Financial Services Bill

Lord Myners Excerpts

Tuesday 10th July 2012 Lords Chamber

[Baroness Kramer]

My Lords, I am very much in favour of scrutiny by this House. I cannot pretend to be an expert either on the different varieties of orders or on the different measurements and tools that the FPC might introduce, but I would be concerned about a mechanism in this House that enabled tools to be amended. Although we have some experts, the capacity to understand the internal workings of a tool with sufficient precision to be able to introduce an amendment to a ratio strikes me as not the particular skill of a legislature or this House. We can raise questions about it or require that it be dismissed because the Government have not sufficiently made their case, but to amend it is not a skill with which we are particularly equipped.

For that reason, and with great respect to the House, it seems to me that the capacity for amendment is inappropriate in this case. The capacity to force the Government to make their case and to judge on that case is entirely appropriate, but not the capacity to substitute; that worries me.

[Lord Myners]

My Lords, I have considerable sympathy with the amendment. I declare my interest as a former member of the court from 2004 to 2008. I fully support the creation of the Financial Policy Committee—I think that it will become the most important committee in the Bank—but I am deeply anxious about the governance of the Bank and the lack of appropriate oversight from the court, the oversight committee as envisaged or, indeed, Parliament.

The Minister is in many ways the architect of this restructuring of regulation, as part of a project which he led for the Opposition, having ceased to work in the Treasury. I understand his thinking in evolving the proposals, but events have moved on. In the light of what we now know about the Bank of England, we must ask whether it is still right to put so much authority in the hands of the Bank without appropriate accountability.

When I was a member of the court, I sat in on a meeting of the Financial Stability Committee. That would have been in 2006 or 2007. At that meeting, one of the governors proposed that as a mechanism to cope with the crisis, the Bank should buy half a dozen or a dozen bicycles in order that members of the Bank could move swiftly and anonymously around the City. That tells us a huge amount about where the Bank sits in terms of its understanding of the complexity of financial markets. Some of the things that we have seen over the past few weeks have simply raised more questions about the wisdom of putting so much power in the hands of the Bank.

We are also about to have a piece of legislation to implement the recommendations of the Independent Commission on Banking. Having been intimately involved in the Government’s response to the banking crisis from 2008 onwards, I would point out that the losses incurred in the British banking system—at HBOS, Lloyds and Royal Bank of Scotland—largely occurred within the ring-fence. The losses of $5 billion which we have seen recently reported in London from JP Morgan took place within the ring-fence as envisaged by the Vickers report. The noble Baroness, Lady Kramer, looks somewhat sceptical about that. Those losses occurred within the treasury operations, or the investment office, of JP Morgan, and as such lay within the ring-fence rather than outside it. In being sympathetic to this amendment, and hoping that at the very least the Minister will go away and reflect on that, I think that the Minister will have to rethink some of the fundamental building blocks of this legislation—in particular the great powers and responsibilities that we are placing in the hands of the Bank of England—before we reach its next stage. These are powers and responsibilities that the Bank of England has historically not had and, in my judgment, is still not equipped to exercise.

If we are to do this then, at the very minimum, we must ensure that the Bank and its various agencies, including the Financial Policy Committee, are properly accountable to a court which is clear about its functions and clear about who it reports to. As a former member of the court I know that it was never clear who we reported to. It must also be clear about its parliamentary accountability.

[Lord Sassoon]

It is always entertaining to have one of the Second Reading speeches of the noble Lord, Lord Myners. I am not sure what it had to do with this particular amendment—which is to do with super-affirmative procedures in respect of orders made by the Treasury—but, anyway, we did talk extensively about governance of the Bank of England over the last couple of sessions, and there will no doubt be other opportunities to talk about them. Here we are talking about an amendment that seeks to require macroprudential orders to be subject to the so-called super-affirmative procedure. Although I was not going to question the competence of Parliament to get into the detail of the macroprudential tools, my noble friend Lady Kramer did make a powerful point about the level of scrutiny that is appropriate to tools that are—yes—very important but also highly technical.

I say that in the context of believing that proper parliamentary scrutiny of these tools will be important to the overall accountability. That is why the Bill, as has been noted, requires the macroprudential orders to be subject to the affirmative procedure. As the Committee would expect, the Government maintain that that strikes the right balance between accountability and timeliness. Orders cannot be made unless a draft is laid before and approved by resolution of each House of Parliament.

I will of course draw attention to what the Delegated Powers and Regulatory Reform Committee had to say, although my noble friend Lady Noakes dismisses its remarks as “interesting but not conclusive”. As a statement of fact, it is clear that its remarks are not conclusive. However, I take issue with her when she dismisses its remarks as “interesting”, because I think that we should take the consideration of the DPRRC very seriously on matters such as this. For the help of the Committee I shall quote the relevant paragraph, because I think that it shows that the DPRRC has thought about this matter in detail. It states:

“The importance of the power is recognised by the application of the draft affirmative procedure or, in urgent cases, the 28-day ‘made affirmative’ procedure … The Joint Committee on the Draft Bill and the House of Commons Treasury Select Committee have recommended an enhanced affirmative procedure for the non-urgent orders, based on that in the Public Bodies Act 2011. But the affirmative procedure provided for in the Bill should be a sufficient safeguard against inappropriate use of these powers.”

I really do not think that we should dismiss what the committee has said.

--- Later in debate ---

[Lord Myners]

As I listened to the Minister, it seemed to me that he was implying that there may be times when the FPC has no recommendations outstanding. Surely, however, the FPC will always have recommendations outstanding. It will always have a preferred leverage ratio or a gearing ratio or a deposit to loan or some other of the macroeconomic tools that it has to apply to the banking sector. I am not sure how keeping recommendations under review and reporting on them actually works in a situation in which there will always be recommendations in place. I cannot envisage a situation in which the FPC will say, “We have no views on anything, and therefore there is nothing that we need to be reporting and monitoring”. I may have misunderstood the point; if I have, I apologise, but I would appreciate some guidance from the Minister.

[Lord Eatwell]

My Lords, we broadly welcome these amendments, in the sense that they are adding to the overall scrutiny and assessment of the activities of the FPC and thereby reinforcing, we believe, its general acceptability and strength of purpose. However, I want to raise a warning flag with respect to new Section 9QA(3), in which it is argued that the FPC will have to prepare,

“an estimate of the costs and an estimate of the benefits that would arise from … the direction or recommendation in question”.

These are macroeconomic measures. It is virtually impossible to provide a simple numerical estimate of the cost or benefit of a macro measure. There will be either a tendency to overestimate the costs, or a tendency to overestimate the benefit, in this particular case. Presenting an assessment in quantitative terms will give spurious precision and, indeed, spurious credibility to a particular measure. I assure the Minister that for any macro measure, I could write an entirely credible report saying that the costs exceeded the benefits and an equally credible report saying that the benefits exceeded the costs. This is simply extending the whole notion of cost-benefit analysis beyond the range in which it can effectively operate. It would be valuable to take account of an attempt to describe in broad qualitative terms the costs and benefits. However, please let us not have the spurious precision of numerical calculations of variables which, by their very nature, cannot be expressed in precise terms.

--- Later in debate ---

[Lord Davies of Stamford]

My Lords, I have considered carefully over the last 24 hours whether I should say what I am now about to say to the House, but I have decided that it is right to. My noble friend’s amendment, which I support in principle, says in proposed new Section 9WA(2)(a):

“The membership of the Panel will be … the Deputy Governor for Financial Stability”.

In light of his answers yesterday to the Treasury Select Committee, it is completely wrong that the present deputy governor for financial stability should be given these responsibilities on this financial advisory panel, or any other responsibilities for financial stability. In the course of the performance yesterday, during which I assume that his answers were entirely honest and frank, he effectively made a plea of guilty to incompetence and complacency at a quite heroic level. He admitted having chaired a meeting at which several people said that there had been discrepancies between the LIBOR rate and the rate at which banks had been paying for deposits on the interbank market. In his defence yesterday, he said he thought that some of those discrepancies might have been due to transactions intermediated through brokers, but he did not ask what the position was. He did not pursue it. He did not make an attempt to discover what the real facts were. That was astonishingly negligent, to put it mildly.

The other incident, the conversation that he had with Mr Diamond of Barclays, which has been so much in the public mind in the last week or so, also casts a strange light on his actions in carrying out his responsibilities in the Bank of England. He said that he was under great pressure at the time and that there was a great financial crisis, so much so that he was not able to make a note of even very important telephone conversations. I assume that the conversation was not a casual one, but that it was deliberate and designed to achieve a particular purpose. The only purpose that it could have achieved, and the only effect that it could have had, would have been to have persuaded or encouraged Barclays to understate the cost that it was paying for deposits on the interbank market. Clearly, Barclays could not do anything about the actual cost that it was paying. It would have been taking on deposits at as low an interest rate as possible. There have been some strange things going on. I have little confidence in the personality of the present deputy governor of the Bank responsible for financial stability.

There is a defence of his actions which noble Lords might have seen in yesterday’s Financial Times. It was the first letter in the paper, with the heading going something like “Tucker and Barclays saved the British financial system”. The argument was that it was correct in difficult circumstances, when banks were being squeezed on the interbank market or the interbank market was drying up, to give a false impression of what was going on by recording and publishing false LIBOR statistics. I do not accept that defence. First, it is not a defence that either Mr Diamond or Mr Tucker is making. Secondly, even if it were their defence it would be wrong. It is important that no financial stability organisation or anyone concerned with financial stability should be tempted to believe that by falsifying statistics in a difficult situation that is contributing to a solution. That risks undermining not merely the credibility of the index that you are falsifying, but every announcement and index. If the Bank of England was prepared to collude with a clearing bank to falsify the LIBOR statistics, the markets would immediately assume that collusion might take place if it was convenient in other circumstances, and that perhaps regulators and banks would collude to understate their provisions. As soon as that rumour or suggestion got about, there really would be a crisis.

That is a road down which no one should go. I do not accept that defence of Mr Tucker’s actions. It is not of course the defence that he has been making. He has no defence because he has confessed to an extraordinary act of negligence. Had he not undertaken it, had he not let that meeting go past—and yesterday there were suggestions that at the time he had other evidence that the LIBOR market was not as straight and transparent as it ought to have been—the crisis that we have experienced recently would not have occurred. I am sorry to have to make these harsh comments about a man whom I have not met and whom I had not heard until I listened to his evidence yesterday. However, in present circumstances, it seemed to me important that if one felt sufficiently strongly about such a matter one should raise it in the House.

[Lord Myners]

My Lords, I take note of my noble friend’s comments, but I feel compelled to say a few words in response. Without drawing the ire of the Minister, I can link it back to the subject of the amendment.

I worked with Mr Tucker, the deputy governor, during the banking crisis. We should wait for the outcome of the Treasury Select Committee’s report and the Joint Committee report. It is wrong to say that if the manipulation of the LIBOR-setting process had not occurred we would not have had the global financial crisis. It was undoubtedly bad and reprehensible, in the words of Mr Diamond, but it did not itself cause the crisis. Listening to Mr Tucker yesterday and reflecting back on the extraordinary circumstances of October 2007, I sympathised with him. The banking system was on the verge of complete collapse. It is still not fully appreciated how close we came to the edge of the cliff. In those circumstances, when one seemed constantly to be in meetings and constantly to be on the telephone, not taking notes of meetings is pretty forgivable. I was delighted that Mr Tucker was able to settle the issues arising from Mr Diamond’s file note about the senior Whitehall figures. I look forward to the Chancellor of the Exchequer responding to the clarity that Mr Tucker has brought there.

Reflecting on my noble friend’s amendment, I ask whether we are creating positions in the Bank of England and in the architecture which are simply beyond the talents of any one person to fulfil? Mr Tucker is one of the outstanding candidates to be the next governor. He is not the only one, but it is not a long list and it has got decidedly shorter in the past seven days. Two people previously spoken about as candidates, Mr Varley and the noble Lord, Lord Green, have probably dropped off in the past few days, so it is not a strong list.

Looking then at the FPC and its oversight, where are we going to find the people with the necessary talents to do this job? We are on the horns of a dilemma. On the one hand, you want knowledgeable people—people who do not have to be taken through everything step by step, but come to the issues with a good and clear knowledge and the ability to spot where the critical questions lie. On the other hand, you do not want to start these committees with people who in some way are conflicted by their current employment, their past employment, their pension arrangements and so forth.

I do not have a view about whether the shadow FPC is doing a good job. I think one or two of its members appear to be. Mr Robert Jenkins, in particular, appears to be an independent spirit who is not in any way caught up in the groupthink and consensus that I associate with much of the heart of the Bank. The simple fact is that most members of the FPC have a career background in investment banking. They have a career background in the very activity which was associated with the global financial crisis. I think we have a problem here. How do we get the right people into the right committees and the right courts and the offices of governor and deputy governor? No architecture makes sense if we are creating it on the presumption that we can find people of integrity, raw talent and understanding to fill the jobs when that is not a realistic assumption. I think the heart of the matter raised by my noble friend in his amendment is: how can we be satisfied that the people sitting on the FPC are appropriately competent and are managing conflicts of interests, as they probably will always have conflicts as a prerequisite for qualification to sit on these various committees?

[Lord Liddle]

My Lords, that was a very interesting exchange between my noble friends Lord Davies and Lord Myners on the crucial question of how these matters should operate. I would like to add a point in favour of my noble friend’s amendment on the basis of work I have done on how the new European system is operating. I had a conversation in Brussels recently with André Sapir, who is on the board of the European Systemic Risk Board, about the role of independent economic expertise in assessing systemic risk. On that board, the independent economists have made a decision that they will not rely on the internal expertise of the European Central Bank, precisely for the reason that the noble Lord, Lord Eatwell, said. We are operating in a very uncertain world and no one really knows what the right road map is. What we need is the maximum amount of well informed, independent expertise on these matters. I feel very strongly that this amendment should be supported.

--- Later in debate ---

I have two further concerns with this aspect of the amendment. First, it seems odd that a committee chaired by an executive of the Bank who is a member of the FPC and responsible for providing advice to the FPC should also be expected to assess its performance. Secondly, and more importantly, the Government have already brought forward amendments, which were debated and agreed two weeks ago, to create the independent oversight committee that I just referred to with responsibility for carrying out performance evaluation. So in this respect, too, the effect of the amendment would be to duplicate responsibilities, blur accountabilities and diminish focus, so I ask the noble Lord, Lord Eatwell, to withdraw the amendment.

[Lord Myners]

The Minister used the word “independent” on several occasions relating to oversight. Noble Lords will remember that when the Monetary Policy Committee was established, there was quite a brouhaha about whether the independent members of that committee should have access to independent advice. The Bank resisted that so the independent members had to rely upon the Bank’s own economists. It was only after a threat of resignation by one of the independent members of the MPC that they were granted the ability to appoint, I believe, a single researcher.

The culture of the Bank does not foster independence. It is a very hierarchical organisation. The view of the Bank is the view of the governor. The court has recently announced three independent reviews into aspects of the Bank’s conduct. They are all quite interesting because they date from October 2008. None of them will actually look at the real errors that were made by the Bank, which were pre-2008. We really want to ask what the Bank was doing in 2006 and 2007. These reviews exclude any examination of Northern Rock, and I think one could argue that if it had been handled in a different way, it might have had some impact on how the UK was impacted by the global financial crisis.

I put down a Question on these independent reviews. The independent reviewers were appointed through a process led by the governor. The independent reviewers do not have their own secretariat. They are reliant upon the Bank’s staff for support, so I put it to the Minister that for this approach to operate, it is important that the FPC has access to truly independent advice. In my view, advice that comes from career employees of the Bank can never have that element of total independence that is necessary in order to achieve the objective that I believe the Government have for the FPC and which my noble friend has at heart when proposing this amendment.

[Lord De Mauley]

I will, if I may, respond on that point. The noble Lord, Lord Myners, is right, and my noble friend Lord Sassoon acknowledged earlier, that previously the Bank was slow to recognise the MPC external members’ need to have access to dedicated support. The Bank has learnt its lesson.

Financial Services Bill

Lord Myners Excerpts

Tuesday 3rd July 2012 Lords Chamber

[Lord Myners]

My Lords, I fear that the noble Baroness, Lady Kramer, might not have been listening to my noble friend Lord Eatwell. He supports the inquiry to be chaired by Mr Andrew Tyrie as well as the Wheatley review. I believe that the proposal of my noble friend is complementary to and necessary as an addition to those reviews.

Yesterday the Chancellor of the Exchequer said in the other place,

“we know what has gone wrong”.—[Official Report, Commons, 2/7/12; col. 613.]

I do not think that the people of this country know what has gone wrong. With all respect to the noble Lord, Lord Kerr, this is not simply a question of LIBOR. I first tabled a Written Question for the Minister about the manipulation of the LIBOR rate in March last year and got a very backhanded response from him; I have raised it several times subsequently. But this goes well beyond LIBOR. The lying and deceit around LIBOR manipulation that we know has taken place systemically across the banking industry—it is not limited to Barclays alone—is but a symptom of a wider cancer at its heart.

You can go to your bank manager to have your passport photograph signed. Banking was a profession held in high regard. It was associated with trust, integrity and prudence. How has that changed, and why? That is why we need a commission of review. The terms of reference of the Tyrie review are, as my noble friend said, extremely limited. They are ring-fenced and precise, so they do not ask the sort of questions that should be asked. Yesterday in this House the call was made for a review that would focus on the transparency, culture and professional standards of the banking industry. The Tyrie terms of reference do not look at the transparency, culture and professional standards that were called for by the speaker in this House—and that speaker was the Minister. We need a fundamental review of what has gone wrong in banking.

How can it be that a bank built on the Quaker traditions of Barclays can find itself in a position where three of its senior board members have resigned within 24 hours and where I confidently predict more will resign by the end of this week? How can we be comfortable with that? The noble Lord, Lord Kerr, referred to Mr Marcus Agius, whom I know well and hold in extremely high regard. It seems as if Barclays has been involved in a car accident where Mr Agius was the passenger sitting in the back. Yesterday he resigned, taking the blame for the accident. Today Barclays has concluded that it is the driver who should take responsibility, and now Mr Agius has got back into the car, which he has to drive from the back seat. This is a state of complete chaos. How can a great British industry, one in which we have led the world, have got itself into such an awful mess?

To answer those questions, we probably need to go back to the 1980s to see how the transition has taken place. Tyrie and Wheatley are not going to do that. Their work should continue, but the call by my noble friend Lord Eatwell for a thorough, deep and considered evidence-based review of what has gone wrong in banking, and what we can do to ensure that it does not happen again, seems to be an undeniable case. I shall certainly support the amendment if my noble friend presses it to a vote.

[Lord Higgins]

My Lords, we should be grateful for the opportunity to have a debate this afternoon because it enables us to focus on what our priorities should be. We have essentially been considering two things: how wide an inquiry do we need and how urgent is it that it should produce results quickly? What has become quite apparent is that one inquiry is not going to be enough. What has happened is this: on the one hand we need a short-term inquiry, but on the other hand we need a strategic inquiry. We also need the kind of investigation which the noble Lord, Lord Carlile, has put forward, but in a sense it is a separate issue because the outcome of that inquiry will presumably be the prosecution of particular individuals. In no way would the noble Lord’s inquiry tell us how to reform the banking system. So that is something which is self-contained and separate.

We come then to the question of the best tactical answer. I fear that the position has been somewhat confused by the references to Mr Tyrie. Let me make it absolutely clear—I speak as someone who was the chairman of the Treasury Select Committee for 14 years—that I have the greatest respect for Mr Tyrie, who has been doing a magnificent job as chairman of the committee, which I understand is to take evidence from Mr Diamond this week. But the question then arises of whether Mr Tyrie should also be the chairman of the Joint Committee, the proposal put forward by the Government. I think that this confuses the matter. The shorthand around the use of the word “Tyrie” has actually become extremely confusing. Yesterday I expressed a view that I shall repeat now: to do the jobs both of chairman of the Treasury Select Committee and chairman of the Joint Committee is too much. It will distract from the normal work of the Treasury Select Committee, while the Joint Committee will need the full attention of whoever is appointed as its chairman.

I am not clear on how it suddenly became apparent that Mr Tyrie would chair the Joint Committee. My noble friend the Minister pointed out yesterday that the Joint Committee will presumably decide who its chairman should be. I would prefer Mr Tyrie to continue as chairman of the Treasury Committee because he is doing such a good job, and I believe that someone else should chair the Joint Committee. However, that will be a matter for him and the respective committees to decide. At all events, the Joint Committee is the right way to go as regards the immediate investigation and rapid conclusions on what needs to be done urgently. That leaves unanswered some of the more fundamental positions that need to be considered. The body which could most appropriately do that was suggested by the opposition Front Bench.

To summarise, leaving the separate Carlile issue on one side, the Treasury Committee should continue with its work in the normal way; the Joint Committee should consider the immediate actions that need to be taken as it unearths the problems, as no doubt it will; and there ought also to be a longer-running inquiry. There will not then be any accusation that we are kicking the matter into the long grass, and at the same time we will get rapid results on the tactical situation. In the light of your Lordships’ debate, it is becoming increasingly apparent that that structure is the right approach.

FSA Investigation into LIBOR

Lord Myners Excerpts

Monday 2nd July 2012 Lords Chamber

[Lord Sassoon]

I am grateful to my noble friend for confirming that a Joint Committee is the way to take this forward. We have already increased the tax on the banks by putting a special levy on them so that the big banks effectively do not take any advantage of the lowering of corporation tax, which other parts of industry have already benefited from. This tax on the banks is enduring and will raise far more than the one-off tax that the previous Government brought in. So we have already done that.

[Lord Myners]

My Lords, I broadly welcome the Chancellor of the Exchequer’s Statement, and in particular the appointment of a Joint Committee, the report to be produced by Mr Martin Wheatley and the timetable to which both those reports are working.

I would like to return to the point I made to your Lordships’ House earlier about the BBA. It is increasingly clear that the British Bankers’ Association was very aware of what was going on—the collusion that was leading to fraud. The chairman of the BBA at that time is now a Minister in Her Majesty’s Government. Will the Minister assure us that the work being done by Mr Wheatley will look at the BBA’s role? It appears that there is a prima facie case that the BBA colluded in and supported a corrupt act. I am grateful that the Minister and the Chancellor have confirmed that there is no lacuna in legislation that prohibits criminal prosecution of the quite monstrous things that appear to have occurred here.

I have two further short questions. There was no suggestion by the Minister that any action would take place to lead to an inquiry and the payment of compensation to those who lost out as a result of this systemic collusion and manipulation of an important rate. That includes taxpayers, because there were a number of arrangements between the central bank, the Treasury and banks that were based on the LIBOR rate. Will the Minister confirm that there will be an appropriate investigation about whether the taxpayer was disadvantaged? Finally, will the Minister explain why the FSA’s fine was so small compared with the fines imposed by the American regulators?

[Lord Sassoon]

My Lords, on the first point, presumably if there is evidence that the BBA colluded in criminal activity, that will be well within the scope of the work that the SFO might do. As for the wider question about the role of the BBA, the review of LIBOR will look comprehensively at governance, which comes very much back to the BBA role and what, if any, that should be in the future framework.

On the question of whether there should be compensation, our difficulty at the moment is that we do not know whether LIBOR was successfully manipulated as opposed to there being an attempt to manipulate it. From the evidence that has already been made public, we know—

[Lord Myners]

The American regulators were very clear that LIBOR was manipulated. They were unequivocal in that statement. They understand the subtleties of the issue.

[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.

Financial Services Bill

Lord Myners Excerpts

Monday 11th June 2012 Lords Chamber

[Baroness Noakes]

My Lords, it is a great pleasure to be in complete agreement with the noble Lord, Lord Foulkes, which is not an occasion I find often to celebrate.

Having been in his position for many years, I understand completely the noble Lord, Lord Eatwell, who expressed earlier his view that we could have a more intimate discussion about issues with the Minister in Grand Committee. Equally, when I was in his position, I always took the view that Bills of major significance, which this one is, should be considered in the Chamber.

There is a particular reason for that. When a lot of issues have to be debated and decided, the only time you can divide in Committee is when a Bill is considered by the whole House, not in Grand Committee. In Grand Committee you have one fundamental opportunity to test the opinion of the House, which is on Report because there is a restricted ability to test matters at Third Reading. So for a Bill like this, with quite a lot of issues, it would be much better for the whole House to consider them so that we can settle them in Committee. Otherwise we will have one of those invidious things where we have to consider how many issues we can deal with by 7.30 in the evening before people go away. You have to take things over from Grand Committee to the whole House on Report.

This Bill is very significant and covers many issues. That has been reflected in our debate over the past seven hours or so. It is our responsibility as a revising Chamber to do this in the proper way by considering it not in Grand Committee but by the whole House.

[Lord Myners]

My Lords, I rise briefly to add my support to the views expressed by the previous speakers. There are significant issues in this Bill which require attention. They are not issues that divide on party political lines, and it is clear from today’s debate that there is a wealth of information and understanding in the House. Having previously taken legislation through Committee both in the House when I was a Minister and in Grand Committee, I have no doubt that this Bill should be appropriately considered by the whole House in order to be able fully to draw upon the knowledge and expertise of your Lordships. I would enjoin the Minister to withdraw the Motion that the Bill be taken in Grand Committee in order to allow further time for discussions through the usual channels—taking into account the views which have been expressed this evening from all sides of the House.

[Lord Bilimoria]

My Lords, perhaps I may add that this came to a head with the Welfare Reform Bill, which was committed to a Grand Committee. I remember what a stand-off there was between the Opposition and the Government. That was a sad day for this House. In the end a compromise was reached so that much of the Bill was debated on the Floor of the House. We must be careful about the signal we send out to the country about the priority of something as major as this crisis, which has brought the country to its knees. We must be careful of the message we send out before we make this decision.

Financial Services Bill

Lord Myners Excerpts

Monday 11th June 2012 Lords Chamber

[Lord Myners]

My Lords, it is an honour to speak in this debate after the noble Lord, Lord Lawson of Blaby, and to express my appreciation for the intervention from the noble Lord, Lord Lucas, which was properly respectful of the rights and procedures of the House on Second Reading.

I speak with the experience of having been an independent member of the court from 2005 until 2008 and then a Treasury Minister dealing with the Bank of England, and I will focus primarily on the Bank. I agree that this is not a Bill where partisan issues will be found but one where the House should come together to find good solutions. I share the regret that I think lay behind the question of the noble Lord, Lord Forsyth of Drumlean, about why the Bill is being taken in Grand Committee rather than in the full House. This is a Bill that should be taken through the House rather than Grand Committee, but I understand that that decision has been taken through the usual channels.

Clearly, we must learn the lessons of the past. The tripartite arrangement did not work as well as had been expected in anticipating the crisis, although it is only fair to say that it worked very well during the crisis. In fact, it worked rather better during the crisis than some of the crisis management arrangements that we currently see within the European Union, where they continue to grapple with the problems of the European banks.

Of course, the tripartite arrangement was not the only regulatory architecture to fail to contain the risks to financial stability. Regulatory architectures failed in numerous forms and in various geographies as part of the global crisis. In my belief and experience, no one architecture is assuredly superior to all others. There can be no certainties brought by architecture alone. Failure of architecture tends to be due to a shortcoming of skills, behaviour or culture. That is where the tripartite arrangement fell short of expectation, rather than architecture. Architectural solutions, as proposed by the Bill, involve simply the movement of organisational boxes. The proposals in the Bill might well work, but whether they work or not will be less to do with the architecture of regulation and more to do with the culture and conduct of those who work within regulation. In practice, there is little that the Bill can do to prescribe or guarantee that the right culture and behaviours are promoted, but it is incumbent on us to make the best efforts to secure such outcomes, or be alert to any shortcomings that might exist in the constitutional architecture of the Bill.

That brings me to the issues relating to the powers and responsibilities of the office of governor and the role of the Bank of England’s court. I am sure that we will spend much time on them when the Bill goes into Grand Committee. Your Lordships’ House will need to ensure that adequate internal checks and balances exist on the powers of the Bank and on its officers. My experience of being a member of court from 2005 until 2008 raises considerable concerns about the proposed concentration of power envisaged under the Bill for the governor. There is a very real risk that we might constitutionally perpetuate the current situation in the Bank where there is room for only one point of view—and that has to be the governor’s view. Significant steps to reduce this risk would include: having the deputy governors chair the FPC, the MPC and the PRA rather than having those bodies chaired by the governor; requiring the FPC and the MPC to meet at least twice a year in joint session—a meeting in which the Bank’s internal appointments would be in a minority, and which should be appropriately minuted; and the giving of a power to the Treasury Committee of a statutory right of veto over the appointment and dismissal of the governor, the three deputy governors and the CEO of the PRA, as is already the case for the chair of the Office for Budget Responsibility.

A further area requiring close scrutiny will be the membership and role of the court of the Bank. My own experience of being a member of the court was unsatisfactory. Indeed, in 2007 and 2008 more than one member of the court sought private meetings with Treasury Ministers and the Permanent Secretary to express their anxieties about the Bank’s detachment from and disinterest in issues of financial stability. Much good work was being done in this area by Bank officials, including Sir Andrew Large, Sir John Gieve, Mr Paul Tucker, Mr Nigel Jenkinson and Mr Alastair Clark, but the governor made clear that the primary focus for the Bank was monetary policy. Financial stability was a tertiary issue, de-emphasised in resource allocation and generally given little focus at court. Indeed, at court we tended to spend more time hearing about the governor’s tennis matches with the heads of various other regulatory agencies than about issues of financial stability. In that connection, if my memory serves me right, we were told that one of the governor’s partners was the noble Lord, Lord O’Donnell, whose maiden speech we look forward to hearing later in the debate.

The need for the court to be seriously strengthened and better equipped to engage in constructive challenge of the executive leadership of the Bank must have been very apparent to anybody who read the transcript of the evidence given by the chairman of the court and a number of independent directors to the Treasury Committee last year, in which it was clear that members of the court had a very poor understanding of the resource allocation and budgeting of the bank—and, indeed, of the constitutional differences between the Monetary Policy Committee and the proposed Financial Policy Committee.

Your Lordships’ House will need to give very careful consideration to the membership, statutory powers and responsibilities of the court, to consider whether the Bill should require that the chairman of the court should have experience of financial and prudential issues in order to ensure that debate at court is informed, and to the court also being appropriately resourced. Court minutes should be published and the court should be clearly accountable to the Treasury and the Treasury Committee. The court should also conduct and publish ex-post reviews of the Bank’s performance in the prudential and monetary policy sectors and address these reports to both the Treasury and the Treasury Committee. Her Majesty’s Treasury should also commission and publish annual reviews of the effectiveness of the court.

The extent of the change required by the Bank to bring its performance up to the standard required by this Bill should not be underestimated. I have already spoken of the need to devolve more power from the office of the governor to the deputy governors and the need for a move to a more assertive and accountable court. The bank will also need to review its skills and culture. In respect of the latter, it needs to be more open and less elitist—open both internally, being respectful and welcoming to the views of others even when they differ from the prevailing consensus, and externally, being more willing to engage with those involved in business and public policy. In terms of skills in issues of financial stability, the extent of the challenge is clear if you look at the Bank’s Financial Stability Report published in April 2007. This was the last Financial Stability Report published before the collapse of Northern Rock. In that report, the Bank stated:

“The UK financial system remains highly resilient”.

It also stated:

“Conditions are likely to remain favourable”,

and,

“Financial innovation and the growing use of credit risk transfer markets have increased the risk-bearing capacity of the system”.

This was after the emergence of the sub-prime problems in the United States.

The governor’s Mansion House speech on 20 June 2007 focused on increasing the number of £5 notes in circulation and the need for the Bank to have greater control over the payments system. It said absolutely nothing of any significance about financial stability. This is the body to which we are proposing to give responsibility for financial stability oversight.

In Committee, we are going to have to look carefully at the skills, competencies and culture of the Bank and ask ourselves whether it really makes sense to give as much authority and responsibility to an institution that has exhibited its own shortcomings in the past, and in particular to put quite as much power into the hands of the governor as currently envisioned in the Bill.

Queen’s Speech

Lord Myners Excerpts

Wednesday 16th May 2012 Lords Chamber

[Lord Myners]

My Lords, it is a pleasure to participate in a speech on the humble Address and in particular to welcome the maiden speech from the right reverend Prelate the Bishop of Durham, who has already warmed the House to his wisdom and sense of social responsibility. I also look forward to the maiden speech of the noble Lord, Lord Ashton of Hyde—another old Etonian added to the House and a former joint master of the Heythrop Hunt. He is therefore incredibly well informed, no doubt, on the Prime Minister’s thinking on so many policy issues.

The gracious and humble Address contains many good measures that I welcome. As an adopted person myself, I am particularly pleased to see that the Government are giving priority to adoption issues. I also welcome the comments from the Minister about board remuneration, although I continue to believe that the core issue requires institutional shareholders to take more seriously their responsibility in the appointment of the directors and members of remuneration committees. They should best achieve that by becoming members of board nomination committees.

I will concentrate on the economy and on the Bank of England. Mr Andrew Tyrie MP, the Chairman of the Treasury Select Committee, who is a wise and informed man, said in October 2011 that the Government needed:

“A coherent and credible plan for the long-term economic growth”.

He was right and that argument remains the same. As he observed at the time, many of the Government’s policies are downright contradictory. The noble Lord, Lord Skidelsky, in our debate on the European Communities (Amendment) Act 1993 held on 25 April, drew the attention of your Lordships’ House to chart 2.4 in the Treasury document, which clearly shows that the deficit is almost entirely due to the collapse in national output.

The engines that the Government assumed were going to drive growth are simply not working at the moment. Manufacturing activity is not picking up and business investment remains extremely low because of the absence of confidence in the economic outlook. The noble Lord, Lord Razzall, said that the jury was out on Project Merlin. I am afraid that he must have been out when the jury reported that the project has not worked, and the Government have admitted that by not renewing it. In fact, we know we are back in recession, and today’s Bank of England forecasts further confirm that, even though in the period immediately after the general election the economy was growing strongly. So noble Lords will recognise that we now have an economic management that has added incompetence to complacency. The Treasury team is too posh to comprehend what is going on and is now petulantly blaming others for its own failures. We have an economic policy that is devoid of intellectual coherence or economic endorsement—a mixture of assertion, dodgy definitions and flawed calculations.

Fortunately, external developments will give this Government the cover to change their economic policy if they so choose so as to give priority to raising demand and addressing the shortfall in output. They should take bold action to encourage housing, both private and social, which has a very positive contribution to make in its multiplier effect on the economy and on job creation. They should encourage investment in infrastructure. This is the time to say that we are going to build a third runway at Heathrow, push ahead with HS2, build more roads and invest in schools. It is a time when the cost of funding is low and when capacity is available—precisely when a Keynesian would expect the Government to be supplying demand into the economy. The Government should be encouraging capital allowances because they would have a much more immediate impact on the economy than cutting corporation tax, albeit that that is a good thing to do over time. Now is the time to invest in skills, and the time to introduce another temporary cut in VAT in order to encourage demand. However, the Government do nothing.

On the supply side we hear a great deal of talk about cutting red tape, yet we have heard today from the Minister about the groceries code adjudicator. I look forward to debating whether this is really going to be a priority for the country at this particular time. The Office for Budget Responsibility has shown us that the output gap is contracting, but the Government do not appear to be challenging its assertion, based on economic statistics on which we all know that it is extremely difficult to forecast.

Market confidence should not be of pressing concern and the Government should not hold back in addressing the need to push for growth. Interest rates are low because we have borrowed prudently in the past and there is an abundant supply of cash on corporate balance sheets, which at the moment, as the right reverend Prelate pointed out, is going into the gilt-edged market. However, the Government should not believe that these low interest rates are in some way an endorsement of the success of their policy. They are actually a clear message that the policy is not working. There are no growth opportunities to encourage investment.

We talk about monetary policy and quantitative easing. I believe that the Treasury should instruct the Government and the Bank of England to produce a report on the economic case for cancelling gilt-edged securities that have been acquired for value in the market so that they are not redeemed. Can the Minister tell us whether this has any different economic impact from holding them to redemption? The immediate impact of such a policy would not be to monetise debt but to address at a stroke one of the Government’s two fiscal objectives: reducing debt as a percentage of GDP.

The governor will not volunteer to do this. He said in his press conference about the inflation report that it would be “a whole lot easier” to contract the Bank’s balance sheet than to grow it. I do not see how he reaches that conclusion. If you look at the recent article in the Financial Times by Professor Tim Congdon, you will see that the Bank of England’s thinking on quantitative easing is becoming increasingly muddled.

Your Lordships’ House will debate the Financial Services Bill soon. This involves a remarkable—and ill considered—concentration of power in the hands of the governor. It will be unfair on the new governor for him to have as much authority as this Bill currently contemplates. Within the next 12 months the current governor will end a period of office that quite frankly is one of a considerable lack of distinction. I can see the Whip about to ask me to come to a close. The Whip allowed the noble Lord, Lord MacGregor, a little more leeway.

[Baroness Rawlings]

My Lords, I remind the House that the suggested length of contribution is seven minutes. Of course, that exempts noble Lords who speak after a maiden speech.

[Lord Myners]

I was referring to the noble Lord’s contribution to the debate as opposed to his endorsement of the right reverend Prelate, which he had completed at the point when we were allowed to leave the Chamber if we wished.

The current governor is probably the least distinguished since Walter Cunliffe, who served from 1913 to 1918. He has politicised the Bank of England and disregarded the outlook for inflation. We are introducing a policy of financial repression. When we debate the Financial Services Bill, we need to look very carefully at the additional authority and responsibilities that the Bill proposes to give to the governor.

Sunday Trading (London Olympic Games and Paralympic Games) Bill [HL]

Lord Myners Excerpts

Thursday 26th April 2012 Lords Chamber

[Lord Addington]

That is exactly what I wanted to hear.

[Lord Myners]

My Lords, it is good to see the Minister back on the Front Bench. We missed him yesterday when we discussed the progress of convergence under Maastricht. He would no doubt have been as surprised as we were on this side of the House that in an important economic debate there was not a single speaker from the coalition government Benches in support of the Government’s economic policy.

I declare an interest as a former retailer, not as distinguished in my achievements as the noble Lord, Lord Alliance, who I see in his place, but as a previous chairman of Marks & Spencer.

I join my noble friend Lord Davies in making it clear that we on this side of the House support the fundamental intention of the Bill. We will take issue in Committee not with its intent but rather with its phrasing. That said, it is lamentable and shambolic that the Bill should be before the House now, so that the three-month notice period which the law allows for those who work in retailing in other circumstances will not apply. It is a shambles, although I do not think that that is the Minister’s fault.

The economic case that has been made for this proposal is equally shambolic and flimsy. I am sorry that I was not here for the Minister’s speech on Second Reading but I have read it in Hansard. It was a very good speech and he explained the situation very carefully. I was disappointed not to be here for what may well have been the Minister’s parliamentary high point in terms of his contributions to the House. He made an extraordinarily good speech on the issue of Sunday trading. However, the economic case—which is presumably one of the reasons why the Treasury is taking responsibility for the Bill—is extremely flimsy. On every key quantifiable metric we are told, “Not applicable”. Net present value: “Not applicable”. Impact on economy: “Not applicable”. To every question we receive the reply that it is not applicable. Indeed, no acknowledgement is given at all in the narrative to substantial data and evidence suggesting that the total number of visitors to the United Kingdom might be lower as a result of the Olympics. Those who come specifically to participate in, celebrate and observe this wonderful event—which we are clearly going to do a great job in hosting—will be offset by those who say, “It is not probably a good time to go to the United Kingdom”.

It does not seem that the Government have done a great deal of research among retailers. It has been difficult to find leading retailers that are enthusiastic about the intention of the Bill. Indeed, Mr Justin King, the chief executive of Sainsbury’s, who is Mr Boris Johnson’s representative on LOCOG, has said that he does not support this proposal. I find it extraordinarily difficult to imagine a family, having observed Usain Bolt in the 100 metres, deciding that now is a good time to go and do the weekly shop at Tesco. I do not think that the economic case that has been made is particularly good.

[Baroness Browning]

I have been following what the noble Lord has said very carefully and wonder if he can help me on this. I understand from papers available in the Printed Paper Office that the Centre for Retail Research estimates that the impact of relaxing these laws will benefit retailers by £189.8 million and that food stores will enjoy a boost of £61 million. That is clearly documented in papers available to the House today.

[Lord Myners]

Those data were not included—I shall give way to the Minister if he wishes to correct me—in the Bill’s economic impact assessment, at attachment C, when I obtained the documents from the Printed Paper Office yesterday morning.

[Lord Sassoon]

I do not like to intervene often but as the noble Lord, Lord Myners—who I know likes occasionally to intervene on me, quite properly, while I am at the Dispatch Box—has invited me to do so, it might help if I say that a formal impact assessment under the accepted procedures is not required in this case because this is a temporary measure. Such an assessment is not required precisely because, among other things, it is often difficult with a temporary measure to make an assessment that is up to the very high standards imposed on full impact assessments.

I thought that it would help the House if there were an assessment that, although not a formal impact assessment, would give a great deal of relevant and, I hope, helpful information—and my noble friend has just quoted from it. I make no apologies that boxes which would have been filled in for a formal impact assessment were not filled in in this case, as that would give a spurious impression of accuracy. We did not have to give the House anything in this form but we thought that it would help the debate to provide such information as is available. My noble friend has given some of that information but it also includes statistics from USDAW and others and I believe that it presents a balanced picture. The noble Lord, Lord Myners, should understand that this was never intended to give, nor should it give, a spurious, false picture. It is not up to the standards that would be required for Bills that have permanent effect.

[Lord Myners]

I am grateful to the noble Baroness, Lady Browning, for her intervention, and to the Minister for correcting the noble Baroness by saying that there was no impact assessment and that the data from which the noble Baroness quotes do not constitute an impact statement. The numbers quoted by the noble Baroness, incidentally, are probably less than a week-end’s takings at Westfield and take no account of displacement—that is to say, the spending which would have taken place in any case but is now being brought into these Sunday trading permitted-hours figures or displaced from smaller stores to larger ones.

I should like to talk about treating people fairly, because that seems to be the issue on which the House wishes to focus in Committee.

[Baroness Browning]

Will the noble Lord allow me to intervene?

[Lord Myners]

I will give way in a moment, but I want to talk about treating people fairly.

This is an issue of ensuring that employees have adequate notice. Sunday is a special day: many choose not to work on Sundays or to limit the number of hours they work. We know from research by USDAW that a very high percentage of shop workers already feel under great pressure to work on a Sunday when they would rather not do so and would rather be with their families, and to give people inadequate time to make a decision is a most regrettable outcome.

We have two amendments, but I believe that the amendment proposed by my noble friend Lord Davies of Oldham is superior in its precision of expression. The key issue is to ensure that we treat employees fairly and that they do not feel pressurised—that they have time to reflect, to consult their families and to take into account other options that might be available to them. They should not be strong-armed and muscled into doing something that they do not want to do but perhaps feel they cannot avoid given the extraordinarily bad employment situation facing the economy.

I am willing to give way to the noble Baroness, Lady Browning, but I do not think that we disagree on the data. The data to which she refers are of course helpful and the Minister has explained, in a correct and proportionate way, that a full impact assessment would not have been justified for the proposal as made. However, it is clear that a very poor economic justification has been given. I shall support the amendment of my noble friend Davies of Oldham if I have the opportunity.

[Baroness Gibson of Market Rasen]

My Lords, I wish to speak very briefly in the debate because it is important and I want to make certain that the voice of shop workers is heard. I do not have the credentials of my noble friend Lord Davies of Coity to speak on behalf of USDAW, but I have been sent a brief by it and some of the points it raises are very important.

I begin by declaring an interest. My stepdaughter works in the retail trade for a large company, often on a Sunday against her will. She has to do that, as we have already heard from other speakers. Unfortunately, it is not always the choice of the workers themselves to work on a Sunday.

--- Later in debate ---

[Lord Sassoon]

My Lords, I will not disappoint the noble Lord, Lord Davies of Oldham. The Government do not see favour in the amendment. As he explained, its effect would be to restrict the Sunday opening hours of large shops deregulated by the Bill so that they can open during the suspension period only between the hours of 10 am and, now, 11 pm, the intention being to prevent large shops from being able to open any earlier on Sundays than they can now or until too late in the evening. I wish that, along with all the other things that we discussed with the Opposition, we had been able to discuss this before, because we might then have been able to point out one or two of the difficulties with the proposal.

The starting point is that the Government have been clear from the beginning that the Bill is about flexibility. It is not about the Government imposing opening and closing times on large stores during the suspension period; it is about allowing shops to make their own decisions based on what is best for themselves, their staff and their customers. I do not think that it is right for your Lordships’ House to second-guess any of that. It is not that all large stores will suddenly open for 24 hours a day during the Olympic period; that would be absurd. We have discussed opening times with the large retailers and it is clear that there will be a variety of opening and closing times within individual groups. Some will deal with it on a regional, geographic basis. Within the whole group, some will stay open late, some will open earlier, and some will not change their opening times at all. The important thing is that the Government want that to be a decision for them.

The amendment is unnecessary. I do not want to overlabour the point, but as we have seen from the scrabbling around by the party opposite, they realise that putting a 10 pm stop would be before the closing ceremony had finished. Well, putting an 11 o’clock closing time after an event where 80,000 people have to get out of a stadium, adding an extra half-hour, is absurd if the change to the amendment is intended to reflect what is really going on at the events.

Even to reflect the situation at the event that the noble Lord, Lord Davies of Oldham, identified, half an hour for 80,000 people to get to a large shop near the stadium is plainly not doable. There are events that will finish as late as midnight on a Sunday. The beach volleyball finishes at 10 to midnight on 29 July. What about all those events that start before 10 am? Why should not we allow shops, if they want to, to service all those people who will be going into events? Again, I could give a very long list, but if we just take 29 July, there is an 8.30 start for the badminton, 8.30 for the hockey, 9 am for the basketball, shooting and archery, and so on.

The amendment does not work in relation to the narrow Olympic events themselves. It does not reflect the fact that retailers are already taking individual decisions to open early, late or make no change at all. As with the other opposition amendment, I note that it does not impose any sanction or penalty for breach of the 10 am to 11 pm restriction, so large shops may well ignore it. It would be a duty with no sanction, which I suggest is simply bad law. That contrasts with large shops which breach the current restrictions, which can be fined up to £50,000, which is clearly a significant punishment in relation to the gain. It does not work, it is unnecessary and I ask the noble Lord to consider withdrawing his amendment.

[Lord Myners]

I intervene briefly. Both my points relate to the earlier intervention by the noble Lord, Lord Elton. First, the noble Lord sought an assurance that this was not a stalking horse.

[Lord Sassoon]

He is not in his place.

[Lord Myners]

As the Minister correctly notes, the noble Lord is not in his place. This is not a stalking horse or a Trojan horse; this is strictly an emergency piece of legislation. However, one has to note that the central thrust of the Minister's response about customers and shops having freedom of choice would be exactly the same argument that would be brought forward were the Government to be proposing a much broader exemption to restrictions on Sunday trading. The noble Lord, Lord Elton, was right to seek the assurances that he did.

I also congratulate the noble Lord, Lord Elton, on his prescience. I observed that the Minister’s contribution to the Second Reading of the Sunday Trading (London Olympic Games and Paralympic Games) Bill was the high point of his parliamentary career. The noble Lord, Lord Elton, said that that would not be the case but I have to confess that, even in talking to this amendment, the Minister has in Olympic terms established another personal best.

Economy: Credit Easing Policy

Lord Myners Excerpts

Thursday 26th April 2012 Lords Chamber

[Lord Sassoon]

My Lords, I think that we are straying a little bit but my noble friend has, of course, ultimately tied it back to the Question. Of course, if lots of other things were changed in government policy then we could free up money for all sorts of other good things. The Government have no intention—notwithstanding the excellent report from your Lordships’ committee—of changing their policy on development aid.

[Lord Myners]

My Lords—

[Baroness Kramer]

My Lords—

--- Later in debate ---

[Lord Myners]

My Lords, the Minister is no doubt aware that earlier this week the Bank of England reported another very substantial drop in bank lending. Quite clearly Project Merlin did not work; otherwise it would have been repeated. There is very little evidence that the banks are particularly interested or enthusiastic about credit easing—which, of course, as funding support, is to the advantage of the banks rather than the borrowers. Is not the truth about why companies and businesses are not borrowing is that they have no confidence in the Government’s ability to steer the economy back towards growth?

[Lord Sassoon]

My Lords, as I have already explained, the pattern we are seeing in business investment is one that has largely been replicated from previous recessions. Since, on the top of this recession, we also have the enormous burden imposed by the previous Government of an unsustainable fiscal position, businesses are putting in a remarkable amount of investment. They have created over 600,000 new private sector jobs since the last election.

Economy: Budget Statement

Lord Myners Excerpts

Thursday 22nd March 2012 Lords Chamber

[Lord Myners]

My Lords, I join other Members of the House in welcoming the maiden speech from the noble Lord, Lord Heseltine. I want also to mark the fact that it is a wonderful occasion that he is being given this important assignment to address the areas of the interface between government expenditure and the private sector, and that in his speech to your Lordships’ House he said that he would include examination of the roles of owners of public companies—an issue which I have come to describe as the ownerless corporation. I cannot think of anybody better suited to carrying out that review than the noble Lord, Lord Heseltine, and the Chancellor should be congratulated on that appointment.

I like digging around in the Red Book. That is where you find the real story on the Budget. If you go to paragraph 2.140, you find that herbal cigarettes are now to be taxed as tobacco cigarettes are. Paragraph 2.145 deals with non-residents playing bingo, while paragraph 2.54 tells us about a further and more favourable change to what is euphemistically known as,

“Resettlement payments to Members of Parliament”—

those who no longer hold their seats.

It is also in the Red Book that we see the dangers lingering in the undergrowth. We see in paragraph 2.71 that the Government are looking at taxation on interest. It does not say why they are looking at that issue, although one is reminded that the right honourable Chancellor of the Exchequer, when in opposition, raised the question about whether interest should be a deductible charge for taxation purposes. Is that what the Government are looking at under paragraph 2.71? At paragraph 2.40, we have a message that philanthropy is going to be a victim of the Budget. The Red Book says that it will not be impacted “significantly”, but a Government who are encouraging philanthropy for education, science and the arts appear to be contemplating a tax measure which will discourage philanthropy.

One also looks in the Budget for areas which one hopes will be addressed, but with great frustration one finds that they are not. The treatment of carried interest in private equity funds as a capital gain rather than an income is an issue on which the Minister has very kindly answered one or two Written Questions from me in the past. He is indicating two fives. It is not just the one multiple of five; the Minister’s hands are positively animated at this. I think that he overestimates, but I know that he struggles with the burden of his job and no doubt it seems that he has rather a lot of Questions to answer. If he gave me straight Answers to my Questions in the first place, he probably would not have quite as many supplementaries to answer.

I find my eye drawn to paragraph 2.179, where the Government have really caught on to something: the taxation of static caravans. This is an issue to which the Government have applied their attention, but they have not applied it to the issue of a static economy—one which is flatlining now, and has been ever since this Government came into power. I encourage noble Lords to read the contribution of the noble Lord, Lord Sassoon, in our debate this time last year, when noble Lords on this side of the House were saying that there were risks to economic growth and the Minister said that this was complete nonsense. What we have seen is barely any economic growth at all over the past 12 months and, importantly, the OBR tells us that the sum outcome of this budget will make no material difference to economic growth prospects over the forecasting period. There is no material change in its forecast.

In fact, we are looking at even more austerity. Looking at discounted cash flow, which the noble Lord is very familiar with, the way that you make the numbers come out all right on discounted cash flow is to put all the growth into infinity at the end of the process, while all of the cuts and further austerity are now being pushed beyond the date of the next election. That is the only way that the Government are able to say, “We are still achieving our targets of fiscal balance within the planning period”.

This, of course, is a Budget that will be remembered for the 45p tax and the raid on pensioners—and for the sleight of hand that we saw in a number of areas, including the treatment of the Royal Mail, where the assets of its pension fund are being brought in but the Government in national accounts are going to disregard the deficit. This is a Budget which will benefit 14,000 millionaires—14,000 people earning £1 million or more a year—by more than £40,000. How can that possibly be justified during a time of austerity? As my noble friend Lord McFall said, when the Chancellor told us yesterday about the “simplification” of pensioners’ allowances, his eyes dropped down to his papers and his voice lowered. It was quite evident to all who were watching that this was a sleight of hand, which had to be revealed when we turned to look at the Red Book.

Growth is still static. Unemployment is still rising. The OBR sees no reason to meaningfully change its forecast; that is to say that it will not be until 2014 that we achieve again the GDP output levels achieved in 2007. That is a shocking outcome for this Government to put before the nation. The OBR says, however, that the composition of growth is going to change quite dramatically. In November, it was expecting 12.5 per cent of growth to come from private consumption; it now expects that figure to be nearly 40 per cent. This will be a debt-led consumption, as again is clear in the OBR report. Business investment, according to the OBR, will now fall quite rapidly. It was expecting 7.7 per cent of economic growth in 2012 to come from business investment; that will now fall to only 0.7 per cent. In 2013, it now expects that figure to be 2.5 per cent lower than it originally forecast, and in 2014 to be 1 per cent lower. That is to say that the business community is not responding to the rosy outlook that the Chancellor is describing—nor, according to the OBR, will it respond positively to the incentives to business given in this Budget.

The noble Lord, Lord Bilimoria, asked about the National Loan Guarantee Scheme, a successor to the failed Merlin project. The OBR says that this will be too small to have much effect—too small, when it was an initiative that we waited six months for. The private sector and business investment is being squeezed, and the Government have no tangible and evident plans to address that. There are no major commitments to investment in infrastructure, just words. We continue to have to live with this odd fiscal contraction, which is meant to lead to economic expansion as the private sector steps in to the capacity being released by the public sector. There is no evidence that that is happening at all. Nothing in this Budget shows a clear, coherent and carefully articulated strategy for growth. In fact, it is a rather boring and meagre Budget, which will largely be remembered for its generosity to the paymasters of the Conservative Party—the super-rich—funded entirely, if we look at the OBR report, by the money which is being pickpocketed from the grannies. It is a poor Budget with little to offer any improved prospect for economic activity or employment.

--- Later in debate ---

[Lord Sassoon]

Indeed, there are distinguished businesspeople, including the noble Lord, Lord Haskel, on the other Benches, but I do not think that the noble Lord, Lord Haskel, made this particular point. He made other points which, if I do not have more interruptions, I might be able to turn to. There is also the noble Lord, Lord Sugar. I shall refer to as many speakers as I can, if noble Lords want to hear me rather than make additional points themselves.

My noble friends Lady Randerson and Lady Kramer importantly referred to the significance of our new anti-avoidance regime, particularly in relation to homes with a value of more than £2 million. Some issues have been raised on the measures that will claw back five times the amount of the cost of a 5p drop in the top rate of tax. My noble friend Lord Fink, and the noble Lord, Lord Davies of Stamford, in particular, raised the question of the capping of tax reliefs and the effect on philanthropists and charities. The Government will explore with philanthropists ways to ensure that the new limit will not significantly impact on charities that depend on large donations. It is an important restriction, but we will make sure that charities are protected.

On other areas of tax and tax avoidance, the noble Lord, Lord Davies of Stamford, asked about the general anti-avoidance rule. Under the new structure, a pre-clearance system will no longer be warranted. GAAR’s focus will be on artificial and abusive tax avoidance schemes. We will have a completely different construct from the present one, and it is not proposed that there should be a clearance system.

A certain amount was said in different ways on the question of distributional impact by the noble Lords, Lord Liddle and Lord Myners, the noble Viscount, Lord Hanworth, and others. Again, since the Government came to power, we have in the Red Book done the transparent thing and made it absolutely clear what the distributional effect is of Budget after Budget—something that the previous Government never did. I set out the figures in my opening speech. In cash terms, losses for the households in the top 10 per cent will be almost five times the average, and more than eight times those of the bottom 10 per cent by income. We have real and deep concern for the distributional effects of our tax and spending policies.

My noble friend Lord Northbrook, and the noble Lord, Lord McFall of Alcluith, asked about the lowering of the starting point of the 40p band. There is nothing untoward about this; it is simply a partial offset of the effect of the increase in the personal allowance, so that higher-rate taxpayers will receive only a partial benefit rather than the full one, which is targeted principally and rightly at lower earners.

[Lord Myners]

My Lords, the Chancellor used the term “simple” yesterday to describe the pickpocketing of pensioners. The Minister has now used the same term. The IFS today stated that the reduction in the allowance for the starting point of top-rate tax will take 1.5 million taxpayers into the highest tax bracket for the first time. The measure is not simple; it will expose more people to 40 per cent tax than was previously the case.

[Lord Sassoon]

My Lords, I will not repeat myself. I explained the rationale for doing this, which is to make sure that the benefit is targeted correctly. The position is completely clear.

I will address one or two issues that were raised on business taxes. The noble Lord, Lord Haskel, made the point about there being other businessmen in the Chamber. I listened hard to what he said about his recent visit to the US. I, too, was in the US recently. One place I visited was Chicago, which at the moment is the headquarters of Aon, the world’s largest risk management company. It is moving its global headquarters to the UK for a number of reasons, including our lower and more competitive tax regime. I do not remotely believe that we should follow US policies in a slavish way if we want to see a growing business base in this country.

Scotland Bill

Lord Myners Excerpts

Thursday 15th March 2012 Lords Chamber

[Lord Sassoon]

My Lords, my noble friend’s amendment would introduce the concept of split-year treatment for those who move between the UK and Scotland during the tax year. I quite accept that a more accurate split of tax payments based on the time an individual spends in Scotland and the rest of the UK might in theory be desirable, but it would add very considerable cost and complexity to the system. As I took pains to point out in the previous discussion, in the Bill, we have been trying to keep the overlay of the application of the Scottish rate as simple as possible. My noble friend continually postulates circumstances in which there is a higher rate of income tax in Scotland and he puts the case of somebody who is disadvantaged by spending a relatively small amount of the year in Scotland but being caught by the definition for the whole year. I could equally well give cases that might apply the other way round. I accept that, in theory, the system should more closely be related to the amount of time an individual actually spends in Scotland. Theoretically, one cannot argue about that, but it would introduce cost and complexity into the system without the advantage or disadvantage going in one particular direction. What should rule here when we come to the practical application—

[Lord Myners]

I listened carefully to the Minister’s response to the previous amendment and to this amendment. I see a policy unravelling here. I see the Treasury having to bring the objectives of this Bill into line with practical implementation and finding it extremely difficult to do so. The Minister has just told us that there is a practical difficulty in addressing the amendment proposed by the noble Lord, Lord Forsyth. Can he explain why that practical difficulty does not also arise with people who are able to change their non-domicile status in the middle of a tax year and, indeed, change twice during a tax year? If that can be managed for the super-rich, why can it not be managed in this situation?

[Lord Sassoon]

First, if the noble Lord, Lord Myners, had actually been here for the substantive discussion of the enabling clauses of the Scottish income tax rates, he would know we discussed residency questions at length, including people who are part resident here or overseas. I think he has come in for the wrong part of the Bill, but I appreciate that he is a very busy man. We are sorry that we did not have him enrich the debate. We are sorry that he did not come and discuss the clauses where the basic residence test was—

[Lord Myners]

That is language of asperity. If the Minister does not withdraw, I will move a Motion that the House vote on that. I have made a perfectly reasonable contribution. We are in Committee, so I am perfectly entitled to do that. The fact that the Minister is struggling to answer the question is not a justification for personal rudeness and language of asperity, on which the rules of the House are very clear.

[Lord Foulkes of Cumnock]

I was here for the paving debate and the Minister did not deal with the specific point that my noble friend Lord Myners has just raised.

[Lord Sassoon]

This is all very good theatre, but we discussed the basic question of UK residence earlier this afternoon. As I said, I am very sorry that the noble Lord, Lord Myners, was not able to be here to enrich that discussion, but that it not what we are talking about in this debate. We are talking about different matters, which are important and the ones that we should concentrate on.

[Lord Myners]

I am sorry, but I have asked the Minister a very simple question. He has told us that for practical reasons it is not possible to accept this amendment. I am arguing that exactly the same practical issues arise with non-domiciles and it is possible for them to change their status more than once in a year. Can the Minister explain what practical reason frustrates the amendment moved by the noble Lord, Lord Forsyth, but permits non-domiciles to do this? It is a very simple question.

--- Later in debate ---

[Lord Forsyth of Drumlean]

I was about to go on to say that I am not sure that this problem would have arisen under the definition which applied in the 1998 Act. When I asked my noble friend why he had abandoned the definition in that Act, he told me that he had done so in order to achieve clarity and to make it simpler. It is not simpler, as the amendment we are discussing illustrates. If the noble Lord says that the anomaly he speaks of would not arise under his definition, which was certainly shorter, perhaps we should go back to the drawing board. However, my noble friend does not look as if he wants to do that.

We have had a good debate on this—

[Lord Myners]

Before the noble Lord, Lord Forsyth, concludes, I should like to say that I agree with just about everything he has said, except that he said in respect of non-domiciles that the probable reason why the Government can handle all this in terms of processing is because there are very few of them and they pay a lot of tax. In fact, there are far more of them than is customarily imagined and they pay very little tax.

[Lord Forsyth of Drumlean]

I must take the noble Lord’s word for it because he moves in those circles and I do not.

I return to the amendment. We have had a good debate, but I have to say to my noble friend that I will table it again and we will come back to it at a later stage of the Bill. I hope that he will consider this issue because I think that there is some feeling about it in the House. Indeed, he himself has acknowledged that it is not fair but administratively convenient. I beg leave to withdraw the amendment.