Monetary Policy Committee
Debate between Lord Maples and Lord Sassoon(13 years, 4 months ago)
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Regulatory and Banking Reform
Debate between Lord Maples and Lord Sassoon(13 years, 5 months ago)
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Lord Sassoon
I am grateful to my noble friend because this is a technical but very important area. He is completely right that there is a fundamental distinction between supervision and regulation and often texts can be loose on this. I hope that when he has a chance to read the White Paper he will see that there is extensive discussion of these areas. I refer him to the interesting remarks of the governor last night about the approach to supervision which he intends the Bank and the PRA under it to adopt in the new world, and that that should be a very different approach to supervision from what we have seen recently with the FSA. I take my noble friend’s points to heart, but the short text of the announcement does not give the full flavour that lies behind it.
Lord Maples
I have a couple of quick points on the ring-fencing proposal. Does what the Chancellor said last night mean that we have finally ruled out the idea of a complete split between investment banking and commercial banking? Secondly, does the Minister agree that for ring-fencing to work, the ring-fenced commercial or high-street bank will need a strong degree of independence on its board of directors to enable it to stand up to the banking group of which it is a part?
Thirdly, the Minister’s point about how many holes there are or how permeable the ring-fence is is important because presumably the purpose of the ring-fencing is to stop the investment banks’ liabilities appearing on the commercial banks’ balance sheets as assets, or for that matter the liability of any other investment bank. If that permeability is there at all, investment bankers will find some way of using the commercial banks’ balance sheets to their advantage.
Lord Sassoon
My noble friend makes some important points, which the independent commission has in the forefront of its thinking to resolve over the next few months. It is not that we have ruled out everything but that we have set up an independent commission. It came up with the ring-fencing proposal in its interim report and that is what my right honourable friend the Chancellor has endorsed, subject to the caveats included in the Statement. My noble friend’s points about how this is worked out in detail are some of the absolute correct ones.
Banking
Debate between Lord Maples and Lord Sassoon(13 years, 9 months ago)
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Lord Sassoon
I am grateful to my noble friend for allowing me to emphasise that the banks have at the heart of their intention on all lending to make sure that there is absolutely universal coverage across the United Kingdom. On the question of how businesses are put in a position to come forward, one of the most important elements of the banking task force is its proposals for mentors for businesses. Whether that is mentoring businesses to put them in a better position to apply for and take up loans or having a much clearer system of principles around lending and appeals processes, there is certainly a package of measures which goes to the points my noble friend rightly makes.
Lord Maples
My Lords, may I suggest to my noble friend that the central issue here is the rate of growth of credit, which is at the bottom of all banking crises? It does not matter what system of regulation is in place if it does not bring the rate of growth of credit back in line with the rate of growth of the economy. There has been a considerably faster rate of growth in credit. If that continues, we are going to have another banking crisis, whatever the system of regulation may be. Perhaps I may ask a specific question. One of the reasons the banks have made so much money over the past couple of years is that the Bank of England has been lending them money—money that it does not have, incidentally—at an interest rate of around 0.5 per cent. The banks have been able to lend that money on at 4, 5 and 6 per cent and thus have made a huge amount of money, out of which they are paying bonuses, presumably on the basis that it has been their clever management that has made all this money. Has my noble friend pointed out to them the value of this subsidy, and has he indeed calculated the value of this subsidy towards banks’ profits? We needed to help them rebuild their balance sheets, but that was why they were being lent money cheaply by the Bank of England. They are booking that as profits, attributing it to their own clever management, and paying themselves bonuses out of it.
Child Trust Funds (Amendment No. 3) Regulations 2010
Debate between Lord Maples and Lord Sassoon
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Motion I am moving today invites the House to approve the Child Trust Funds (Amendment No. 3) Regulations, which represent the first step in legislating the changes to child trust funds announced on 24 May to reduce and then stop government payments. Before I explain exactly what these regulations do it may be helpful if I remind noble Lords briefly of why we are making these changes.
As your Lordships will know, Britain has an unprecedented budget deficit. At present, the British state is borrowing £1 for every £4 that it spends, increasing the national debt by £3 billion per week. We believe that tackling that deficit must be this Government’s most urgent task. To make a start on the process of deficit reduction, within two weeks of the Government being formed we announced £6.2 billion of Exchequer savings in this financial year. We have of course since taken further action through last month’s Budget, which sets out a credible plan to get the public finances back under control. The savings announced in May included £320 million from the child trust fund by reducing government payments from August 2010 and stopping them altogether from January 2011. Those changes will also save us more than £500 million in every future year, thus helping to reduce the structural deficit.
I know that some noble Lords and others have concerns about these changes, including those set out in the amendment in the name of the noble Lord, Lord Davies of Oldham. I want to respond to the points that that raises, but first let me explain what the regulations do. They deliver the first part of the savings that I have mentioned by reducing government payments in three ways. First, Regulation 3 reduces the starting payments. At present all children in a child benefit award have £250 paid into their child trust fund account by the Government when the account is opened. Children in lower-income families later receive a further £250. These regulations will reduce both those payments to £50. This will affect all children for whom child benefit is first paid after 2 August and, therefore, all children born after that date. However, children born before 2 August will be unaffected as long as child benefit is paid for them by 2 August.
The date is 2 August, rather than 1 August, because it is a Monday and child benefit awards always start on a Monday. As child benefit can be backdated for up to three months, a claim will need to be made by 1 November in order for child benefit to be paid by 2 August and, therefore, for the child to be eligible for the current level of government payments. That will give parents a three-month window in which to make a claim. I should also mention that a child who would otherwise be eligible for the current level of payment but for the fact that they are subject to immigration control will be eligible if that immigration control is lifted by 1 November. This again provides a three-month window.
One group of children is treated slightly differently; namely, looked-after children in the care of a local authority. These children are eligible for a child trust fund even if they are not in a child benefit claim. They currently receive £500 when their account is opened, which will be reduced to £100 by these regulations. In both cases this is the same total amount as children in lower income families. Again, children born before 2 August may be eligible for the current level of payment and we have allowed a three-month window to become eligible through this route, as with the child benefit route.
These regulations ensure that a child born on 31 July, for example, for whom no child benefit claim is made but who is then taken into care at any time up to 1 November would also be eligible for the existing higher payments. Providing this three-month window accounts for much of the apparent complexity of Regulation 3, but I hope that I have explained it clearly.
I said earlier that these regulations reduce government payments in three ways. The other two are rather more straightforward than the changes to the starting payments. Regulation 4 simply ends the payment of £250 made to all children at the age of seven, as well as the additional £250 given to children in lower income families at that point. These payments will stop for all children turning seven from 1 August 2010 onwards. Regulation 5 ends the annual payments made into the child trust funds of disabled people. The payments due this year will be made, but they will stop from 2011-12.
As I have said, these changes are the first step in the Government’s changes to child trust funds, and we also intend to bring forward primary legislation to stop government payments altogether, which cannot be done through these regulations. I realise that some will be disappointed by these changes, so I want to respond now to the points made in the amendment tabled by the noble Lord, Lord Davies of Oldham. The first is that the Government are ending a successful savings scheme. In many ways, it was far too early to judge the success of the child trust fund, but in any case the main point here is that the Government are ending a savings scheme that is unfortunately not affordable given the budget deficit that we have inherited.
The second point is about how this will affect those on lower incomes and with disabilities—whether this is fair and whether it will increase inequality. At the root of that is the fact that children from lower income families receive higher government payments than other children. However, it is also the case that children in better off families are more likely to receive contributions from their friends and family and that those contributions are also likely to be higher. Together, this means that the child trust funds of children in better off families are expected on average to be worth more at the age of 18 than those of children in lower income families. It is therefore far from clear that the child trust fund would have reduced inequality. As for disabled children, we have already said that we will recycle the funding that would have been used to make the additional payments to disabled children and use it to provide additional respite breaks.
Finally, the amendment argues that these changes will not foster a savings culture in the next generation. We have been clear that we want to encourage saving across the population, including saving by parents for children which can in turn help children to develop the savings habit. We are therefore considering carefully the best way of doing that within the constraints of the public finances. Indeed, my honourable friend the Financial Secretary will be discussing this with stakeholders later this week. That meeting will include representatives of child trust fund providers, and I know that this is another group which is disappointed by the changes we are making. I realise that some are concerned about the profitability of offering accounts that start with £50 from the Government rather than £250. We are working closely with providers to explore ways of reducing their costs, and that will also be discussed at this week’s meeting.
I am sure that the noble Lord, Lord Davies of Oldham, will want to explain the amendment in his name in his own words, but I hope that I have explained the Government’s views on the points that it raises and the reasons for the changes we are making to child trust funds, as well as what these regulations do. As I said, we believe that unfortunately it would be simply unaffordable to continue to spend more than half a billion pounds on child trust funds every year. Stopping government payments will allow us to save that money, and by moving quickly to reduce payments from August, we can also maximise the savings made in this financial year as we make a start on tackling Britain’s unprecedented deficit. As I have explained, these regulations will allow us to do that by reducing government payments at birth and ending them at age seven. I hope that noble Lords will support them.
Lord Maples
My Lords, I think that many of us feel that it is no business of the Government to tax parents and give money to their children. If parents want to do that, they can do it themselves. I am disappointed that this scheme cannot be ended immediately. If I understood correctly what my noble friend said, he seemed to say that that could not be done by regulation, but needed primary legislation. Can he confirm that and tell us whether this will be done in the next Finance Bill?
Lord Sassoon
I can confirm for my noble friend that it is not possible to end completely child trust funds by way of regulations, which is why we are doing this in two stages. The primary legislation will be coming forward in the near future in order to complete the process. I beg to move.
Amendment to the Motion