Finance: Fiscal Devolution

Lord Newby Excerpts

Wednesday 9th July 2014 Lords Chamber

[Lord Harris of Haringey]

To ask Her Majesty’s Government what progress has been made in considering the proposals for fiscal devolution set out in the London Finance Commission’s report Raising the Capital.

[Lord Newby (LD)]

My Lords, the Government have recently devolved a range of responsibilities and funding through the Localism Act 2011 and they have decentralised local government finance through the Local Government Finance Act 2012. Any further fiscal devolution to sub-national authorities in England would represent a significant change to the existing tax landscape, with potentially significant legal, economic and constitutional implications.

[Lord Harris of Haringey (Lab)]

My Lords, the Minister will no doubt have read the report issued this morning by the House of Commons Communities and Local Government Committee, which says that it supports the principle of fiscal devolution and found no evidence opposed to it. He will also be aware that the major cities of this country apart from London—Manchester, Leeds, Newcastle and all the other core cities—all agree that they need to see bolder fiscal devolution if they are to invest for their longer-term growth. Is it not time for the Treasury to undertake an economic analysis of how the full suite of property taxes could be devolved to England’s great cities in line with the recommendations of the CLG report and the London Finance Commission report and the devolution being delivered in Scotland and Wales?

[Lord Newby]

My Lords, the first point that the noble Lord makes is summed up very well in the introduction to the report to which his Question refers, in which Tony Travers, who chaired it, says:

“Devolution and localism face little opposition apart from national politicians’ cautious approach to constitutional change in Britain”.

That sums up the position very well, and I think that there has been considerable movement under this Government. I will take back the noble Lord’s second point to my colleagues in the Treasury.

[Lord Razzall (LD)]

Does the Minister agree that every political party during his adult lifetime has fought elections on the basis that it wants greater devolution of power to the regions or the cities and then, when it gets into power, it finds a reason not to do so?

[Lord Newby]

I am afraid that there has been a very chequered history of attempts to devolve power—within England, at least. This Government, by devolving half the income generated by business rates, have begun a process. The growth deals announced at the beginning of this week—under which, over a period, £12 billion will be devolved to local enterprise partnerships, whereas it would otherwise have been administered by central government departments—is a big move towards greater devolution. I suspect that in the next Parliament there will be much more pressure to do more.

[Lord Anderson of Swansea (Lab)]

My Lords, if London benefits with its high property values and other advantages, does that not inevitably mean that other parts of the UK will not benefit? How does one prevent that sort of fiscal competition, which surely cannot be to the benefit of less favoured areas?

[Lord Newby]

My Lords, the principle that operates if one is devolving tax revenue to a lower tier of government is that the amount of tax devolved is subtracted from the amount of grant which that tier of government would otherwise be getting. Therefore, at the start of the process at least, there is no net shift of revenue from one area to another.

[Lord Flight (Con)]

My Lords, will the Government consider allowing our cities to raise their own municipal bond funding, as is the case in the US and as was the case in this country in the greater days of our cities? It has only had to be done through gilts since after the Second World War.

--- Later in debate ---

[Lord Newby]

My Lords, there are obviously strong arguments which would enable cities to raise more funding. Those have been resisted by the Treasury under successive Governments. As they are moving towards drawing up their manifestos, I am sure that all the parties are considering whether they want to change those long-standing practices.

[Lord Foulkes of Cumnock (Lab)]

My Lords, rather than more piecemeal devolution, is the time not now right for a more comprehensive and coherent look at devolution throughout the whole of the United Kingdom, so that we have a sensible system, and that some kind of commission—a constitutional commission or royal commission, under a wise and experienced chairman—should be set up as soon as possible?

[Lord Newby]

My Lords, I was waiting for the last part of that sentence. I am sure that all noble Lords will bear the noble Lord’s expertise in mind, should a commission be established. I think that, once we have the outcome of the Scottish referendum, all parties and all people who are interested in constitutional change in the UK will want to revisit the issue. The exact way we do it is also something that I think all the parties are thinking about as they draw up their manifestos.

[Lord Davies of Oldham (Lab)]

My Lords, the Government seem to be extraordinarily complacent about the response to increasing demand from our great cities for increased powers. The Minister said that it was all too complex, and then his noble friend from the Liberal Benches produced the usual note of cynicism that people never fulfil their promises when in government. I assure the Minister that we intend to have a thorough examination of the powers to allocate greater resources to our cities and regions, very much in line with the noble Lord, Lord Heseltine. Does the Minister agree?

[Lord Newby]

My Lords, I am always pleased when the Labour Party rethinks its policies. However, the premise of the point that the noble Lord raised was misguided. This Government, through the city deals, has devolved significant funding to the major cities for the first time. As I said earlier, with the growth deals which we announced at the beginning of this week, £12 billion is being devolved to the LEPs from what were central government allocations. This is a very big shift of economic and social decision-making going down to the cities and regions.

Industrial Strategy: British Business Bank

Lord Newby Excerpts

Tuesday 8th July 2014 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the noble Baroness for securing this debate. I very much enjoyed listening to her comments. She is someone to whom the House always listens carefully because she knows a lot about the subjects she discusses. I am sure the Minister will reflect on her comments as he prepares to respond to the debate.

However, like my noble friend Lord Haskel, I found the noble Baroness’s somewhat unrelenting optimism about what she called the industrial strategy a little hard to take. I liked it better when she talked about some of the problems that still remain to be solved, including rebalancing the economy and trying to get more of a regional spread. That, I felt, was the more authentic voice which I have come to enjoy listening to. However, we look forward to what the Minister will say in response to the important points that she made.

I was very struck by what the noble Baroness said about the content of the industrial policy in the sense that she made play, I think, of 11 sectors. It was an interesting little number that I initially fell for, but I do not think that 11 is a particularly magic number. I am not an expert on the magic of Hogwarts, or anything like that, but I do not think that 11 features in that. Why 11? I think it is 11 because it is not 12. It is not 12 because, if you read the document produced by BIS last year, from which that is taken, you will see that it covers the 11 sectors which the noble Baroness listed, which are important and are being picked as winners. That may or may not please some noble Lords. The 12th and most important of these is, of course, the creative industries, but they do not appear in the document because they are not covered by BIS. That seems to me to suggest a fractured approach, meaning that the Government are not joined up about this. There is a danger that the sectors which BIS selects and supports are the ones that it provides for. As the noble Baroness pointed out, that would be rather ridiculous. Therefore, those 11 sectors but not the creative industries may well be in a beneficial place as regards the British Business Bank, export support or UKTI. That would be a terrible shame. I hope that is something the Government have picked up and are working on.

The 2008-09 crash exposed long-standing structural problems in our economy: an economy unbalanced by sector and region; short-termism in our corporate culture leading to low levels of business investment and low productivity; a dysfunctional finance system; and a stubborn and increasing trade deficit. Although some growth has finally arrived, which we certainly welcome, it is not the balanced and sustainable growth that we need. Prices are still rising faster than wages and the continuing cost of living crisis for many means that individuals are, on average, £1,600 a year worse off compared with 2010, so “business as usual” is certainly not good enough. To set the foundations for future success, we need to take a different approach.

Labour has a long-term plan to earn and grow our way to higher living standards. Our goal is a high-productivity, high-skilled, innovation-led economy. To get there, we need more British-based businesses creating good jobs, investing, innovating and exporting. If elected in May 2015, we will deliver an economy creating good jobs and opportunities, offering people a ladder up and the best chance to make the most of their potential. We will take action on immediate pressures that businesses face and cut business rates. We will reform the energy market and boost competition in the banking sector. To lay the foundations for long-term success, Labour’s plans already include: radically reforming vocational education and apprenticeships; creating a proper, independent British investment bank and a network of regional banks with a responsibility to boost lending in their areas; supporting green growth by backing the 2030 decarbonisation target; and establishing a small business administration to champion small businesses at the heart of government. Some of these points were raised by the noble Lord, Lord Stoneham. When we come to power, I hope that we can count on his support for these measures. I think that he wants to see an all-party approach to ensuring that our economy is sustainably supported over the long term.

What is the problem that the British Business Bank is trying to solve? I agree with the noble Lord, Lord Leigh, who said that in some senses it is a misnomer. I think that point was also picked up by the noble Lord, Lord Wrigglesworth. Indeed, it is more of a wholesale operation. The bank picks up that point in its strategy document and says that it is not a bank in the conventional sense. We understand that. According to the business bank’s new strategic plan, which was published only last month, its goal is to,

“change the structure of finance markets for smaller businesses, so these markets work more effectively and dynamically”.

Any scheme that helps small businesses to access finance is clearly welcome but the record of the Government in getting the clearing banks to lend to small businesses is one of complete failure. This, presumably, is a statement endorsed by the Government confirming what we have been saying to the Government for some time: every scheme, from Project Merlin—remember that one?—to Funding for Lending, has completely failed to deliver to the small and medium-sized businesses.

Indeed, as was quoted by the noble Baroness in her opening remarks, according to the Bank of England's most recent Money and Credit statistical release, net lending to SMEs has fallen by £1 billion in the last quarter and is down by £2.2 billion overall compared to last year.

We have a bit of a problem here and it is very interesting to read in the strategic plan of the business bank what it thinks about it. For example it says very early on in its strategic aims:

“We will increase the supply of finance available to smaller businesses where markets don’t work well”.

If we unpick that, this means there is a problem in that the present system is not supplying finance to where it is needed. Markets are not working well and the supply of finance is therefore reduced. The strategic plan also says:

“We will create a more diverse and vibrant finance market for smaller businesses, with a greater choice of options and providers”.

Again, if we duck behind the language, that means that the existing system does not provide the funding, the existing banks are not worth working with and they need to come up with something that will make more of a difference in terms of the flow of funds to those who can use them. I think we would agree with that.

The plan also says:

“We will build confidence in the market by increasing smaller businesses’ understanding of the options available to them”.

That is an interesting point; if you go behind the language, it suggests that the bank is saying that the people who start businesses—the people who are in charge of the small business sector—are untrained in trying to raise finance, probably not very good managers at that either, and do not understand what they need to do in order to get the finance, so they will have to embark on education in order to get to the point where they can even complete all the forms that the noble Lord, Lord Leigh, was saying are very difficult. I enjoyed his riff about the trouble of getting through the website. He mentioned that in an earlier speech to which I was responding. I followed him through it and I had even more trouble than he had in getting to anything. I am glad to say that the British Growth Fund, which he also mentioned, has a much simpler website where you can get to very easy options straightaway. I understand why he recommends that.

I have had a bit of fun with the wording of the strategy document, but I do not think the Minister necessarily needs to go through it. Unless he says anything to the contrary, I will take it to be a validation of what we have been saying. There is a problem and the banks are not solving it. We also have a bigger problem in that people do not really understand what they need to do to get the funding they want.

This section that I have been quoting ends with the proposition:

“We will achieve this whilst managing taxpayer resources efficiently and within a robust risk … framework”.

The noble Baroness, Lady Wheatcroft, was on to that as well. I understand where she was coming from. I too had great difficulties with this section of the report—I do worry about it. Having said that, I want to get the compliments out of the way first. The strategic plan is really good. It is a very good read—and I mean that as a compliment. It gives some interesting figures and background to the context which I have not seen brought together before. For example, there is a little table that shows very clearly that 53% of businesses with up to 50 employees who have applied for a loan from the clearing banks were declined. This is slightly bigger than the figure that the noble Lord, Lord Wrigglesworth, mentioned. It really is a disaster—if nearly 50% of the businesses cannot get the money, there is a problem.

I also liked the direct funding programme that they have in the strategy. The Aspire programme which is up to £1 million for women-led SMEs seems to be a very good proposition. That is an area of the market that has not been looked at in any detail, and I pay tribute to the British Business Bank for picking up the opportunities that are there for women-led SMEs.

I also like the enterprise finance guarantee, which uses the financial strength that is available in the bank to help those who need guarantees to get lending, because they may not have collateral or assets that they can pledge in return for their money.

I also think that there is still a huge opportunity for start-up loans, which used to come from the banks and of course have dried up completely. Throughout the report, which I recommend to noble Lords, the case studies are very interesting about what is happening on the ground and the way in which the bank is operating.

I am, however, concerned about the way the bank operates for the majority of its interventions. In the Written Ministerial Statement, which accompanied the lodging of the strategy in the House of Commons, the Secretary of State draws attention to the fact that 61% of the bank’s activity is channelled through smaller investors and lenders, with only 39% going through the big four banks. He continues:

“Over the coming years, I expect that this bias away from the big banks will continue”.—[Official Report, Commons, 26/6/14; col. 21WS]

I have already explained that I smell where that is coming from. But that 61% going up and being channelled in a wholesale manner through other institutions is interesting and, like the noble Baroness, I worry about that.

My worry is slightly different in practice because examples of what are called “innovative investments” over the past year have included: £7.8 million to the Dawn Capital II venture capital fund; £25 million to the Episode 1 venture capital fund; £30 million committed to the Praesidian Capital Europe debt fund; £15 million to BMS Finance; £40 million invested through Funding Circle, which is a good thing, and £20 million in the Sussex Place Ventures capital fund. These are somewhat opaque titles and giving money to venture capital funds and hedge funds, which already seem to be quite good at gathering cash to reinvest, seems an odd way to supply support. Perhaps the Minister might reflect on that when he comes to respond. For instance, why are those companies not doing their own funding alongside existing sources, including the British Growth Fund?

This will of course raise issues of propriety. I draw the Minister’s attention to a recent report in the Independent on Sunday. It said:

“Millions of pounds of taxpayers’ money is being spent on a venture capital fund overseen by one of the Conservative Party’s biggest donors … The British Business Bank, which is run by the Department for Business, has committed £7.8m to the Dawn Capital II investment fund … Dawn Capital II’s parent company is Dawn Capital, whose chairman is Adrian Beecroft”.

Does the noble Lord wish to intervene?

[Lord Newby (LD)]

I was seeking to draw the noble Lord’s attention to the time.

[Lord Stevenson of Balmacara]

I am sorry; I got carried away and I have overrun. I will not go on, as I think the point is made, but the report asks whether there is a problem about a company drawing money from the state and giving money to an individual who is a well known supporter of the Conservative Party. I would be grateful if the Minister could respond to that.

--- Later in debate ---

[Baroness Wheatcroft]

My Lords, I thank the Minister for his comprehensive response, and I take comfort from the fact that he reassured us that the business bank will work within strict limits as to the risk it takes. I take rather less comfort from his reassurance—

[Lord Newby (LD)]

My Lords, I am sorry to interrupt the noble Baroness, but I should perhaps remind her that in this type of debate she does not have the right of reply.

House adjourned at 8.49 pm.

Economy: House Prices

Lord Newby Excerpts

Thursday 3rd July 2014 Lords Chamber

[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?

--- Later in debate ---

[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?

[Lord Newby]

Yes it does, my Lords.

[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.

Genuine Economic and Monetary Union (EUC Report)

Lord Newby Excerpts

Wednesday 2nd July 2014 Grand Committee

[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.

Banking Act 2009 (Banking Group Companies) Order 2014

Lord Newby Excerpts

Wednesday 2nd July 2014 Lords Chamber

Moved by

[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.

Motions agreed.

Children: Television

Lord Newby Excerpts

Tuesday 1st July 2014 Lords Chamber

[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.

Payday Loans: Debt Collection

Lord Newby Excerpts

Tuesday 1st July 2014 Lords Chamber

[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.

Banking Act 2009 (Third Party Compensation Arrangements for Partial Property Transfers) (Amendment) Regulations 2014

Lord Newby Excerpts

Monday 30th June 2014 Grand Committee

Moved by

[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

Motion agreed.

Banking Act 2009 (Exclusion of Investment Firms of a Specified Description) Order 2014

Lord Newby Excerpts

Monday 30th June 2014 Grand Committee

Moved by

[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

Motion agreed.

Banking Act 2009 (Restriction of Partial Property Transfers) (Recognised Central Counterparties) Order 2014

Lord Newby Excerpts

Monday 30th June 2014 Grand Committee

Moved by

[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

Motion agreed.