Tax Credits Up-rating Regulations 2014

Lord Newby Excerpts

Monday 17th March 2014 Grand Committee

Moved by

[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

Motion agreed.

Scottish Independence: Currency Union

Lord Newby Excerpts

Wednesday 12th March 2014 Lords Chamber

[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?

[Lord Newby]

Quite.

[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.

Economy: Inflation

Lord Newby Excerpts

Tuesday 11th March 2014 Lords Chamber

[Lord Horam]

To ask Her Majesty’s Government what assessment they have made of the latest report of the Office for National Statistics on the consumer prices index and its impact on household budgets.

[Lord Newby (LD)]

My Lords, the consumer prices index measure of inflation decreased on an annual basis to 1.9% in January 2012 from 2% in December. This is the lowest rate since November 2009, which is good news for families and businesses. In its December economic and fiscal outlook, the Office for Budget Responsibility forecast average nominal earnings growth to rise more rapidly than CPI inflation this year.

[Lord Horam (Con)]

I wonder whether my noble friend saw the excellent speech by the chairman of the Engineering Employers’ Federation last week in which he said that he thought now was a good time for employers to give a good wage increase to their employees to make up for the restraint they had exercised during the years of Labour’s great recession. Does he agree with this sentiment? Does he further agree that it would be even more excellent news if, in the Budget next week, the Chancellor thought it fit to raise, once again, the income tax threshold, thus reinforcing our commitment to the low paid?

[Lord Newby]

My Lords, I agree with the EEF on the desirability of wage increases, particularly for those on lower incomes and not only, as has happened all too frequently in recent years, for those on the board. I also agree that raising the income tax threshold further is an excellent way of helping people on modest incomes and I hope that we can do more of it.

[Lord Barnett (Lab)]

My Lords, I take it that the noble Lord agrees with Robert Peston of the BBC—I am not referring to my dear and noble friend Lord Peston—who said that, on the figures given by the Government, the change from RPI to CPI would cost £83 billion over 15 years. That would mean substantial losses in retirement for pensioners in private sector businesses, not those in the public sector. This is a substantial loss in revenue for those people. What plans do the Government have to compensate those pensioners in retirement, who will suffer considerably?

[Lord Newby]

My Lords, the noble Lord knows that this Government and the previous Government decided to move to CPI from RPI as a measure of inflation simply because we believe it is a more appropriate way of measuring inflation. It is as straightforward as that. Everyone who is affected by CPI rather than RPI will be affected by a better measure of inflation.

[Lord Lawson of Blaby (Con)]

My Lords, while the operational independence of the Bank of England on monetary policy is of the first importance, would my noble friend consider saying gently to the governors that their authority would be greater and the effectiveness of monetary policy enhanced if they were to talk rather less about matters that are market sensitive?

[Lord Newby]

There is a tension as far as the Bank of England is concerned. If it does not say anything it is criticised for not giving any indication of what it thinks; and when it does say something, it is criticised for saying what it thinks. That is an inevitable problem. On balance, it is better to have the governor and other members of the senior management of the Bank of England explaining what they think is happening to the economy, what they are doing and why they are doing it.

[Lord Sugar (Lab)]

My Lords, the average family has paid £1,350 extra in VAT since it was increased by the Government. I am hearing noises from the Government that the economy is supposed to be looking up a little. If that is the case, would the Minister consider asking the Chancellor to revert back to a rate of 17.5% in his Budget next week?

[Lord Newby]

The noble Lord is not alone in hearing that the economy is improving: the economy is indeed improving. The British Chambers of Commerce increased their growth forecast to 2.8% only yesterday; the growth in permanent jobs, according to KPMG, was last month at its second highest since records began. As far as VAT is concerned, the noble Lord is asking the Government to spend somewhere in the region of £12 billion to £14 billion extra. We have not eliminated the budget deficit: the only reason we have what now looks like sustainable growth is that we have a credible path for the public finances and interest rates and we are not going to throw that away.

[Baroness Humphreys (LD)]

My Lords, the items which undoubtedly have the greatest and most disproportionate impact on the household budgets of those on low incomes are energy bills. Will my noble friend give some indication as to what action the Government can take to reduce these bills for low-income households?

[Lord Newby]

My Lords, as my noble friend is aware, we took action in the autumn to reduce household energy bills. In the longer term, the key aim is to ensure that we have sustainable energy supplies; the Government’s energy policies are designed to do just that.

[Lord McFall of Alcluith (Lab)]

My Lords, the figures indicate that in four years’ time, in 2018, typical living standards for a household will be 3.5% lower than they were in 2007, before the financial crash. Does that not indicate that the Government have to be open and honest about the situation, so that, in the Budget next week, the Chancellor will bring forward policies that will assist hard-working families and households in this country who feel the pressure ever so much as the months go past?

[Lord Newby]

My Lords, the GDP is going to be higher in the second half of this year than it was before the crash. We are going to have more people in work. These are the two key determinants of how the average household is going to feel. In the mean time, by taking actions such as freezing fuel duties and increasing the threshold for income tax, we have given some relief to tens of millions of individuals and we intend to maintain those policies.

[Lord Higgins (Con)]

My Lords, in respect of my noble friend Lord Lawson’s question, is it the Government’s view that forward guidance by the Governor of the Bank of England on interest rates was helpful or not?

[Lord Newby]

Yes, my Lords, the Government welcomed the decision by the current governor to issue forward guidance last August. We continue to support the concept of forward guidance.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister might try to wear his rose-tinted spectacles, but he knows the facts. He knows that ordinary working people on average have lost £1,600 a year since this Government came into office. He knows that families, through the Government’s tax and benefit changes, have lost £891 pounds a year and he knows from the most recent statistics that zero-hours contracts have increased threefold since this Government came into office. By heavens, they have a lot to do to make up for those deficits.

[Lord Newby]

There is a question over whose deficit we are talking about here. The noble Lord knows that since the 2010 election, employment has increased by 1.3 million; unemployment is down by 152,000; there are more women in work than ever before; and every single survey for the future suggests higher income, more people in work and a growing economy. That is a record to be proud of.

[Lord Spicer (Con)]

This has all become a little bit distorted. Does my noble friend agree that inflation is a bad thing and that keeping it down is the rightful priority of the Bank of England?

[Lord Newby]

Indeed, my Lords. Whatever the forward guidance of the Bank of England, it does not detract from its basic purpose, which is to keep inflation at or around 2%. That is the position we are now in and we believe that it will be the position going forward.

[Lord Grocott (Lab)]

My Lords, I hope I will not alarm the Minister too much if I say that I have been listening carefully to what he has been saying and, if I had come from outside, I would find it impossible to answer the question as to whether the Minister was a member of the Liberal Democrat party or the Conservative Party. Bearing that in mind, does he agree that, come the next general election, if people want a Conservative Government, the best thing to do is to vote Conservative; if they want a Labour Government, the best thing to do to vote Labour; and if they are thinking of voting Liberal, that is probably a waste of time?

[Lord Newby]

The noble Lord knows that I speak from the Dispatch Box for the Government. I am sure that he will not be surprised to know that I am extremely proud of this Government’s record on the economy.

Supply and Appropriation (Anticipation and Adjustments) Bill

Lord Newby Excerpts

Monday 10th March 2014 Lords Chamber

Moved by

[Lord Newby]

That the Bill be read a second time.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.

Arrangement of Business

Lord Newby Excerpts

Wednesday 5th March 2014 Lords Chamber

[Lord Newby (LD)]

As has been indicated on today’s list, the Question for Short Debate in the name of the noble Baroness, Lady Jay of Paddington, will now be taken as last business. This will extend the debate from 60 to 90 minutes, and therefore give those participating double the speaking time—from one minute to two minutes.

Co-operative and Community Benefit Societies and Credit Unions (Investigations) Regulations 2014

Lord Newby Excerpts

Wednesday 5th March 2014 Lords Chamber

Moved by

[Lord Newby]

That the draft order and regulations laid before the House on 27 January be approved.

Relevant Document: 20th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 3 March

Motions agreed.

Co-operative and Community Benefit Societies Bill [HL]

Lord Newby Excerpts

Tuesday 4th March 2014 Lords Chamber

Moved by

[Lord Newby]

That the order of re-commitment be discharged.

[Lord Newby (LD)]

My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Unless, therefore, any noble Lord objects, I beg to move that the order of recommitment be discharged.

Motion agreed.

Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2014

Lord Newby Excerpts

Monday 3rd March 2014 Grand Committee

Moved by

[Lord Newby]

That the Grand Committee do consider the Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2014.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Co-operative and Community Benefit Societies and Credit Unions (Investigations) Regulations 2014

Lord Newby Excerpts

Monday 3rd March 2014 Grand Committee

Moved by

[Lord Newby]

That the Grand Committee do consider the Co-operative and Community Benefit Societies and Credit Unions (Investigations) Regulations 2014.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments.

[Lord Newby (LD)]

My Lords, I am pleased to introduce the Co-operative and Community Benefit Societies and Credit Unions (Investigations) Regulations 2014. With your permission, I will refer to them as the investigations regulations.

The current regulatory regime for co-operatives, community benefit societies and credit unions is in need of modernisation in order to deliver better outcomes for consumers and the sector in Great Britain, now and for the years to come. The Government are therefore taking forward a package of measures, following a public consultation last year. The investigations regulations are part of this package.

The other three measures in the package will increase the amount of withdrawable share capital an individual can invest in a society from £20,000 to £100,000; make insolvency rescue procedures available to industrial and provident societies; and simplify electronic registration for new societies.

These changes, alongside progressing the co-operative and community benefit societies consolidation Bill, demonstrate the Government’s commitment to promote mutual bodies and to foster diversity in the UK economy while preserving the unique features of the sector. There are around 7,600 societies and 380 credit unions registered in Great Britain. The sector continues to provide a popular and successful structure for mutually run businesses, with a growing membership of more than 15 million members in the UK.

Looking specifically at the investigations regulations, this statutory instrument gives the Financial Conduct Authority additional powers to investigate co-operatives, community benefit societies and credit unions where circumstances suggest their behaviour may be improper or unlawful. The FCA initially requested these changes to legislation to enhance its powers to investigate societies. The proposal was included in the Government’s July 2013 public consultation, Industrial and Provident Societies: Growth through Co-operation, and was well received by respondents from industrial trade bodies, individual societies, credit unions and consumer groups.

The investigations regulations aim to increase confidence in co-operatives, community benefit societies and credit unions by creating a level playing field with the requirements that companies face. Therefore, the additional powers for the FCA are in line with the current powers in the Companies Act 1985, appropriately modified for societies. The investigations regulations include a number of new powers, including the requirement for the FCA to appoint an inspector if a court instructs it to do so. They also give the FCA power to appoint an inspector to investigate the affairs of a society. The power is available in the same circumstances as for companies, for example where it appears to the FCA that the society’s business may have been conducted with an intention to defraud creditors or for unlawful purposes.

Other powers concern the expenses of an investigation and state that these would be payable in the first instance by the FCA, which would then have the power to recover them from the society investigated. The total cost of an investigation is expected to be no more than £100,000, since co-operatives, community benefit societies and credit unions are relatively simple business models compared with large companies, where much higher costs may be involved.

In practice, the FCA’s first intention would be to recover the costs of an investigation from the periodic fees paid by all societies; as a last resort the FCA may consider using its central budget before passing on any costs to a society. It is also worth noting that the FCA estimates, based on past experience, that it would only need to use the powers to investigate up to one society a year.

The measure also gives the FCA, or an authorised investigator, power to give directions to a society to produce documents and provide information. This is similar to the FCA’s existing powers but, in addition, the investigations regulations give the FCA or an authorised person the power to apply to a magistrate for a warrant of entry to premises of a society on the same grounds as those relating to companies.

These regulations will help to improve the legislation for co-operatives, community benefit societies and credit unions by bringing it more into line with that for companies and giving members of these societies confidence that the regulator has adequate powers to act to investigate those societies suspected of wrongdoing. This will benefit the co-operatives sector as a whole by giving more confidence in the legal form, and it has been welcomed by the main trade body, Co-operatives UK. I commend the regulations to the Committee.

[Lord Tunnicliffe (Lab)]

My Lords, these regulations seem to be universally welcomed and they are certainly welcomed from these Benches. I studied the Explanatory Memorandum with some care and looked at the general Committee debate in another place. The only point that my eyes alighted upon was the powers mentioned in paragraph 7.4 of the Explanatory Memorandum. The other powers concern the expenses of the investigation. These will be payable in the first instance by the FCA but will be recovered from the society being investigated, which rather implies that they go through the FCA as a transaction. I note the response that the Financial Secretary to the Treasury made in another place, using more or less the same words that the Minister has used—that it would be unusual for such a charge to be passed through to the society being investigated. However, I would welcome an assurance that where the investigation reveals no malpractice, there will certainly be no passing through of the charge to the society concerned. With that, I am entirely content with the regulations and fully support them.

[Lord Newby]

My Lords, in respect of the noble Lord’s question, the FCA has the option of either recouping its costs directly from the society in question or funding the costs from within its own overall budget. In the case of a society being felt to have committed no wrongdoing, the FCA may well decide that it is more appropriate to adopt the latter option. However, the decision will be for the FCA. I hope that that answers the noble Lord’s question.

Motion agreed.

Social Security (Contributions) (Limits and Thresholds) (Amendment) Regulations 2014

Lord Newby Excerpts

Monday 3rd March 2014 Grand Committee

Moved by

[Lord Newby]

That the Grand Committee do consider the Social Security (Contributions) (Limits and Thresholds) (Amendment) Regulations 2014.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments.

[Lord Newby (LD)]

My Lords, I am pleased to introduce to the Committee the Social Security (Contributions) (Limits and Thresholds) (Amendment) Regulations 2014 and the Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2014. As both the regulations and the order deal with national insurance contributions, it seems sensible that they should be debated together. As a matter of course, I can confirm that the provisions in the regulations and the order are compatible with the European Convention on Human Rights.

The changes to the NICs rates and thresholds covered by these two instruments were announced as part of the Chancellor’s Autumn Statement on 5 December last year. It is worth confirming from the start that the basis of indexation that has been used to calculate the changes covered by these two instruments is the same as that used since the 2012-13 tax year.

In the Budget 2011, we announced that from the 2012-13 tax year the basis for indexation of most NICs rates limits and thresholds would be the consumer prices index, the CPI, instead of the retail prices index, RPI, rate of inflation. This is because the Government believe that the CPI is the most appropriate measure of the general level of prices. The exceptions to this are the secondary threshold and the upper earnings and upper profits limits.

I will start with the Social Security (Contributions) (Limits and Thresholds) (Amendment) Regulations. These regulations are necessary to set the class 1 national insurance contributions lower earnings limit, primary and secondary thresholds and the upper earnings limit for the 2014-15 tax year. The class 1 lower earnings limit will be increased from £109 to £111 per week from 6 April 2014. The lower earnings limit is the level of earnings at which contributory benefit entitlement is secured. However, NICs do not need to be paid by the employee until earnings reach the primary threshold. The class 1 primary threshold will be increased from £149 per week to £153 per week from 6 April 2014. The secondary threshold is the point at which employers start to pay class 1 NICs. In line with the commitment in Budget 2011, this is being increased by RPI from £148 to £153 per week.

From this April, the income tax personal allowance for people born after 5 April 1948 will be increased above indexation by £560 from £9,440 to £10,000. The point at which higher rate tax is payable will be increased to £41,865 in the 2014-15 tax year. As I mentioned, the upper earnings limit is not subject to CPI indexation. This is to maintain the existing alignment of the upper earnings limit with the point at which higher rate tax is paid. The upper earnings limit will be increased from £797 to £805 per week from 6 April 2014. The regulations also set the prescribed equivalents of the primary and secondary thresholds for employees paid monthly or annually. There will be no changes to NIC rates in 2014-15. Employees will continue to pay 12% on earnings between the primary threshold and the upper earnings limit, and 2% on earnings above that. Employers will continue to pay contributions at 13.8% on all earnings above the secondary threshold.

I move on to the social security order. This order sets out the NICs rates and thresholds for the self-employed and those paying voluntary contributions as well as providing for a Treasury grant. The order raises the small earnings exception below which the self-employed may claim exemption from paying class 2 contributions. The exception will rise in April, from £5,725 to £5,885 a year. Many self-employed people choose to pay these contributions in order to protect their benefit entitlement even though they may claim exemption from paying class 2 contributions. The rate of class 2 contributions for the 2014-15 tax year will rise from £2.70 to £2.75 a week. The rate of voluntary class 3 contributions will also increase from £13.55 to £13.90 a week for the 2014-15 tax year.

Today’s order also sets the profit limits for class 4 contributions. The annual lower profits limit on which these contributions are due will increase from £7,755 to £7,956 in line with the increase to the class 1 primary threshold. At the other end of the scale, the annual upper profits limit will increase from £41,450 to £41,865 for the 2014-15 tax year. This is to maintain the alignment of the upper profits limit with the upper earnings limit for employees. The changes to the class 4 limits will ensure that the self-employed pay contributions at the main rate of 9% on a similar range of earnings as employees paying class 1 contributions at the main rate of 12%. Profits above the upper profits limit are subject to the additional rate of 2% in line with the 2% paid by employees on earnings above the upper earnings limit.

Finally, I need to ensure that the National Insurance Fund can maintain a prudent working balance throughout the coming year, which the Government Actuary recommends should be one-sixth or two months of benefit expenditure. The rerating order provides for a Treasury grant of 5% of benefit expenditure to be made available to the fund in the 2014-15 tax year. Similar provision will be made in respect of the Northern Ireland National Insurance Fund. I commend the regulations and order to the Committee.

[Lord Tunnicliffe (Lab)]

My Lords, I have studied the Explanatory Memorandum and these regulations with great care, and I have to confess that I am finding it very difficult to find any questions whatever to ask on them. The report of the general committee in the other place was equally bereft of any serious exchange. There were some technical questions asked but I will not repeat them, on the basis that I am sure that the Treasury machine would give precisely the same answers. There was an exchange on some thinking that we are developing about a different rate of benefit for people who have paid contributions over a number of years but that has to be developed further, to make sure that it is cost-neutral. The 5% that the Minister mentioned is, as I understand it, essentially a piece of book-keeping and does not represent any increase in overall public expenditure. I am not sure whether the Minister said that explicitly and I would value it if he were to confirm that but otherwise we have no comments to make on these regulations.

[Lord Newby]

My Lords, I can confirm that the provision of a 5% Treasury grant is indeed a piece of book-keeping and does not involve any additional expenditure.

Motion agreed.