Economy: House Prices
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Lord Wood of Anfield
To ask Her Majesty’s Government what assessment they have made of the impact of increases in house prices on the strength of the United Kingdom economy.
Lord Newby (LD)
My Lords, the housing market is recovering alongside the rest of the economy. As in previous recoveries, house prices have risen but, with the exception of London, remain below their pre-crisis peak in real terms. As a result of increased confidence in the housing market, planning approvals and housing starts are now at their highest for six years. With the creation of the Financial Policy Committee we now have the tools to guard against risks in the housing market.
Lord Wood of Anfield (Lab)
My Lords, the list of those expressing serious concern about the impact of the UK housing market now includes the IMF, the European Commission, the Royal Institution of Chartered Surveyors, the Bank of England, Vince Cable, the Deputy Prime Minister and the entire economics profession. However, in a week where new figures showed house prices in the UK rising by 10% and by nearly three times that figure in London, a leaked document from the Department for Communities and Local Government showed that the Government are, astonishingly, expecting new housing starts to fall by 4% this year. Can the Minister explain why government housing policy seems to be based on a mixture of denial, bad economics and passing of the buck? What is their plan to do something about the UK’s chronic shortage of housing?
Lord Newby
My Lords, I remind the noble Lord that in Q1 2009 there were 17,000 housing starts and in Q1 2014 there were 36,000. There has been a major crash in the housebuilding sector. This is now being corrected with housing starts and planning permissions being significantly greater—typically around 30% more—than a year ago. I also remind the noble Lord that while we have had a rapidly rising population in the UK, for decades housing starts have been 200,000 fewer than in France, for example, where the population has not been rising in the same way. There is a chronic problem in housing. We are beginning to tackle it by programmes that support people buying their own home, liberalising planning and providing support for small to medium-sized housebuilders. This is not going to be an easy fix for a Government of any colour.
Lord Lawson of Blaby (Con)
My Lords, while it is certainly very desirable that more houses are built in this country, does my noble friend not agree that the real problem is still the unmet need to streamline and speed up the planning process? Would it not be a good idea if all sides of the House would put pressure on this?
Lord Newby
My Lords, there is clearly a challenge in terms of planning. Wherever one seeks to gain significant planning permissions there tends to be very vigorous local opposition. One of the ways we are hoping and planning to tackle this is by supporting a new generation of new towns. The first one in Ebbsfleet is now under way. That is one way of getting a number of bulk areas of new housebuilding. However, all parties are going to need to be much more robust in making the case for a higher level of new housebuilding than we have seen for several decades.
Baroness Whitaker (Lab)
My Lords, can the Minister tell the House how many planning applications for housing have been approved but the houses have not been built?
Lord Newby
My Lords, there is always a lag between planning permissions and housing starts. If we take the last two quarters for which I have figures, there were planning permissions for 52,534 houses in Q4 2013 and 32,000 starts. In Q1 2014 there were 43,000 permissions and 36,000 starts.
Baroness Butler-Sloss (CB)
Does the Minister think that anything should be done about the special position of London?
Lord Newby
My Lords, clearly London is in a special position. The population of London rose, I believe, by 108,000 in the past year and this is going to require a significantly higher level of housebuilding. The mayor has plans to build 40,000 new homes a year in London—bearing in mind that in 2009 there were 14,000 new homes built in London. With the population increasing very rapidly there is clearly going to be a long period of stress in terms of housing in London.
Baroness Maddock (LD)
My Lords, the economy of the north-east is not growing at anything like the rate that it is in London. Is there not an argument for putting some of the stamp duty, much of it generated by the 26% increase in house prices in London, towards growth and infrastructure projects in the north-east?
Lord Newby
The Government have a comprehensive infrastructure plan, which includes a number of major new initiatives in the north-east of England. As the noble Baroness will know, over the years the Treasury has been very much opposed to hypothecating particular taxes for specific purposes, largely on the basis that they may be buoyant one year but may not be in another. Leaving aside stamp duty, the key point is that we have a comprehensive infrastructure programme in the north-east, and I believe that we have one for the next decade.
Lord Davies of Oldham (Lab)
Is the Minister aware of the town of Altrincham in the north-west? The Chancellor certainly is because it is close to his constituency. Altrincham is one of the most prosperous towns in the north-west. Is the Minister aware that house prices in Altringham are half those in three inner London boroughs—not Kensington and Chelsea but Hackney, Southwark and Lambeth? Does that not show how chronic the situation in London is?
The Countess of Mar (CB)
My Lords, is there a sufficiently skilled workforce in the building trade after the doldrums that it has been in for such a long time? Are there enough people who have all the skills required to build houses? Has the Minister considered the modern prefabricated buildings that I understand can be put up within a week, in order to speed up housebuilding?
Lord Newby
My Lords, there are reports just today about skills shortages and rising wages in the construction sector. With the number of housing starts having increased so rapidly, you would expect that to be the case. Incidentally, when one talks about the free movement of labour within the EU, it is worth remembering that were it not for highly skilled technicians from other parts of the EU, the position regarding employment within the construction sector and shortages would be much worse. As the noble Baroness may know, we are investing an awful lot in apprentices and apprenticeships. In the medium term, that will be crucial in order to get to a new and higher level of building, but it takes quite a time to train someone to be, for example, a highly qualified electrician.
Banking Act 2009 (Banking Group Companies) Order 2014
Lord Newby Excerpts(9 years, 10 months ago)
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Lord Newby
That the draft orders and regulations laid before the House on 5 and 9 June be approved.
Relevant document: 2nd Report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on Monday 30 June.
Genuine Economic and Monetary Union (EUC Report)
Lord Newby Excerpts(9 years, 10 months ago)
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Lord Newby (LD)
My Lords, I begin by thanking the committee for its work on this report and all noble Lords who have spoken in today’s debate. It has been like a high-level seminar on the subject rather than a usual parliamentary debate. Although I would love to think that students around the UK and Europe will read our debate today, I fear that it will not get the attention that it deserves. It is also quite a novelty when replying to a committee report to find that quite a lot of the speakers were not on the committee. Very often, one is faced with just the members of a committee, who have tendency to repeat what is in the report and basically say how clever they were in producing it in the first place, whereas in this case not only were they clever—naturally—but they managed to draw in star outside participants to the debate, which I for one have greatly enjoyed.
The Government have consistently said that they support closer integration in the euro area to make the single currency work. The Government agree that a stable euro area is in the interests of all EU members, not just those in the euro area but those outside it, including, of course, the UK.
The work towards creating a genuine economic and monetary union, which the European Council tasked Herman Van Rompuy to take forward in June 2012 at the height of the euro area crisis, is an important part of this process. As we have seen on banking union, the UK will fully engage in any and all discussions, as and when they are taken forward.
At the same time, the Government have been clear that we will not join the single currency and, as such, we will not be part of this closer integration. Our priority is therefore to ensure that the single market is fully protected and that measures remain voluntary for those outside the euro area. We agree with the report that this will require “continued vigilance” and we have been closely involved in the negotiations, particularly over banking union, to protect UK interests.
We also want to ensure that, as the euro area continues to integrate—
Lord Davies of Stamford
The Minister has said that the Government are opposed to our joining EMU or GEMU—we know about that—but will he explain why the Government appear to be against our joining the banking union alone?
Lord Newby
Yes, my Lords, I will come to that.
We also want to ensure that as the euro area continues to integrate, the EU continues to operate fairly for those who remain outside the euro area, whether by choice, like the UK, or because they have yet to meet the criteria to join, like some other euro-outs, although I take the point that we do not meet those criteria either at this point.
As the Chancellor and Germany’s Finance Minister Schäuble set out in their joint Financial Times op-ed piece in March, non-euro area countries must not be,
“at a systemic disadvantage in the EU”.
We must ensure that EU institutions continue to work in the interests of all member states and last week’s Council conclusions, agreed by heads of state and government, contain important text about the need to address UK concerns.
Lord Davies of Stamford
I apologise for interrupting the noble Lord a second time. He said that the Government feel it is important that non-euro area member states not be at any disadvantage in the single market as a result of not being part of the eurozone. Does he not accept that the burden of our report, and indeed of the BBA document which has been quoted extensively this afternoon, is that willy-nilly, whether we like it or not, we will be at some disadvantage—probably increasing disadvantage—by virtue of being outside the EMU or banking union entirely, and we cannot do anything about that if we are determined not to join those systems?
Lord Newby
I think that the noble Lord, Lord Lamont, explained at the start of his speech the trade-off between influence and being a member of the EMU. I will come to this later but, obviously, in certain respects, we are going to be outside the room by not being members of either the eurozone or the banking union. We have to work very hard to ensure that we maximise our influence in those areas, of which the single market is the most central, in which we have a common view with many, if not most, of our EU partners about the need to reform and the direction that reform should take.
I will attempt to deal with many of the questions that I was asked by individual noble Lords during the debate. The noble Lord, Lord Harrison, asked whether the single resolution mechanism was too complex and therefore would not be effective. By definition, all resolution processes are complicated but the role of the single resolution board is very strong. This may be a vain hope but, from our own experience, we hope that the plethora of legislation and new structures will reduce the likelihood of major crises of which we have been previously largely unaware emerging at great speed.
One of the problems in the UK when RBS had to be effectively nationalised over the weekend was that the storm arose with great speed. If you contrast that with the position of the Co-op Bank last autumn, when it faced major, potentially life-threatening problems, a resolution was undertaken, not formally using the legislative framework but largely using the mechanisms that were envisaged there, and with the Treasury and the Bank playing a major role over a number of months in getting the Co-operative Bank into a position where it was able to resolve its own problems.
The involvement of political bodies other than the single resolution board is inevitable because of the significance of the decisions that are taken and the fact that if major banks are in real difficulty—a weakness we have seen in the UK—there is a political component and you have to take that into account as you are taking decisions. We would hope that the scope of the decisions that have been left to the Council is very circumscribed and that most interventions, even involving the single resolution board, would not require going up to that level.
The second question that the noble Lord, Lord Harrison, raised was whether the resolution fund is too small. On its own, it demonstrably is, if there were a major simultaneous problem with a number of the largest eurozone banks. The key thing here is that it does not have to bear the whole brunt of the resolution process on its own. Arguably, it does not have to bear the main brunt of it. That is the whole point of the resolution recovery directive and the bail-in procedure. The fund is not capable on its own of solving a major crisis, but it is one of a number of tools and not necessarily the largest or most important.
The final question, I think, that the noble Lord, Lord Harrison, asked related to the replacement of senior positions in the EU. As he knows, over the coming weeks, the European Council President will be taking soundings on this and I am no more able to suggest whom we might put forward, than my noble friend was at Question Time today. The UK is fully engrossed in those negotiations with the aim of making sure that we have candidates who will be able to deliver on the priorities agreed by the heads of the European Council last week.
Among other things, the noble Lord, Lord Lamont, has introduced a definition of nirvana that means that I will never think of the concept in the same way again. He ended his speech by saying, I think, that his feet tended to have to accommodate themselves to the shape of the shoe. My experience and expectation is that my shoes will amend themselves slightly to take account of the shape of my foot. I think that that is a rather important distinction in the way that we view our involvement.
This brings me to one of the central points of discussion, which was the importance of political will in terms of the future of the euro. In certain respects, the euro has defied logic because of the strength of the political will supporting it. I strongly agreed with the noble Lords, Lord Liddle and Lord Jay, about that. Once the political elites of the major eurozone countries have made up their minds that this thing was going to continue, it was going to continue barring the most unforeseen disaster. Those who predicted its demise simply did not grasp a very straightforward political fact.
The noble Lords, Lord Liddle and Lord Maclennan, asked linked questions about how we could play as full a part as we can in both the banking union and the mechanics of the eurozone. Obviously, we have ruled out membership, so the question is the extent to which we can play a role. I thought that the point of the noble Lord, Lord Kerr, about the role of informed co-operation and advice was very important here. We have very good relations with the ECB at all technical levels and UK officials are playing, and will continue to play, a big role.
The noble Lord, Lord Kerr, developed the concept of playing a bigger role in the banking union by saying that there was no logical reason why we should not be in it while remaining out of the eurozone. I am sure that that is logically the case. Why has it not happened? There are a number of reasons. First, the banking union has flowed from the eurozone crisis. I think it is inconceivable that we would have had such a banking union if all had been well with the eurozone, so the two are inextricably linked. I would also be interested, as a newcomer to the theoretical concept, to know whether there has ever been a banking union with banks that had two different basic currencies, or several currencies, because presumably the Swedes and others might also join.
The noble Lord, Lord Jay, made an important point about having more British people involved—
Lord Kerr of Kinlochard
I do not quite follow the logic of the Minister’s answer to my point. Because something has emerged that is driven by a wish to support the eurozone, that does not necessarily mean that it is bad or something from which we should be determined to distance ourselves. I do not think that the point about currency is relevant to whether we should be in a single supervisory mechanism. The non-eurozone countries that are negotiating do not think it is, nor do I see why, logically, it should rule us out from being in a single resolution mechanism. I understand that a separate argument would apply in respect of resolution, which is that it means somebody pays. Resolution costs money. However, we are not into these kinds of arguments. I am not saying that we should join either the single supervision mechanism or the single resolution mechanism today; I am merely arguing that it annoys the foreigners when we take the blanket approach that this is nothing to do with us. That undercuts the role—which I am glad the Minister acknowledges is very important—of the City quietly advising the ECB, and on these new structures being developed on the continent, as to how the job is best done.
Lord Newby
I was simply trying to understand, partly for myself, why we have taken this view on the banking union. An element of it was a political view and an element of that was borne out of the way in which the banking union itself developed; namely from the eurozone, of which we are not a member. At some point, we may decide that we want to be a partial or full member of a banking union—although I suspect that point is some way away, whoever the Government are. While I am on the subject, the noble Lord, Lord Dykes, made a point about timescales. However, as he is not in his place, I will have to pass over it.
The noble Earl, Lord Caithness, asked about the common guarantee scheme. He said that the Government were being rather spartan in their response—which, indeed, we were. However, the reason for this is that any common deposit scheme would be for the eurozone rather than the UK. If the eurozone decides that it wants to go down that route, that is fine but we will not be playing any part in it.
The noble Lord, Lord Desai, pointed out that the eurozone operated on a sort of gold-standard basis by being a deflationary tool. The first example in recent times in Europe of real wages falling significantly was with the monetary union between West and East Germany. I would not say that Germany got a taste for it, but it got an understanding of how that could work. What has been surprising is the extent and speed to which Ireland, Spain, Italy and Greece have been able to adjust, in particular, real wages downwards in order to begin to make their economies more competitive within the eurozone. The noble Lord made another interesting point about how important the three words—“whatever it takes”—issued by the head of the ECB were. The fact that they were so effective says a lot for the credibility of the ECB because markets believed it, which is encouraging in terms of the strength of the ECB.
Along with other noble Lords, the noble Lord talked about the challenge of what used to be called—although I am not sure it has been today—the “democratic deficit”: the fact that there is a low engagement in European elections and a low understanding of many of the issues. A number of suggestions were made about how to deal with this, possibly by having more direct elections or voting for the President of the EU. I am possibly the only person in the Room who has gone on a demonstration carrying a placard in favour of direct elections for the European Parliament, which I did as a student. We had very high hopes for the European Parliament then, not just as a technical body in terms of scrutinising legislation, which, on balance, it does extremely well, but as a symbol of a uniting Europe, which I was all in favour of. We thought that having a Parliament elected by the peoples of Europe would bring that concept to life but it has not, so I am rather sceptical about whether we can solve that problem by more elections. I fear that we may have to rely more on the role of national Parliaments, which is the subject of another report by your Lordships’ committee.
The noble Lord, Lord Kerr, raised a number of extremely interesting points about the way that appointments might be made and how the directorates might change. I absolutely see the strength of his very important institutional points and will take them back to my colleagues in the Treasury, who are rather more closely involved in those negotiations than I am.
The noble Lord, Lord Davies, spoke about the threat to the single market in financial services of the banking union and about different legislative frameworks. In fact, what we have to a very large measure is that wherever you go across financial regulation, it is regulation under directives. Our own legislation is very much framed within the plethora of directives which I always think of Sharon Bowles presiding over. She has been the one person who has understood all this stuff. Although under a directive the way that we do something and the way that the European Central Bank does it may be slightly different, it is no more different in this area than in any other area of the single market, where we implement things by directive and the detail of the way it is done varies from country to country. I am not sure I share the noble Lord’s concern in that respect.
Lord Davies of Stamford
I am sorry to say I am not convinced by the Minister. We do, of course, have a derogation from the directive, as the Minister presumably knows.
Lord Newby
I remain of the view that the directive approach applies in financial services in the same way, broadly speaking, as it does in many other areas.
I am just about out of time but, briefly, the noble and learned Lord, Lord Davidson, made a point about whether the ECB had the ability to supervise. It has a big job on its hands and is taking on new responsibilities. As we have seen, getting the Bank of England fit for purpose has taken a lot of time and effort. Indeed, the only thing that will demonstrate whether it has succeeded is how it performs in a crisis. We hope it does not have to do that for some time but it is clearly taking on the job of supervising a very large number of banks, whether it is 250 or 6,000, or whatever it is. It is very big new job, and I wish it well in it.
I conclude by saying again how much I appreciate the work of the noble Lord, Lord Harrison, this committee and all speakers in today’s debate. It is clear that Europe will be at the centre of our political debate in the period ahead. That debate is often conducted in extremely depressing, ill informed and—to borrow a word from the noble Lord, Lord Hamilton—poisonous terms. During all this, I am sure that your Lordships’ European Union Committee will continue to be a voice of reason and common sense and that Governments of whatever persuasion will continue to value its reports. For my part, I look forward to participating in further debates upon them.
Payday Loans: Debt Collection
Lord Newby Excerpts(9 years, 10 months ago)
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Lord Kennedy of Southwark (Lab)
I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as a director of London Mutual Credit Union.
Lord Newby (LD)
My Lords, the Government are determined that abuse in the payday lending market should be tackled wherever it occurs. That is why we gave the Financial Conduct Authority strong powers to regulate the payday lending industry and legislated to require the FCA to introduce a cap on the cost of payday loans. The FCA asked Wonga to make redress to customers, which Wonga has agreed to. Wonga will pay compensation totalling more than £2.6 million to around 45,000 customers.
Lord Kennedy of Southwark
Will the Minister join me today in condemning the disgusting activities of Wonga.com? Will he arrange for me, faith groups and other campaigners to meet a Treasury Minister to look at the idea of putting the fines imposed on companies in the financial services sector into a separate fund and using them to support the credit union movement, financial charities that work with adults and children, and similar organisations? Enabling people to make better-informed financial choices and to understand their options is a much better way forward.
Lord Newby
My Lords, I agree with the noble Lord on his first point and I am happy to arrange a meeting. I remind the House that the Government are putting £38 million into the credit union expansion plan and we strongly support the expansion of credit unions.
Lord Elystan-Morgan (CB)
The watchdog’s report shows that deceit on a massive scale has been perpetrated, but there are two questions that I wish to ask the Minister. First, with regard to the possible criminality involved, is it possible, if not likely, that offences have been committed under Sections 1 and 2 of the Fraud Act 2006 and Section 26—the blackmail section—of the Theft Act 1968? Secondly, is it not the case that such bodies hold statutory licences? Should there not be a rigorous examination to see whether they are fit to hold such licences?
Lord Newby
My Lords, the noble Lord is right that there is a question over whether Wonga in this case might have infringed both the Fraud Act and the Theft Act. The Law Society has asked the Solicitors Regulation Authority to investigate whether Wonga might also have breached Section 21 of the Solicitors Act 1974 and the Legal Services Act 2007. There is plenty of scope for legal action. On the fit-and-proper test, payday loan companies have been regulated by the FCA only since April. A full fit-and-proper test of each company will be undertaken in the autumn.
Lord Razzall (LD)
My Lords, is the Minister aware that the debt collection practice with which we are concerned has also been introduced by the Student Loans Company? Will he confirm that no other government agency follows the same practice and agree that it is difficult to complain about Wonga when a government agency is involved in similar activities?
Lord Newby
My Lords, there have been recent reports about the Student Loans Company. My right honourable friend David Willetts is in the process of establishing the facts of the practice. The offending letters that the SLC sent out are no longer being sent. Certainly, if it is found that the SLC or any other arm of government has adopted unsatisfactory practices, appropriate and firm action will be taken.
Lord McFall of Alcluith (Lab)
My Lords, it is important to note that no fine whatever has been imposed on Wonga. It has been asked only to redress customers at a rate of 8% interest, compared with the 5,853% that it charged its distressed customers. Despite the potential criminality in at least four areas here, Wonga has been allowed to continue as though nothing has happened, portraying itself as the good guy in a bad industry when it is the bad guy in what should be a good industry.
Lord Newby
My Lords, I think Wonga is finding it increasingly difficult to portray itself as the good guy. That has been demonstrated by this episode. The key thing to point out is that the action of the FCA has resulted in prompt redress and that 45,000 consumers will be getting a payment from Wonga. Until the FCA had the powers that it assumed in April, there was no provision under the previous regime for the OFT to secure redress for customers in that way. If, under the old regime, the OFT had initiated a criminal process, it is quite likely that it would have taken the best part of three years to reach a conclusion; whereas, under this process, consumers have got money back from Wonga very quickly.
Baroness Wheatcroft (Con)
My Lords, we hear much in this Chamber about how credit unions are a preferable alternative to the Sue, Grabbit and Run tactics of some of the payday loan companies, but many people working in Parliament would probably benefit from the presence of a credit union. Has my noble friend given any consideration to the establishment of a parliamentary credit union?
Lord Newby
My Lords, I think there may be one but, sad to say, I have not become a member of it. I will write to my noble friend explaining how she might join and put the letter in the Library of the House so that other Members may do the same.
Lord Alton of Liverpool (CB)
My Lords, will the Minister confirm that personal debt in Britain now stands at a staggering £1.4 trillion, and that in one recent year, payday loans were advertised in more than 400,000 spots on television? This included advertising, some of it by Wonga, that was targeted at young people and used puppets. Surely it cannot be in our national interest to promote indebtedness on that scale and to have a new rising generation encouraged to take out personal debts as well.
Lord Newby
My Lords, I agree with that, but the fact that we are now regulating the industry in a way that has never been done before is likely to have a significant impact on both the number of firms—firms are exiting the sector very quickly at the moment—and public perception of the industry. If we go back a year or two, the Wongas of this world were seen to be soft and cuddly institutions; nobody believes that any more.
Children: Television
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Baroness Benjamin (LD)
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as a children’s television practitioner.
Lord Newby (LD)
My Lords, the Government are committed to supporting the creative industries and have introduced three new tax reliefs for animation, video games and high-end television. A fourth relief for theatre production is due to be implemented in September. Any proposal for a new relief must be assessed for its effectiveness, wider economic impact, ability to stand up against abuse and the cost to the Exchequer.
Baroness Benjamin
I thank my noble friend for his Answer. Children’s television is not part of the success story of the creative industries because, despite the fact that there are about 30 dedicated children’s channels, only 1% of new children’s programmes are made here in the UK; the rest come from abroad. Producers cannot fully fund their UK productions. Children’s television is in terrible need of assistance; it is struggling. Does my noble friend not think that to have a tax credit for children’s live action productions would boost the economy, boost the industry, help with exports and encourage international investment, as it has done successfully for film, drama and animation?
Lord Newby
My Lords, I am sure that all those arguments will be deployed forcefully by my noble friend and the industry body, which is about to begin discussions with the Treasury to make its case. The reliefs that we have introduced have led to at least one children’s TV programme—an animation in Wales called “Llan-ar-goll-en”—being granted relief, so the beginnings of relief are already in place.
Viscount Colville of Culross (CB)
I declare an interest as a producer at the BBC. Investment by commercial public service broadcasters in original British children’s television has collapsed by 97% in the past decade to a mere £2 million. Is the Minister not concerned by the lack of competition in the market that this is producing and the dilatory effect that it is having on our exports?
Lord Newby
My Lords, obviously there has been a considerable reduction in original children’s television production in the UK. There are a number of reasons for this: for instance, the ability of the independent television companies to generate income from children’s television has reduced as a result of restrictions on advertising during children’s television programmes. However, these issues will be put by the industry and considered by the Treasury.
Baroness Howe of Idlicote (CB)
My Lords, do the Government think that it is appropriate that the BBC, a public service broadcaster, is the largest buyer of children’s live action TV?
Lord Newby
When I look back to my own childhood—it was a long time ago, although I am not that old—the BBC had a pre-eminent role in terms of children's television. It has continued in that capacity and in that role for many decades.
Lord Davies of Oldham (Lab)
My Lords, the Minister was in self-congratulatory mood in response to the first Question. Does he accept that the Government’s television tax relief scheme is based on the hugely successful film tax relief introduced by the previous Labour Government? We would now like to know what is the impact so far of the measures that he is commenting on?
Lord Newby
My Lords, the noble Lord will know that we changed the basis of film tax relief. But as far as last year is concerned, some £868 million was generated by 37 major international firms making the UK their production base. As far as TV is concerned, the reliefs that we introduced last year—we have figures for only nine months—show that some £276 million worth of production has benefited from the reliefs, of which some 58% is from inward investment.
Baroness Bonham-Carter of Yarnbury (LD)
My Lords, my noble friend said a moment ago that animation tax breaks had already seen benefits in children’s TV, so is it not self-evident that this should be extended to live children’s TV?
Lord Newby
My Lords, the slight problem with that line of argument is that it would open the way to tax breaks on virtually every kind of expenditure. At the moment, as noble Lords will be aware, the Government’s ability to make tax cuts is severely constrained by the overall financial situation.
Baroness McIntosh of Hudnall (Lab)
My Lords, does the Minister not agree that that is a counsel of despair? The children’s television that is produced in this country is, generally speaking, of a very high quality. He mentioned earlier that the problem for that sector of the industry is in finding a market. If there were more of it, there might be a bigger market for it overseas as well as in the UK. Some encouragement to what is a widely respected part of the industry might not come amiss and would certainly help to encourage our exports.
Lord Newby
My Lords, the noble Baroness makes a strong point. Again, this is the point that the industry is making and that the Treasury will listen to and consider over the coming months.
Lord Christopher (Lab)
My Lords, nobody so far has mentioned the regulator. To assist the Minister in the matter of age, I would like to cast noble Lords’ minds back to 1981, which certainly the noble Lord, Lord Grade, will recall, when the Independent Broadcasting Authority was interviewing candidates for franchises in independent television. The chairperson, Lady Plowden, always reserved to herself the question of children’s programmes. The regulator has, of late, fallen behind in addressing a number of issues, certainly children’s programmes appearing on television. Will the Minister approach the regulator to see whether some studies should not be made about what children today would like to see?
Lord Newby
My Lords, that is an extremely interesting point and I will definitely take it back. One of the key points to make about the difference between now and the period the noble Lord was talking about is that, paradoxically, there are now a lot more children’s TV channels and routes by which children get their entertainment.
Banking Act 2009 (Banking Group Companies) Order 2014
Lord Newby Excerpts(9 years, 10 months ago)
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Lord Newby
That the Grand Committee do consider the Banking Act 2009 (Banking Group Companies) Order 2014.
Relevant document: 2nd Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, I am also pleased to introduce the Banking Act 2009 (Exclusion of Investment Firms of a Specified Description) Order 2014, the Banking Act 2009 (Restriction of Partial Property Transfers) (Recognised Central Counterparties) Order 2014 and the Banking Act 2009 (Third Party Compensation Arrangements for Partial Property Transfers) (Amendment) Regulations 2014. I will refer to the statutory instruments respectively as the banking group companies order, investment firms order, partial property transfer order and third party compensation regulations.
The financial crisis of 2007 to 2009 highlighted the need for the government to resolve failing systemic financial institutions in an orderly manner to protect UK financial stability and the economy. Moreover, resolution should be achieved without recourse to public funds. Since the financial crisis, a wide programme of financial sector reform has been under way at domestic, European and G20 levels. The reform has focused not only on banks but on investment firms and central counterparties, which also have the potential to cause major widespread disruption to the financial system.
Since 2009 a special resolution regime has been in place to deal with the failure of deposit-taking institutions such as banks and building societies. The regime gives the UK authorities a permanent framework, providing tools for dealing with failing banks and building societies. It gives the Bank of England a key role in implementing a resolution using the statutory resolution tools. The Financial Services Act 2012 widens the special resolution regime to include banking group companies, investment firms and central counterparties.
The powers provided for within the regime will enable the Bank of England, as resolution authority, to use the following tools to deal with the failure of investment firms and banking group companies: to transfer some or all of the securities or business of a firm or its parent undertaking to a commercial purchaser; and to transfer some or all of a firm or its parent undertaking to a bridge bank—that is, a company owned and controlled by the Bank of England.
The powers provided for within the regime will enable the Bank of England, as resolution authority, to use the following tools to deal with the failure of central counterparties: to transfer some or all of a firm or its parent undertaking to a bridge central counterparty—that is, a company owned and controlled by the Bank of England—or commercial purchaser, and to transfer ownership of a CCP to any person.
The Financial Services Act 2012 also extends the bank administration procedure to investment firms and banking group companies. The bank administration procedure is applicable when, during the resolution of a bank, a partial transfer of property takes place and the “residual bank”—ie, the part left behind—is insolvent. This procedure ensures that the residual bank continues to provide services and facilities required to enable the transferred business to be operated effectively. The same procedure will be available for the residual part of an investment firm or banking group company. The instruments that I present today are required to underpin and bring into force the widened scope of the special resolution regime and bank administration procedure.
The EU’s bank recovery and resolution directive requires there to be resolution tools in place for investment firms and banking group companies, and the instruments presented today are consistent with this directive. There is widespread support for putting in place a resolution regime for investment firms, central counterparties and banking group companies. We first consulted at the end of 2012 on broad policy options, and subsequently took powers through primary legislation. Then, following extensive work on regime design with firms, the Government published detailed proposals on the secondary legislation in September last year.
The statutory instruments I am introducing today take into account the feedback we received from a wide range of stakeholders during the consultation period. These instruments put into place the necessary safeguards and definitions required before the special resolution regime can be extended to investment firms, central counterparties and banking group companies.
The first of these orders—the banking group companies order—specifies conditions which must be met by an undertaking to be considered a “banking group company” for the purposes of the special resolution regime. The aim of using resolution tools in respect of banking group companies is to ensure that resolution over a failing bank in the same group as the company is effective, and in particular to ensure that any intra-group service provision to the failing bank—for example, the provision of IT services—remains in place while in resolution. Subject to exceptions, the banking group companies which may be resolved under the special resolution powers are the subsidiary and parent companies of a bank, investment firm or central counterparty in resolution, and other subsidiaries of its parent companies.
The investment firms order excludes small investment firms from the scope of special resolution regime and bank administration procedure. Specifically, this instrument narrows the scope to investment firms of a type that is required under the capital requirements directive to hold initial capital of €730,000. Over 2,000 investment firms operate in the UK, of which 250 have capital above that threshold. The activities those firms are permitted to undertake, such as trading on their own account and underwriting financial instruments, taken together with the value of assets held on their balance sheet, means that a failure by such a firm could threaten financial stability in a way which the failure of a smaller firm would not. This order reflects that reality.
The partial property order places restrictions on the making of partial property transfers made in respect of central counterparties. This order provides legislative safeguards for the benefit of direct and indirect users of clearing services provided by CCPs. Those safeguards will provide them with greater certainty as to how a partial property transfer might affect their contractual rights, and ensure that there are appropriate restrictions and limitations on the making of a partial property transfer.
Finally, the third party compensation regulations put in place third party compensation arrangements in the event that some but not all of an investment firm has been transferred during resolution. This statutory instrument ensures that creditors are no worse off as a result of resolution action taken by authorities with respect to a failing investment firm which results in the transfer of part of the failing entity than they would have been if the entire entity had entered resolution.
I hope that I have assured the Committee that these statutory instruments represent a necessary step forward in putting an effective resolution regime in place for investment banks, central counterparties and banking group companies.
Lord Tunnicliffe (Lab)
My Lords, I thank the Minister for introducing the statutory instruments, all of which relate to the special resolution regime. I have spent an enjoyable weekend trying to understand them, but it is clear that enthusiasm for such an exercise has not been widespread. Nevertheless, my understanding of them is much as the Minister has described them. The first, on banking group companies, seems to fill a hole whereby service-giving subsidiaries may fall out of scope during the resolution process. The order makes sure that they remain in scope and that the resolution does not end up being tool-less in that area.
I admit that I failed on the second order. Its general intent to exclude small companies is pretty clear, but why it defines small companies as those with initial capital of less than €730,000 in one part and then uses €125,000 as the threshold in another I cannot understand. If the Minister could enlighten me, I would be delighted by the depth of his briefing, but in all probability I shall receive another letter.
As the Minister said, the third order relates to recognised central counterparties. As he well described, if there is a resolution process with a central counterparty, it is possible that some parts of the central counterparty will be an ongoing concern while others will not. There may be differential equity between creditors. The rules seek to make sure that creditors are treated fairly in that situation—I think that that is roughly what the order says. The fourth statutory instrument is on the general rule on partial transfers: creditors are no worse off than if there had been a full bankruptcy or administration. Faced with orders of such stunning reasonableness, I can say no other than that we have no objection to them and wish them luck.
However, learning from the Minister at our previous outing together, I shall stray into the general area of the special resolution regime, as he did into that of mutuals when we were discussing a stunningly small order that we together approved. This has been a very fruitful exercise, because the importance of the special resolution regime is totally misunderstood. The special resolution regime happens only in dire circumstances. If a major firm is failing—let us say, a large bank such as Barclays—and approaching being not viable, we have dire circumstances. The regime set up for such circumstances is illustrated in a document that I have from May 2011, but I believe that it remains just as applicable today. It sets out the extent to which, in a recovering regime, the PRA would seriously interfere with the way in which such a failing firm would work. It would demand changes in management and the composition of the board. It would talk about capital distribution and limiting planned business activities. There would have been a massive amount of activity from the PRA before one approached the situation where the special resolution regime was going to happen.
Essentially, with a large firm—one of the big six, eight or whatever banks—the PRA would have been devoting a large part of its resources to making sure this failure did not happen. We are now facing a situation, where, despite all that effort—the stress test, all the new rules and so on—a firm is either no longer viable or likely to become so, and is put into the special resolution regime. It is put into the special resolution regime— if I have read the supporting paperwork correctly—by the PRA. The PRA, in consultation with the Treasury and the rest of the Bank, takes the view that this failure mode is likely to happen.
The Treasury is involved because one of the ways out of the mess is the way out we used last time. I think Alistair Darling and his people did a brilliant job, frankly, because they were faced with a catastrophic situation, with—as far as one can say—no real prior thinking-through by the regulatory authorities of what the right mechanisms would be. Indeed, as we know from later analysis, there was not even a lot of thinking about who was responsible and so on. They did a brilliant job with a very crude tool— essentially they nationalised the banks. This has the significant downside that the taxpayer ended up footing the bill. The whole objective of the special resolution regime is to create a series of more complex tools which allows resolution to take place without the taxpayer picking up the bill. The most recent part of that has been the extension to central counterparties, which have clearly emerged in analysis, and the bailing provisions, which move the problem to the creditors—to the industry—as opposed to the taxpayers.
If the Treasury decides that it does not want to go down that route, the Bank—no longer the PRA—is in charge of the special resolution regime. Its objectives, as far as I can see, are to maintain all the key functions as going concerns. That does not mean keeping the business alive as a going concern—that was the PRA’s task. The Government are clear that it is not a no-failure situation—they want failure to occur if that is the proper thing to happen. Nevertheless, the resolution regime provides a way of taking the activities forward in such a way that the public, the trading communities and society in general carry on having the banking facilities they need to survive.
The more you think about it, and about our experience of the last crash, the more frightening this scenario is. This looks as though it is a 60-hour exercise—when we have got to this situation we are thinking about close-of-play Friday and having it sorted out by Monday morning. That is a pretty challenging world to live in. I may have called it wrong; it may be being thought of as a more gentle process. However, one has to remember that we are contemplating using this process only in a situation which, at the moment, we cannot contemplate. Broadly, we are trying to put right all the things that typically lead to bank failure—through various ratios, protections and so on. From having read other bits of this stuff, I think that the thing that mitigates this mess is the extent to which the PRA will have amassed a lot of previously unavailable information, including specific information to help the bank in the resolution situation. This will mean that the bank will start with some information. I accept that most of this is about central counterparties, but given banks’ behaviour and the irregularities we have seen, one fears that in such a catastrophic situation it would be even worse than expected; in other words, despite all that information, when you dig into it you have got a real crisis.
Failure would be catastrophic. The impact assessment that accompanies the orders quotes the banking commission as saying that a failure could have net present value of 63% of GDP. That is an enormous impact and would be one of the most catastrophic events that could hit the United Kingdom, short of war. It is difficult to think of anything worse than the financial services of this country in collapse.
Who is actually going to do this resolution exercise? The situation is better than previously because the Bank now has a series of tools, but it is more complex because of the complexity of the tools. The answer is: the Bank of England special resolution unit, headed by Andrew Gracie, who reports to a deputy governor, Sir Jon Cunliffe. I have looked briefly at the CVs of those two men and they are successful and respected public servants. But the questions I have for the Government are: how big is their support? How big is this unit? How prepared is it? How developed are its systems?
Looking through the reports, both of the PRA and of the Bank, it is difficult to see. We can see one or two favourable things and one or two slightly worrying things. The favourable thing is the point I raised more than two years ago about the quality of staff of the regulator and the Bank of England. Mark Carney has made a big point of making the development of people one of his key aims. I am really pleased to see that sense of the value of people, and great chunks of his report are about that resolution. What is less happy is the level of staff turnover. There is 8.1% staff turnover at the Bank and 11.6% at the PRA. The thing that worries me most in the reports is the relative lack of saliency about the special resolution regime and the resources needed to support it.
I have spent most of my career in environments where one faces catastrophic low-incidence events. I started as an aeroplane driver—getting that wrong can be pretty catastrophic—and moved into the rail industry, where, sadly, we did have catastrophic events that killed large numbers of people; I ended it in the nuclear industry. What you learn from those industries is that if you are facing a low-incidence high-consequence event, it is not natural to worry about it and therefore you have to put in place special regimes that focus on it; it has to become almost obsessive.
My questions for the Government are: how are they assuring themselves that the Bank is up to this massive challenge? How does the special resolution unit train and practise for this challenge? That is how other industries I have been involved in face up to these things; they specifically train for them. In 3,500 hours, one engine stopped and that was not very exciting; every simulator detail, engines were stopping all over the place. That is how you do it: you practise for the catastrophic. What exercises have been conducted to test the unit and its systems? You can learn an enormous amount from the conducting of exercises and simulations, which, instead of being a theoretical exercise, come much closer to reality as you play out the events in a real-time way.
What pan-government exercises have been conducted? One of the problems of high-level emergencies is that senior people in government are introduced into the emergency, usually with absolutely no understanding of the series of decisions that they are going to face. You can get into that situation if you do not have a system of pan-government exercises to ensure that everyone knows what they are doing.
Lastly, what mechanisms have been put in place to work with our US and European partners in such an emergency? I gave the Minister a brief overview of the questions that I would be working through but I do not expect detailed answers to all of them. Still, after he has given his general reassuring reply—that is what he is paid for, really, so I expect nothing less—I would value it if he read the report of this session, looked at the questions, talked to people in the Treasury and at the Bank and produced a more researched, thoughtful reply. I cannot stress enough that you have to put the systems in place to assure yourself that, in the unlikely event that a low-incidence high-consequence event actually happens, you will be prepared for it.
Lord Newby
My Lords, I am grateful to the noble Lord for having taken so much time to grapple with these extremely technical orders. On the difference between €730,000 of capital and the €125,000 of capital, the reference in the order to €730,000 refers to initial capital while the €125,000 is operating capital. However, the €730,000 figure is accepted across the EU as the slightly arbitrary point at which a firm is potentially significantly important. If I have got that wrong, I will write to him. He raised a bigger point, of course: how can we be sure that, if we are faced with a catastrophic event, we deal with it in a competent manner? One of the challenges here is that, slightly differently from when the noble Lord was an airline pilot or indeed running the Underground, the number of variables that can go wrong or interact with each other in a banking crisis is very high. It is not as though you can plan for 10 eventualities; there will be many more variables than that.
We have tried to put in place a legislative framework that gives us the powers we need; you cannot deal with these crises if you do not have the powers, and that is what the plethora of legislation over the past few years seeks to do. We think that we have an adequate infrastructure—or, rather, a superstructure—in place, with the PRA and the other changes at the Bank and the greater responsibilities that it now has. Secondly, we think that under the governor’s stewardship, as the noble Lord said, the quality of staff of the bank is very high.
The noble Lord pointed to the level of turnover. I think that that is a general concern in the public sector more generally, and has been in the Treasury as well as the Bank. It is fair to say that as far as the Treasury is concerned—I do not know about the Bank—the level of turnover has reduced somewhat over recent years, but it is still pretty high. In reality, that is in the nature of these institutions: there will be quite a lot of churn among people who are coming into and going out of the public and private sectors in the banking world. However, we think that we have a very high quality of staff.
Of course, one of the challenges which the noble Lord referred to is that although there is a special resolution unit, fewer people work in this area outside a crisis than when there is a crisis, otherwise you would have a huge number of people sitting around doing nothing for a very long time. Therefore the way the Bank and Treasury seek to deal with that problem is, of course, that other people in the institution would be brought in—just as they were at the time of the RBS and Lloyds crisis—to help on resolution.
There is a recent example of where it was not in the end necessary to have the full resolution procedure because the PRA and the Treasury—and in particular the Bank—had worked so closely with the relevant institution. That was the case with the Co-op, which last autumn faced quite severe problems. In the end, it was possible for those problems to be resolved by the Co-op without recourse to the provisions in the Banking Act or the Financial Services Act. However, that was possible in part because it was working with the Bank very closely over a period, and as a result of that it came up with an effective solution.
The noble Lord quite rightly referred to the fact that when you get to a crisis, sometimes you have to act very quickly, which is what happened with RBS. I hope that in future most cases such as that would be more analogous to the Co-op case than to RBS. In the Co-op case, it was clear for a while that there was a difficulty, and over a period of months—not a huge number, but over a period of weeks and a small number of months—options were identified and implemented. If the PRA is doing its work, it will not be taken completely by surprise in the way we were with the banking crisis. Of course, that does not mean that nothing will happen as a surprise. As the noble Lord pointed out, while we hope that the degree of information the PRA gets from the banks is always perfect, it will sometimes be less than perfect. One thinks of crises in the past that have occurred because the bank’s senior management and the compliance people did not know what a rogue member of staff was doing. As we know, that brought the bank down, for example, in the case of Barings. Therefore there will always be a risk.
The noble Lord asked specifically about training and practice exercises, and about how we work with our EU and American partners. There have been a number of training exercises to look at such situations. Scenario planning is obviously part of the role of the special resolution unit, and it does that. We work very closely with our American and European partners to see what lessons we can learn, and to have in place good working relationships and mechanisms to activate if we find that a bank is in real difficulty and that we might need to use the resolution procedures.
If I can say anything about that more formally, I will write to the noble Lord. However, both the Treasury and the Bank are acutely aware of the need to be able to use the powers they now have in an effective and timely way, and they are working very hard to make sure that they are up to snuff as regards doing that. As I said, the Government have considerable confidence that we have put a legislative process and structure in place that give the Treasury and the Bank the powers that they need and the people and structures internally to ensure that they are properly exercised. This is some way from the extremely important but rather technical amendments that we have been discussing today. I hope that all noble Lords in the Committee will feel that the statutory instruments are necessary and proportionate, and I commend them to the Committee.
Banking Act 2009 (Third Party Compensation Arrangements for Partial Property Transfers) (Amendment) Regulations 2014
Lord Newby Excerpts(9 years, 10 months ago)
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Lord Newby
That the Grand Committee do consider the Banking Act 2009 (Third Party Compensation Arrangements for Partial Property Transfers) (Amendment) Regulations 2014.
Relevant document: 2nd Report from the Joint Committee on Statutory Instruments
Co-operative and Community Benefit Societies and Credit Unions Act 2010 (Consequential Amendments) Regulations 2014
Lord Newby Excerpts(9 years, 10 months ago)
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Lord Newby
That the draft regulations laid before the House on 14 May be approved.
Relevant document: 1st Report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 24 June
Banking Act 2009 (Restriction of Partial Property Transfers) (Recognised Central Counterparties) Order 2014
Lord Newby Excerpts(9 years, 10 months ago)
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Lord Newby
That the Grand Committee do consider the Banking Act 2009 (Restriction of Partial Property Transfers) (Recognised Central Counterparties) Order 2014.
Relevant document: 2nd Report from the Joint Committee on Statutory Instruments
Banking Act 2009 (Exclusion of Investment Firms of a Specified Description) Order 2014
Lord Newby Excerpts(9 years, 10 months ago)
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Lord Newby
That the Grand Committee do consider the Banking Act 2009 (Exclusion of Investment Firms of a Specified Description) Order 2014.
Relevant document: 2nd Report from the Joint Committee on Statutory Instruments