Convergence Programme
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Lord Newby
That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook, which forms the basis of the United Kingdom’s Convergence Programme.
Lord Newby (LD)
My Lords, I welcome this opportunity to discuss the information that will be provided to the Commission this year under Section 5 of the European Communities (Amendment) Act 1993.
As in previous years, the Government inform the Commission on the UK’s economic and budgetary position in line with our commitments under the EU stability and growth pact. The Government plan to submit their convergence programme by 30 April, with the approval of both Houses. The convergence programme explains the Government’s medium-term fiscal policies as set out in the 2013 Autumn Statement and Budget 2014, and includes the OBR forecast. As such it is drawn entirely from previously published documents that have been presented to Parliament.
With the Budget on 19 March this year and the Easter Recess timings as they are, I appreciate that the timetable for this debate has been particularly tight. Against this backdrop, the Treasury has made every effort to provide early copies of the convergence programme document in advance of the debate today, and did so last Thursday. The document makes clear that this year’s Budget reinforces the Government’s determination to return the UK to prosperity and reiterates the Government’s number one priority—tackling the deficit.
Stability or convergence programmes form part of the European semester, which provides a broad framework for the co-ordination of the monitoring and surveillance of member states’ fiscal and economic policies, including necessary structural reforms across the EU. The positive value of the European semester is that it is a useful means to encourage other member states to grip the urgent growth challenge across the EU.
The Budget 2014 set out the Government’s assessment of the UK’s medium-term economic and budgetary position. In 2010 we set out clear, credible and specific medium-term consolidation plans to return the public finances to a sustainable path. Our plan makes clear that we will fix the economy and deal with the deficit, cut tax to encourage investment, back businesses, control welfare and invest in skills. We put that plan in place and adhered to it, and we are delivering results with it. The Government’s fiscal strategy has restored fiscal credibility, allowing activist monetary policy and the automatic stabilisers to support the economy and ensure that the burden is shared fairly across society. This long-term economic plan has protected the economy through a period of global uncertainty and has provided the foundations for the UK’s economic recovery, which is now well established.
Since last year, economic growth has exceeded forecasts and has been balanced across the main sectors of the economy, inflation is below target, and the deficit has been reduced year on year. Over 1.5 million private sector jobs have been created and employment is at record levels. Interest rates are at near record lows, helping to keep costs down for families and businesses. The Government are also making significant progress in reversing the unprecedented rise in borrowing between 2007-08 and 2009-10. The deficit has been cut by one-third as a percentage of GDP over three years and is projected to have fallen by a half as a percentage of GDP by 2014-15. The OBR has also forecast public sector net borrowing to reach a small surplus in 2018-19, and has judged that the Government remain on track to meet the fiscal mandate one year early. While the OBR forecast that the underlying structural deficit is falling, it is doing so no faster than was previously forecast, despite higher growth. The persistence of this structural challenge supports the Government’s argument that economic growth alone cannot be relied upon to eliminate a structural deficit, and while we are meeting the supplementary debt target one year late as before, the OBR has revised down national debt in every year of the forecast.
This year’s Budget is fiscally neutral despite lower borrowing across the forecast period, with an overall reduction in tax funded by a reduction in spending. The OBR has revised the UK’s growth forecasts upwards, as has the IMF, and they are now among the highest, if not the highest, in the developed world. However, as the Chancellor has said, the job is not yet done, and the same is true for the rest of the EU. Without sustainable economic growth, the EU will be unable to repay its debts, create jobs or maintain its standard of living. Much of the answer to these problems lies in national level reforms such as creating flexible labour markets. Clearly, the European semester has a key role to play in encouraging member states to make ambitious reform commitments, and the UK has an interest in making these reforms happen. However, an ambitious EU-level reform agenda is also a key part of this equation and an essential counterpart to national level reforms. Recent European Councils have underscored the strong commitment of Heads of State or Governments to supporting growth and competitiveness, and I know that the Prime Minister has been driving forward this agenda along with leaders from a substantial group of like-minded member states.
As I reminded the House a year ago, deploying EU-level policies in support of economic growth, such as the single market, regulatory reform and EU-level free trade agreements, can achieve maximum growth impact at the least cost. The need to address Europe’s growth challenge comprehensively by tackling overall low productivity, lack of economic dynamism and flexibility is more pressing than ever before, and it is in our interests to make urgent progress. That is why the UK will continue to push this agenda at the highest levels and encourage the new Commission to take structural reforms seriously. I am today requesting that, in line with Section 5 of the European Communities (Amendment) Act 1993, this House approves the economic and budgetary assessment that forms the basis of the convergence programme. Following the House’s approval of the assessment, the Government will submit the convergence programme to the European Commission. It will make its recommendations to all EU member states in early June. These recommendations will then be considered by the ECOFIN Council on 20 June and agreed by Heads of State or Governments at the European Council on 26 and 27 June.
To reiterate, the convergence programme contains no new information, only information that has previously been presented to Parliament—information from the OBR’s economic and fiscal outlook and from the Budget, which sets out the Government’s strategy to return the UK to sustainable growth. I commend the assessment to the House.
Lord Pearson of Rannoch (UKIP)
My Lords, can the noble Lord remind the House of what exactly is the UK’s convergence programme? With what is the United Kingdom economy supposed to be converging, and why? As we are never going to join the euro, are we not wasting time? While I am at it, could the noble Lord remind us what is the European semester? But above all, why do we go on submitting the state of our economy to an institution which has not had its own accounts signed off, even by its own internal auditors, for the past 18 years? By its own estimation, at least £120 billion per annum goes walkabout and in each of its institutions the Mafia is rife and active.
In short, what is the point of this debate and, more generally, what is the point now of the European Union at all?
Lord Newby
My Lords, I am grateful to both noble Lords who have spoken in today’s debate. In a short speech, the noble Lord, Lord Pearson, succeeded in asking very fundamental questions about Britain’s position in the EU. Without spending too much time on his final, semi-rhetorical question, I should like to respond to his earlier questions about the convergence programme and the European Semester.
The convergence programme stems from the Lisbon treaty, which requires the UK Government to report regularly to the European Commission on the economic situation and forecasts in the UK. The report is drawn from previously published material, as I said. It is part of a Europe-wide programme. Under the stability and growth pact, all member states are required to submit either stability programmes, for euro-area member states, or convergence programmes, for non-eurozone member states. The European Semester is a common timetable for the submission and consideration of fiscal policies via the stability or convergence programmes and macroeconomic policies via national reform programmes.
The noble Lord asked: what is the point of all this? As the crisis in much of Europe has shown, it is in everybody’s interests that member states do not run up excessive deficits, because if they do the consequences of putting those deficits right are not confined to those member states. The UK economy suffered very significantly because of the eurozone crisis. To pick up one of the points made by the noble Lord, Lord Tunnicliffe, this is one of the reasons that the forecasts we made in 2010 were blown off-course. Given the very high proportion of trade we have with the eurozone countries, we are very much dependent on those countries prospering and therefore it is very much in our interests that they keep their public sector finances under control.
Lord Tunnicliffe
It is a detail, but the Minister said that the requirement comes from the Lisbon treaty. I thought that it had come from the Maastricht treaty, which we put into law in 1993. Am I mistaken?
Lord Newby
The difference, I believe, is that the Lisbon treaty requires the convergence programme to be submitted to the Commission in the form that we are describing today, whereas the underpinning requirements about budget deficit and levels of growth were in the Maastricht treaty. What came out of Lisbon were the very specific mechanics of trying to co-ordinate via the submission of national plans every year which the Commission can then scrutinise and comment on.
Lord Tunnicliffe
I hope the Minister will forgive me, but I put a little bit of study into this. Article 103 of the Maastricht treaty—which may have been elaborated at Lisbon—states pretty bluntly:
“In order to ensure closer co-ordination of economic policies and sustained convergence of the economic performances of the Member States, the Council shall, on the basis of reports submitted by the Commission, monitor economic developments in each of the Member States and in the Community as well as the consistency of economic policies with the broad guidelines referred to in paragraph 2, and regularly carry out an overall assessment. For the purpose of this multilateral surveillance, Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy and such other information as they deem necessary”.
I thought today that we were responding to that part of that treaty. I want to draw out the point that our being here this afternoon at this late hour is the fault of all Governments, not perhaps just one.
Lord Pearson of Rannoch
Before the Minister replies, perhaps I may say that I support the noble Lord, Lord Tunnicliffe. He is of course right that the whole process in the Maastricht treaty was, I am afraid, waved through by the Conservative Government under Mr John Major when, if your Lordships remember, he was winning game, set and match. I am grateful to the Minister for his answer, but I would still like to press him on why the United Kingdom has to take part in this demeaning and absurd process. I understand that it might be useful for the countries which have unfortunately joined the extremely destructive process of the euro and everything that goes with that, but why should we, if indeed our economy is recovering in the way that the Government claim, have to go cap in hand to Brussels and discuss with them anything that we want to do, especially as we are, luckily, thanks to the Treasury, not in the euro?
Lord Newby
My Lords, perhaps I may deal with the point made by the noble Lord, Lord Tunnicliffe. Obviously, the Motion that we are debating today stems from Maastricht, but the codification of how it was to be done is to be found in Articles 121 and 126 of the Lisbon treaty—I am sorry that I do not have them before me to read out to the House.
The noble Lord, Lord Pearson, describes the process of submitting the forecasts as “demeaning”. Certainly, there is nothing demeaning about the state of the British economy. We are very happy to send the forecasts to anybody. However, as I said, just as we depend in no small measure on the economic success of the rest of the EU, so the rest of the EU, as he is very fond of reminding the House, depends on our economic success. We are part of a single market and, again as the noble Lord often reminds the House, we contribute to a budget one of the main purposes of which is to promote growth across the EU. So it is only sensible that the EU as a whole looks at how Governments are meeting their commitments by running a successful, stable and growing economy.
The noble Lord, Lord Tunnicliffe, raised some pretty familiar criticisms of the state of the economy. I always find it slightly amusing when members of the Labour Party, which consistently wanted to spend more at every point during this Parliament, object to the fact that the deficit is higher than it might be. If they had spent £12 billion a year by cutting VAT, as they proposed, the accumulated deficit would by now almost certainly have been greater. It is bizarre for the Labour Party, which has been pushing for higher expenditure—that would necessarily mean a bigger deficit, certainly over the period we are discussing—to upbraid us for following a policy that allowed the economic stabilisers to work and ensured that we did not have further cuts in the face of the European crisis. We allowed the stabilisers to operate in a way that minimises the impact of the crisis on employment—and on growth—and formed the basis for the creation of 1.73 million additional private sector jobs during the course of this Parliament.
The noble Lord says that we have done nothing to get young people back into work. I remind him that youth unemployment fell by 29,000 in the quarter, in the three months to January, and by 81,000 in the year. Excluding people in full-time education, there was a decline of 16,000 in the number of 16 to 24 year-olds who were unemployed over the quarter. The youth claimant count has fallen for 21 consecutive months. On the latest figures, the reduction in the youth claimant count is falling at the fastest pace since 1997. The number of those claiming for more than one year has fallen for the 15th consecutive month, down by 2,300 on the month to 53,400. Youth employment in the quarter rose by 43,000, which is an extremely significant number. Those 43,000 young people who now have a job who did not before would find it extremely difficult to recognise the Opposition’s description of what is happening to the economy.
I absolutely understand the noble Lord’s criticism that some people have suffered in their standard of living. Sadly, that is what happens to some people during a recession. However, I remind him that the Government have taken a wide range of steps to mitigate that fall. Of course, the increase in the income tax allowance to £10,000 is the single most significant one, but I also remind him of the freeze on fuel duty. On jobs, I remind him of the £2,000 national insurance allowance, which will make it easier for small businesses, in particular, to retain or take on additional staff.
The noble Lord also criticised the Government on the basis that the recovery was unbalanced. He will know that manufacturing output was up last year. The forward surveys of manufacturing are more positive than they have been for many years. He will probably be aware that the figures from the RAC, I think, yesterday suggested that in the past month, the area with the highest growth rate in permanent placements was the north. He will also be aware of today’s figures showing that the balance of payments on the latest deficit is down, so we do not have unbalanced growth. Every sector of the economy is growing. Forward forecasts in services and manufacturing are at record levels; in some cases, they are higher than ever before. So the prospect for the period ahead is of not just growth but a greater degree of balance in growth than we have seen for a considerable time.
Ultimately, such sustainable growth is the only way for both the UK and EU member states to pay down their debts and exit what has been, by common consent, a very difficult economic period. The UK is leading the EU growth agenda and making the case for ambitious EU reform. On that basis, I am pleased to commend the Motion to the House.
Payday Loans: Advertisements
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Lord Mitchell
To ask Her Majesty’s Government what steps they are taking to reduce the number of payday loan advertisements watched by children.
Lord Newby (LD)
My Lords, payday loan adverts are subject to the Advertising Standards Authority’s strict rules. The ASA will not hesitate to ban irresponsible adverts. The Broadcast Committee of Advertising Practice is currently considering the issue of payday loan advertising on children’s TV and the potential implications for ASA regulation. The Financial Conduct Authority has introduced new requirements on payday lenders, including mandatory risk warnings and signposts on debt advice in adverts. It can ban misleading adverts that breach its rules.
Lord Mitchell (Lab)
I thank the Minister for the reply. Daytime television, my Lords, is deluged with advertisements for payday loans, many of them including fluffy puppets, catchy jingles and smiley people. Children see these advertisements and, not surprisingly, when family money is tight, they pester their parents to take out these loans. I intend to table a Private Member’s Bill to ban all advertising of high-cost, short-term loans until after the watershed. Will the Government support me?
Lord Newby
My Lords, I think it is right first to set out the scale of the problem. I am not doubting that there are issues, which is why the Broadcast Committee of Advertising Practice is looking explicitly at this matter. However, to set the issue in context, payday loan adverts in 2012 comprised 0.6% of TV ads seen by children aged four to 15, and, last year, all personal debt ads on children’s television amounted to 0.2% of total ad spend on children’s television. I am not saying that it is not an issue, but the number of ads being watched by children in this area is relatively modest—hardly more than one a week.
Baroness Benjamin (LD)
My Lords, payday loans are a form of grooming. So, to protect our children, should there not be an additional clause in the Advertising Standards Authority’s children’s code that refers to the scheduling of adverts that encourage potentially harmful lifestyle choices such as easy access to borrowing, including payday loans?
Lord Newby
My Lords, that is exactly why the Broadcast Committee of Advertising Practice is looking at this issue. We expect to hear from it in the next few months and there may be consequences for the ASA code. I have some difficulties about the use of the word “grooming” in this context. It has come to have a specific meaning in relation to sexual exploitation, and, whatever the problems with payday loans—and there are very considerable problems—they are not of that degree of difficulty.
Lord Davies of Oldham (Lab)
My Lords, the Minister has indicated that there has been a minor reduction over the past year, but the scale of payday loans is astonishing—and they are directed at children because that is a soft way to get at parents. Is this not something that we all ought to criticise and deplore, and on which we ought to expect authority to take action, because the only reason that daytime children’s television in particular is deluged with these loan advertisements is that it puts pressure on parents?
Lord Newby
My Lords, this Government have taken very strong action in respect of payday loans by giving the FCA very considerable powers in this area, which it has started to exercise. It is a sign of the times that yesterday DFC, one of the country’s three biggest payday loan providers, issued a profit warning and surrendered to a takeover, citing the tougher new regulatory regime. The weather is changing for payday loans.
Baroness Walmsley (LD)
My Lords, I appreciate that this is slightly to one side of the Question, but can my noble friend tell me whether any work is being done to find out how many advertisements for easy ways of gambling away your money are seen by children?
Lord Newby
My Lords, I do not have any specific response to that, except to say that the ASA is able to investigate any complaints about the effect of ads on particularly vulnerable groups, which potentially would include gamblers. Certainly, if you watch paid-for sport television, you get a very large number of ads for online betting, which I find distasteful—but, as with many things in life, there is an interesting argument to be had about the line between what is distasteful and what should be banned.
Lord Foulkes of Cumnock (Lab)
My Lords, it is a pity that the Minister has resorted to statistics to try to explain this away. All it needs is one of these very cleverly devised adverts to put pressure on children or to influence children to put pressure on their parents, who can ill afford to take out these loans. Will the Minister answer the question put by my noble friend Lord Mitchell: when he brings forward his Bill, will the Government give sympathetic consideration to supporting it?
Lord Newby
My Lords, when the noble Lord, Lord Mitchell, brings forward his Bill, the Broadcast Committee of Advertising Practice will have expressed a view on these loans. The Government will take very considerable account of what it says in forming their view about the noble Lord’s Bill.
Baroness Symons of Vernham Dean (Lab)
My Lords, children do not watch only programmes that are designed for them; in some households they watch programmes all day. Can the Minister tell the House what percentage of advertising in general across the schedule is advertising for payday loans?
Lord Forsyth of Drumlean (Con)
My Lords, is there not a case for looking at daytime advertising? On the one hand, you have ads that are encouraging people to take out loans at very high interest rates and on the other you have people being encouraged to go on gaming sites. With hindsight, was it not a great mistake for the previous Government to abandon the principle with respect to gambling and advertising that we should not take any measures that stimulate demand?
Lord Newby
My Lords, it is a highly contentious issue and there are simply different views on it. As I said, personally I find those adverts distasteful, but that is not to say that I necessarily want to ban them all. One problem with a lot of adverts is that they encourage behaviour that might be thought to be irresponsible. There are a lot of ads on children’s TV for expensive toys and games that encourage children to say to their parents, “Can I have that toy and that game?”, which the parent cannot necessarily afford.
EU: Money-laundering Directive
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Lord Newby (LD)
My Lords, I thank the noble Lord, Lord Willoughby de Broke, for introducing this debate and all noble Lords for their contributions. I will try to answer some of the broad concerns expressed and lay out the steps that the Government are taking to ensure the effective and proportionate treatment of trusts under the fourth money-laundering directive.
Proposals for the directive are aimed at improving the transparency over who owns and controls companies and legal arrangements, such as trusts. The World Bank estimates that between 2% and 5% of global GDP is subject to money laundering, with some estimates showing that global illicit outflows from developing countries dwarf the amount that they receive in official development assistance. Furthermore, the UN Office on Drugs and Crime estimates that less than 1% of that is currently being seized or frozen. Tackling these illicit flows was therefore a key priority for the UK’s presidency of the G8 last year. As the Prime Minister said at the October 2013 Open Government Partnership summit,
“transparency needs to extend beyond the public sector and into the private sector ... but there are also many wider benefits to making this information available to everyone. It’s better for businesses here ... developing countries ... and ... the more eyes that look at this information the more accurate it will be”.
That is why the UK has committed to establishing the world’s first publicly accessible registry of company beneficial ownership.
The EU’s fourth money-laundering directive is an opportunity to build on that momentum. The directive seeks to implement the revised standards of the Financial Action Task Force and the European Commission’s review of the implementation of the third money-laundering directive. We are committed to ensuring that the directive implements the FATF standards in full. As the Prime Minister wrote to European Heads of Government last year, our first collective step should be to mandate public central registries of company beneficial ownership as the benchmark for transparency of ownership and control. At the same time, the UK recognises that it is equally vital to prevent the potential misuse of trusts and similar legal arrangements.
The FATF sets the global standards to improve the transparency of the beneficial ownership of corporate and legal entities, including companies, and legal arrangements such as trusts. In setting those standards, the FATF recognises that preventing the misuse of trusts is critical but also explicitly recognises that trusts are different from companies. In particular, it is vital to understand that, unlike companies, common law trusts, such as those established under English and Welsh law, are not created by the state. Furthermore, trusts, unlike companies, are used for a range of purposes, such as benevolence, inheritance, protecting vulnerable people and family support. As such, the implications for privacy are far greater, and trusts therefore warrant different treatment.
Measures placed on trusts must therefore be different from those that apply for companies in order to be proportionate and effective. The Government support a mandatory requirement for trustees to know the beneficial ownership of their trusts. That, together with tax reporting to HMRC, to which the noble Lord, Lord Willoughby de Broke, referred, and future automatic exchange of tax information agreements, will offer more transparency on trusts than ever before. In particular, through automatic exchange agreements, financial institutions will report information to national tax authorities on trusts holding accounts with them where the beneficiary is a resident of a partner jurisdiction. That information is then automatically shared with the partner jurisdiction. There are already 44 signatories to this international standard on automatic exchange, which creates a web of information exchange that will provide greater transparency on trusts than ever before.
This approach provides a proportional and effective means of enhancing transparency on trusts holding financial assets, given that they pose the greatest money- laundering risk. The Government oppose the mandatory registration requirement for trusts, which, together with the creation of central registries of trusts, was recently adopted as the European Parliament’s position on the directive. Given the transparency afforded by automatic transfer of information agreements, we consider registration of trusts to be a disproportionate approach and, in particular, one which undermines the common-law basis of trusts in the UK. As such, we continue to work with other member states, civil society and the private sector to ensure effective treatment of trusts.
Beneficial ownership has proved to be the most contentious issue in discussions over the fourth money-laundering directive. We are under no illusions about the challenges ahead. Following agreement between member states, negotiations to reach a mutually agreed final text with the European Parliament are likely to be challenging, given the position adopted by MEPs, as has been described. I assume that among the small minority of those who voted against this directive was a full turnout of the British UKIP contingent.
What happens next is that we are working with the Council presidency and other member states to agree a compromise that would limit the scope of obligations on trusts to those holding financial assets, which the UK would satisfy through existing reporting obligations for trusts holding financial assets, domestic reporting requirements and automatic exchange of tax information agreements. Such a compromise would complement the UK’s advocacy of ambitious action on company beneficial ownership. Of course, such an approach would exclude, for example, wills from the implementation of the directive, as wills do not form that category of trust.
Negotiations are ongoing, and we expect the Greek presidency to seek agreement among member states over the next few months. The subsequent Italian presidency would then seek the conclusion of the directive during the second half of 2014, in co-operation with the European Parliament. In answer to the noble Lord, Lord Pearson of Rannoch, the decision in the Council will be by qualified majority vote.
A number of questions were asked of me—
Lord Pearson of Rannoch
Before the Minister leaves that point, it might be a good place to press him on the famous doctrine of subsidiarity. In view of the difference between our system and the other systems in Europe, would it not be a good idea to use subsidiarity?
Lord Newby
My Lords, the approach I set out would mean that we would have a different way of reporting the majority of trusts. Therefore, there would not be a common system across the EU. The Government’s view is that it is very important that, across all the EU, there is a requirement for both companies and trusts to be more transparently described than they are at the moment. That is why we put a huge amount of effort into pursuing the concept of the mandatory requirement on beneficial ownership of companies. We want to ensure that, as far as possible, information about trusts that could be problematic for money-laundering purposes will be more generally available. Our proposals would do that in respect of the UK without having a full mandatory register in the same way as we propose for companies. We accept that there is a difference in nature between the two, but we think we can have the best of both worlds by having that difference of approach between them.
In response to the question from my noble friend Lord Dykes, trusts would not become default alternatives to companies because there are the requirements to report financial information to HMRC and to pay tax where appropriate and also for the automatic exchange of information where the beneficiary is a foreign national.
Lord Phillips of Sudbury
Would the requirement on the trustees and trust extend to revealing who the beneficial owners are?
Lord Newby
I am not sure I can give my noble friend a definitive answer now. I may be able to, but in any event I will write to him about that.
My noble friend Lord Dykes referred to the challenges of making a risk assessment in this area. Of course, it is almost an impossible task. I do not think that the risk assessment is a key part of the process. We do it because we have a broad sense of what the risks are, without being able to get to the nearest pound or euro.
In answer to my noble friend Lord Phillips’ earlier question, I should have been clearer: the answer is yes.
My noble friend Lord Dykes also asked about third country equivalence. Commission proposals do not include provisions for listing of third countries as having equivalent money-laundering or terrorist-financing regimes. Under the third money-laundering directive, this proved to be a problematic process, and the white list of equivalent jurisdictions was difficult to keep up to date. The FATF peer reviews of member states heavily criticised this white-listing process, and we support the Commission’s view.
My noble friend Lord Phillips of Sudbury discussed the reductions in HMRC staff. It is not a question of whether they are more efficient at doing the same jobs. The truth is that the way in which we manage the tax affairs of the vast bulk of individuals and companies is now online. A huge number of staff whose jobs were essentially related to dealing with paper are no longer necessary. The reduction in staff is largely in response to changed circumstances. I remind my noble friend that we put in an additional almost £1 billion in this Parliament for staff working on tax avoidance and evasion. That has already generated several million pounds-worth of additional revenue beyond what we believe would otherwise have been obtained. There has been a change in gear, if you like, in the way that HMRC operates.
To sum up, given that my time is very brief, the UK is leading from the front on an agenda that places a practical emphasis on transparency and accountability. The Government are working to ensure that the EU shows similar ambition on what is a cross-border issue, with serious implications for developed and developing countries alike. We want the outcome to be fair and proportionate, but we also require it to be effective. That is what we are working towards and what I am optimistic that we will achieve.
Tax Credits (Late Appeals) Order 2014
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Lord Newby
That the draft orders and regulations laid before the House on 12 February be approved.
Relevant documents: 22nd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 17 March.
Finance: Interest Rates
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Lord Barnett
To ask Her Majesty’s Government whom they consider ultimately responsible for United Kingdom interest rates.
Lord Newby (LD)
My Lords, the UK’s monetary policy framework, set out in the Bank of England Act 1998, gives operational responsibility for monetary policy to the independent Monetary Policy Committee. Decisions on setting the bank rate and the remuneration rate on reserves are for the judgment of the MPC. It uses its macroeconomic tools to aim to meet the inflation target of 2% in the medium term.
Lord Barnett (Lab)
My Lords, the noble Lord did not quite answer my Question, about where the ultimate power rests. The Bank of England Act, which he cited, is worth quoting. Section 19(2), on reserve powers—as he knows, the Treasury never gives away old powers without some reserves—says:
“An order under this section may include such consequential modifications of the provisions of this Part relating to the Monetary Policy Committee as the Treasury think fit”.
In those circumstances, surely the noble Lord must accept that the real power rests with the Chancellor, who has power as he thinks fit. Will he be so kind as to tell us, first, why he normally never answers the question properly and, secondly, whether he now accepts that the Chancellor has the ultimate power, as my Question asked?
Lord Newby
My Lords, interest rates are set by the Monetary Policy Committee. The noble Lord quoted rather selectively from the Act. If he had read Section 19(1) instead of Section 19(2), he would have found that the Treasury’s powers to which he referred are applicable only if they are,
“required in the public interest and by extreme economic circumstances”.
In the absence of “extreme economic circumstances”, the Treasury has no reserve powers.
Lord Vinson (Con)
My Lords, whoever is in charge, is it not time we had a monetary policy system that paid due regard to the rate of exchange? A trading nation cannot ignore the rate at which it exchanges its goods. Is it not time our policy embraced the effect of interest rates on the rate of exchange as well as on inflation?
Lord Newby
No, my Lords, I do not think it is. You cannot control both. One of the interesting things about the large depreciation in the pound is that it did not have the impact on the balance of payments that people expected. The rate of exchange is only one of many variables that determine how competitive and successful exports are. All the evidence is that it is not quite as important a determinant as used to be thought.
Lord Peston (Lab)
My Lords, as background to this Question, we should remember that when we were debating the 1998 Act the Minister went to great lengths to emphasise that the activities of the Monetary Policy Committee would be scrutinised not only by other place but also by this House. Certainly, when I was chairman of the Economic Affairs Committee—a committee I invented, as the Minister is well aware—we used to see the Governor of the Bank of England regularly. All that is background to a very simple question: when was the last time that the Governor of the Bank of England went to the Economic Affairs Committee and was scrutinised by it?
Lord Newby
My Lords, I am afraid that I do not read the papers of the Economic Affairs Committee as assiduously as I should, and I cannot quite remember. My recollection from reading them from time to time is that the governor still goes, although not as frequently as when the noble Lord set up the committee. The committee was established specifically to review the workings of the Monetary Policy Committee; it was not an Economic Affairs Committee—I had the honour of sitting on it with the noble Lord. Although the governor does not come to the committee as frequently as he used to, he still does come—but I shall write to the noble Lord to tell him when the last time was.
Lord Razzall (LD)
My Lords, does the Minister agree that the powers of the Monetary Policy Committee are even greater than are often thought? Does he further agree that the best example of this—if he were to read the minutes of the last meeting which have been published—is that the governor’s wish to include reference to the output gap in forward guidance was overruled by the Monetary Policy Committee, thereby indicating its power?
Lord Newby
My Lords, one slightly surprising thing about the way in which the MPC has worked is the independence of its members vis-à-vis the governor. When it was established, I think that there was a view that it would be a poodle of the governor, because a significant number of members are other employees of the Bank of England. That has not proved to be the case, and governors have, if not regularly, then on a number of occasions been overruled by the rest of the committee over the years.
Lord Davies of Oldham (Lab)
My Lords, I have two questions, the second being short. First, the Government used to say that low interest rates were a sign of the success of their policies. Now that rates are beginning to edge up somewhat, they are saying that it is a further sign of the success of their policies. How does the Minister resolve this contradiction? Could he answer a second question: how many women are on the Monetary Policy Committee?
Lord Newby
On the latter question, I am sure that the noble Lord will join me in congratulating the woman who today has been the MPC’s latest appointment as deputy governor. On the first question, the success of the system was that it enabled the Monetary Policy Committee to “look through”—to use the technical phrase—a temporary peak in inflation, when it went up to 5% because of external factors, and keep interest rates low, which helped the recovery. I think that most people would agree that interest rates are at an unusually and historically low level and that, as the economy recovers, we would expect interest rates slowly to rise, although, as the governor said in the recent forward guidance, it is expected that any increase in interest rates will be very gradual and that the new equilibrium is unlikely to be as high as it was in the past.
Guardian’s Allowance Up-rating Order 2014
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Lord Newby
That the Grand Committee do consider the Guardian’s Allowance Up-rating Order 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, as I begin, it is a requirement that I confirm that the provision contained in the three orders and regulations before the Committee today is compatible with the European Convention on Human Rights, and I so confirm.
The two orders that we are debating increase by CPI the rate of guardian’s allowance, the payment made to provide support to those who look after a child whose parents are deceased. The regulations increase the maximum rates of the disability elements of tax credits—that is, the disabled child and severely disabled child elements of child tax credit and the disabled worker and severely disabled worker elements of working tax credit—in line with CPI. This decision was taken to protect those benefits that help with the extra cost of disability. The regulations also increase the earnings threshold for those entitled to child tax credit only, after which payments begin to be tapered away.
The regulations and orders before the Committee today protect the most vulnerable by ensuring that the guardian’s allowance and the elements of working tax credits and child tax credits designed to assist with the extra costs of disability keep pace with the change in prices. This Government have ensured that these elements of financial support paid to low-income and vulnerable households have kept pace with inflation and will continue to do so until the end of this Parliament.
Alongside the broader steps that this Government are taking to support hard-working families with the costs of living, these regulations and orders make sure that support for the most vulnerable in the tax credit system is protected, even in the context of tough decisions elsewhere. The Government’s approach is helping to secure the recovery now and for the longer term. I commend these regulations and orders to the Committee.
Lord Tunnicliffe (Lab)
My Lords, I commend the Minister for not making the classic mini-Budget speech before introducing these orders, as has been done on previous anniversaries. I shall also put my mini-Budget speech to one side and save us all a great deal of time. The two orders reveal the difference between us on CPI and RPI and I will not rehearse that. The explanatory memorandum to the final instrument, the Tax Credits Up-rating Regulations 2014, says that they will go up 2.7%. I casually spoke to my computer about this and in Regulation 2, the amendment of the Child Tax Credit Regulations 2002, the figure of £5,735 goes up to £5,850. My computer says that this is 2%. The next figure, of £6,955, goes up to £7,105. Sheer curiosity demands that I ask why this is more like 2% than 2.7%. I am sure that there is a cunning answer.
Lord Newby
My Lords, I am sure that there is a cunning answer. I am equally sure that I do not know what it is, so I am afraid that I will have to write to the noble Lord with my cunning answer.
Tax Credits Up-rating Regulations 2014
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Lord Newby
That the Grand Committee do consider the Tax Credits Up-rating Regulations 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Guardian’s Allowance Up-rating (Northern Ireland) Order 2014
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Lord Newby
That the Grand Committee do consider the Guardian’s Allowance Up-rating (Northern Ireland) Order 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Tax Credits (Late Appeals) Order 2014
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Lord Newby
That the Grand Committee do consider the Tax Credits (Late Appeals) Order 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, I am pleased to introduce the Tax Credits (Late Appeals) Order 2014. It makes a small but important change to Section 38 of the Tax Credits Act 2002 to reinstate HMRC’s ability to accept late tax credit appeals. It inserts provisions to allow HMRC to treat a late appeal as made in time—that is, an appeal made outside the statutory 30-day time limit but within a further 12 months may be accepted in exceptional circumstances.
If a claimant disagrees with a decision made by HMRC—say, on a tax credit award—they can lodge an appeal within 30 days of the date of the decision. Since tax credits were introduced in 2003, it has been the policy intent that claimants can also lodge a late appeal in exceptional circumstances—for example, where a dependant died or they suffered a serious illness—within a period of 12 months after the normal 30-day time limit. Allowing late tax credit appeals where there is good reason to do so is consistent with the policy relating to the treatment of other appeals received by HMRC.
If there are no exceptional circumstances for lateness, HMRC will not accept the appeal. Instead, it will be passed to the tribunal, which will then make a decision as to whether to treat the appeal as made in time. This will be based on the tribunal’s wider view on whether it is fair and just to accept the appeal.
The defect that we are remedying today also carries across to the tribunal rules, meaning that tribunals cannot hear appeals made after the 30-day time limit either. The Tribunal Procedure Committee will similarly be remedying its rules to ensure that the legislation works as intended.
The defective legislation arose from changes made in 2009 to legislation applying to appeals in Great Britain in the light of the establishment of new courts and enforcement tribunals. HMRC and the MoJ introduced changes to their appeals legislation as a consequence of the transfer of the functions of the former special and general tax appeal commissioners to the First-tier Tribunal and Upper Tribunal tax chambers. An unintended consequence of the interaction of these legislative changes led to the legislation allowing HMRC to accept late appeals to lapse.
I should like to reassure the Committee about what has been happening since the lapse was discovered. We did not want claimants to be adversely affected by this lack of legal power, so HMRC has been accepting late appeals through its care and management powers, and judges are still deciding on a case-by-case basis. However, neither can do so indefinitely without this legislative remedy.
I should also explain that there is to be a change to the appeals process from 6 April this year. HMRC is introducing a new stage called mandatory reconsideration. When claimants dispute decisions, they will have to ask HMRC to conduct a mandatory reconsideration of the decisions before they can appeal, which they will then have to do directly to the tribunal. This is called direct lodgement. HMRC is introducing mandatory reconsideration to align the tax credits process to that already introduced by the DWP. As tax credits are to be replaced by universal credit over a period of time, it will help to provide consistency between the two departments around appeals. However, appeals to HMRC against decisions made prior to 6 April 2014 will be dealt with under the current flawed system.
This order remedies the flaw in the current legislation and legally reinstates HMRC’s power to accept late tax credit appeals. I commend the order to the Committee.
Lord Tunnicliffe (Lab)
My Lords, nobody could object to such a wholly rational and reasonable order. I shall just ask a couple of questions. When was the error discovered? I was going to go on and ask the Minister to set out the consequences of it, but I think that he said that there have been no consequences to individuals because the process rolled on and, in fact, the order merely legitimises the administrative process that is taking place. If so, that has obviously been handled in an intelligent way and my question as to when it was discovered is somewhat academic.
Lord Newby
Yes, my Lords, HMRC has been operating, as I said, under its care and management powers to accept late appeals as though there was no problem, as it were. The error was first discovered last May. There has been some discussion as to whether the change in the legislation was necessary, given that the whole system is changing from this April, but it was decided that it was, not least because late appeals in exceptional circumstances can be considered up to a year after the initial decision. So I can absolutely reassure the noble Lord that in the interim, since the problem was discovered, nobody has lost out. HMRC has been accepting late appeals through its care and management powers, and judges have still been deciding cases on that basis.
Scottish Independence: Currency Union
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Lord Sherbourne of Didsbury
To ask Her Majesty’s Government whether they have made any assessment of the constitutional, political, financial and economic implications if there were to be a currency union between an independent Scotland and the rest of the United Kingdom; and, if so, whether they intend to publish it.
Lord Newby (LD)
My Lords, Her Majesty’s Government assessed these issues in the recent paper Scotland Analysis: Assessment of a Sterling Currency Union. This is the analytical basis on which the Chancellor of the Exchequer has said that he could not recommend that the other parts of the UK share the pound with an independent Scottish state, because it would not be in the economic interests of either the continuing UK or of Scotland.
Lord Sherbourne of Didsbury (Con)
Does my noble friend agree that the sure way for Scotland to keep the pound is to vote to stay in the UK, which I hope it will? If it were to vote to leave the UK and any future Westminster Government were ever to be minded to enter a currency union with Scotland—or, for that matter, with the eurozone—would that not require a referendum so that the people could decide?
Lord Newby
My Lords, before you got to that point, it would require the rest of the UK Government to wish to recommend such an outcome. It is worth quoting the conclusion of the official Treasury study, which says:
“On the basis of the scale of the challenges, and the Scottish Government’s proposals for addressing them, HM Treasury would advise the UK Government against entering into a currency union. There is no evidence that adequate proposals or policy changes to enable the formation of a durable currency union could be devised, agreed and implemented by both governments”.
As a result, I do not think we will get to that point.
Lord Wigley (PC)
My Lords, does the Minister accept that, in the event of there being a yes vote for independence, it is in the interests of business not only in Scotland but in the rest of the United Kingdom that there is a parity and stability of currency? How would the Government provide that?
Lord Newby
It is always in the interests of all Governments to have a stable currency. The question for the Scottish Government is how they think they would provide that. If they opted to keep the pound outside a currency union, they would face very serious problems in managing their budget and the economy of Scotland.
Lord Stephen (LD)
My Lords, does my noble friend the Minister agree that the position of the UK Government on this issue is now crystal clear, as indeed are the positions of the Labour Party, the Conservative Party and the Liberal Democrats, and it is now for the Scottish Government and the SNP to do the explaining, as their policy position looks increasingly incredible, unclear and completely unconvincing?
Lord Newby
My Lords, I completely agree with my noble friend. It is highly irresponsible of the Scottish Government to have no plan B, when it has been made absolutely clear that the kind of currency union that they want is simply not on the cards. They have other interesting questions to answer in this respect. As the Governor of the Bank of England pointed out yesterday, Scotland, as a new EU applicant, would have to agree at some point to join the euro. I think at one point Mr Salmond was in favour of that; I am not so sure what his policy is on it now.
Lord Forsyth of Drumlean (Con)
My Lords, does my noble friend not think it extraordinary that Alex Salmond has had 40 years to think about how to answer this question and is unable to do so? Furthermore, does my noble friend not think that this is the height of irresponsibility, given that we are not discussing some abstract economic concept here, we are talking about the amount that people will have to pay on their mortgages and the future of Scotland’s families? What advice would he give to the leader of the Scottish separatists at this point?
Lord Newby
My Lords, I have many burdens in your Lordships’ House but, fortunately, advising the leader of the Scottish National Party is not one of them. I will point out, however, that on all the available analysis, the likelihood is that were Scotland to adopt the pound, the interest rates that would be payable in Scotland would be significantly higher than they are here—possibly up to 1.65% higher. For an average Scottish mortgage holder, that works out as an extra £1,700 to pay.
Lord Martin of Springburn (CB)
My Lords, many people in Scotland, including myself, appreciate the fact that UK Ministers have come forward and explained the difficulties of separation. The Chancellor of the Exchequer is one of them. It is a nonsense for the First Minister to say that whenever a UK Minister comes forward to talk about the difficulties, that is bullying and bluffing. I say to the noble Lord from Plaid Cymru that the worst thing that could happen is to say to the Scottish people, “Vote yes and the following morning we will do a deal with the Chancellor of the Exchequer because he is only bluffing”. That is absolute nonsense and it shows the type of irresponsibility that exists within the Scottish Government.
Lord Newby
My Lords, one thing I find slightly surprising, at a bit of a distance from this debate, is that any aspect of independence that is tricky seems to be met by the response from the Scottish First Minister that, “No, it’s not tricky. Don’t worry, it’ll be fine”—often with zero evidence to back it up. I hope that colleagues in my party and other parties in Scotland will carry on pointing out to the Scottish people the hollowness of many of his assertions.
Lord McAvoy (Lab)
My Lords, the establishment of a single currency between a separate Scotland and the rest of the United Kingdom would require negotiations with a trusted partner. There would be great difficulty in trusting Mr Salmond, the First Minister, who only last year described the pound as a millstone around Scotland’s neck. Where is the trusted partner there?
The Duke of Montrose (Con)
My Lords, at what point will Her Majesty’s Government assess the amount of trade in goods and services from the rest of the United Kingdom into Scotland? Will they also look at the trade between Scotland and the rest of the UK?
Lord Newby
Yes, my Lords. Proportionately, the amount of trade from Scotland to the rest of the UK is much greater than it is from the rest of the UK to Scotland. About 70% of Scotland’s trade is to the rest of the UK and only about 10% of the rest of the UK’s trade is to Scotland. There is therefore a big imbalance in the importance to the two parties of the trade between them.