Economic Inequality

Lord Newby Excerpts

Monday 10th February 2014 Lords Chamber

[Lord Giddens]

To ask Her Majesty’s Government what policies they have to address economic inequalities in British society.

[Lord Newby (LD)]

My Lords, according to the latest ONS statistics, income inequality in the UK is at its lowest level since 1986. The Government are committed to ensuring that all families benefit from the return of growth to the economy and maintain that the best route out of poverty and the best way of reducing inequality is for households to move into work.

[Lord Giddens (Lab)]

My Lords, I thank the Minister for that response. However, I do not recognise it at all. Burgeoning social exclusion on the bottom; stagnant wages in the middle; runaway incomes and wealth at the very top—this is not a formula for a stable and integrated society. Surely the Government need some more radical and far-reaching policies to deal with this disturbing situation, which even the grandees at Davos are rather perturbed about.

[Lord Newby]

My Lords, one of the priorities of the Government is to ensure that work pays for everybody. This is one of the benefits that the Universal Credit will bring. This is one of the advantages of taking 2.7 million people out of income tax altogether. This is one of the reasons why my colleague, Vince Cable, has asked the Low Pay Commission to look at raising the minimum wage beyond what it might otherwise do, and this is why the Government support the living wage. Ensuring that work pays—and pays well—for people at modest levels of income is a top priority for this Government.

[Lord Lawson of Blaby (Con)]

My Lords, does my noble friend agree that it is far more important to focus on making the poor richer than on making the rich poorer?

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[Lord Newby]

My Lords, we want to make sure that everybody makes a fair contribution to society and that all those in work get a fair wage for their labour. Obviously, there comes a point when taking too much tax from those right at the top becomes counterproductive. However, certainly in terms of income tax take, the proportion of income tax now paid by the top 1% is at a historically high level.

[The Lord Bishop of Worcester]

My Lords, is the Minister aware of the first report published today by the Living Wage Commission, chaired by my friend the most reverend Primate the Archbishop of York, which found that emerging economic recovery will have no effect on more than 5 million workers unless employers pay a living wage. It found furthermore that 6.7 million of the 13 million people in poverty in the UK are in a family where someone works—which, for the first time, is more than half the total. Will the Minister tell the House what steps the Government are taking to address this real concern?

[Lord Newby]

My Lords, the Government are encouraging employers to pay the living wage where they can. One of the key things about people in work on very low incomes is that a large proportion of them are working a small number of hours or a smaller number of hours than they would like. Economic growth will mean that more of those people are able to work longer hours, which will help deal with their household circumstances.

[Baroness Lister of Burtersett (Lab)]

My Lords, not everyone is able to take paid work. Will the Minister explain what impact the raft of social security cuts, which will make the poor poorer, will have on inequality?

[Lord Newby]

My Lords, the prior question to that is: why are these changes being made? The answer is that we inherited a completely unsustainable economic circumstance which this Government are putting right.

[Baroness Hussein-Ece (LD)]

My Lords, despite recent efforts there remains a significant youth unemployment gap between black and white youths and some ethnic minorities—45% compared to 19%. While urgent improvements in skills and employability are needed to reduce the remaining structural problems, what more is being done to tackle the racial inequality that appears to be the key underlying factor?

[Lord Newby]

My Lords, one of the key challenges that the Government face is that educational attainment for some ethnic minority groups is lower than for others. That is why the priority being put in by the Government, via the pupil premium, to those schools with a larger than average proportion of children from those backgrounds is so important. Raising their attainment, as well as, as we have heard in an earlier question, putting in place UTCs, will provide much more vocational training, which is one of the key things for helping children from those communities.

[Lord Peston (Lab)]

My Lords, I must apologise to your Lordships for being an economist and for allowing some economics to get into an economics question. Is the Minister aware of the research evidence on these matters, which is that we need some inequality in our society in order to provide a proper incentive system? However, it is possible—and it is almost certainly the case in our country—that we have far too much inequality, which is a disincentive to economic growth. The Government do not seem to understand that, but when the Labour Government take over next year they will understand it and will deal with the matter.

[Lord Newby]

My Lords, that is no doubt why we inherited such rosy economic circumstances.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister used the graphic phrase, “making work pay for everyone”. It certainly pays for bankers, as Barclays tomorrow will announce another £2 billion in bonuses, following the £2 billion that it paid out last year. Since 2008, banks will have paid out, in accumulation, £80 billion in bonuses—£1,000 for every man, woman and child in this country. How can the Government talk about us all being in this together when there is such an obvious imbalance in the economy?

[Lord Newby]

My Lords, as the noble Lord will be aware, bonus levels in the City—although he finds them outrageously high—are now very much less than they were. There is a now a raft of domestic and EU rules in play that will reduce the extent to which bankers can take bonuses, except over a period and when bonuses are linked to the performance of the bank.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2014

Lord Newby Excerpts

Monday 10th February 2014 Grand Committee

Moved by

[Lord Newby]

That the Grand Committee do consider the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2014.

Relevant document: 18th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Financial Services and Markets Act 2000 (Consumer Credit) (Designated Activities) Order 2014

Lord Newby Excerpts

Monday 10th February 2014 Grand Committee

Moved by

[Lord Newby]

That the Grand Committee do consider the Financial Services and Markets Act 2000 (Consumer Credit) (Designated Activities) Order 2014.

Relevant document: 18th Report from the Joint Committee on Statutory Instruments.

[Lord Newby (LD)]

My Lords, I am pleased to introduce the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2014 and the Financial Services and Markets Act 2000 (Consumer Credit) (Designated Activities) Order 2014. With the Committee’s permission, I will refer to them as the regulated activities amendment order and the designated activities order.

A well functioning consumer credit market is vital to the economy and to society. However, the market is not functioning as it should and consumers are not being properly protected. The current licensing regime run by the Office of Fair Trading and established under the Consumer Credit Act 1974 lacks the capacity and powers comprehensively to tackle consumer detriment. It cannot keep pace with this fast-innovating market. That is why we are moving the regulation of consumer credit to the Financial Conduct Authority from this April. We will make sure that the regime is proportionate and supports a sustainable and competitive credit market. The Government laid statutory instruments last summer to provide the framework for this regulatory transfer. However, there remain a small number of largely technical issues to address to ensure that the transfer runs smoothly and is proportionate for business. I shall set out how the statutory instruments we are considering today will address these outstanding issues.

The regulated activities amendment order addresses the following principal points. As regards local authorities’ credit activities, they are not required to hold a consumer credit licence under the current regime. The Government set out in their March 2013 consultation their intention to preserve this status quo. Local authorities will need to be FCA-authorised only where this is necessary for compliance with the consumer credit directive. This will minimise burdens on local authorities and avoid gold-plating. To further minimise burdens on local authorities, the instrument provides that those which require authorisation should be eligible for the FCA’s limited permission regime, where costs and regulatory burdens will be lower.

As regards the provision relating to the retained Consumer Credit Act provisions, the Financial Services and Markets Act, on which the new consumer credit regime is based, provides for a rule-based approach to allow more flexible and responsive regulation of this market. The Government have already repealed many provisions in the Consumer Credit Act and associated secondary legislation so that they can be replicated in FCA rules. However, the Government decided to carry forward a number of important consumer rights and protections from the CCA where they cannot be replicated easily under the Financial Services and Markets Act.

In the longer term, however, the Government are confident that many of these provisions can be replaced by rules-based consumer protections. This instrument therefore places a requirement on the FCA to review retained CCA provisions by 2019. It will recommend to government which remaining such provisions can be repealed and replaced with FCA rules, taking into account the implications for consumer protection and burdens for firms. The FCA will report to the Treasury, but the order requires the Treasury to lay a copy of the report before Parliament. This review was proposed in the Government’s March 2013 consultation and was well received by respondents from both industry and consumer groups. Ultimately it will help to ensure that the consumer credit regime is based on the powers and requirements set out in FiSMA, unifying the basis for conduct regulation of financial services in the UK.

The order also makes provisions relating to peer-to-peer lending. The Government are keen for regulation of this sector to balance the protection of consumer borrowing and lending through the platforms with a proportionate regime that can support the growth of the sector.

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[Lord Tunnicliffe (Lab)]

My Lords, I welcome these two orders. It is the duty of Her Majesty’s Opposition to study secondary legislation and then to oppose it where we find errors and faults, but I have to say that I have not been as successful as the noble Lord, Lord Sharkey, in finding questions to pose to the Minister, so at least my words will give him a little time to collect together his notes on those technical areas. While we welcome the orders, my honourable friend in another place did ask one or two questions which seemed to be answered satisfactorily. As far as I can tell, the orders do their job. With the permission of the Committee, I should like in a sense to celebrate these orders because they represent the last hurdles of effecting the transfer of responsibilities for consumer credit from the OFT to the FCA. Over the past many months, we have all been concerned about the consumer credit market, in particular its grey areas and payday lending.

I, too, have studied all 49 pages of the impact assessment, although I did not find the same inconsistencies as the noble Lord. I did pick up an implication that the resources to be devoted to the area seem to be tripling from around £10 million per annum to £30 million, and I would be grateful if the Minister could confirm the extent to which new resources are being made available for this new activity. What does this represent in terms of resources and people at the FCA devoted to the consumer credit market? Will it involve the transfer of people from the OFT? Will it involve new and perhaps more capable people working in this market? Will there be a change in attitude and culture on the part of those working in this area?

As has been pointed out, there are some detailed areas, but the really serious evil here is the loan sharks, the rogue lenders and the payday loans market. That market is pretty worrying at every level, from the one-person operator through to major organisations. It involves probably some of the most vulnerable consumers in the land, who are people making decisions in very difficult and stressful circumstances. If ever a market needed intelligent, proactive government regulation, it is this one, and I hope that what the Government have designed will do it.

I would be grateful if the Minister could say a few words about how the regulators will be more proactive. The documentation makes the point that the FCA can be forward-looking and create regulations quickly. I would be grateful if the Minister could expand on that and give me some reassurance—in response to a point made by a colleague—that the new unit will be able to strangle products at birth; in other words, will be sufficiently proactive to sweep the market for the emergence of new products and move quickly to kill them before they do the social harm that we know they can do.

One of the aspirations of these changes is to bring rogue firms under control, which I think we all welcome. The problem is that it might increase opportunities for illegal operations. I feel as though I am in a pantomime now and saying, “Look behind you”, because notes are at the Minister’s right hand. To what extent will the unit work with the police where it sees the early emergence of illegal operations and stamp them out before they can create the evil which we know happens in communities under stress?

[Lord Newby]

I am grateful to both noble Lords who have spoken. Even by the standards of statutory instruments, these are extremely opaque, but the powers they contain are important and, as the noble Lord, Lord Tunnicliffe, said, tidy up and, one hopes, finalise the secondary legislation that is needed to effect their transfer.

The noble Lord, Lord Sharkey, asked a number of questions about the extent to which SMEs could be adversely affected by the regulations. While there may be some impact on lending to SMEs by some non-bank lenders, we would expect it to be extremely small. The stock of lending to business that is consumer credit is estimated to be, at most, 5% of total lending to SMEs. If we are talking about a small proportion of that 5% disappearing, it is a very small impact. We believe that the Government’s wider initiatives, such as the Funding for Lending scheme, will over time far outweigh the negative impact of the transfer. It is worth bearing in mind that SMEs, like any other consumers, can enter into credit agreements that may drive them into unsustainable levels of debt. The enhanced consumer protection that we hope and expect will flow from this transfer will benefit SME debtors.

Employment: Private Sector Jobs

Lord Newby Excerpts

Thursday 30th January 2014 Lords Chamber

[Lord Harrison]

To ask Her Majesty’s Government, in the light of the report by the Centre for Cities in respect of the proportion of private sector jobs created in London, what steps they are taking to rebalance the economy across the United Kingdom.

[Lord Newby (LD)]

My Lords, the Government are taking a number of steps to ensure that the recovery is balanced across the UK through local enterprise partnerships, enterprise zones, city deals and growth deals. The latest figures show an increase in private sector employment of 928,000 outside London over the past three years, compared to 307,000 in London over the same period, so nearly 80% of all private sector employment growth has come from outside London.

[Lord Harrison (Lab)]

My Lords, according to the recent report, most of the new jobs have come from London and the south-east. Does the Minister share my concern about that? Does he understand that concern against a background of declining exports, a parlous balance of payments situation and the matter of small businesses having access to finance in order to grow jobs still not having been resolved? How will we rebalance the economy and how and when will we know that the economy has indeed been rebalanced?

[Lord Newby]

My Lords, there are a number of measures but one of the key things is what is happening to employment and unemployment regionally. In the past quarter, unemployment fell more quickly in Scotland, Wales and four English regions than it did in London. There is big growth in a number of regions outside London, which is extremely welcome.

[Lord Howell of Guildford (Con)]

My Lords, when it comes to rebalancing, is my noble friend aware that more than 40% of our export earnings come from the services sector, at which we are extremely good? Manufacturing is doing extremely well but services are doing very much better. Can he assure us that the Government will do everything to reinforce and encourage this sector, particularly in international dealings in an increasingly digitalised and networked world where services are the main growth area?

[Lord Newby]

Absolutely, my Lords, and in a number of the major trade delegations that the Prime Minister and other senior Ministers have undertaken in recent times, promoting services has been uppermost in their minds. One of the great strengths of the UK in terms of professional services is that the standards we set here through bodies such as those for chartered accountants and the legal bodies have a worldwide reputation, which underpins the credibility of British companies seeking to sell their services internationally.

[Baroness Armstrong of Hill Top (Lab)]

My Lords, does the Minister accept that in the north-east there is still a long way to go? Last week’s figures on unemployment showed that the north-east is the region where unemployment has not gone down. The Government’s action in local government finance—putting more money into the least deprived areas and taking it from the most deprived areas—means that the most deprived are seeing cuts of 25% in the services that are critical for those who are suffering from the poor economic position. We do not moan in the north-east—we are proud of it—but it is about time the Government recognised that there are still challenges and that they have a responsibility.

[Lord Newby]

My Lords, the Government recognise that there are still challenges and that we have a responsibility. That is why, for example, the Government have concluded city deals with Newcastle and Tees Valley and are helping those cities grow and why the industrial strategy around the automotive industry has had such a beneficial effect on Nissan’s employment in Sunderland.

[Lord Shipley (LD)]

My Lords, is the Minister aware that the inward investment arm of UKTI has no regional targets? Would it not be a good idea if it did? Otherwise it can fulfil its national targets by bringing inward investment into London and the south-east.

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[Lord Newby]

My Lords, that is an interesting idea, and I will pass it on to colleagues in BIS. While in the past year there was a 22% rise in inward investment overall, which bucked a downward trend internationally, there was an increase in FDI of 191% in Wales and 41% in Northern Ireland, so it is not the case that all benefit of growth and inward investment is coming to London and the south-east.

[Baroness Donaghy (Lab)]

My Lords, as the Minister knows, earnings are not keeping up with prices and the housing stock in London is not keeping up with demand. How will his Government protect the losers in this equation who far outnumber the winners?

[Lord Newby]

My Lords, I do not agree with that basic proposition. I do not think the losers far outnumber the winners. I remind the noble Baroness that there was an increase in employment of some 450,000 in the past 12 months. All those people are winners. Many people on modest incomes have benefited by several hundred pounds as a result of the increase in the income tax threshold. There are very many winners already, and as the economy continues to grow, there will be a lot more.

[Lord Hamilton of Epsom (Con)]

Does my noble friend accept that past economic recoveries have always started in London and the south-east and they then spread to the rest of the country? The noble Lord, Lord Harrison, and other noble Lords opposite should be patient. I am sure the benefits will come through by May next year.

[Lord Newby]

My Lords, one of the interesting things that came out of the cities report, to which the noble Lord, Lord Harrison referred, was the beneficial effect that London has on the rest of the country. For example, that report shows that in Southampton in the period 2008-12 local firms cut their employment by 7% but London-based firms investing in Southampton increased their employment by 24%. That is the way in which a successful London helps the rest of the country and why the Centre for Cities came to the conclusion that constraining London’s growth would harm the UK economy generally.

Economy

Lord Newby Excerpts

Tuesday 28th January 2014 Lords Chamber

[Baroness Seccombe]

To ask Her Majesty’s Government what assessment they have made of the latest quarterly survey and economic outlook published by the British Chambers of Commerce.

[Lord Newby (LD)]

My Lords, the quarterly survey published by the British Chambers of Commerce continues to indicate economic growth and improving conditions for business. Over the course of 2013, a range of surveys reported activity strengthening in both the manufacturing and service sectors. Today’s GDP figures show growth in 2013 to have been 1.9%, the highest annual figure since 2007.

[Baroness Seccombe (Con)]

My Lords, that is indeed very encouraging. The expectancy for 2014 is again very positive. StartUp Britain, the campaign for fledgling businesses, revealed yesterday that 16,281 new businesses in Birmingham registered at Companies House in 2013. May I, as a West Midlander, ask my noble friend to join me in congratulating those entrepreneurs who took the plunge and so benefited not only themselves but the wider economy?

[Lord Newby]

My Lords, I am very pleased to do so. The figures quoted by my noble friend are matched by the fact that in the latest quarterly employment figures the biggest fall in unemployment was in the Midlands. Over the course of the past year, a record 526,000 businesses were created—an increase of some 42,000 over the previous year.

[Lord Razzall (LD)]

My Lords, does the Minister agree that it is obviously essential that business confidence should be maintained to ensure continued economic growth? In that context, would he care to comment on the remarks yesterday of his noble friend the Secretary of State for Business, Innovation and Skills that rhetoric on the European Union coming from some elements of the Conservative Party is in danger of damaging that business confidence?

[Lord Newby]

My Lords, at the moment, when we are seeing the largest increase in business confidence for a number of decades, any statement by anybody from any party which has the effect of undermining that confidence is very much to be deprecated.

[Lord Harrison (Lab)]

Does the Minister share the concern of the British Chambers of Commerce that our lack of ability in linguistic skills has severely held us back from exporting as rigorously and productively as we might have done and thereby caused the severe balance of payments problem that this country has suffered from under the coalition Government?

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[Lord Newby]

My Lords, we have a long-term problem in terms of linguistic skills and a long-term problem in terms of the balance of payments. The Government are seeking to put in train policies that turn that around. I completely agree with the noble Lord that the survey evidence suggests that for small businesses in particular a lack of language skills is one of the biggest single inhibitors in moving into non-English-speaking foreign markets. That is why we must do all we can to encourage children to take up languages at school.

[Lord Howell of Guildford (Con)]

My Lords, I declare an interest as an adviser to the British Chambers of Commerce. In welcoming this obviously improving news about the economy, which is now getting distinctly stronger, particularly in the export sector, can my noble friend tell us what plans the Government have for reinforcing the work of the British Chambers of Commerce rather along the lines of the chambers of trade in Germany, to reinforce our export effort even further?

[Lord Newby]

My Lords, the Government are very appreciative of the work that the British Chambers of Commerce has done. Of course, the Heseltine review, No Stone Unturned in Pursuit of Growth, made the point that a strengthened British Chambers of Commerce was much to be welcomed. However, the tradition in Germany of chambers of commerce, of which membership is virtually compulsory for organisations, is very different from here. While the Government are encouraging the chambers of commerce to strengthen, it would be misleading to think that one could have a simple write-across from the German example in the foreseeable future.

[Lord Lea of Crondall (Lab)]

My Lords, we all welcome increases in output, but we notice that people are not conscious of a growth in their living standards. Can the Minister remind us how far output as a percentage is still below the peak?

[Lord Newby]

My Lords, the important thing about output is that it is rapidly approaching the previous peak. With every passing set of statistics, we find that output is growing more quickly than we thought. It is interesting to note that the figure today of 1.9% growth in output for the past year is significantly higher than the figure that the ONS thought even in December, when it suggested 1.4%. The message from today's figures is that growth is accelerating quicker than most forecasters thought, and all forward indicators suggest that that trend will continue.

[Lord Forsyth of Drumlean (Con)]

Does my noble friend agree that the reason we have successful growth is because of the enterprise policies of this Government? Did he note the remarks made over the weekend by the noble Lord, Lord Myners, who was a Treasury Minister at the time that the 50p tax was introduced, that the reintroduction of a 50p tax would be a return to the bad old days of old Labour and the politics of envy? Does he acknowledge that there is no greater joy in heaven than over a sinner who repenteth?

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[Lord Newby]

My Lords, I have always taken what the noble Lord, Lord Myners, has said with the utmost seriousness; everybody across the House has done so as well and I will undoubtedly continue to do so. The most significant and impressive part of the growth in the economy and in employment has been that the preponderance of that growth is private sector led and the private sector invests only if it feels that the overall business climate—which is to a large extent set by the Government—is conducive to new employment and growth in investment.

[Lord Davies of Oldham (Lab)]

My Lords, my noble friend Lord Myners is sadly not in his place, but if he were, he would not have had the slightest difficulty in identifying for the Minister just why we should be somewhat worried about the development of the recovery. After all, the Minister and his colleagues in the House of Commons constantly emphasise that this recovery needs to be balanced. There are already indications that this recovery is partly housing driven, which is of course a reflection of the only area in which the Government have been directly active. Moreover, the recovery favours the south-east in circumstances in which other parts of the country are not doing anywhere near so well.

[Lord Newby]

My Lords, the unemployment figures show that the level of unemployment in London, for example, is significantly higher than that in Scotland or Wales. Economic growth is occurring across the whole of the country. As for where it is happening, I will give two examples: aerospace orders last year included new orders of some £39 billion and car production was at a six-year high. This is not froth; this is real high-tech manufacturing where, increasingly, Britain is leading the world.

National Insurance Contributions Bill

Lord Newby Excerpts

Thursday 23rd January 2014 Grand Committee

[Lord Davies of Oldham (Lab)]

My Lords, I am sure that the Committee’s affairs will not be too protracted today, as we clearly have a consensus from the House that the Bill is a pretty good thing. As the Minister already knows, it is the Opposition’s view that in general terms the Bill pursues a good policy and is vastly superior to the sad instrument that was relied on for the first three years of this Administration with regard to the holiday on national insurance contributions—which of course failed dismally in both its reach and its general effectiveness, with every conceivable expectation that the Government expressed before that Bill became law being disavowed by the process over the following three years. We are now in the business of recognising that the principle behind the Bill is far superior and is a position that we broadly endorse. However, it is incumbent on us to ensure that the policy works effectively and that the Bill that is the basis of that policy is fit for purpose in every respect.

The amendment would require the Government to carry out and publish a post-implementation review of the employment allowance, including HMRC’s assessment of its impact on jobs and wage levels, the overall take-up, the geographical spread of businesses that take it up and the effectiveness of HMRC’s strategy to promote it. I emphasise all these points because on every single one of them the previous policy instrument on NICs failed conclusively, and it is important that all those targets are effectively hit. That is why, although I am not underestimating the difficulties of these demands in some areas, we want to see an assessment, as far as the Government are able to provide one, of job and wage levels as a result of the measure.

We certainly want to be reassured on the overall take-up and the geographical spread of businesses taking it up. The previous Bill had a geographical element to it, which we the Opposition never understood —but we did not have to understand it because the Bill had such a limited impact for good anywhere that those who were left out had missed very little indeed. For obvious reasons, as the Minister will appreciate, we are concerned about significant regional disparities in the employment figures, particularly with regard to young people. That is why we want this review to cover a geographical dimension.

That also brings us on to the extent to which the Government will be successful in promoting the measure. After all, a great deal of the expectation is that the beneficiaries will be small and medium-sized enterprises. The medium-sized ones probably do an effective job in keeping up to date and four-square with government initiatives, and we know that the large corporations monitor the Government so effectively that not infrequently—we will come to this later—they pay a great deal less tax than perhaps they ought.

Small businesses inevitably have a problem with legislation. Part of the difficulty with the previous legislation was the conspicuous failure to promote the concept widely enough for take-up to be at the level for which people—certainly Ministers—had hoped. We want to see that rectified as far as this measure is concerned. The amendment, therefore, establishes the necessity for a report that would guarantee a review to provide early indications of the success or otherwise of the policy. We might, as a result, see the Government learning from difficulties that may be developing.

It took a long time for the penny to drop last time. I recall that it was three years before the previous amendment to the legislation on national insurance contributions was finally written off as being unsuccessful, which shows how slow the Government can be, and how blunt their antennae, in picking up the responses of people who are meant to benefit from the legislation. We want this review, therefore, to oblige the Government to face up to these questions—and to do so early.

The amendment we are proposing follows a clause which was retabled on Report in the Commons. We are retabling it in the Lords because of the difficulties of the earlier legislation; we cannot emphasise too strongly how much we want this to be successful. We note that the Government outlined in the Commons the complexity of some of these issues, but we think it is worth trying to measure the impact of this measure on employment and wages. It seems sensible at least to consider the relationship between the employment allowance and job and wage levels. The Minister will recognise that we have seen the benefit of some of the responses in the other place to this major proposition, but I hope that he has had time to reflect, that his officials have appreciated the anxieties that were expressed in the other House, and that today we will get from him a more constructive response than we obtained elsewhere. I beg to move.

[Lord Newby (LD)]

My Lords, the proposed new clause seeks to require HMRC to publish a post-implementation review of the employment allowance after one year. I would like to explain why this new clause is unnecessary.

The tax information and impact note already commits the Government to keep the scheme under review through ongoing communication with taxpayer groups affected by it. Moreover, in Committee in the Commons on 21 November last year, and on Report in the Commons on 10 December, the Exchequer Secretary agreed that the Government should publish information twice a year about the overall take-up of the employment allowance, including by geographical location. I am happy to repeat that commitment in the Moses Room today.

This amendment focuses on the number of jobs created by the employment allowance. However, while the employment allowance will clearly reduce the cost of taking on new staff for small businesses and charities, it will be up to those businesses and charities to decide how they use the resulting NICs savings. I remind the Committee of the comments made by the Institute of Fiscal Studies and by the Federation of Small Businesses at the evidence session in the House of Commons on 19 November last year, to the effect that it is impossible to get precise numbers. We cannot conduct the equivalent of a randomised trial with tax policy to determine the number of jobs created because of the allowance. As the IFS pointed out, there are a number of factors in the economy simultaneously influencing the number of jobs.

The Government have not set any target for the number of jobs we expect to be created, although survey evidence from the FSB suggests that 28% of small businesses will use the savings to employ additional staff. It would not, therefore, be possible to provide information about the number of jobs created as a direct result of this measure. Similarly with wage levels, the same research from the FSB suggests that 29% of small businesses would use the NICs savings to boost staff wages. However, it would be difficult precisely to quantify that effect, given that wage levels are subject to many different pressures, varying from business to business.

The new clause also requires an assessment of HMRC’s strategy to promote the employment allowance. HMRC has already been proactive in promoting the allowance, having spoken to various stakeholders—including representatives of software providers, charities and small and medium-sized enterprises—about the design and operation of the measure. There is continuing engagement between HMRC and those stakeholders on guidance for employers and publicity. As a result of these discussions, communications to raise awareness of the allowance will begin more widely in February and March this year to maximise impact in the crucial period running up to the introduction of the allowance in April, using a range of HMRC publications and products and the department’s national network of local Working Together groups. As a result, we are confident that employers across the UK will be ready to claim the allowance in April. These efforts will continue after April to support take-up from companies that have not done so at that point.

With these reassurances, and in the light of the Government’s existing agreement to make information about take-up available twice yearly, I hope that the noble Lord will withdraw his amendment.

[Lord Davies of Oldham]

My Lords, I am grateful to the Minister for the additional information he has given about the reinforcement of the necessary publicity to promote awareness among those who could benefit from the allowance. I recognise that the issue is being taken seriously. It cannot be taken seriously enough. The Minister is absolutely right to cite what the FSB thinks can be achieved, and we recognise that the Government have to set their sights for advantages within a fairly low range in the early days. It takes time for people to appreciate the advantages.

The Minister made one passing reference to charities. We have no anxiety about the ability of very large charities to keep up with legislation, although they tend to be more preoccupied with legislation that will affect them in other Bills before the House, rather than this more benevolent provision. However, the Minister will appreciate that we are anxious about other charities on that score. I am grateful that he mentioned them en passant—although not as strongly as I would have wished. Nevertheless, it was a constructive and helpful reply and, on that basis, I beg leave to withdraw the amendment.

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Here again, we are aware that it is important for HMRC to communicate with interested groups and gauge their view of the employment allowance. It was also said in the other place that the employment allowance would be very easy to claim. Easy for government often looks a good deal more difficult at the other end. I want the Minister to flesh out that point and to indicate that arrangements are in hand and on time to render this amendment unnecessary. The amendment reflects our anxieties.

[Lord Newby]

My Lords, the proposed new clause would require that HMRC should, six months after the Act comes into force, prepare a review to consider whether there are any administrative or compliance costs that have been reported by employers claiming the allowance, and whether businesses, charities and community amateur sports clubs are having problems in claiming it. I hope that I can persuade the noble Lord that this proposed new clause is also unnecessary for two main reasons.

First, as I pointed out when commenting on the previous proposed new clause, the tax information and impact note already commits the Government to keep the scheme under review through communication with stakeholders affected by the measure. As part of this review, HMRC will speak to stakeholders to gauge their views of the allowance and to ascertain the ways in which it is being used. HMRC talked to various stakeholders over the summer and autumn about the design and operation of the allowance, including the claims process. There are continuing discussions between HMRC and these groups around guidance and publicity, and these will continue after the launch of the allowance in April.

A crucial part of this work has been discussions with software developers. As I said, HMRC has held discussions with representatives of charities, payroll software providers and businesses to help inform the design of the new system. In particular, in July last year the 2014-15 RTI technical pack for software developers was published on the HMRC website and specified that an employment allowance indicator would be needed on the employer payment summary. There is ongoing engagement with stakeholder groups around this draft employer guidance with a view to making employer guidance available early next month. However, this does not affect the calculations in the software packages.

HMRC will also target communications to key stakeholders and use HMRC publications, for example, the Employer Bulletin in February and March, to further build awareness. I hope that I can reassure the noble Lord that the difficulties that he is rightly concerned about are likely to be minimised by the fact that the allowance is very easy to claim. Employers will receive it through their routine operation of PAYE. They will simply need to confirm their eligibility via their regular payroll processes. Enabling the employment allowance to be claimed by employers through their payroll software will ensure that it is straightforward to claim. They will simply have to indicate yes, once, in their employer payment summary. The claim will continue from tax year to tax year.

After making the claim, employers will not need to pay their first £2,000 of secondary class 1 NICs. If their secondary class 1 NICs liability is less than that in the first month or quarter, dependent on whether they pay their PAYE liabilities monthly or quarterly, any unused allowance will be carried forward to the next month or quarter until it is exhausted. If an employer does not have an employer payment summary on his own software, he can use the free HMRC Basic PAYE Tools package. For the very small number of eligible employers—around 2,000—who still submit their returns to HMRC on paper, there will be a paper process to mirror the IT process.

The Government are very keen that this new proposal should have the maximum possible impact because we want to see it promote economic development. We have gone to considerable lengths to engage with the industry and provide the private sector and the charities sector with information in good time. We think that we have prepared well. The guidance will be out next month and there will be ongoing discussions with all the relevant stakeholder groups and individual firms and organisations that might claim it. In those circumstances, I hope that the noble Lord will withdraw the amendment with his proposed new clause.

[Lord Davies of Oldham]

My Lords, once again I am grateful to the Minister for fleshing out some of the arrangements that the Government will put in place to ensure that this operation is as straightforward as possible.

Reference was made to sports clubs. In my previous incarnation before the most recent general election, I had quite a bit to do with sports clubs and their administration. I have not the slightest doubt that the mega-clubs of the Premier League have no need for the Government to advise them on how they should organise their tax affairs. They seem to be pretty adroit in doing so at present. However, sports clubs run by a small number of people, where decisions are generally taken by amateurs, even if there are one or two professional employees, are a different matter. They will need to be provided with the easiest possible transactions to ensure that they benefit from this measure. We want to see sports clubs and charities as well as mainstream employers adopt a positive, outward-looking perspective as regards young people. After all, they are most likely to engage successfully with youngsters through the sport in which the latter engage.

I emphasise to the Minister that this is a probing amendment. I am grateful for his assurances that the ability of even the smallest employer to make the claim when it is due does not come down to much more than ticking one box, or even answering yes or no in that box. I am reassured on that front. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Newby]

My Lords, this proposed new subsection would require the Treasury to publish a review of the level of youth unemployment as of December 2013 and of the effect on the level of youth unemployment if the zero rate of employers’ class 1 NICs on the earnings of employees under the age of 21 were to be brought into force from 6 April 2014 rather than 6 April 2015.

I would like to explain to the noble Lord why I believe that the amendment is unnecessary. The Government are committed to increasing employment levels for all parts of the working-age population. Employment is now at its highest ever level and unemployment is lower than when the Government came to power. The Government recognise the challenges posed by youth unemployment, and dealing with them has long been a priority of ours and of the predecessor Government. For example, around 370,000 young people have been supported through the Work Programme since June 2011. Furthermore, the Youth Contract provides almost £1 billion in funding to support up to 500,000 young people into employment and education opportunities.

The employment figures published yesterday showed another significant fall in youth unemployment. Although it is not enough, it is not the first quarter in which we have seen such a fall, and now the overall aggregate of youth unemployment is falling significantly. As we have already debated, it is extremely difficult to say what proportion of the fall is attributable to one cause rather than another. However, overall, the improved economic environment and the Government’s policies taken together are clearly having a significant beneficial effect on youth unemployment.

The Autumn Statement, which gave another push in this direction by abolishing employer NICs for under-21s, builds on the policies already in place, and has been widely welcomed by industry. Indeed, John Cridland at the CBI said that the policy,

“will make a real difference and help tackle the scourge of youth unemployment”.

However, I see little point in the Treasury publishing a review of the level of youth unemployment. The Office for National Statistics is responsible for publishing statistics on employment, and these regular releases are available to the public through the ONS website. There is a limited case for the Treasury intervening and also publishing a review.

In addition, I do not think that there is any value in attempting to estimate the impact of a policy introduced at a theoretical date, and I am not sure that the noble Lord is pushing this element of the amendment particularly hard. The Autumn Statement announced that employer NICs would be abolished for those under 21 years of age from 6 April 2015. Attempting to deliver this a year earlier on 6 April 2014 would increase the administrative costs to business, and rushing the measure through in this manner would be likely to lead to cost, confusion and the failure of many employers to take it up.

Such a tight timeframe would not give employers, payroll software developers and HMRC sufficient time to update their IT systems. As regards HMRC, there would not be enough time to ensure that the policy was implemented in a way that does not disrupt its other important IT systems. These difficulties were recognised by the Chartered Institute of Payroll Professionals, which commented on the Autumn Statement:

“We … welcome the news that this will not be enacted until April 2015, giving the payroll industry time to plan properly.”

This is not a case of the Government being complacent or lacking in energy and drive; it is simply that I do not want to be at the Dispatch Box under the lash of the noble Lord because the Government have not implemented a policy with the maximum possible efficiency and effectiveness. The timetable that we have adopted, in our view, will enable us to do it in due time, so that employers and HMRC can prepare and, when the policy comes into effect, it will be well prepared for by all who need to implement it. The fact that it has already been announced means that employers can begin to think about how they will choose to benefit from it when it comes into force.

The noble Lord asked how much it will cost and how it will be funded. In its first year, it is expected that it will cost £465 million, rising to £530 million by 2018. Although the policy obviously carries a significant cost, overall, the Autumn Statement in which it was introduced was fiscally neutral and reinforced the Government’s commitment to reducing the deficit. It is worth repeating that this policy represents half a billion pounds-worth of support to young people in employment—so it is very significant and, we hope, will have an equally significant impact on youth unemployment.

In view of all those considerations, I hope that the noble Lord will withdraw his amendment.

[Lord Davies of Oldham]

I was certainly not underestimating the significance of the programme. We all know the magnitude of the task before the Government in dealing with youth unemployment, so the figures that the noble Lord has cited seem apt for the task in hand—except that we consider the scheme inadequate for the scale of young people’s difficulties, which we can already measure.

I am grateful to the noble Lord for giving us those facts and am reassured by them. On the question of delay, I sometimes think, on the issues that we have raised with regard to the compatibility of IT operations, that in the wonderful world in which we live, the magnificent speed with which computers can bring huge advantages to society have to be balanced against the fact that the introduction of legislation seems to be tied up in a computed timescale which all pen-pushers would regard as unacceptable. After all, what is the Minister saying to me? He is saying, “We recognise that the present policy that we are operating on the role that insurance contributions can make to improve employment is a dead loss to the country. It has such marginal utility that no one will weep for its passing”. But that policy has dominated three years of this Government’s life, and he is saying that its replacement will see the light of day virtually on the brink of the next Government coming to power.

Of course the Minister is right to say that proper consultation has to take place, that we must not add to the burdens on business unnecessarily and that computer systems are mightily complex and vastly costly when they go wrong. The Government are in quite a good place to assess the costs when computer systems go wrong, because they have a few instances on their doorstep at present. However, the implication is straightforward: the policy of using national insurance contributions and elements of alleviation has failed for three years, and it will make only a marginal impact over the duration of this Government’s life. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Razzall (LD)]

My Lords, when I looked at the amendments that the noble Lord had put down and saw this one, I had a wonderful fantasy that what we were seeing here was Labour adopting the stance of being in favour of tax abuse through the use of NICs. I was already beginning to draft the leaflet that would pin this new policy on the Labour Party. Sadly, having listened to what the noble Lord said, I realised that that was not what he was saying at all.

No doubt the Minister will respond to attacks on the GAAR. I listened very carefully to the speech of the noble Lord, Lord Davies, but did not hear any explanation of why, if the GAAR exists and includes provisions in relation to tax abuse generally, NICs should not be included in it. I understand that the noble Lord does not like the GAAR and does not think that it is effective—but, given that we have it, I am not sure why we should not include national insurance in it.

[Lord Newby]

My Lords, I am grateful to the noble Lord for introducing this debate, because it has given me the opportunity to make a suggestion to him about what we might replace the term GAAR with. I wonder whether he would be happy if instead of calling it GAAR, we called it GREAT, as in Great Britain: the general rule to eliminate the avoidance of tax. If we had done that, we might have satisfied the noble Lord, and summed up our emotion when we think of the new provision.

The noble Lord’s basic argument is that we are not doing enough. As a veteran of debates on GAAR over the past decade, I recollect that noble Lords in the previous Government—perhaps even the noble Lord, Lord Davies—explained to me why the GAAR was totally impossible, completely unworkable and the Government would not countenance it. Indeed, they did not; they did not do anything in this area. The fact that the noble Lord finds this inadequate is slightly sad, given their failure to act in this area.

The noble Lord raised a number of points of failure, as it were, but one of them was in respect of the agreement with Switzerland. The agreement with Switzerland has not brought in as much as was expected, but the Exchequer has received almost £800 million via that agreement. That is £800 million that we would not have had, £800 million that the previous Government showed no inclination to pursue. That is only one of a large number of measures that we have taken to ensure that people and companies who are avoiding or evading tax do not get away with it. In terms of personal taxation, the Lichtenstein disclosure facility has yielded a lot more than was ever envisaged and, along with the Swiss agreement, is part of driving down the ability of those with large resources to avoid tax.

The new automatic information sharing agreements, which have followed the FATCA legislation in the United States, are revolutionising the ability of HMRC to gain information about the tax affairs and bank holdings of British nationals, whether those are held in the Channel Islands or some Caribbean tax havens. Along with the Swiss and Lichtenstein démarche, that will make a big difference to our ability to get the money to which the Government are entitled. On companies, as the noble Lord knows, the work being done in the OECD, particularly on base-erosion and profit-shifting, is aimed to deal with the particularly egregious examples of large multinationals paying very little tax indeed.

As for domestic action, GAAR is only one plank in our overall strategy. HMRC published Levelling the Tax Playing Field alongside Budget 2013 to provide an update on the strategy and to set out the full range of measures being taken in this area. Some people have argued that because GAAR is tightly focused, it will not hit many of the targets and almost gives a green light to other forms of tax avoidance, but if you look at the whole raft of measures that we have taken in Budgets and Finance Bills—most recently, some announcements in the Autumn Statement—it becomes apparent that we have taken measures to protect several billion pounds of Exchequer revenue which might otherwise not have been agreed.

We have, for example, taken firm action to clamp down on stamp duty land tax avoidance, introducing the new annual tax on enveloped dwellings, and continue to close loopholes as quickly as possible after they emerge. In the summer, we publish a consultation entitled Raising the Stakes on tax avoidance, seeking views on proposals for a new set of obligations for promoters of high-risk tax avoidance schemes.

HMRC does an excellent job defeating tax avoidance schemes in court and making sure that people know that many of the schemes simply do not work, but we know that there is much more to do. That is why the consultation also encouraged users of avoidance schemes to settle their tax affairs after similar cases have been lost in court or tribunal. The GAAR is an important step to increase the pressure on the tax avoidance industry, but it is only one step, and we continue to take further action and devote more resources to the fight against tax avoidance in all its forms.

With those reassurances, I hope that the noble Lord will feel that he does not need to press the point.

[Lord Davies of Oldham]

I am grateful for both contributions to this debate. I particularly appreciate the noble Lord, Lord Razzall, coming along just to discuss GAAR with us in the hope that the Labour Party would make an almighty blunder by the amendment. Far from it; we are guided by safe hands. I also congratulate the noble Lord on finding the time to be present in the Committee when there are so many absorbing issues which affect his party, to which I have no doubt he is devoting an inordinate amount of time to get an effective resolution.

As for the Minister, I recognise that any returns from GAAR are to be appreciated. The fact is that the product thus far in several instances falls far below expectation and will, if we go on for much longer, leave the public enormously dissatisfied because we are not implementing an effective strategy to deal with significant employers, particularly the great multinationals. That disillusionment among the electorate will be so manifest that the Government will be driven to improve their performance.

We used the Motion on clause stand part to look at the way in which GAAR might contribute. A little is better than nothing; that is why I will not oppose the clause; but I tell the Minister that the present rate of progress on GAAR, which is evident in this measure but is certainly the case in much more significant terms across the country, falls so far short of public expectation that the Government will be much criticised on it.

However, that is probably a debate for another day, so I do not oppose the Motion that the clause stand part.

--- Later in debate ---

[Lord Razzall]

My Lords, the noble Lord has proposed that Clauses 13 and 14 should not stand part of the Bill. The clauses relate to tax avoidance and the abuse of limited liability partnerships. The Minister will be aware that there is concern among professional organisations, particularly the Law Society—not in relation to the Bill itself, but about what will happen in relation to the regulations that will be brought forward. Noble Lords will have received a briefing from the Law Society, because limited liability partnerships were introduced some time ago for professional partnerships, not primarily for tax purposes but to limit the liability of what were previously general partnerships to actions for negligence. That was the major driver for the creation of limited liability partnerships. Most significant law firms and firms of accountants now operate as limited liability partnerships, so there is clearly concern among them that the definitions of employees and partners should be clear.

I received representations from the Law Society this morning, but the basic thesis is that the consultation exercise to determine how a limited liability partner should be properly treated as a partner, or how they should be treated as an employee, was based on the wrong assumptions. The consultation went out on certain assumptions and the proposals on the implementation of the regulations, which I have not seen, change that basis. Therefore, the consultation itself is ineffective.

I appreciate that this does not go to Clauses 13 and 14 of the Bill, because they simply provide for the regulations to be brought in. However, between now and Third Reading the Government ought to respond, saying either that the Law Society in its representations is wrong, and why, or alternatively explain how they propose to deal with what I suspect the Law Society is asking for, which is further consultation before the regulations are brought in. I do not know which of the two is correct and I have not had time to form my own opinion on that. This is an important issue because the limited liability partnerships are important structural mechanisms for professional partnerships. We clearly need to get this right before we change the law in this respect.

[Lord Newby]

My Lords, I am grateful to both noble Lords for their contributions to the debate. I apologise to the noble Lord, Lord Davies, for the fact that he has only just received the letter. As he pointed out and knows very well, it has been a somewhat unusual week in terms of my ordered conduct of business and the letter was sitting on my desk for rather longer than it should have been. It is only fair to point out that this is no failure on the part of officials to respond in a timely manner; it is my failure. I am sorry that the noble Lord has only just got the letter.

Two points have been raised. The second was raised by the noble Lord, Lord Razzall, with regard to consultation. He asked whether the legislation had gone beyond the proposals set out in the consultation document. The Government believe that it does not go further than originally proposed or go beyond the original policy intention. In fact, as a result of the consideration of the consultation responses, the Government dropped the first of the original two conditions which were broadly in line with the employment status tests, which would have meant that even senior partners in major professional firms might have been reclassified as employees. The second condition, which contains ownership or economic interest or risk tests, has been slightly broadened because of this change, but it is still a narrower measure than if both conditions had been implemented as originally proposed. The Government also made clear in Budget 2013 and in the consultation document that the proposals will apply to higher-paid staff in the professional services sector and the lower paid if they are LLP members who receive a largely fixed reward and carry little economic risk or interest.

As regards the status of the secondary legislation and the issue of retrospectivity, the noble Lord referred to two sets of secondary legislation. The first, in Clause 13, had already been published in draft and the second, in Clause 14, was, I believe, enclosed with the letter to the noble Lord and has been put in the Library.

This legislation introduces half of a series of provisions that relate to income tax and national insurance. Slightly unusually, we are legislating for the national insurance part first because we happen to have this Bill before us. The relevant identical provisions relating to income tax will be in the Finance Bill, which will be introduced later in the year and will become the Finance Act 2014. The intention is that the provisions in respect of income tax and national insurance will not apply retrospectively but will apply from April 2014. That is made absolutely clear and set out in the secondary legislation.

I am told that the use of the earlier date in the primary legislation follows precedent in respect of other pieces of legislation and does not mean that the Government will introduce this measure going back a decade or, indeed, going back at all. There are technical arguments for putting that earlier date in the legislation, but the secondary legislation, as I said, makes it absolutely clear that the provisions will come into force from this coming April. Therefore, there is no question of an undue degree of retrospection. I hope that the letter which I sent to the noble Baroness, Lady Thomas of Winchester, set that out clearly and, I hope, satisfies the committee and the noble Lord.

[Lord Davies of Oldham]

My Lords, if it satisfies the committee, it will certainly satisfy this noble Lord, because I hold the committee in the greatest respect and I know how thorough it is in its work and its cumulative expertise, which I could not hope to match—so I am reassured on that front, which is why I thought that I did not need to go into an inordinate degree of detail. I am grateful to the noble Lord, Lord Razzall. I have seen no communication from the Law Society, but one or two people have made representations to us. They do not represent any particular group or profession, but are people who look at these matters closely and thought that they had identified an area of difficulty, which is what I sought to air under the amendments.

I am largely satisfied with the Minister’s response and will of course not press the Motion. I wanted to give him the chance to identify the Government’s position. He knows that we will ensure that those who have made representations to us and others get the chance to examine this thoroughly. I appreciate that, in the spirit of good will that obtains in the Committee, and obtained on Second Reading, the noble Lord is looking forward to a fairly straightforward exercise on Report and at Third Reading. I think that I can go 97% of the way to promising that, but this issue concerns the 3%. I cannot give a full assurance at this stage, because I do not know what the response of others will be, but I am sure that he will have worked hard enough to guarantee that the response is favourable, particularly from the Delegated Powers Committee. I will not press the Motion.

Public Sector: Debt

Lord Newby Excerpts

Thursday 23rd January 2014 Lords Chamber

[Lord Wigley]

To ask Her Majesty’s Government what is their latest estimate of the United Kingdom’s public sector debt, and what was the comparable figure in May 2010.

[Lord Newby (LD)]

My Lords, the latest public sector finances statistical release set out that public sector net debt was £1,254.3 billion or 75.7% of GDP in December 2013, compared to £846.4 billion or 57.2% of GDP in May 2010.

[Lord Wigley (PC)]

My Lords, does the Minister accept that that is a serious deterioration in the level of debt, and that UK debt now stands higher as a proportion of GDP than does that of Spain? Do the Government accept that, at some point soon, they will have to start reducing that debt? In so doing, will he give an assurance that they will not continually place the burden on the weakest members of our community, who depend on public services and social benefits, but will, at the appropriate time in the economic cycle, raise taxes, so that those with the broadest shoulders start bearing some fair share of this gigantic problem?

--- Later in debate ---

[Lord Newby]

My Lords, the Government are determined to bear down on the level of public debt. Under current plans the debt will peak at 80% of GDP in 2015-16 and will then begin to fall. Whether the fiscal consolidation is dealt with entirely by cuts in expenditure or whether there will be a balance between further constraint on expenditure and additional tax increases, is, I suspect, one of the battle lines that will be drawn in campaigning for the general election.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, reducing the annual deficit is one thing; eliminating net public sector debt by 2018 is quite another. Can my noble friend give the House an assurance that in future, deficit reduction policies, including the capping of annually managed expenditure, will be pursued by the coalition Government only if protection is made available for low-income households?

[Lord Newby]

My Lords, sadly, we are not going to abolish the debt by 2018, although I hope that we shall abolish the annual deficit by then. The Government have set out expenditure plans for 2015-16; how expenditure falls beyond that will, as I said, be the task of the next Government. The parties will set out their plans, and my party has already explained that it would expect further fiscal consolidation to take place, but that a proportion of that fiscal consolidation will need to be borne by the shoulders that are broadest.

[Lord McFall of Alcluith (Lab)]

Is there a case for the Government to establish an education programme to distinguish between the deficit and the debt? Is it not misleading for them to focus only on the deficit, particularly when their actions are making the national debt increase by more than 60% compared with any other European country?

[Lord Newby]

My Lords, the Government are trying to get under control a disastrous fiscal situation that we inherited from the previous Government. I am not quite sure whether the noble Lord is saying that we should cut expenditure more, but if he is, I would be grateful to hear his specific proposals.

[Lord Higgins (Con)]

Does my noble friend agree that, although the deficit has been reduced by one third or so, extra borrowing is still increasing at an alarming rate? The Chancellor is therefore absolutely right to make it clear that his intention is to eliminate the deficit completely, if we are not to burden future generations with the terrible task of dealing with the borrowing and also incurring higher interest rate costs. Does my noble friend further agree that it is high time the Opposition recognised the fact that reducing the deficit is the only possible way forward?

[Lord Newby]

I do agree with my noble friend. I am not sure that it is widely understood that cutting the deficit, which we are doing, will still mean that this Government will have borrowed an extra half a trillion pounds during the course of this Parliament. The party opposite has so far come forward simply with plans to increase that additional borrowing further. That would simply not be credible.

[Lord Davies of Oldham (Lab)]

My Lords, “the party opposite” is critical of the Government for the obvious reason that, if you run an economy with such abysmal rates of growth as this Government have done over the past three years, you find yourself unable to hit the target for the deficit that the Chancellor himself identified in 2010.

[Lord Newby]

My Lords, I am sure that the noble Lord is an assiduous reader of publications by the IMF and will have seen that, within recent days, the IMF has upgraded its forecasts for growth to 2.4% next year and 2.2% the next year, which is higher than for France and Germany.

[Lord Grocott (Lab)]

My Lords, does the Minister recall that during the time when the economy was clearly not growing at all but flatlining, the Government repeatedly said that it was due to the eurozone or the weather but nothing to do with the Government? Can the Minister please confirm that it is his view from the Front Bench that, if there is any upturn in the economy at all at the moment, it will be nothing to do with the Government?

[Lord Newby]

It is not a question of whether there is any upturn in the economy; there is a very significant upturn. Government policy ensured that, when we were facing very strenuous headwinds, the economy did better than it would otherwise have done, and it will do better in the upturn now as a result of a whole raft of policies that this Government are pursuing.

Taxation: Personal Thresholds

Lord Newby Excerpts

Monday 20th January 2014 Lords Chamber

[Baroness Eaton]

To ask Her Majesty’s Government how many people on the lowest incomes have been lifted out of income tax by the rise in personal tax thresholds since 2010.

[Lord Newby (LD)]

My Lords, by 2013-14, 2.4 million low-income individuals have been taken out of income tax altogether as a result of this Government’s increases to the personal allowance since 2010. This number will increase to 2.7 million once the personal allowance reaches £10,000 in April 2014.

[Baroness Eaton (Con)]

I thank the Minister for that Answer. The significant changes to the personal allowance mean that someone working full time on the minimum wage has seen their income tax bill more than halved under this Government. Does he agree that this is the most effective way to support those on low and middle incomes because it enables them to keep more of the money they earn?

[Lord Newby]

My Lords, I do agree. The effect of what we have done is that by 2014-15 there will be a £705 cash benefit to low-income households, which even in real terms is well over £500. This has made a material difference to the income of people in those categories and is much to be welcomed.

[Baroness Lister of Burtersett (Lab)]

My Lords, the Resolution Foundation has shown that in future the 3 million taxpayers on universal credit will receive only about one-third of what other taxpayers receive from an increase in tax thresholds, and the 5 million low-paid workers below the tax threshold of course receive nothing. Does the Minister agree that this is a singularly ill targeted policy for helping those on the lowest incomes, and will he consider alternative, more progressive policies instead?

--- Later in debate ---

[Lord Newby]

No, I simply do not agree with the noble Baroness. The Government are considering a number of measures which will help people on low incomes, of which a potentially significant increase in the minimum wage is perhaps the most significant.

[Lord Sharkey (LD)]

My Lords, now that our economy is growing again, can the Minister say what more the Government can do to help those who need it most, in particular the long-term youth unemployed?

[Lord Newby]

My Lords, the most important thing the Government can do as the economy grows is to ensure that the macroeconomic framework is conducive to greater growth. There has been a 300,000 fall in the claimant count within the past year, so that is the single biggest thing that the Government can do to promote the continued reduction in unemployment and long-term unemployment. Youth unemployment has been falling now for five quarters. It is not falling fast enough but a raft of measures, including improved vocational education and an expansion of the apprenticeship scheme, have been designed specifically to tackle that long-standing issue.

[Lord Forsyth of Drumlean (Con)]

My Lords, does my noble friend agree that one of the best ways of helping people on the minimum wage to improve their income would be to raise the threshold for national insurance and consider merging national insurance and income tax? That would help employers and those on the lowest pay.

[Lord Newby]

My Lords, the Government have looked at merging national insurance and income tax. It is one of those ideas that is perennially discussed but every time the Government look at it they back off because it is extremely difficult to achieve. The problem with what the noble Lord’s suggests is principally the cost. However, I would remind him that the Government are introducing in the National Insurance Contributions Bill a tax-free national insurance allowance of £2,000 which will benefit every firm but particularly small firms. The Federation of Small Businesses has said that the single biggest consequence of that change will be increased employment.

[Lord Davies of Oldham (Lab)]

My Lords, the noble Lord deserves an easy ride today given his other responsibilities as Liberal Chief Whip, so I will ask him a very straightforward question. Does he agree with Citizens Advice that, for many low-income families in work, any gains they make from this change to the personal allowance are swamped by the Government’s other changes to tax and benefit, and that working families are £1,600 each year worse off since this Government came to power?

[Lord Newby]

My Lords, we can improve the status and income of poorer families by having a robustly growing economy and an increase in average earnings and household earnings. This is now under way. Our job is to make sure that we continue it.

[Lord McKenzie of Luton (Lab)]

My Lords, the Minister will be aware that the Government have adopted the policy of raising the qualifying earnings threshold for auto-enrolment in line with the personal income tax threshold rather than changes in the value of earnings. This denies lower-paid workers, mainly women, the benefit of an employer pensions contribution and of course saves the Treasury the cost of tax relief. How many low-paid workers is it estimated will have lost out because of this approach during this Parliament?

[Lord Newby]

My Lords, I will have to write to the noble Lord with the answer to that question. However, I am sure he will agree that the raft of measures that the Government are taking on pension reform will have as one of their signal benefits that many women who have lost out on pensions in the past will gain from adequate pensions in the future.

Taxation: Fuel Duty

Lord Newby Excerpts

Wednesday 15th January 2014 Lords Chamber

[The Earl of Shrewsbury]

To ask Her Majesty’s Government whether they plan to extend the freeze in fuel duty beyond 2014.

[Lord Newby (LD)]

My Lords, the Government have taken substantial action to support motorists with the cost of living while reducing the budget deficit. As a result of this Government’s action, fuel duty will be frozen for the remainder of this Parliament, which will result in pump prices being 20p per litre lower than under previous government plans by 2015-16. The Government must exercise flexibility to target tax support where it is most needed. The Government will continue to review fuel duty in the context of all taxes and the public finances.

[The Earl of Shrewsbury (Con)]

My Lords, I thank the Minister for that encouraging reply. Is he aware that in upland, moorland and less favoured areas, such as where I live in the Peak District, the ownership and use of a vehicle—let alone a four-wheel drive vehicle—is a necessity and not a luxury. That therefore causes those communities to have problems with fuel prices, which are a very significant component of their viability. Will Her Majesty’s Government make every possible effort in the future to assist those areas in terms of cost of fuel?

[Lord Newby]

My Lords, the policy that we have already adopted will assist people in those areas, as it will everywhere else. We are looking at the scope for extension of the rural fuel rebate scheme, which gives an additional 5p rebate in the most sparsely populated areas. We hope to be able to make an announcement of that in the relatively near future.

[Lord Barnett (Lab)]

My Lords, the Question on the Order Paper asked the Minister a simple question. Should not his answer have been no?

[Lord Newby]

No, my Lords. The noble Lord knows better than anybody else that it would be foolish to set out at this point firm plans for individual taxes for the course of the next Parliament.

[Lord Marlesford (Con)]

Has my noble friend noted that the price of petrol in the petrol stations varies up to 3p within a few miles, and sometimes more? Does he realise therefore that if people are able to pay the extra 3p rather than going to a cheaper place, that suggests what the economists call a bit of a consumer surplus since they are prepared to pay extra? What is the cost to the Exchequer of this reduction? First, I think that it was £400 million for this year but what will it be by the end of the Parliament? Secondly, is it really the best way of spending public money, given all the other demands on the Exchequer?

[Lord Newby]

My Lords, the Government will have eased the burden on motorists by £22.5 billion over the Parliament to 2015-16. The kind of differential that my noble friend describes in a small area is a classic example of a competitive market operating. I am told, although I do not have one myself, that if you have a certain kind of sat-nav it will automatically tell you the price of petrol at petrol stations in your vicinity at the time, which is a very good way of facilitating the market working.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister will however recognise that the Chancellor, through his VAT increase, increased the price of fuel by 3p. Why do the Government not go further and introduce a price freeze on domestic fuels?

--- Later in debate ---

[Lord Newby]

My Lords, it is true that the effect of the VAT increase ate into the benefit but the price is still 10p less than it would have been, even taking the VAT increase into account. I am not sure whether the noble Lord supports that policy but that is a very considerable net increase. As far as domestic energy prices are concerned, the noble Lord knows that his party’s proposed policy is nothing more than a gimmick.

[Lord Lea of Crondall (Lab)]

Arising from the question asked by the noble Lord, Lord Marlesford, about what economists call consumer surplus, is the Minister in agreement with the official data of the ONS that hydrocarbon taxes are the most regressive taxes in the country? In other words, they show that the lowest-paid pay—I think—four times more on petrol, as a percentage of their income, than the top decile. There is therefore a distinct impact on poverty, as was implicit in the original Question.

[Lord Newby]

My Lords, the noble Lord has made a powerful argument for the Government’s policy.

National Savings and Investments

Lord Newby Excerpts

Tuesday 14th January 2014 Lords Chamber

[Lord Naseby]

To ask Her Majesty’s Government what assessment they have made of the impact of the introduction of a new computer system at National Savings and Investments.

[Lord Newby (LD)]

My Lords, National Savings and Investments has been moving customer accounts and investments to a new banking system. That follows a major review which concluded that upgrades were necessary to modernise and simplify NS&I products. It will enable products to be managed online, by telephone or post and ensure long-term customer satisfaction. NS&I recognises that a small number of customers may be frustrated, as is often the case during any such period of change, and has taken measures to ensure that customers understand the reasons for its actions.

[Lord Naseby (Con)]

My Lords, will the Minister explain why the NS&I cannot be like every other investment house and send to investors, without asking, a half-yearly statement which lists their holdings and the value of those holdings, plus such transactions as have taken place in the previous six months, and eventually produce a total value of all their holdings?

[Lord Newby]

My Lords, I think the correct analogy with NS&I is with a bank or building society, where common practice—this is what NS&I is moving towards—is that people get a statement on the anniversary of when they took out savings and that customers are able to look online for a comprehensive statement of all their various policies and holdings.

[Lord Lamont of Lerwick (Con)]

My Lords, although we all appreciate that exceptionally low interest rates have been necessary to shore up the finances of borrowers, particularly mortgage holders, does my noble friend recognise that this has been an extremely difficult time for savers? It is a great pity that during a period in which, until today, inflation has been above the Bank of England’s target, National Savings has withdrawn the inflation-linked savings certificate. Will the spokesman encourage National Savings to help to end that misery for savers and, at least for small savers, introduce some new products with rather better rates of interest?

[Lord Newby]

My Lords, as the House is aware, when we have very low interest rates, which have been necessary in the economic circumstances in which we have found ourselves, that helps very many consumers, households, mortgage holders and businesses and is on balance, in our view, beneficial to the economy. The downside, as the noble Lord mentions, is that savers get a lower rate of interest. I think it is unrealistic to expect NS&I to promote products with a higher rate of interest than market rates, because its remit is to get best value for money for the Government, but I am sure that the noble Lord and the whole House will welcome the news that inflation is down to 2%, which is the target level.

[Lord Davies of Oldham (Lab)]

My Lords, returning to the original Question, surely the noble Lord, Lord Naseby, is right: NS&I ought to be an exemplar of good practice in informing its investors rather than apparently seeking to catch up.

[Lord Newby]

My Lords, NS&I needs to be able to compete effectively with best practice across the financial services sector. The truth is that NS&I has been behind the curve. It is undertaking a major programme to get all its customers online. Bear in mind that NS&I has 25 million customers in this country. That is a massive operation. When it is finished, it will be able to give information to the standard that people expect from the best of the other high street brands.

[Lord Forsyth of Drumlean (Con)]

Did my noble friend really say that it was the role of National Savings to get the best return for the Government? Surely its role is to provide a safe haven—as it advertises— for savers. Are not the savers getting a poor return because the Government are indulging in quantitative easing, which is a transfer of money from those who have done the right thing to those who have borrowed?

[Lord Newby]

My Lords, the Government are not doing quantitative easing, the Bank of England is. On the rate payable on National Savings, as the noble Lord will know, the role of National Savings is to contribute to the Government’s funding requirements. In doing that it has to operate in line with market rates because otherwise the Government are paying more for their money via National Savings than through the gilts market.

[Lord Barnett (Lab)]

My Lords, does the noble Lord’s answer to the noble Lord, Lord Lamont, mean that the Chancellor is advising the Governor of the Bank of England that if he has early plans to increase interest rates the Chancellor will use the reserve powers given to him under the Bank of England Act to stop it?

[Lord Newby]

My Lords, the reserve powers in the Bank of England Act are to be used principally when inflation is outside the target level. That is not the case at the moment. The question of interest rates is very much a matter for the Bank of England. It has adopted a new policy that incorporates forward guidance, which was agreed with the Chancellor in the middle of last year, and that is the basis on which it is operating.