the OBR could not exercise its main duty without having regard to economic policies. Clause 5(3) makes it abundantly clear that when it looks at economic and other policies, it must have regard to any relevant government policies—not just economic policies, or economic policies defined in the widest sense by the noble Lord, Lord Burns. Under Clause 4, the office must have regard to economic policy; otherwise, how on earth would it start to look at sustainability? Clause 5(3) makes it clear that the policies that it must have regard to are not alternative policies but the policies of the Government. It is clear if one follows it through.

--- Later in debate ---

[Lord Sassoon]

Do not push me, because I can sit down now. All the notes say “Resist”, but there is “resist” with a smiling face and there is another kind. If this discussion is intended to reopen the debate around Clause 1, which would have the effect of getting the OBR into the business of commenting on government economic policy and conceivably alternative economic policies, then I am not going to suggest looking at clarifying the drafting to achieve that. My starting point, like that of the noble Lord, Lord Burns, is that it would not be possible to carry out the measure set out in Clause 4(1). How could you conceivably do that if it were not based on the Government’s economic policies as widely defined, including thinking about the potential for external shocks and so on? The very important point is that Clause 5(3) stipulates that the context is only one of government policies, not alternative versions. Therefore, when the OBR carries out its analysis, it should look at only the government policies that have been announced.

[Lord Higgins]

I am trying to be helpful; this is clearly rather more complicated than we may have thought a little time ago. Could my noble friend simply say that he will look to see whether the intention of the Government has been encapsulated by the draftsmen and that, if not, he will table a more suitable amendment, because I do not think that we can leave it as it is?

[Lord Sassoon]

I was going to make two points. There is a further important consideration here, which is that we have the draft charter in front of us. It is worth bearing in mind that paragraph 4.12 of the draft charter, at page 13, states:

“The OBR’s published forecasts shall be based on all Government decisions and all other circumstances that may have a material impact on the fiscal outlook”.

So it is quite clear from that paragraph that the published forecasts shall be based on all government decisions. It continues, in the first bullet point, or tiret, as the Treasury used to call it—I do not know whether it still does since the departure of the noble Lord, Lord Burns; I fear that it now calls them “bullets”. Anyway, in the first blob—

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Higgins and Lord Sassoon

Monday 29th November 2010 Grand Committee

[Lord Higgins]

Before my noble friend replies to that, perhaps I may delay the Committee for a moment or two more. First, I apologise to the noble Lord, Lord Eatwell. His reference in the amendment to the lines in the Bill is correct. I was working on the original version of the Bill, which the Treasury has subsequently corrected. I just hope that the Public Bill Office has sorted out all my numbering; otherwise, I will have a lot of work ahead of me.

We should be extremely grateful to the Minister for providing the draft charter; otherwise, we would be relying purely on what is in the Bill, which leaves a large number of questions unanswered. Perhaps I may pursue the point raised by the Minister with regard to the fiscal mandate. There is no initial capital letter in “mandate” in the draft charter, which perhaps there should be. It states that the mandate is,

“a forward-looking target to achieve cyclically-adjusted current balance by the end of the rolling, five-year forecast period”.

That is an extremely important statement. My problem is that there are shades of Gordon Brown, rather like Banquo’s ghost, in the reference to “cyclically-adjusted”, because Gordon Brown was a master at changing the dates of when the cycle began. If the mandate is to mean anything at all, we need to know when the Government think that the cycle began. If my noble friend cannot answer now, perhaps he might come back to it later.

[Lord Sassoon]

My Lords, at the risk of repeating myself, the Government’s broader economic policy objective is clear and includes the achievement of strong, sustainable and balanced growth that is more evenly shared across the country and between industries. That is consistent with values of broad freedom, fairness and responsibility. That is absolutely clear, I hope, as regards our broader economic policy objectives. However, as I have tried to explain, what we are talking about is the narrower context for the fiscal policy mandate. I am not personally very keen on too many capitalised terms, but I hear my noble friend’s plea for an initial capital for “mandate”—it is certainly a critically important part of the construct. I will take away the thought.

This is the first time that these fiscal policy objectives have been tabled. We are not debating the charter in the way that we are debating the Bill, because the charter is not part of the Bill itself. It is not a question of debating the precise words, therefore, but I take the point. There are many things within the broader definition of fairness that do not impinge directly and narrowly on the conduct of fiscal policy. Therefore, I am not sure that it would be right to talk about fairness in its full richness here, but I have certainly listened carefully.

As to the question of cyclical adjustment, the absolutely critical point is that cyclical adjustment is now done by the independent OBR; it is not done by Ministers, who could and did rewrite, on a regular basis, the start and end points of cycles. That is important and I am grateful to my noble friend for drawing attention to it.

--- Later in debate ---

[Lord Sassoon]

First, Robert Chote and the Office for Budget Responsibility presented their own report this morning. I was unable to watch the whole of the Q&A session and do not know how long it went on, but it was wide-ranging. I believe that the document was seen on embargo terms by journalists ahead of the presentation so that they could ask informed questions of the OBR directly afterwards. Before somebody else challenges me on this, I should say that the OBR has pointed out that it will not always be able to present a document first if it is opining on new policy announcements. There will always be an opportunity to question the OBR directly on its forecasts, but that will be one part of the supporting architecture alongside a variety of other measures of performance, as well as new policy developments related to that, which a Chancellor will always at any time be responsible for. Of course, Chancellors must represent the OBR’s work correctly, but it is entirely appropriate and necessary for it to refer to that work in the broader policy context, just as I have explained that the charter and the Bill relate to only one—albeit critical—element of the Government’s overall economic policy-making framework.

[Lord Higgins]

Am I right in thinking that the Minister rejects this amendment?

[Lord Sassoon]

Yes, I am rejecting it. I am nervous of getting another lecture of the formalities of how we operate in Grand Committee. I had understood that we went through the formality of my doing the proposers of amendments the courtesy of formally asking them whether they will withdraw. If that is not the process, somebody will no doubt advise me. While the amendment has led to some interesting observations about the precise wording of the fiscal policy mandate and other aspects of the charter, in relation to the basic question of whether the Bill—and, by implication, the OBR’s work—should be opened up to a much wider commentary on the Government’s wider economic policy, I think absolutely not.

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[Lord Sassoon]

My clear understanding is that the Standing Orders absolutely give all the necessary authority to committees of this House to summon members of the OBR, just as they summon other people to appear before them. I see no let or hindrance particular to the OBR.

[Lord Higgins]

My Lords, the Minister is absolutely right that Amendment 38 is not necessary, but his reply was otherwise somewhat disappointing. We will, no doubt, wish to consider that, particularly the reference to the Delegated Powers Committee, before the next stage of the Bill. In the mean time, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Sassoon]

I am grateful that we have got that clearer. I should move on briefly to the question of whether it would be appropriate to align the forecasts of the OBR with those of the Monetary Policy Committee. Again, I am very much with the analysis of the noble Lord, Lord Turnbull, on this. It is worth mentioning what Robert Chote, the OBR chair, said on this subject. He made it clear during the hearings of the Treasury Select Committee that, as he sees it, the OBR and the Bank of England are independent bodies and each needs to make its own judgments for its own reasons. I completely agree, but he went on to say that he recognised that it would be valuable for the Bank of England and the OBR to have regular exchanges of views about areas of common interest. I expect that the OBR will exchange views with a range of organisations and individuals and, when introducing its document today, the OBR made it clear that in this first document it had met a range of organisations and individuals. In that context, of course, I would expect the OBR regularly to talk to the Bank of England, and each would be very interested in the other’s approach to these matters. However, it is critical that at the end of the day the OBR acts independently of the Monetary Policy Committee, of the Treasury and of all these other fine forecasting bodies.

These are important matters, and I hope that I have clarified the intention of the legislation in these areas. However, I believe, as do the majority of noble Lords who have spoken, that the OBR’s forecasts must ultimately be independent. Therefore, I ask my noble friend to withdraw his amendment.

[Lord Higgins]

My Lords, it seems to be still absolutely clear that having monetary policy based on one lot of forecasts and fiscal policy based on a different set of forecasts is likely to turn out to be very bad news indeed.

Secondly, on the question of whether the official forecast is to be predominant—a point that the opposition Front Bench made—it seems to me that the whole fanfare at the original press conference was saying, “No more fiddling figures by the Government or the Treasury—we will have a totally independent forecast”. Now we are told that it will be an independent forecast, but that the Government, if they do not like the OBR’s figures, might perhaps produce their own. I fail to see the point of the entire exercise if this is so. We will no doubt wish to return to this later, but, meanwhile, I beg leave to withdraw the amendment.

Autumn Forecast

Debate between Lord Higgins and Lord Sassoon

Monday 29th November 2010 Lords Chamber

[Lord Higgins]

My Lords, can my noble friend confirm the rather surprising and welcome news that, despite all the cuts in public expenditure and the tax increases, growth is none the less expected to continue in the coming years, and that, similarly, unemployment is expected to fall? Having said that, I raise the position with regard to Ireland. Many people in this House believed that it was right to make Ireland a special case, but can we be sure that it is a special case and we will not find ourselves bailing out other eurozone countries to prevent their defaulting? Is it not the case that the Irish, having been bailed out, would be better able to achieve economic growth in the future if they were no longer in the euro? The reality is that the euro was designed to prevent members leaving by eliminating their own currencies. However, we need to provide some form of escape route for those countries—not only Ireland but the others on the periphery—that continue to suffer because they have an inappropriate exchange rate. Perhaps some form of alternative currency, to be used when a country wishes to withdraw, ought to be provided.

[Lord Sassoon]

I am grateful to my noble friend for pointing out that growth is expected by the OBR to continue to be above 2 per cent in every year of the forecast from next year onwards. I am happy to confirm this. Indeed, the OBR forecasts that employment will rise and unemployment will fall throughout the period.

In respect of Ireland and the eurozone, I can confirm that the UK will not be part of the permanent bail-out mechanism that the eurozone will put in place. Having said that, I do not wish to speculate about the future of the eurozone, which is very important to the UK. Europe accounts for 40 per cent of our trade and it is in the interests of this country to do what it can to support the stability of the eurozone. That does not mean that, with the exception of Ireland and its particular circumstances, we will directly support any bail-out operation.

Ireland: Financial Assistance

Debate between Lord Higgins and Lord Sassoon

Monday 22nd November 2010 Lords Chamber

[Lord Sassoon]

I am grateful to my noble friend for his questions. In response to his first observation, I point out that the Government do not accept the general principle that we should participate alongside eurozone members in bailing out eurozone countries. When it comes to putting in place the permanent bailout arrangements that will be discussed in Europe in the coming months, it is the intention of the coalition Government that we should not be part of any such arrangements. The normal process should be that the eurozone is responsible for its own processes. I cannot go into any more detail of the terms of the package which is being negotiated, but my right honourable friend the Chancellor has said that he will come back to another place when he has more to report.

[Lord Higgins]

My Lords, it is very reassuring to hear what the noble Lord has just said. However, the Chancellor has made a very sound case for why we need to participate in addition to the help provided by the IMF and the European Union. When we are borrowing heavily, it is rather strange to be lending to Ireland. We shall need to look very carefully, as suggested, at the terms of the loan. The Chancellor says that the matter will be raised in another place. Will we have an opportunity to debate it in this House as well, given the expertise which exists here?

It is difficult to avoid the view that this is something of a sticking plaster, leaving a number of other issues unresolved. Ireland is still in the eurozone, and the interest rates that are determined by the European Union and the exchange rate give it very little scope. Has not the eurozone grown too large and are we not in danger of this kind of situation occurring not simply in Ireland and Greece but also in other countries? The whole system is formulated in such a way that it is not possible for members to withdraw when it might be better for them to do so, rather than get into the kind of situation that we have seen here. Despite the fact that this is clearly not something that would be welcomed in Brussels, and given that we have an interest in the matter along with those in the eurozone, should we not consider whether a more flexible arrangement is becoming essential?

[Lord Sassoon]

My Lords, any bilateral loan, as my right honourable friend the Chancellor has said, will require primary legislation. So it will go through the normal processes, including those of this House. It is in the UK’s interest to ensure that there is a strong eurozone. The present difficulties have brought to the attention of eurozone members—and of those of us who wish to see a strong zone but who are not in it—the fact that there are a number of defects in the architecture, of which the need for a permanent bail-out arrangement is one. We will work constructively with our partners in Europe to ensure that the eurozone is better able in future to withstand any buffeting of individual economies such as we are seeing at the moment.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Higgins and Lord Sassoon

Monday 8th November 2010 Lords Chamber

[Lord Sassoon]

Indeed. While the Bill makes it clear that the charter may include guidance to the OBR on how it should perform its main duty, the charter must not make provision about the methods the OBR should use. That is absolutely clear and I am glad that we agree on it. Nevertheless, to provide the OBR with guidance on how it should fulfil its duties is not, in the Government’s judgment, inappropriate. While the OBR will need to act consistently with any guidance in the charter, any such guidance will have been approved by another House, so it will be wholly transparent.

The noble Lord, Lord Burns, asked how far the remit can be stretched by the guidance. It can relate only to the functions conferred by the Bill, so it cannot add to or in any way distort the remit and it has to be exercised consistently with the Bill. It cannot compromise, for example, the basic principles set out in Clause 5(2), but it can explain how they are to be applied. I do not think that the guidance should in any way lead to mission creep.

Questions were also asked about resources and whether the chair of the OBR should report each year on whether he has sufficient resources. There will be transparency of reporting through the Treasury Estimates and accounts. The non-executives will be expected to inform Parliament of any concerns they have over the independence of the OBR and its resources, and the OBR will present its annual report and accounts to Parliament through the Treasury. There will be ample opportunity, through direct contact with the Treasury Select Committee, to air any concerns on resources.

In answer to a question from the noble Lord, Lord Myners, I can give him an absolute assurance that the OBR will have full autonomy over its work programme, and within its statutory duties it will not be required to secure the Treasury’s approval of its work. On another dimension of independence raised by the noble Lord, Lord Myners, and my noble friend Lord Higgins, regarding whether the minutes will be published, that will be a matter for the OBR but I am sure that it is listening carefully to this debate.

Questions then followed about the accuracy of the forecasts and peer review. The crucial point about these sorts of forecast is that they will be wholly transparent. Each time the forecasts are published, the outcome will be clear. It will then be for all experts, economists and commentators, both Houses of Parliament and its committees to scrutinise the information. However, the Bill allows the OBR to establish expert committees if it so wishes to help it with analyses or for any other purpose.

The noble Lord, Lord Barnett, asked about meetings between the OBR and Treasury Ministers. This is something on which the OBR has been reflecting, and it has decided that in order to ensure that communications with the Treasury are transparent, the OBR will aim to publish a log of contact twice a year, each autumn and at the time of the Budget. This will begin with the autumn forecast on 29 November. I know that the noble Lord has tabled a Question for Written Answer on that point.

A number of questions were put to me about the functions of the non-executive directors. When I first saw the Bill there was a distinction between professional and non-professional. I hope noble Lords will agree that expert and non-expert improves the drafting a little, but I take the point that, equally, the words executive and non-executive could be used. For the moment I will say that the legislation follows what is common in other legislation establishing statutory bodies, including Natural England, Ofgem, the Office of the Rail Regulator, the Office of Fair Trading and the UK Statistics Authority. I will reflect on the points made about the non-executives, but the critical point is that it will be for the first meeting of the board to decide exactly what the remit should be. I think it was the noble Lord, Lord Burns—I hope I will be forgiven if it was not him—who described the remit and his description encapsulated it rather well.

Questions were asked about the relationship with the Bank. It is expected that the OBR will have a good relationship with the Bank and there will be a regular exchange of views. But it is critical that there should be no collusion between them in any sense in producing their forecasts. They should be completely independent.

Points were raised by my noble friends Lady Noakes and Lady Browning about the relationship with other government departments. Indeed, the MoUs will cover departments other than the Treasury.

[Lord Higgins]

Are we to understand that there will be two sets of forecasts? In that case, which will prevail?

[Lord Sassoon]

My Lords, at the moment separate forecasts are made by the Treasury and the Bank of England in the course of their inflation reporting. That situation will continue.

There were detailed questions about freedom of information, on which I will write to my noble friend Lady Browning. I can assure her that freedom of information legislation applies.

There will be no changes to the debt management arrangements. I agree with the noble Lord, Lord Myners, that the Debt Management Office does a fine job.

I want to spend one minute talking about the National Audit Office, because—

Comprehensive Spending Review

Debate between Lord Higgins and Lord Sassoon

Wednesday 20th October 2010 Lords Chamber

[Lord Higgins]

My Lords, one thing is absolutely clear, which is that Mr Gordon Brown inherited the most favourable economic situation of any Chancellor since the war and left behind an enormous problem for the coalition to deal with. However, as anyone who has had experience of this sort of exercise will know, it is remarkable that the Treasury, officials and Ministers have managed to produce such a comprehensive review in such a short time, dealing with everything from Equitable Life to coastal erosion to measures overseas to deal with malaria and so on. What is being overlooked is that the Statement mentions not only cuts but a number of increases in public expenditure. It is really, apart from dealing with the deficit, a reappraisal of the priorities that we ought to have. From that point of view, it does exactly the right thing. Indeed, there is no cut. Public expenditure, as I understand it, is to go up from £651 billion to £693 billion. That is scarcely a cut by any standard. That is the kind of number that the noble Lord on the Front Bench was asking for.

May I put this question to my noble friend? It is difficult to ascertain from the Statement what the effect will be on aggregate demand. Will it reduce aggregate demand in the economy or will it increase it? If it is going to increase it, clearly the Bank of England will need to take that into account. If it is going to reduce it, it is important that action should be taken to offset the cuts that are being made by quantitative easing or whatever may seem appropriate. Could the noble Lord tell us: is this something that increases or decreases aggregate demand?

[Lord Sassoon]

My Lords, I am grateful to my noble friend Lord Higgins. I will relay to my right honourable friend the Chancellor and to all the very hard-working officials in the Treasury his generous words, which confirm that this is indeed a radical, fair and comprehensive spending review. In answer to his question about demand, clearly, with the independent projections from the Office for Budget Responsibility and all the other commentators of consistent growth going forward, demand will indeed increase. The question of what role the aggregate increase in the money supply plays is one on which, as we know, the Governor of the Bank of England continues to be very much focused as he leads on the conduct of monetary policy.

Taxation: Income Tax

Debate between Lord Higgins and Lord Sassoon

Monday 11th October 2010 Lords Chamber

[Lord Higgins]

To ask Her Majesty’s Government what rate of interest they propose to pay to people who have paid too much income tax because of mistakes by HM Revenue and Customs; and what rate of interest they propose to charge people who have paid too little income tax for the same reason.

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

My Lords, HMRC interest rates are linked to the Bank of England base rate and are currently 3 per cent on late payments and 0.5 per cent on repayments. The interest position in instances of error or delay by HMRC is considered on a case-by-case basis.

Underpayments arising from the current end-of-year PAYE reconciliation exercise will not attract an interest charge, provided that people who have been notified of an underpayment contact HMRC and agree a payment arrangement.

--- Later in debate ---

[Lord Higgins]

My Lords, I am grateful to my noble friend for that helpful reply. The situation in Her Majesty's Revenue and Customs is another example of the problems which have been left by the previous Government. My noble friend will be aware of the disturbing and complacent evidence which was given to the Treasury Select Committee in another place on 15 September. Apart from the uncertainty and distress which has been caused to something like 6 million taxpayers and the minimal rate of interest which is being paid to those to whom Revenue and Customs now propose to refund something, a large amount of money has been written off. What is the overall cost of what has happened in the department, against a background of trying to cut public expenditure?

[Lord Sassoon]

My Lords, as my noble friend points out, this is another part of the inheritance which we are getting on with having to tidy up. On his specific questions, I can only apologise to the taxpayers who are caught up in this reconciliation exercise. We are trying to make the process as painless as possible. The bills for those owing less than £300 are being written off. That will entail a cost of some £600 million. The cost of the overall exercise, in which 90,000 letters a day are going out between now and Christmas to clear it up, will be up to £10 million.

Banks: Business Lending

Debate between Lord Higgins and Lord Sassoon

Wednesday 28th July 2010 Lords Chamber

[Lord Higgins]

My Lords, is my noble friend not concerned that the massive increase in quantitative easing has not been reflected at all in the figures for the money supply, which has actually gone down? It is not surprising that the banks are not lending more if the money supply is declining. What does my noble friend think ought to be done about this?

[Lord Sassoon]

My Lords, my noble friend has raised this theme on a number of occasions. It is for the Monetary Policy Committee of the Bank of England to decide how it operates the asset purchase facility—so-called quantitative easing. What we are talking about this morning is how we increase the supply of net lending by banks to United Kingdom businesses. As I said, the Government announced in the Budget a range of measures and have set out an important discussion document, to which I hope noble Lords who wish to will contribute their views by 20 September.

Finance Bill

Debate between Lord Higgins and Lord Sassoon

Monday 26th July 2010 Lords Chamber

[Lord Sassoon]

My Lords, I fully accept that of course there is huge interdependence between the public and private sectors.

I stress again that the Government’s aim is to make Britain a place where innovation and enterprise can succeed. This is critical. We want to send a clear signal to international business that Britain is once more open for business. Attracting inward investment will stimulate growth and create jobs, and the Budget provides a springboard for a private sector-led recovery, with measures to support business and restore the UK’s competitiveness. These include not only a reduction in corporation tax to 24 per cent, but a reduction in the small profits rate to 20 per cent, an increase in the national insurance contribution threshold for employers and a wide package of support for small businesses. In answer to the specific point raised by my noble friend Lord Northbrook, on the reduction of capital allowances, I can assure and reassure my noble friend that even allowing for reduction of capital allowances and the decrease in annual investment allowances, the next take from corporation tax will be reduced by £1.3 billion per year by the end of the forecast period.

It is right, as set out in the coalition agreement, that capital gains tax should increase in order to help create a fairer tax system. The approach we have taken balances the competing demands of fairness, simplicity and competitiveness and the increase in the rate of capital gains tax will allow this Government to remove almost a million of the poorest people from income tax.

My noble friend Lord Higgins talked about indexation allowances and taper relief. I should point out that indexation allowance for CGT has a substantial Exchequer cost. It cost £1.4 billion in 1997-98 and indexation would add significant complexity to the tax system. Therefore, we do not believe that indexation is justified when CGT rates are well below the top marginal income tax rate and at a period with lower inflation than at a time that indexation allowance was originally introduced.

[Lord Higgins]

On the point about indexation, to say that it would increase complexity when the Explanatory Notes to the clause as it stands run to six pages is perhaps a little strange. May I pursue with my noble friend the broader point that I raised: is it not important to have a monetary policy that is compatible with the cuts being made? Also, in that context, why does he think that quantitative easing appears not to have had a significant effect on the money supply?

[Lord Sassoon]

My Lords, I am not going to answer for judgments that are fundamentally for the Bank of England. It has a very clear monetary policy mandate, which is around keeping inflation low, and through the combination of monetary policy and confidence in the new Government’s fiscal stance we have seen that UK government borrowing rates have indeed remained low, and that the spread against the benchmark of the German Bund has indeed worked in the UK’s favour since the election. That goes to the heart of the nexus between monetary policy, low interest rates and keeping the flow of credit going to businesses and private individuals. I want to move on—

Debt Management Office

Debate between Lord Higgins and Lord Sassoon

Tuesday 20th July 2010 Lords Chamber

[Lord Higgins]

To ask Her Majesty’s Government whether they will transfer responsibility for the Debt Management Office to the Bank of England.

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

There are no current plans to transfer responsibility for the Debt Management Office to the Bank of England.

[Lord Higgins]

My Lords, I thank the Minister for that reply, but I urge him to reconsider it since it effectively endorses the mistaken decision of Mr Gordon Brown, when he first became Chancellor of the Exchequer, to give responsibility for monetary policy to the Bank of England but to take away its responsibility for debt management, which is clearly a major influence in deciding what is likely to be the money supply. The problem has become even clearer with the introduction of quantitative easing because the Bank has been buying assets while at the same time the Debt Management Office has been selling them. It has been an entirely circular arrangement, and there has been virtually no increase in the money supply as a result of the quantitative easing. Would my noble friend not agree that in the present circumstances, it is crucial that we have an effective monetary policy and that can happen only if the Bank of England is given the powers it used to have?

[Lord Sassoon]

My noble friend Lord Higgins raises an important question. I think that it is part of a wider debate at the moment about the responsibilities and levers which central banks have, including, among others, the linkages between the conduct of monetary and financial stability policy. As noble Lords are aware, we are not shy of making structural changes where they appear to be justified, as we are doing by moving banking supervision back into the Bank of England.

That said, I believe that the arguments for minimising conflicts of interest by separating debt management and monetary policy objectives and accountabilities are persuasive. The IMF has maintained the position that countries should have such separation and it has become international best practice among our peer-group countries, including France and Germany.

Banking Reform

Debate between Lord Higgins and Lord Sassoon

Thursday 17th June 2010 Lords Chamber

[Lord Sassoon]

I am grateful to the noble Lord, Lord Haskel, for raising this rather important question. Let me stress absolutely clearly that the Monetary Policy Committee will continue just as now, with an unchanged remit. It will have, if the Chancellor does not change the remit, the 2 per cent inflation target, and nothing in that respect will change.

[Lord Higgins]

Could my noble friend clarify the position regarding ministerial responsibility? As I understand it, this Statement was made in another place by the Financial Secretary to the Treasury—an office which I once held a very long while ago. Is he now responsible for the banking side, and how has the situation changed from that under the previous Government, who created a financial secretary for banking? Will my noble friend the Minister assume that role? Could he clarify the overall position? The position was, of course, previously filled by the noble Lord, Lord Myners.

[Lord Sassoon]

I am grateful to my noble friend Lord Higgins for asking that question. Since I carry the newly-minted title of Commercial Secretary, I can try and explain that my responsibilities straddle both the financial services sector and wider business interests. My friend in the other place, the Financial Secretary to the Treasury, bears the primary responsibility in most areas of financial services policy. If my noble friend would like to look at the Treasury website, he will see a much clearer explanation of the split of ministerial responsibilities. I would be happy to send him a copy.

Public Expenditure: Review of Commitments

Debate between Lord Higgins and Lord Sassoon

Thursday 17th June 2010 Lords Chamber

[Lord Sassoon]

I am grateful to the right reverend Prelate for raising that point. I am not aware of any particular projects referred to in the Statement where the co-mingling of voluntary contributions and public money will be affected. However, I will take that point back, consider it and, if there are projects that fall into that category, refer the relevant departments to him so that he can get a specific response. I take his general point that the Government should continue to encourage projects that involve joint public and private funding, whether from the voluntary sector or from other parts of the private sector.

[Lord Higgins]

My Lords, does the Minister agree that the debate between the two sides on how quickly cuts should be made is largely false? Those of us who have been involved in expenditure cuts know that frequently there is a long time lag between a decision being taken and its having any effect. To the extent that things can be done quickly with regard to the items mentioned today, that is all to the good, but we must recognise that these cuts are bound to be spread over a long period, however quickly we try to do them. On the need for aggregate demand to increase steadily, is he not concerned that, despite quantitative easing, the increase in the money supply has been virtually nil and, in some cases, negative? That will need to be taken carefully into account if we are to have further growth in the economy.

[Lord Sassoon]

My Lords, I thank my noble friend Lord Higgins for that. He is right: there is a considerable time lag on many expenditure decisions. That is why it is so important to send a signal to the markets—we have comprehensively done so in today’s Statement and in the earlier Statement on the £6 billion-worth of cuts—to show that we are getting on with it. As I explained, the cuts today will save close to £500 million on unaffordable and poor-value-for-money projects in the current year. As to aggregate demand and the money supply, I take his point that the flow of credit to business is critical. I expect my right honourable friend the Chancellor of the Exchequer to refer to that in the Budget next week and to explain how we are driving our policies forward.

Financial Services Regulation

Debate between Lord Higgins and Lord Sassoon

Wednesday 16th June 2010 Lords Chamber

[Lord Sassoon]

I am grateful to the noble Lord, Lord Bilimoria, for those comments. I can confirm that the MPC has indeed served the country well and that there are no plans to change its remit. I also agree that the word “disaster” is entirely appropriate and that the FSA got itself into a mindset in which there was far too much of a box-ticking approach and too little consideration for the big picture. But to be fair to the authority, when the whole question of Northern Rock blew up, it did then go on to make a candid, frank and rapid assessment of what went wrong.

I note the noble Lord’s point about the need for speed, and I think we should come back to that after my honourable friend the Financial Secretary to the Treasury has set out further details of the institutional arrangements.

[Lord Higgins]

My Lords, I congratulate the Government on transferring these responsibilities back to the Bank of England where they ought to have remained all along. I have just two questions, since I think that that is the convention on Statements.

First, my noble friend has referred to a “toolkit” for macroeconomic management. May I ask him yet again to ensure that the Debt Management Office, which was also transferred from the Bank of England to the Treasury, should be taken back into the Bank so that it can take an overall view of the monetary policy aspects of macroeconomic management? Secondly, my noble friend will have seen widespread press reports recently about another commission on banking—a private enterprise commission, so to speak. Have the Government had an opportunity to study its report and form a reaction to it?

[Lord Sassoon]

I thank the noble Lord, Lord Higgins, and share with him what he says about the Bank of England. It is clear that the macro-prudential toolkit will likely focus on capital liquidity and leverage, and it is for further consideration as to what other tools may be appropriate. On the other work that has been done by the Which? Commission and people in other countries, it should remind us that whether it is in the US, at the European level or by the cross-party Which? Commission here, just about everyone except the previous Government was getting on with looking at the structure of the industry. That emphasises why we should waste no time in getting on with the commission’s work now.

Office for Budget Responsibility

Debate between Lord Higgins and Lord Sassoon

Monday 14th June 2010 Lords Chamber

[Lord Higgins]

My Lords, arising from the point that has just been made, does my noble friend agree that while it is important to grow our way out of the problem it will not be the case that we can grow our way out of the structural deficit? By definition, that is something quite separate from the possibility of growing one’s way out. This is indeed a very depressing report, although it is extremely helpful to have the figures which have been given. I have two points for my noble friend.

First, it is clearly extremely important that we should reduce the deficit as soon as possible, but what has not been mentioned at all is the extent to which it is proposed to fund the deficit meanwhile. That does of course have very important implications for the level of aggregate demand. Can my noble friend say what the policy is on funding the deficit as we go along in advance of actually managing to reduce it?

Secondly, in the same context, one of the extraordinary things that happened under the previous Government was the policy of so-called quantitative easing. There is a general assumption, not least in the financial press, that this to some extent increased the money supply and therefore increased economic growth. As far as I can establish, that simply is not true, certainly in relation to the size of the so-called quantitative easing. The reason is that, while the Bank of England was increasing the quantity of money by purchasing it in the market, the Debt Management Office, which Mr Brown had removed from the Bank to the Treasury, was busily selling debt, so the two totally cancelled each other out, as far as one can establish. Does my noble friend agree that it is important to get the Debt Management Office back in the Bank of England so that two completely contrary policies are not pursued at the same time?

[Lord Sassoon]

I am grateful to my noble friend Lord Higgins for his questions. Funding the deficit will be critical. As I pointed out, the level of borrowing will continue to rise throughout the forecast period to £74.4 billion in public sector net debt terms in 2014-15. The scale of the task should not be underestimated. What is critical to funding the deficit in a safe way is maintaining the UK’s credit rating and central to that is having a credible plan. The foundation stone of that credible plan is the revelation today of the true state of the nation’s finances, with some decent forecasts five years out on which all else, including the funding plan, can be built.

My noble friend’s second question was about the mechanics of selling debt. The Debt Management Office operates under a clear and transparent plan, which sets out exactly what the Treasury requires it to raise in the markets each year, consistent with the Budget forecasts. So far this year, the office has carried out that plan successfully and I have every expectation that it will continue to do so.