International Banking: Payments
Lord Lamont of Lerwick Excerpts(3 weeks, 3 days ago)
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Lord Lamont of Lerwick
To ask His Majesty’s Government what assessment they have made of the plan by the BRICS countries to establish a separate banking payments system, and of the implications for the international banking system and the ability of the United Kingdom and its allies to impose economic sanctions.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, the Government believe an integrated global financial system is the best way to achieve global prosperity and financial stability. Fragmentation is damaging to the global economy, whereas deep, liquid markets boost economic efficiency. That is why we will continue to work with our international partners to strengthen the rules-based international system and our interconnected financial and economic systems.
Lord Lamont of Lerwick (Con)
My Lords, I thank the Minister for his reply. While the idea of a BRICS payment system, which was announced by Mr Putin at the BRICS conference in Kazan, may seem rather fanciful and a long way off, it nevertheless needs to be taken seriously. Does he not agree that, if it ever happened, it would be a major threat to the western-led financial system? Above all, it would make it impossible for the West to impose sanctions on countries such as Russia, China, Iran or other malign countries. Is the Minister aware that, after the BRICS conference, Chinese state media reported that the proposed new payment system would be based on technology taken from the Bank of International Settlements, with its bridge development? Is he also aware that America has apparently expressed some concern to the Bank of International Settlements about this transfer of technology to possible malign actors? Should we not be taking this very seriously?
Lord Livermore (Lab)
I am grateful to the noble Lord for the points that he raises, and I agree that, of course, we should take these developments seriously. I will not comment on the specific proposals announced by the BRICS countries that he refers to; I would not want to speculate as to what systems may or may not come into common usage. The Government believe very much that the current international model for the financial system works effectively, and we will continue to work with our international partners to maintain an interconnected financial and economic system. On the noble Lord’s question on the effectiveness of sanctions, we continue to believe that economic sanctions are an important and effective tool, and we will continue to utilise those sanctions where necessary. On the potential to undermine them, we will pursue any necessary steps with our allies to maintain the interconnected system and reduce opportunities for the circumvention or evasion of international sanctions.
Autumn Budget 2024
Lord Lamont of Lerwick Excerpts(1 month, 1 week ago)
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Lord Lamont of Lerwick (Con)
My Lords, as the first Labour Budget for 14 years, this was bound to be a very big occasion, and indeed it was: it was a bold Budget, with bold increases in taxation, bold increases in borrowing, bold increases in spending and a bold tearing-up of everything that Labour said in the general election.
As we heard from the Minister, this is all justified on the basis of the spurious £22 billion black hole. But Paul Johnson, the IFS director, said that there was no “unknown black hole”. The OBR, despite the Government trying to enlist its support, said that nothing legitimised the figure of £22 billion. It talked of an unaccounted for £9.6 billion, but how does that justify tax increases of £40 billion?
The party opposite—the Government—says it has the worst economic inheritance since the Second World War. In fact, the UK economy is recovering faster from the twin shocks of the pandemic and the energy price rises than our EU partners and all the countries in the G7 other than the United States. The financial position—the deficit—was better than the Conservative Government inherited when they came to office as a coalition.
Labour’s fiction is necessary to justify eating their words and breaking their promises, but the truth is that Labour always intended massive increases in spending but did not dare put forward the tax increases to pay for this during the election. The Chancellor promised that she would not change the fiscal rules, but she has done exactly that and changed the definition of government debt, in effect to exclude borrowing for investment from the total. This mantra of borrowing for investment, which we first got from Gordon Brown, is questionable. First, the distinction between current spending and investment is not clearcut. Some current spending has favourable long-term impacts; Ministers frequently refer to more spending for nurses as an investment, and one understands why.
Borrowing for investment is justified, so the theory goes, because it supports growth as long as the return exceeds the cost of borrowing. But this assumes that projects are well-designed and completed to time and on cost. I need highly emphasise that our record, nationally, does not need very much emphasising.
The argument for borrowing to invest might apply to power stations or infrastructure, but not all public investment yields an economic return. We welcome investment in health or education—it is a good thing in itself—but it earns an economic return only very slightly and over the very long term. If we are serious about sustainable public finances, borrowing for investment should not be accounted for outside the Government’s measure for meeting their own debt target. The truth is that this is not a Budget for growth or investment; it is simply a Budget for the public sector.
There is no ideal target for debt sustainability. What the markets are interested in is a country’s ability to service its debt. Note that, under the plans that the Government have put forward, interest payments have now risen to over £120 billion—over 3% of GDP; over 7% of public spending. The Chancellor believes massive borrowing for public investment will lead to growth, but that is not what the OBR’s forecasts show. They show that growth in the next five years will be less than it said it would be in the next five years during the last Conservative Government at the time of the Budget in March.
The OBR says that the Budget will have little positive effect until 2032 or later. The Government fought the election saying that they intended to have the fastest rate of growth in the G7; they never said they intended to have the fastest rate of growth in the G7 in 10 years’ time.
Debt remains at just under 100% of GDP at a time when the IMF has warned that, internationally, government debt is becoming a problem worldwide. The OBR has warned that UK debt is on trend to reach an unsustainable level of 270% of GDP. You may say, “That won’t happen”, but it will not happen only if we have our eye on the long term and make some very difficult decisions.
The Prime Minister a few weeks ago said that this Government were all about “wealth creation”. When I heard that, I am afraid I laughed out loud. Then he said that the Budget would be a Budget for business. It is a strange Budget for business which has a main tax increase aimed fairly and squarely at the corporate sector.
Many observers question whether the increase in national insurance contributions will raise the £25 billion forecast for it. Paul Johnson of the IFS has forecast that the Government will have to come back for more tax increases in the next couple of years. One can make the pips squeak, but our tax base is relatively narrow. The top 1% of all taxpayers paid 29% of all income tax and the top 10% paid 61%. Those individuals involved are not numerous, and so it does not require a big change in behaviour by these top earners to do huge damage to the country’s tax revenues.
The Prime Minister talks about putting “country before party”. He talked about governing for people who had not voted for him. Where is the sign of that in this Budget? It is massively divisive, it is a massive gamble and it has massive increases in spending and borrowing and a new high for taxation. If the gamble fails, the country, alas, will pay a painful price.
Baroness Wheeler (Lab)
My Lords, the advisory speaking time for this debate is five minutes. I urge all noble Lords to keep remarks within that limit so that the debate may finish at a reasonable time.