(10 years, 9 months ago)
Lords Chamber
That the amendments for the Report stage be marshalled and considered in the following order:
Clauses 1 to 7, Schedule 1, Clauses 8 to 13, Schedule 2, Clauses 14 to 26, Schedule 3, Clauses 27 to 31, Schedule 4, Clauses 32 to 69, Schedule 5, Clauses 70 to 106, Schedules 6 and 7, Clauses 107 to 114, Schedule 8, Clauses 115 to 120, Schedule 9, Clause 121, Schedule 10, Clauses 122 to 127.
(10 years, 9 months ago)
Lords Chamber
To ask Her Majesty’s Government what steps they will take to encourage banks to prioritise their lending to the manufacturing sector compared to the property sector.
My Lords, the Government are committed to improving the flow of credit to all businesses, including those in the manufacturing sector. The Funding for Lending scheme has contributed to an improvement in the bank funding environment and banks are now passing this on to the real economy, including to small businesses. The Business Bank and the Business Finance Partnership are developing alternative sources of finance for smaller businesses.
That is a very different story from the one given by the chief executive of RBS, who, as the noble Lord will know, has told us that the bank is working very closely with the Treasury—by which he means Treasury officials. RBS has now set up an internal bad bank, while the Chancellor, whom I assume the officials talk to occasionally, has refused to set up a bad bank. Between them, they have found £38 billion of high-risk assets which they have decided will go into the bad bank. They have also said that they propose to finish the rest after writing off £4.5 billion by 2016. For those who owe that money, there is now an incentive to wait until the very end, which will mean the bank having to write off even more. Is that something that the officials, with the Chancellor’s consent, have agreed to?
My Lords, as the noble Lord knows, there was a review about whether there should be a formal good bank/bad bank split of RBS. The Government decided that the cost and disruption of doing this was not justified. However, as the noble Lord says, the bank has itself decided to make an internal split, enabling it to have a greater focus on lending and on dealing in a more orderly way with many loans which will not be repaid or will be only partially repaid. Many of these are related to the property sector.
My Lords, in March it was noted that lending to SMEs had shrunk by 25% in real terms since 2009 and it has continued to decline since then. The Business Bank is intended to address the problem and BIS forecasts that the first SME loan portfolio guarantees will be in place by the end of this year. Can the Minister update the House on progress?
My Lords, in respect of SME lending more generally, gross lending is now rising. The picture is clouded by the fact that a lot of SMEs are still paying back loans, so the net position is not as positive, but net lending is down by a much lower amount. As far as lending to SMEs as a whole is concerned, the picture is improving. The Business Bank was launched on 17 October and it aims to support economic growth by bringing together public and private sector funds to improve financial markets for SMEs. Very recently it announced its first commitment of £45 million from the initial £300 million investment programme.
My Lords, does the Minister think that his answers thus far will have given any satisfaction to those vocal critics of the low level of lending by banks to business, who include the director-general of the British Chambers of Commerce, the International Monetary Fund and the Business Secretary, Vince Cable?
My Lords, it is important to look at what is happening in the real world. The CBI’s SME trends survey, published yesterday, showed that SME business optimism was rising at the fastest rate since the survey began some 25 years ago. Among SMEs, output grew for the fourth quarter and is expected to grow more rapidly going into 2014. More generally, vacancies—the best indication of growing or falling demand for labour—are rising at the sharpest rate for more than six years.
My Lords, the noble Lord forgot to answer my question. Did the Chancellor agree with his officials in setting up the internal bad bank?
My Lords, the decision on setting up the bad bank was, primarily, for the management of RBS. The Treasury and UKFI are obviously in regular contact with RBS.
Does my noble friend not agree that one of the reasons that the banks have had difficulty in providing loans for small business is the disastrous state of their balance sheets, which was the responsibility of the ridiculous monetary policy followed by the previous Government?
My Lords, that was clearly a major contributory factor. However, I refer noble Lords to the review undertaken by Sir Andrew Large for RBS, which found that the bank had failed to meet its own lending standards, had risk-averse staff and took longer to process applications than other banks, and that its treatment of customers in financial distress had led to major negative perceptions of the bank. The bank is now, at long last, moving to tackle many of those issues, but the failures in the way that RBS ran its business were a major contributory factor to its failure in recent years to lend to SMEs the amounts it set itself in its target.
My Lords, does the Minister not accept that his characterisation is grossly inaccurate, and that in the past few years the huge fall in output in the western capitalist economies—I use that term advisedly—was due to the way in which Lehman Brothers and others at that time were able to cause that financial bubble and cause output to fall 10% below trend right across the western world? Simply to say that it was the fault of the Labour Government is ludicrous.
My Lords, I may be mistaken but I do not think that I said it was the fault of the Labour Government.
I attempt to take responsibility for things that I say at the Dispatch Box; it is beyond the scope of my responsibilities to take responsibility for the views of every other noble Lord.
I congratulate my noble friend on accepting some responsibility at the Dispatch Box. Is that not far better than, in the case of Members opposite, apparently accepting no responsibility whatever for anything they ever managed to do in government?
That is extremely kind but perhaps I may, as a final word, remind noble Lords—given the subject of the Question—not only that manufacturing output is up but that the Government have adopted a very wide range of proactive measures to promote manufacturing, including increasing the investment allowance to £250,000, supporting the Advanced Manufacturing Supply Chain Initiative, supporting high-value engineering and vastly increasing the apprenticeships scheme, including apprentices in manufacturing companies.
(10 years, 9 months ago)
Lords ChamberI support my noble friend Lord McFall of Alcluith and the Motion that he has moved. The vast number of amendments to the Financial Services (Banking Reform) Bill are extremely complex. Clearly, more time is needed to consider the amendments before Report. As my noble friend has pointed out, the banking commission, which includes the most reverend Primate the Archbishop of Canterbury, is joined by the President of the Supreme Court, the noble and learned Lord, Lord Neuberger, and the former Governor of the Bank of England in suggesting that that is the best way forward to delay the Report stage of this Bill until after the Christmas Recess.
The noble Baroness, Lady Anelay, the Chief Whip, said in our exchange of views on Wednesday that the increased length of the Bill was due to the Government responding positively to the recommendations made by the banking commission. Undoubtedly that played a part, but in a Bill of such importance for the future well-being for our financial system, it is critical that noble Lords have a longer opportunity to look at the Bill as a whole to see how the many amendments to the amendments to the amendments, as my noble friend pointed out, work together to provide a clear, cohesive and coherent system. My noble friend is right to point out that good legislation is critical, and the critique of the noble and learned Lord, Lord Neuberger, is salutary in this respect. Bad legislation is often complex legislation. In such situations, it is always the lawyers and accountants who win, and our country’s citizens who lose.
The Deputy Chief Whip is aware that my strong preference for business next Monday is to have debates on non-legislative reports. That seems to be a simple solution to the problem that was not, as I acknowledge, of the Government’s making, but the result of the will of the House in relation to the lobbying Bill. As I have explained to noble Lords and others inside and outside this Chamber, it is not possible to have the Second Reading of the Pensions Bill on 18 November, because the opposition spokespersons are not available. I stress that they are not, as some have suggested, on holiday. They have long-standing commitments that cannot be changed, and I respect their diary commitments.
As my noble friend said, we do have a duty to ensure the necessary transformation of our banking system. This requires longer consideration before the Report stage of the banking Bill. However, I recognise that the House is anxious not only to try to ensure that Report is put off until after Christmas, but also to ensure that all Members of your Lordships’ House who are members of the banking commission can participate at Report, including, of course, the most reverend Primate the Archbishop of Canterbury.
I suggest therefore that, even if it were not possible to delay the commencement of Report until after Christmas, there may be other legislative options that could be discussed in relation to business on Monday. I know that my noble friend Lord Bassam is happy to discuss other suggestions with the Deputy Chief Whip. I trust that this can be taken forward outside this Chamber. I am sure that most noble Lords, although clearly they are not in their place this evening, would be anxious to ensure that all members of the banking commission can participate in the Report stage and that proper consideration can be given by all Members of this House with an interest in this most important issue.
My Lords, on the substance of the Motion of the noble Lord, Lord McFall, as the House knows I am one of the Government’s spokespeople on the Bill, as well as being Deputy Chief Whip.
The Government tabled 155 amendments at Committee stage. By my reckoning, 116 of them were to respond to the report of the Parliamentary Commission on Banking Standards and were welcomed by members of the commission. The remainder set up the payments systems regulator, and were equally welcomed across the House. All but one of the amendments were tabled more than a week ahead of the Committee stage debate, and with an open letter of explanation addressed to the participants. I believe that this was a classic example of good practice.
Off the Floor, my noble friend Lord Deighton and I and other Treasury Ministers have had highly constructive and productive discussions with those interested in the Bill, and we continue to do so. Committee stage finished on 23 October. Usual practice would have been to have Report stage start a fortnight later on 6 November; instead, it will be on 18 November. That is a degree of measured consideration.
That is the substance of the matter. I will address two further issues. The first is that of the Chief Whip adjusting our future business in response to events. The Chief Whip had to rearrange our provisional forward business but, as she made clear last week at the Dispatch Box, she did so only because of the pressure in the House to delay Part 2 of the lobbying Bill—a position not initiated by the Government. In order to have a proper pipeline of parliamentary debate and proper progress of government business, it is necessary to have legislative business next week. The Financial Services (Banking Reform) Bill was waiting for Report. It was well beyond the necessary minimum interval between stages, and the Opposition Chief Whip made no alternative proposal. I think the Chief Whip not only did the best she could in the circumstances but acted entirely properly and reasonably.
I cannot but regret that the Motion we find ourselves debating was tabled by the noble Lord, Lord McFall, not only minutes before House up on Friday afternoon, but without first agreeing a slot for the debate with the Chief Whip, or even consulting her. I realise that in theory every Lord has equal access to the Order Paper. Of course they do in theory, but that is not how we work in practice.
Let me correct the Deputy Chief Whip. As a member of the Parliamentary Commission on Banking Standards, I was left in the dark regarding the Chief Whip’s negotiations with the usual channels. I was informed on Friday of the situation. I got on to the Table Office at about 1.30 pm and one of the first things I said was, “Contact the Government Whips so that they know this is going on on Monday”. I would have not needed to have done that if there had been proper channels of procedure between the Whips’ department and our department, and also the Parliamentary Commission on Banking Standards under the chairmanship of Andrew Tyrie, who has expressed deep regret at this situation. This Bill is different from all other Bills. The Government set up the Parliamentary Commission on Banking Standards. This is not government legislation; this is legislation that the Government are implementing as a result of a year-long inquiry that they set up. It is unique and different from all other aspects.
My Lords, my understanding—and I have not been a Whip as long as a number of noble Lords in their places at the moment—is that if a noble Lord wishes to bring a Motion of this sort, the normal practice is to discuss it with the usual channels before laying it. That did not happen in this case, and I greatly regret it. It is for the good order of the House that that is how we do our business. That is not the substance of our debate this evening, although we have to look to at how we do our procedure.
There are a number of outstanding issues between the Government and the Parliamentary Commission on Banking Standards. It is proposed that the relevant Treasury Ministers should meet representatives of the commission within the next 24 hours. That offer has been made. Having looked at the outstanding issues, I believe that it will be possible to make progress on most of them, but not necessarily on every last one. That can be done within the next 48 hours. The number of issues between the Government and the Parliamentary Commission on Banking Standards is relatively small because we have dealt with so many of them already. I strongly urge members of the commission to go ahead with that process in the confident expectation that we will be able to reach an agreement on many of the outstanding issues in the very near future.
As my noble friend the Chief Whip said last week, she was willing to hear alternative proposals from the Opposition Chief Whip about legislation for next Monday. As far as I understand, no proposals came forth. If the Opposition Chief Whip has some new proposals that he wants to make, obviously my noble friend’s door is always open. However, it is now very late and potentially unfair to people whose legislation might be coming next week to suggest changing the business for next Monday now.
Would the noble Lord be prepared to consider some changes at this late stage, because I am sure we could have some further discussion on this?
My Lords, the Parliamentary Commission on Banking Standards has been very open with the Government in everything we have done, and courteous in all our exchanges with them. In light of the heavyweight presence on that commission, in light of the reception it has received in the country and in the knowledge that if anything will change cultural standards in the UK’s financial services, it will be the recommendations of this commission, I should like the Government to reflect on the situation. The Minister should take it back to the Chief Whip and come back and say, “This commission has the best interests of Parliament and the country at heart. It wants time to look at it in a measured way and it is as simple a request as that”. It would be done courteously, and if it needs me to go to the Chief Whip and supplicate, I will be quite happy.
(10 years, 9 months ago)
Lords ChamberMy Lords, I thank the noble Baroness, Lady Prosser, for initiating this debate. I agree with many noble Lords, specifically the noble Baroness, Lady Drake, that what we have been discussing today is arguably the biggest challenge that we face with regard to economic policy—how we deal fairly with the bottom 50% of the workforce in terms of their earnings. I agree with the noble Baroness, Lady Prosser, that putting the current situation right is extremely challenging.
I agree very much with the noble Baroness’s analysis of the issues that are central to that challenge. Some of them, like the labour market changes that she and other noble Lords described, are very long-term challenges, while some have been exacerbated by the banking crisis. With regard to labour market changes, I agree with the noble Baroness, Lady Donaghy, who said that there is a real challenge because of, as it were, the hollowing out of the middle and the problem that people with intermediate skills have found their real wages squeezed. One of the reasons why we are keen to have a much higher level not just of apprenticeships but of advanced apprenticeships is to upskill many more people in that middle band so that they are more able to earn a higher income than they are at the moment.
I will talk later about low pay, but there has been quite sensible interest in and concern about what has been happening as part of a long-term trend on high pay. I was a member of the High Pay Commission, which looked at this whole issue. It has been very striking how over a couple of decades pay at the top has virtually lost touch with the reality of everything else and gone into the stratosphere. The Government are in the process of implementing the majority of the recommendations of the High Pay Commission, not least in giving shareholders a greater say in the pay of senior executives. It is a fact that bonuses have fallen by 85% since the peak year 2007-08, so something has happened in a way that we would all think was beneficial. However, I do not think anyone believes that we have gone as far as we should.
With regard to financial services, the remuneration code, which is in the process of being strengthened, will tie earnings much more closely to performance and lead to a much greater degree of deferred payment, which will not stop people being paid a lot of money but to a far greater extent will tie those earnings to what they have actually achieved. That, combined with greater shareholder control of earnings, will make some difference at the top end.
Fixing the economy is the Government’s first priority because this will raise everyone’s living standards. We are also keen to oversee a fairer tax system to ensure that jobs are created across the country and that those who make the most pay the most. However, we understand the immediate financial pressures that have been the main subject of today’s debate. I shall do my best to respond to as many of the issues that have been raised as possible—first, by looking at the way in which the Government’s economic policy is helping to keep employment as high as possible and interest rates low; secondly, by discussing the action that we have taken to protect standards of living; and, thirdly, by discussing our commitment to ensure that the impacts of our policies are as fair as possible.
First, on economic policy, we know, and have been discussing, the extent to which times are difficult. However, our view is that the only way to deliver a sustained improvement in living standards is to tackle the economy’s problems head-on and deliver a recovery that works for everyone. The Government’s economic plan is designed to equip the UK to secure a stronger economy and a fairer society and to help people who aspire to work hard and get on. The economy is turning a corner. Third-quarter GDP grew by 0.8%. This growth was broad-based across all sectors of the economy, and surveys of future intentions suggest that the growth will be sustained. This does not mean that we have eliminated all risks, but by cutting the deficit significantly, we have helped to secure near-record low interest rates which, as a result of the Bank of England’s forward guidance, are not likely to rise significantly in the short term. These low interest rates have supported hard-working families’ living standards, especially those families which have mortgages to pay. If mortgage interest rates rose by 1%, we would see average mortgage bills increasing by around £1,000 a year. It has been a central tenet of this Government’s policy to have a credible deficit reduction plan so that we can sustain low interest rates, and in this central aim, the Government have been successful.
Our economic policies are also helping people across the country get into work. There is obviously no better way to increase standards of living than by making sure that people are in work and securing a reasonable wage. There are now more people in employment than ever before: 1.4 million private sector jobs have been created over the past three years and 155,000 have been created over the past three months. It is pleasing that of the groups about which we have most concern the number of NEETs has fallen for the past five quarters. It has not fallen far enough, but there has been progress.
Last year, real household disposable incomes grew by 1.6% on average above inflation despite the squeeze, which was the fastest for three years, and according to the OBR, next year total earnings will increase above inflation and by 2015, they will be more than double the rise in inflation.
I realise that in the mean time pay, earnings and disposable income have been squeezed significantly, but one element of the issues that we face, which the noble Baroness, Lady Prosser, did not highlight, was that when this Government took office, there was no money left. This has been the leitmotif throughout all the policies we have had to adopt in order to get the deficit down and to keep interest rates down. We are also taking steps wherever we can directly to protect standards of living by pursuing measures that will keep cash in the pockets of hard-working people up and down the country. Noble Lords will be pleased to know that I am not going to list everything, but I shall mention the key points.
First, we are increasing the tax-free personal allowance to £10,000 by April next year. Taken together, this Government’s increases to the personal allowance will put £700 back into the pocket of each and every average taxpayer and will have taken around 2.7 million people on low incomes out of income tax altogether. We believe this is the most effective way to support those on low and middle incomes because it enables people to keep more of the money they earn. Achieving this in times of plenty would have been hard enough, but doing it under the economic circumstances we inherited makes it even more important. As a result of the changes that we have made, nine out of 10 working households will on average be almost £300 a year better off as a result of tax and benefits changes that took effect this year.
We are also taking a series of actions to keep consumers’ energy bills down. Although I agree that there is quite a row—to put it mildly—about what is happening to energy prices, and there is some suggestion that they are not actually rising very much, the wholesale price of gas this winter will be 8% higher than the price last year, according to Ofgem. That is the background ground to the price increases that we are seeing at the moment. The steps we are taking on energy bills include 2 million households getting help under the warm home discount, including well over a million of the poorest pensioners who will receive £135 off their electricity bill. Under the winter fuel payment, between £100 and £300 is available tax-free to those over 61 to help them pay their heating bills. A £900,000 Big Energy Saving Network will help the most vulnerable get the best deal for them. We are legislating through the Energy Bill to ensure that suppliers place all customers on the cheapest tariff that meets their preferences. We are making energy bills simpler, clearer and fairer, helping the 84% who do not switch and could be missing out on savings of up to £158. It simply is not the case that all electricity companies charge the same. There are savings to be made.
We are going further. The Prime Minister has announced there will be an annual review into the state of the competition in the market. This review will be led by the OFT, Ofgem and the new Competition and Markets Authority, when it comes into existence, to report by next year. Further measures on energy will be announced shortly by my noble friend Lady Verma when she gives the annual energy Statement. I recommend that all noble Lords stay for that.
In addition to announcements today, last week the Prime Minister announced a review of green levies on energy bills and more details on that will be announced by the time of the Autumn Statement.
Finally on energy, I completely endorse the comments of my noble friend Lord Horam on Labour Party policy in this area. It is simply incredible to believe that a temporary price freeze would have the effect for which the Labour Party hopes. I suspect that that is why the majority of people, when polled about this last weekend, said that they did not believe that it would work. We have also helped local authorities to freeze council tax, and we have frozen fuel duties. All these measures help to reduce the day-to-day cost of living for millions of people up and down the country.
I turn to redistribution and the distribution of income more generally. Before the fiscal consolidation we are now implementing, the richest 20% contributed three and a half times as much in tax as they received from public spending. This has now increased to around four times as much. As noble Lords have already discussed, there has been a fall in income inequality to the lowest level since 1986. There may be a number of caveats around that, but it is the case that income inequality is at the lowest level since 1986. For those of us who wish to see less income inequality, that is something to be pleased about. We have also taken steps to ensure that the most vulnerable low-income groups have been protected against the effects of economic circumstances.
Not least are the measures that we have taken for pensioners. It is interesting that not a single noble Lord has mentioned pensioners in the debate. I suspect that the reason is that the Government have treated pensioners, if not overgenerously, then certainly very fairly over the past three years. Pensioners have seen above-inflation increases to the state pension. The triple lock means that the basic state pension is higher by £6.85 a week than if it had been increased by earnings only. The average person reaching state pension age in 2013 with a full basic state pension can expect to receive an additional £12,000 in basic state pension over their retirement. In April this year, following a 2.5% increase, the basic state pension was estimated to be almost 18% of average earnings, the highest it has been in any year since 1992. In times of austerity, this is a significant achievement.
The noble Baroness, Lady Tyler, and others talked about improved childcare for people on low incomes. She referred to the fact that we are doubling the number of disadvantaged two year-olds receiving 15 hours of free childcare a week to 260,000 by September next year. We have also implemented 15 hours a week for all three and four year-olds and have announced free school meals for all children in their first three years of primary school.
Almost every noble Lord who has spoken in the debate has talked about low pay, which is clearly a very significant issue. The problems we now face are in part the result of long-term trends in unemployment. For example, the noble Lord, Lord Monks, pointed out that many people moving from the public to the private sector have taken a cut in pay because, on average, public sector wages have become somewhat higher than private sector wages. We have had a big shift from public to private, which has obviously had an impact on many people’s wages. The Government agree with the analysis of the Milburn review in this area. Its conclusion was that,
“the taxpayer alone can no longer bridge the gap between earnings and prices”,
and that employers,
“need to step up to the plate by providing higher minimum levels of pay and better career prospects, enabled by better skills”.
On the minimum wage, as noble Lords have pointed out, my colleague Vince Cable has asked the Low Pay Commission to look at the scope for increasing the minimum wage without having detrimental effects on the level of employment. We hope very much that that will lead to a greater increase in the minimum wage. However, the minimum wage is the minimum, and the living wage is a level that the Government support and encourage employers to follow. As a number of noble Lords pointed out, when the minimum wage was introduced there was a lot of scaremongering about the employment costs, which proved to be completely false. It has been estimated that the living wage might cost 160,000 jobs if implemented overall. I do not know whether that is a realistic assessment, but certainly the work that we have asked the Low Pay Commission to do to increase the minimum wage will begin to tease that out.
My Lords, the noble Baroness, Lady Donaghy, called me something I have never been called in your Lordships’ Chamber—a “treat”, which is impressive given that yesterday in particular I was called quite a lot of things, all of which were extremely derogatory. It is a great pleasure to hear what I think is an undeserved accolade. The noble Baroness talked about compliance. When the minimum wage was going through, I remember expressing some concerns that the legislation seemed to have very little in it about compliance. Although I understand that greater arrears have been identified in the past year than there were a couple of years ago, more needs to be done. I will take up the point she raised about the website with BIS, as we ought to be able to do something about that.
I am extremely sorry that I have been unable to deal with many of the questions and points raised by noble Lords in today’s debate, but I am out of time. Again, I thank the noble Baroness, Lady Prosser, for tabling the Motion. If we do not try our very hardest to improve the quality of life for the hard-working people of the UK, then we are not doing our jobs properly. I can assure noble Lords that we understand the financial pressures that hard-working families are facing, and that we are taking and will continue to take what we believe are the right steps to help them.
(10 years, 9 months ago)
Lords Chamber
To ask Her Majesty’s Government how they will enable those who enforce the tax laws to accomplish their tasks better.
My Lords, this Government are investing in HMRC, so that it will be collecting £10 billion a year more from its compliance activities by 2015-16 than it was at the start of this Parliament. The number of HMRC staff in compliance roles fell under the previous Government; under this Government there will be around 2,500 more staff tackling tax avoidance and evasion in 2014-15.
My Lords, at a time when decent Brits are struggling to pay their full taxes, is it not wholly counterproductive that many of our richest citizens and companies are evading and avoiding tens of billions of pounds in taxation? According to the HMRC calculation, every extra pound spent on enforcement resources yields £10 to £30. Although the statistics are encouraging, surely we should be doing yet more to avoid the citizen disenchantment that is currently brewing.
My Lords, I absolutely agree with my noble friend. I would remind him that this Government reinvested an additional £917 million in compliance activities in the 2010 spending round. They added another £77 million in last year’s Autumn Statement. Therefore, we have a track record of providing HMRC with additional funding, should it come forward with proposals that result in additional tax yield. It is not inconceivable that HMRC might come forward with such proposals in respect of this year’s Autumn Statement.
My Lords, should Ministers not be taking some initiative, irrespective of HMRC and its officials? Are Ministers aware of the level of anger in the country, and not just against the multinationals? We all recognise that that is a challenging nut to crack and needs international co-operation. Internal British companies—not least the energy companies—are able to locate their senior companies in offshore tax havens in order to avoid paying their legitimate tax. Is the Minister not aware that action is necessary from Ministers and not just from HMRC officials?
I think the decision taken by Ministers to give an additional £1 billion for compliance activities was pretty clear. Many of the problems that we see with multinationals paying less tax than would appear appropriate are international by nature. That is why we have put a lot of resources into the OECD. We put another £400,000 into the work that it is doing following the G20 summit earlier this year. There is a determination across the international community, to a degree that has not been apparent before, that companies cannot get away with avoiding taxes. This must be dealt with internationally, and that is what we are promoting effectively.
My Lords, does my noble friend agree that what the Treasury should be about is maximising the revenue that is taken in tax, and that the best way to achieve that is by having a lower, flatter, fairer tax system?
My Lords, one of the things I learnt as a junior Customs and Excise official—
It was a very long time ago, my Lords. While there are many good theoretical principles on which taxes need to be based, the single most important is the ability to collect the tax in the way you want. That must be a guiding principle. I do not believe that there is an easy answer to generating higher levels of tax revenue just by having a straightforward tax system. If it were as simple as that, it would have been tried by now.
My Lords, what additional mechanisms, procedures and arrangements are being put in place to maximise the potentially substantial income available from the letting of residential property, particularly in London, by people overseas? At the moment that revenue is often not collected.
My Lords, as the noble Lord will know, in last year’s Budget and Finance Bill, the stamp duty payable on high-value properties in those circumstances was significantly increased. That has led to a substantial increase in the overall yield of stamp duty on property transactions.
My Lords, is my noble friend aware that a very good precedent has been set on the avoidance of tax by the immediate past Prime Minister, Mr Brown? He does not pay tax on the earnings that spring from the things he does as a former Prime Minister because he gives all those earnings to charity. Is that not an example which might be followed by other former Prime Ministers?
My Lords, I am not going to continue this attack on Sir John Major because it is disgraceful. With respect, the Minister has been giving us the same answer about extra staff for almost the past three years, yet we have illustration after illustration of evasion. First it was Starbucks, then it was Amazon, then it was Philip Green and Irvine Laidlaw; one after the other has been avoiding tax. Has the Minister not yet come to the conclusion that what is needed is legislation to close the tax loopholes?
My Lords, leaving aside the fact that, sadly, I have not been a Minister for three years, the question of closing tax loopholes and dealing with companies that are international by their nature is an international problem. The level of activity now being undertaken via the OECD is on a scale that we have not seen for a generation. Some 15 work streams are currently under way, looking at different aspects of this problem, with a two-year deadline to resolve them. If it were possible to legislate in one country and deal with all these issues, not only we but the US, Germany, France and other countries that find themselves in the same boat would have done it. You cannot operate against multinationals on a domestic basis alone; it must be done internationally. That is what we are doing, and we are putting huge effort and impetus into that work.
(10 years, 9 months ago)
Lords ChamberMy Lords, it is a great pleasure to respond to this debate. I start by thanking the committee for its work and for the characteristically thoughtful way in which the noble Lord, Lord MacGregor of Pulham Market, introduced the debate. I congratulate the noble Lord, Lord Leigh of Hurley, on his maiden speech. I hope that his understanding of the advantage of brevity does not diminish with the passing of the years as, sadly, it sometimes does among other Members of your Lordships’ House. His speech was extremely thoughtful, in a House that prides itself on its expertise but which in fact has relatively few experts on financial affairs. Those we have are extremely distinguished. Compared to, say, debates on anti-social behaviour, in debates on any aspect of the economy or finances, we are pretty short on people with real current or past expertise, so I am doubly pleased to welcome the noble Lord to your Lordships’ House and look forward to taking part in many more debates with him.
I start with a confession. I am an alumnus of the lamentable side of Customs and Excise. I worked for a number of years in that part of Customs and Excise that provided tax policy advice to the Treasury at a time when it had virtually no tax officials of its own. Although things have changed, I like to think that we were at least able to match our colleagues in the Inland Revenue, with whom we had an extremely friendly rivalry at the time. I do not want to go into detail about the way in which tax policy is currently organised, but say simply that both departments have a clear remit. HMRC has a strong operational tax policy role, whereas the Treasury is responsible for strategic tax policy, but they work very closely together—literally as well as figuratively. When I worked in Customs and Excise my office was several miles away from the Treasury, which meant that even if I wanted to have a quick chat with somebody it was quite difficult. There is a common and regular movement of staff between HMRC and the Treasury, so there is quite a lot of joined-up working.
I shall deal with the complaint from all sides of the House that the Government are complacent about the issues. We are not complacent in respect of three aspects of the problem that we are facing. First, we accept and completely understand the level of public discontent. Secondly, we believe that that discontent is realistic and soundly based, and thirdly, we are dealing with a major problem. We are far from complacent about the need to do more. I hope to explain both what we are doing and why we will be doing more. One thing that I must say, having been a Treasury spokesman for the Liberal Democrats in your Lordships’ House for nearly 15 years, is that for the first part of that 15 years there was never any movement on the issues that we are talking about today. Pressure groups came year after year, asking why we were not doing this or that. Many of the things that we argued for to no avail for a decade have now been implemented, and a whole raft of other initiatives that have been started very recently have the ability to make fundamental improvements in how we deal with this problem. We are now in the middle of a rapidly moving series of national and international activities, which definitely goes in the direction that the committee wants, and I shall attempt to set that out.
I should perhaps state the blindingly obvious—that the Government’s view on corporation tax is that while we are keen to drive forward tax competitiveness, such a policy does not mean that we should be soft on tackling tax avoidance. We are determined to rebalance the tax regime to ensure that it supports growth and investment, and we want a corporate tax regime that improves our business environment, helps to attract multinational companies and encourages investment. That is why, alongside other reforms, we have reduced the headline rate of corporation tax. Having created a competitive tax regime, we expect companies to play by the rules and to pay the tax that is due. I completely agree with the noble Lord, Lord Hollick, that companies have wider duties than simply to minimise the amount of tax they pay. The Companies Act 2006 lays out clear directors’ duties as well as duties for the company as a whole in terms of having regard to the impact of its activities on society, which was a new and welcome initiative by the previous Government. It means that the two-dimensional view that anything that increases profit is good and anything else is bad is no longer acceptable and no longer recognised in law.
I shall deal with the question of whether corporation tax has had its day. Corporation tax at the moment raises 8.7% of HMRC revenue, as the noble Lord, Lord Bilimoria, pointed out. It is not as much as the top three but it is far above any other in that middle league. As I said earlier today, from a pragmatic point of view, a tax that raises 8.7% of revenue is one that should be made to work better but not, in my view, replaced. The Government have a credible record to date in dealing with companies avoiding tax. That has been demonstrated both through the legislative and operational changes we have made since 2010 and by HMRC’s success in litigating through the courts. The number of cases has not only dramatically increased manyfold; the proportion of cases heard in 2012-13 resulted in a more than 80% success rate for HMRC. So far, we have made 33 changes to tax laws to close down numerous avoidance loopholes.
As noble Lords mentioned, we have introduced the first general anti-abuse rule, which is designed to tackle abusive tax avoidance schemes and is a key part of our plans to drive down tax avoidance. Now that it is happening it is put to one side as though it is a little tick in the box, but we campaigned for years to get some movement on a general anti-avoidance law. At long last it has happened, and while I accept that, as the law beds in, we might over time want to strengthen it, it is a major shift for the better. We have updated the public procurement rules so that any potential government suppliers bidding for large contracts must now declare occasions of significant tax non-compliance. The noble Lord, Lord MacGregor, specifically asked me about this point. These rules were introduced on 1 April this year. It is not so much a case of naming and shaming suppliers who avoid tax but of suppliers disclosing occasions of significant non-compliance so that departments can have a number of remedies at their disposal, up to and including contract termination.
On top of our domestic action, we have taken a lead in the international field. Indeed, a lot of the debate today has been around the international initiative that is now being carried forward through the OECD. The noble Lord, Lord Lawson, said that the Government should accept that corporation tax was not fit for purpose. Indeed, that is why the Government have taken the lead in pressing for international action. A number of noble Lords said that it is about time the Government took a lead. They made it clear that in their chairmanship of the G8, tackling tax avoidance was their top priority. The OECD initiative has come about largely because this Government have taken an international lead. I strongly agree with the noble Lord, Lord Brennan, that the OECD is a body that is capable of getting to grips with this. There is a key component that will be absolutely crucial in determining whether the good work that has started comes to a satisfactory conclusion, which is whether Governments keep their eye on the ball. If it is just left to the OECD and it is not being pressured by Governments to make quicker progress it will not.
We are seeing now a recognition, not just by this Government but by a number of Governments internationally, that they have to take firmer action and keep the pressure on. That is why we have agreed to fund the OECD to the tune of another €400,000, to make sure that it keeps up with the pace and produces what is an extremely ambitious work plan, and ensures that it has effect.
The noble Lord, Lord MacGregor, asked how that was going. The OECD has established 15 actions needed to deal with base erosion and profit-shifting, which include a specific task force to look into the tax challenges of the digital economy—what might be called the “Google and Apple Task Force”—and a review of transfer pricing rules, the “Starbucks Task Force”. This is being carried forward by a number of OECD working parties, which will report back next year and the following year.
Closer to home, as a number of noble Lords have said and as the committee pointed out, it is obviously key that HMRC is fit for purpose in tackling a very difficult issue and dealing with companies that have considerable resources at their disposal. That is why the Government are investing almost £1 billion over this spending review period, specifically to tackle tax avoidance and evasion and to reduce losses from fraud, error and debt. That will bring in an extra £9 billion a year by 2014-15.
The additional money is spent largely on people. There has been an increase in the number of graduate-level trainees and a significant increase in the amount of technical training inside the department, in part with the Association of Accounting Technicians and Manchester Metropolitan University. An increased number of people are working on transfer pricing, as the rules already allow us to deal with some aspects at least of egregious transfer pricing. That requires highly skilled people, and there are now more of them. As I said earlier today in your Lordships’ House, the Treasury will look at any request it receives from HMRC for additional resources in the run-up to the spending review.
We have also seen—and been actively participating in—a sea change in the way that tax information is exchanged between jurisdictions. Another major campaigning issue has been about the automatic disclosure of tax information between the UK and tax havens—between the UK and our Crown dependencies and overseas territories. That is now happening. Some have signed, while the others have agreed. That will make a huge difference to transparency, which a number of noble Lords mentioned and which we are keen to see promoted.
I will deal with a number of specific points, some from the committee and others raised de novo today. Staff are seconded from the big four to HMRC or the Treasury only when the Treasury or HMRC identifies a lack of expertise and knowledge. The number of people involved here is not huge. We believe that effective safeguards are in place to ensure that official information is treated confidentially. Although there is quite a lot of general talk about people going in and nicking lots of ideas from the Treasury and telling their clients about them when they get back to the private sector, I have yet to see any concrete evidence of that.
The noble Lords, Lord Lawson and Lord Hollick, talked about the rules on interest deductibility, which they felt were too generous. This is one of the areas being looked at currently by the OECD. A number of rules are already in place to limit how much interest a company can deduct from its tax liability, but I was rather depressed to hear from the noble Lord, Lord Leigh, quite how much of a bonanza that was proving for the professionals and tax experts.
On harmonising the treatment of debt and equity finance, I am afraid that I can only repeat what we have already said: we are reviewing the wider case for an allowance for corporate equity. Again, the challenge here is one of cost, because it would be very expensive to do it on a large scale. Would undertaking a comprehensive review of the operation of corporation tax add value at this point? As we are in the middle of the OECD process and of ramping up the number of people working in the area, we seem to have a process in place which, if successful, will meet the requirements of the committee. To have a major review of it in midstream would divert effort in the wrong direction.
A number of noble Lords raised the point about a joint committee. Perhaps this is because I was a taxman, but I personally find it extraordinary to think that we should be establishing a committee of politicians to review the way in which the tax authorities look at individual taxpayers’ concerns. If the Government had proposed it, there would have been absolute outrage. I believe that the way forward is for the NAO to undertake rigorous investigation in this area. If the Public Accounts Committee in another place feels that not enough resources are being devoted to it by the NAO, we hope it will discuss that with the NAO and we will get more resources devoted to it.
The increase in the tax gap from £34 billion to £35 billion, which the noble Lord, Lord Browne of Ladyton, was very keen to hear about, was largely due to an increase in the VAT gap of 1.5%, caused by the rise in the standard rate of VAT from 17.5% to 20%. It had nothing to do with the issue that we are discussing today.
The noble Lord, Lord Shipley, asked a very specific question, which I will need to write to him about. In terms of what the Government are doing, bilaterally and through the OECD, to ensure that developing countries have a say in the renegotiation of global tax rules, we are, first, doing quite a lot with capacity-building via a joint HMRC-DfID programme, so that these countries are more capable of doing the job themselves. They are involved in various aspects of the task force work. A number of noble Lords raised the problem of mispricing. The extractive industry transparency initiative and the EU accounting directive now mean that there is a lot more country-by-country accounting in those areas and a lot more transparency, which will yield results over time.
The noble Lord, Lord Hollick, asked whether HMRC looks at intra-year tax avoidance schemes. Yes, it does. Corporation tax is calculated on the end of year accounts, and where a scheme to reduce taxable profits takes place during the year but has ended before the end of the year, HMRC will investigate. The DOTAS regime requires companies to disclose tax avoidance schemes when they are undertaken.
The noble Lord, Lord McFall, made a very powerful case about establishing a register for beneficial ownership. Such a register is being set up, and the case for making that public is currently under active consideration by Ministers. As I have always said, as a Leeds United fan, I would very much like to have known whether Ken Bates really did own Leeds United—that is the side of the argument on which my vote comes down.
I hope that I have gone some way to answering the points that have been made and reassured noble Lords that the Government are not in the slightest bit complacent. This is an area that we take extremely seriously and on which we will continue to focus.
(10 years, 9 months ago)
Lords Chamber
To ask Her Majesty’s Government to what extent their aims of producing more diversity in banking and of reforming banking culture will be affected by the change in ownership of the Co-operative Bank.
My Lords, the Co-op Bank is negotiating a deal on its capital with its creditors. It will cease to be fully mutually owned, but will continue to compete in retail banking markets. The Government’s reforms will make the banking sector safer, more competitive and diverse. We are implementing the recommendations of both the independent and parliamentary banking commissions. These fundamental reforms will be unaffected by the change of ownership for the single bank.
The fact is that the Co-op Bank will now be owned by a couple of vulture funds, which I suppose is diversity of a sort. What advice would the Minister give customers who are looking for ethical values in retail high street banking?
My Lords, the Co-op is undoubtedly having a significant change in ownership, but one would hope that even vultures will be able to see that the Co-op’s USP is its particular ethical stance. Its strength appears to me, at least, to be very much in that direction. So for the development of the Co-op, one would hope that they would see continuation of those traits being in their own interests, as well as those of anybody else. Of course, there are other mutuals that the discerning customer can put their money with; the Nationwide is very successful, as are other building societies. We must be clear on the difference between “for profit” and “ethical”. I would not want to brand every other high street bank as unethical just because they are also making a profit.
My Lords, I am grateful to the Minister for his comments on the Co-operative Bank, which after all is one of the few which did not go to the Government and to the taxpayer for support during these difficult times. However, what is the Minister proposing to do about increasing bank competition? Some 55% of the British population have never switched their accounts. The degree of switching and of competitive banking is low. Large banks owe their pre-eminence to historical development and being early in the field. Surely the Minister is going to take advantage of the Financial Services (Banking Reform) Bill to enact some of the proposals from the banking commission, chaired by Andrew Tyrie MP, and also amendments being tabled by the Labour Opposition to increase competition in the banking sector, which it sorely needs.
My Lords, the banking Bill incorporates many of the proposals of the Parliamentary Commission on Banking Standards. On switching, a new seven-day switching service was introduced last month. In its first month, there has been an 11% increase compared with the previous year in the number of people who switched their bank accounts. One would expect that number to increase as the service becomes better known. This year the big change in terms of new entrants to the market is that the regulators have greatly reduced the time that it takes to become a new bank and greatly reduced the amount of money it takes to establish a new bank. Those are key drivers for getting new competitors into the market.
My Lords, as the noble Lord, Lord Sharkey, has pointed out, it is perhaps somewhat of an irony that the Co-op Bank should being bailed out by hedge funds. The crucial point is that the Government have made clear that the time of taxpayers bailing out banks is over. Bluntly, if a bank cannot organise its own financial affairs, the resolution mechanism is the only alternative.
My Lords, one of the key purposes of the Financial Services (Banking Reform) Bill is to provide, in ring-fenced retail banks, relatively risk-free places for ordinary customers to put their money. Beyond that, the key thing is that the Bill’s resolution provisions will require banks to put in place mechanisms to be activated if they got into financial difficulties, such that they would not need to come to government in those circumstances.
Is the Minister aware that when giving evidence to the House of Commons Select Committee yesterday, the former chief executive of the Co-op Bank said that he was assured by the financial regulator about the safe state of the Britannia Building Society? The Co-op Bank takeover of the Britannia Building Society has given rise to the liquidity problems in the bank. Will he acknowledge that and inquire what the financial regulator was doing in giving that assurance?
My Lords, I think the merger with the Britannia Building Society was one of the material causes of this problem. I cannot comment on what the regulator may have said. Generally, where banks of all sorts have sought to make large acquisitions and they have then gone wrong, the principal responsibility for due diligence rests with the management of the bank involved in the takeover. The role played by the regulator, whatever its scale, does not detract from the fact that responsibility for major corporate decisions of that kind lies primarily with management.
Will my noble friend confirm for all of us who believe in mutuality and are sorry that the Co-op Bank has got into its current situation—I believe that mutuality is supported by both sides of the House—that when the new owners have got the bank onto a stable footing and making a profit they will possibly return it to mutuality?
Well, my Lords, that is possible but, as noble Lords know, the sad truth is that the process has tended to be something of a one-way street with regard to mutuality. When mutuals have ceased to be mutuals, they have tended to cease to be mutuals for good. Still, one can always hope. I should also have mentioned the raft of provisions in the banking reform Bill to bring building society legislation up to date and make it easier for them to compete in the marketplace.
(10 years, 9 months ago)
Lords Chamber
To ask Her Majesty’s Government what action they are taking to raise public awareness of the United Kingdom’s net contribution to the European Union’s budget over the last six years exceeding £53 billion, as set out in the HM Treasury Pink Book 2013, and the effect that has on the United Kingdom’s public sector borrowing requirement.
My Lords, to ensure transparency and increase public awareness, HM Treasury publishes details of UK contributions to the EU in its European Union finances and public expenditure statistical analyses publications. The previous Government gave up a significant portion of our abatement, and consequently our net contributions were always likely to increase. Following the real-terms cut to the 2014 to 2020 payment ceilings negotiated by the Prime Minister in February, they will now be going up by less.
My Lords, I thank the Minister for his considered reply. Perhaps I may illustrate my point. Recently, the Chancellor returned from China, pleased that he had raised £13 billion to build the new nuclear power station so desperately needed for our energy security. Is it not paradoxical that over the past six years our net contribution to the EU, which is substantially used for infrastructure, has been over £50 billion? That is enough to build at least three nuclear power stations. How is it that we can find the money to build other people’s infrastructure but not our own?
My Lords, by looking at the net contribution to the EU, the noble Lord is concentrating on only one dimension of our relationship with the Union. He is ignoring the very substantial economic benefits that we enjoy through increased internal trade via the single market, increased external trade via, for example, the recently concluded EU-Canada trade agreement, and increased investment in the UK by companies such as Nissan. He is also ignoring the non-economic benefits of membership in the fields of the environment, justice and external affairs.
Will the Minister take urgent steps to gain control of expenditure in the European budget? That can best be done by introducing a system of zero-based budgeting, such as my noble friend Lord Kinnock sought to introduce when he was a Commissioner. The Government have always said yes to this in principle but done nothing in practice.
My Lords, the first thing that we sought to do on the European budget was to ensure that it was not increasing in real terms. As the noble Lord knows, the agreement made by the Prime Minister at the European Council in February will result in €80 billion less expenditure over the next budgetary period than the Commission proposed. The first step in getting the budget dealt with appropriately was to cap it.
Could the Minister say how many nuclear power stations the Government could have built with the rebates that we have received since 1975 under Mrs Thatcher’s arrangements?
Does the Minister agree with two things about the net payment to Brussels of £12.2 billion for the past year alone? First, that it equates to the £30,000 per annum salaries of 1,100 nurses, policemen or any other public servant per day. Secondly, that there is no such thing as EU aid to us, because for every £1 they now send us back we have sent them £2.56.
My Lords, I am not going to get into a statistical analysis with the noble Lord, but I revert to my earlier point. Our membership of the EU brings with it a whole raft of benefits which do not simply relate to the EU budget. One area of expenditure that we incurred some time ago was dealing with a war in the Balkans, which cost this country more than £1 billion. Since the Balkan wars finished, Croatia has joined the EU and other Balkan states will join. We will not fight other Balkan wars. That does not fit into the noble Lord’s narrow formula.
My Lords, following the good point made by the noble Lord, Lord Tomlinson, about the need to control the EU budget, does the Minister recognise that in the 1970s, when government spending in Britain got totally out of control, it was brought under control to a considerable extent by the noble Lord, Lord Healey, when he was Chancellor? Helped by Sir Leo Pliatzky, the Second Permanent Secretary to the Treasury, he introduced cash limits. At the moment, the Commission constantly argues that more money is needed to fulfil the obligations of earlier policy undertakings. Cash limits would do it, or help do it. Will the Government try to get the EU to introduce cash limits?
My Lords, there is a cash limit. There is an overall payment ceiling of €908.4 billion over the next budget period. That is a cash limit.
Regarding my noble friend’s last answer, I do not know how much the European Union spent on creating a sustainable peace and a functional state in Bosnia-Herzegovina. However, I wonder if my noble friend would accept from me that, however much was spent, the figure amounted to tens of times less than it would have cost everybody, including British taxpayers, if there had been a return to conflict.
Will the noble Lord confirm that the gross cost to the taxpayer is not £55 million per day but £18 billion every year? If we were not paying that amount in exchanges, would not the Government be able to reduce the deficit on expenditure very much more quickly than they intend to at the present time?
My Lords, the net payment over the past six years has been about £34.8 billion. This equates to less than 1% of our total public expenditure over that period. It is a very substantial amount, but, as I have now said several times, you have to set against that amount all the economic and other benefits, including those mentioned by my noble friend Lord Ashdown, that the UK derives.
(10 years, 10 months ago)
Lords ChamberMy Lords, I thank all noble Lords for their contributions to the debate today and, in particular, the noble Lord, Lord Shipley, for initiating it. It is a huge pleasure to be able to congratulate my noble friend Lord Wrigglesworth on his maiden speech. As his speech demonstrated, he speaks with great authority about the economy of the north-east, and with great authority more generally. The noble Lord, Lord Giddens, described his speech as witty, meaty and suave. It struck me that these are fitting epithets for him as a whole.
My Lords, I do not want to damage the life of the noble Lord in the House of Lords, because the word “suave” might chase him forever, but it was intended as a compliment, so perhaps that subject should be dropped—in a suave sort of way.
I took it as a compliment.
I first met my noble friend 32 years ago, when I went to work in the Whips Office of the SDP. Like my noble friend Lady Falkner, I was one of the workers and he was a grandee. Therefore, it gives me particular pleasure now to be his Whip and to make sure that he is in every respect a model Member of your Lordships’ House—as I am sure he will be.
The Government are clear that membership of the EU is in the UK’s interest. The EU helps to advance UK national interests, influence and values. It provides freedom for British people to live, work, study and retire in Europe, and supports UK jobs, prosperity and growth through increased trade, both inside the single market and through free trade agreements.
The principal economic benefits of our membership of the European Union can be categorised under the headings of trade through our access to the single market, encouraging investment and promoting competition, thus driving down prices for British consumers. I shall deal with each of those three principal areas in turn.
The UK’s EU membership supports jobs, prosperity and growth in this country through increased trade. Our membership gives UK companies access to the world’s largest single market, with a GDP of about £11 trillion and 500 million consumers, without customs or tariffs. Free trade agreements through the EU lower trade barriers and increase access to markets. If the EU completed all trade deals currently under negotiation, EU GDP could be increased by about £275 billion. In particular, independent analysis commissioned by the Government has found that the net benefits to the UK of the EU-US free trade agreement currently under negotiation could add up to 0.35% to the UK’s economy. I absolutely agree with my noble friend Lord Watson that our ability to conclude such free trade agreements in a world where the WTO is a declining influence is immeasurably enhanced by being part of the EU. The idea that you can go into such negotiations with the same strength as a single country is surely completely mistaken.
Europe remains the main destination for UK exporters, with just over 50% of our goods exports destined for Europe in 2012. That has real benefits for UK businesses: 80% of businesses believe that the single market delivers concrete benefits to them and the Department for Business, Innovation and Skills forecasts that the EU will remain the UK’s most important market for at least the next 10 to 20 years. That strong trade relationship due to our membership delivers clear employment benefits, with one in 10 UK jobs to some degree dependent on trade with the EU.
The CBI study and others which have been quoted show truly remarkable levels of support for continuing EU membership. Underneath the fact that 80% of companies, broadly speaking, say that they wish us to remain in the EU, it is interesting that 47%—almost half—said that without EU membership, they believe that it would be more difficult to hire skilled workers. It is not just access to the market but access to workers.
I say two things about trading elsewhere to the noble Baroness, Lady Noakes. First, as several noble Lords have said, there is no trade-off between trading to the EU and to the rest of the world. The more a company trades in one part of the world, the more likely it is to be good at trading somewhere else. Secondly, we want many more companies to start trading, and the logical place for them to start, particularly if they are small, is with the EU. For a small company thinking about foreign trade, the prospect of doing it in Brazil, China and India is almost a bankrupting prospect. You do not have the time. You do not have the money. You do not have the knowledge to do it. The only logical place to start is the EU. That will continue to be the case.
Secondly, being part of the single market helps UK businesses to attract inward investment from both inside and outside Europe, enabling them to operate on a more efficient and global scale. The UK is the top destination in Europe for inward investment, attracting 21% of all foreign direct investment projects in Europe last year.
Our access to the single market is a key motivation for foreign investment in the UK economy, with half of all foreign investors in 2010 citing access to the single market, among other factors, as a key reason for investing in the UK. A number of noble Lords have dwelt on this point. The noble Lord, Lord Shipley, made the point that Nissan, which provides 6,000 jobs in his region, is there because of our EU membership. If we were to leave, the number of jobs would shrink.
The City of London Corporation, in the representation made to us which the noble Lord quoted from, said that many EU European banks locate in London to access the markets in which London has accrued specialities. Many non-UK EU firms choose to list on the London Stock Exchange in order to access the capital on offer there, directly channelling capital to European businesses from London. If we were not members of the EU, the idea that the City would be able to continue sailing serenely along with no threat from competitor centres in the EU seems implausible.
The single market also encourages competition and innovation across the EU, bringing down prices for consumers and increasing productivity in the UK. We are clear, however, that the EU could do better to become more competitive to deliver further economic benefits. That is in the interests not just of the UK but of all member states. The EU must become more competitive if we are to continue to improve the standard of living which Europeans currently enjoy, firstly by completing the single market in services, particularly in the digital and energy sectors. I give the noble Lord, Lord Liddle, an absolute assurance that the Government are committed to promoting the single market. It has been a centrepiece of our engagement with the EU. When my colleague in another place, Ed Davey, was at BIS he set up a group of like-minded countries, which eventually involved a majority of EU member states, to promote the single market in an effective way. It shows, incidentally, how the UK can take a lead in the EU even though we are not in the eurozone area. The completion of the single market is a central goal of the Government.
The second important role in making the EU more competitive revolves around agreeing the international trade agreements to which I have already referred. Finally, we are committed to cutting red tape to allow the engines of growth in the eurozone and across the EU the space that they need to flourish.
Completing the single market by removing all barriers to trade is estimated to increase UK GDP by about 7% and prices would fall by approximately 5% due to increased competition. In this tough economic climate, this would obviously provide a real boost if we could achieve it for UK businesses and consumers.
On the international free trade agreements with both advanced and emerging economies, progress continues to be made. The landmark deal reached between the EU and Canada, to which my noble friends Lord Maclennan and Lord Watson of Richmond referred, will benefit the UK economy and businesses by over £1.3 billion a year. As I have already said, the potential deal with the US would dwarf that.
Cutting red tape from the EU is crucial to allow small businesses to start up and then expand. Last week, six senior business leaders presented a report to the Prime Minister on reducing the burden of EU regulation; the noble Lord, Lord Liddle, referred to this. Their findings are based on research carried out across Europe. They have found that there is potential to save EU businesses billions of pounds by improving the regulatory environment. Their aim is not to abandon all regulation; they want to reduce the burden on small and medium-sized firms who create the vast majority of new jobs in Europe, and employ two-thirds of the workforce. The Government support their views, and are committed to ensuring that EU regulation does not hold UK businesses back.
The noble Lord, Lord Liddle, referred to a number of proposals in this report. The one which seems to be a classic of the kind of change we need, and which should be achievable, is the proposal to press for an urgent increase in the public procurement thresholds which significantly hold back small businesses in bidding for public sector work.
As the noble Lord, Lord Shipley, pointed out, these views are increasingly being accepted across the EU. The days when greater harmonisation was almost seen as an article of faith by member states are now over. We are in a strong position to take a lead in making EU regulation proportionate and growth promoting.
The noble Lord, Lord Liddle, asked whether the Government were speaking with one voice in terms of the single market and in terms of the report to which he and I have both referred. I can assure the noble Lord that the Government are speaking with one voice. He described the Government’s attitude as an assault on social Europe. This is a grotesque caricature of both the Government’s position and the proposals in the report. It does not reflect the Government’s attitude in any respect.
One question that is commonly asked or implied is whether the UK, given its semi-detached nature, is able to make progress with the kind of reform agenda to which I have been referring. We believe that we are and that we can. For example, we have secured the first ever exemption of micro-businesses from new EU proposals from the start of this year. We have also secured agreement on a single European patent after 23 years of EU negotiation, with the new patent court based in London for key pharmaceutical and life sciences sectors. This will be an important engine of growth for the UK’s R&D sector.
We have persuaded the European Commission to review the body of EU legislation to identify existing obligations from which micro-businesses could be exempted. Finally, we have delivered the first ever real-terms cut in the EU’s seven-year budget while protecting the UK’s rebate.
We had an interesting discussion, principally between the noble Baroness, Baroness Noakes, and the noble Lord, Lord Desai, about—
I know that time is short, but would the noble Lord not agree that the word “semi-detached” is an extremely unfortunate one to apply to the Government’s policy? We are talking about instances of variable geometry which have existed in the European Union since the 1980s and which are still continuing to develop. Would it not be better to expunge the word “semi-detached”?
My Lords, I use the word “semi-detached” because that is in the common parlance. I do not believe that it is an accurate reflection of the approach that the Government are taking. It is only reasonable to deal with the criticism of the Government head on, by explaining that our current position enables us to exert influence and to make significant positive progress.
I was referring to the interchange between the noble Baroness, Lady Noakes, and the noble Lord, Lord Desai, about the quantitative costs of EU membership. The noble Lord, Lord Desai, sensibly in my view, suggested that this was an extremely difficult area, not least because it is impossible to state a compelling counterfactual. Many of the rules and regulations against which costs are attached would almost certainly be required in some form or another were we not members of the EU. To count potential costs of such regulations on the assumption that they would not exist if we were out seems, again, to be pretty implausible. Equally, as other noble Lords have said, the suggestion that we could get a better deal from Norway and Switzerland if we were out seems not to be borne out by any logic. Given the circumstances of a divorce, which would be almost certainly politically pretty unpleasant, it is difficult to see how we would find ourselves in such a better position.
The noble Baroness, Lady Donaghy, talked about the role of national parliaments and the importance of increasing that role. The Government strongly agree with that. We are working with EU partners to increase the role of national parliaments. We welcome moves by both Houses to use the tools that they currently have to hold EU decision-makers to account more effectively. We want to consider possibly extending the scope of the “yellow card” system by introducing a red card. We absolutely agree that getting greater national engagement with this Parliament is strongly to be recommended. In saying that, I of course commend the work that your Lordships’ House already does through its European Union Committee and its sub-committee.
The noble Lord, Lord Giddens, asked me a specific question about the debate on the EU and how to promote it within the UK. Apart from the normal business, as it were, of making major speeches on the subject, which both the Prime Minister and Deputy Prime Minister have done in recent months, the Government have initiated a balance of competences review that seeks to engage with a wide range of people—not just think tanks, academics, businesses and Parliament but also the public—to produce as far as we can an analysis of the effect and effectiveness of the current powers and competences of the EU, with a view to deepening the public understanding of the nature of EU membership and reform. This is a difficult business, as the noble Lord will be aware, because we are doing it against the background of a media that find it literally impossible to treat a story about the EU on its merits. Still, the balance of competences review is a significant process and I encourage all noble Lords with interests in some of these areas to engage with it.
A number of noble Lords, such as the noble Lord, Lord Haskel, mentioned the European Space Agency. This is, as it were, a classic example of where working together within the EU serves our interest, and where trying to do it on our own would almost certainly have ceased because we simply do not have the resources to do so. As we look across the piece, we find many similar examples, as many noble Lords have exemplified in their speeches today.
To conclude, the Government believe that membership of the European Union is in our national interest and that there are significant economic benefits of our membership, from the single market through to trade, investment and competition. We are advancing and protecting the UK’s national interest in the European Union and will continue to do so, ensuring that our voice is heard and our interests are protected in order to promote growth and prosperity, which is the Government’s central purpose.
(10 years, 10 months ago)
Lords ChamberMy Lords, I support my noble friend Lord McFall and his colleagues on Amendment 98. I am also in favour of the two amendments tabled by the noble Lord, Lord Phillips of Sudbury. My noble friend drew on his experience as a member of the banking commission when he talked eloquently about the serious matters behind LIBOR and the other issues that contribute to the need for serious whistleblowing legislation to protect those who are, in effect, doing the country a great service.
In reading out those e-mails, my noble friend Lord McFall described the situation very graphically. At one stage I thought that he was going to break into the voice of Robert de Niro or Al Pacino, but his dulcet Dunbartonshire tones were sufficiently menacing to get across the message that the people involved in this crime were playing no games at all, and that it was very serious.
The seriousness of the whole question of LIBOR was brought home to many of us yesterday when we opened our newspapers and saw photographs of people who had been appearing in court charged with offences related to the LIBOR scandal. The first thing that struck me was that the people were relatively young. The “ringleader”, if that is the appropriate term, is barely in his thirties now and was in his twenties in 2008 when the offences were committed, and the other two are not much older. Surely there were older, more experienced people further up the chain who must have known what was going on. If they did not know, they certainly should have done. That is the heart of the matter with regard to whistleblowing. Those responsible have to be held to account.
Amendment 98 works by adding excluded activities under FiSMA or the Financial Services Act 2012 to the list of justifications for making what is known as a qualified disclosure. As noble Lords may know already, the list includes reporting that someone’s health and safety is in danger, damage to the environment, and a criminal offence that a company is not obeying the law or that someone has covered up wrongdoing. Those are generic terms, but many of them would apply to the finance sector. For the new banking system to work well and be policed effectively, protections have to be in place for staff who believe that wrongdoing exists in their organisation and they are not prepared simply to sit on their hands or, as happens in many cases, simply leave the job in the hope of finding employment somewhere else because they fear the consequences of raising the issue.
This amendment is a further attempt to trigger a cultural change in financial services, which I think noble Lords on all sides have acknowledged is necessary. A bank employee may well wrestle with their conscience before deciding to break ranks; it is inevitable that they would. If an honest trader suspects that wrongdoing is under way and is considering informing the authorities, surely protections have to be in place for him or her to guard against a situation where they are held to be at fault. They are the victim because they perhaps lose their job, which in banking, of course, could be a very well paid job indeed. Once the word goes round that someone has left a bank or financial institution for this reason, how difficult will it be for him or her to find other employment?
The LIBOR scandal illustrates the importance of making it easier to report wrongdoing. At the time that we now know the LIBOR rate was being manipulated, certain newspapers did speculate about the accuracy of those claims, and indeed about the accuracy of the LIBOR rate itself. But as we know, no one came forward because no one had the confidence, even if they had the evidence, to break the surface and bring the scandal out into the open. It would have been much easier had it been brought into the open then rather than when it eventually emerged. Surely it is essential that people feel confident about being able to do that in the future.
Amendment 98 simply seeks to bolster the maintenance of law and order, something that I suggest we are entitled to expect that the Minister and his colleagues would agree with. The amendment would make it easier for the regulator and banks’ own compliance teams to do their job. We have heard from my noble friend Lord Brennan that this is being done very effectively in the USA. How could the coalition oppose it being introduced in this country as well?
My Lords, the amendment would introduce a system under which the regulators would be able to award compensation against a firm that mistreated a whistleblower. Whistleblowing is an important issue and the Government agree that we need to have a proper system for protecting whistleblowers in the financial services industry as elsewhere. However, I do not think that the noble Lord’s amendment would be a helpful addition to the legislative framework, particularly at this point. Let me explain why.
In the summer, the Government launched a call for evidence on the whistleblowing framework to see whether there was a case for reforming the law protecting whistleblowers. This will be able to take account of submissions from the financial services regulators as well as from other interested parties. The call for evidence closes on 1 November and, once the evidence has been assessed, the Government will consider what if any action needs to be taken. It would not be sensible to prejudge the outcome of the call for evidence and implement changes without first looking at all the evidence available to support any changes. Moreover, the Government do not think that it would be appropriate to have different laws or protections for whistleblowers in different sectors. It would not be right to suggest that whistleblowers were more deserving of protection in some sectors than in others. I am sure that this is not what the noble Lord intended, but there is a risk that giving the regulators a special role in protecting whistleblowers in the financial services sector will be seen as special treatment for that sector.
Finally, this power does not seem consistent with the role and competence of the financial services regulators. There is a comprehensive system of protection for employees in employment law, which applies across the board, protecting workers in every sector. It provides a route of redress using employment tribunals for individuals who have suffered a detriment or dismissal as a result of blowing the whistle.
I think my noble friend may have slightly missed the point. It is well documented that what happens normally is not that the whistleblower is dismissed—then, of course, there is the protection of employment law—but that he is stuck in that job and will never ever have any further promotion. I may be wrong, but I do not think there is any redress under employment law for that.
My Lords, to the extent that there is or is not redress for that, the review which is under way will be looking at that element of the system as well as everything else. The evidence submitted, including by those who are keen to see the law changed and strengthened in that respect, will be able to take account of all that.
I am sorry to interrupt my noble friend again but it is important for the House to know a little more about this public consultation. I suspect that not one single person here tonight is aware that there is a consultation out there and that it is closing in a matter of a few days. Can the Minister tell us how widely this has been advertised, because it is news to me?
My Lords, I am very happy to write to the noble Lord about the process that has been followed up until now. The whole process of this Bill has demonstrated, as the noble Lord has said, that there is tremendous activity—whether in terms of the regulators producing documents or of other regulatory initiatives, which are very hard to keep up with. I will ensure that we write as a matter of urgency to all noble Lords about this exercise.
Before coming on to what the regulators are already doing in this area, I want to stress the basic point about this review. First, it is wide ranging. Secondly, it aims to beef up the current system. Thirdly, it will apply across the board because the Government do not believe that the financial services sector has a different status in terms of whistleblowing to, say, the oil and gas sector or the pharmaceutical sector. What we need is a common approach across all sectors.
The FCA is already extremely active in supporting and encouraging whistleblowing. The number of whistleblowing contacts received is growing rapidly. There was a 370% increase between 2007 and 2012. The SEC has done very well. It received 3,001 reports in 2012. In the same year, the FSA received 3,929 reports. The impression has been given that the Americans have this system which is generating huge quantities of people coming forward and that the City is absolutely in fear to the extent that no one is coming forward. The figures totally contradict that view. I am not saying for a minute that the system is perfect, cannot be improved or will not be improved, but that the numbers of people coming through in the City are higher than is the case in the States. The FCA’s whistleblowing procedures have been revised to actively track whistleblowing outcomes across the FCA while cases are actively monitored to provide feedback, wherever legally possible, to whistleblowers.
On the point that the noble Lord, Lord Brennan, raised, the regulators have a role in enforcement and protection. The Dodd-Frank Act brought in protections for whistleblowers which, to a considerable extent, already existed in the United Kingdom. The American scheme is of course not what is proposed in the UK, as the noble Lord said. Under that scheme, whistleblowers can receive a proportion of any penalty received from successful enforcement action arising from tips that they provide. That is different from what this amendment proposes. Although the PCBS said that it would like research to be undertaken in this area, it did not suggest an incentive scheme. The regulators are undertaking research, as requested by the parliamentary commission.
The regulators are therefore already doing a lot, including undertaking research, while the Government are undertaking a review of the whole issue across all the sectors. In the light of that, I hope that the noble Lord will withdraw his amendment.
My Lords, the Government’s response to every amendment is, “Manana, manana”. There is nothing in the response but, “Tomorrow, tomorrow”. There is, for example, a public consultation that we know nothing about. As noble Lords have said tonight, this is a very modest proposal. The Minister really has the wrong end of the stick here when he asks why we should protect whistleblowers in the financial services industry and what is different here from in the oil and gas industry. The Government themselves think that it is different. Why? Because they appointed the noble Lords, Lord Lawson and Lord Turnbull, and me to a Parliamentary Commission on Banking Standards, along with Members of the House of Commons. We spent a year of our lives—10,000 questions and 180 hours in committee—before presenting a report to the Government. That is why the financial services industry is different from others.
My Lords, is the noble Lord seriously suggesting that whistleblowing in the financial services sector—we are talking about whistleblowing here—is of a different order of public interest from whistleblowing in, say, the pharmaceutical or oil industry?
We have had the biggest financial crisis ever but not one whistleblower. That is the magnitude of the problem which the Minister does not grasp and that is why we looked at this issue. Goodness gracious, look at the fines: £85 million for Barclays and £13 billion for JP Morgan today. There is a litany we could go through, so what is the problem?
The Government set up a commission to look at culture and standards. What did the Parliamentary Commission on Banking Standards find? It found that the culture was rotten and the standards were abysmally low. This whistleblowing amendment—a modest amendment—is being put forward to ensure that we have a better culture, and that we have legal and compliance teams in companies that might have the nerve and confidence to go the FCA and say, “Look, there is wrongdoing in this company and we do not feel that we can assuage our conscience on this. We need to report it to the FCA to ensure that we have a better organisation here”. This has failed totally. That is the magnitude of the problem facing us and that is why we have this modest amendment.
The USA was mentioned. We had two witnesses before us from the USA who were very clear that we did not scrape the ground with the FSA. My noble friend Lord Brennan has given his wisdom on the situation in the USA tonight. We are asking the Government and the FCA to look at the experience in the USA to see if that aspect can be adapted. As the noble Lord, Lord Phillips, said, his charity did not have one person from the City. That backs up the evidence that we heard and gives the initiative to the FCA. That is the purpose of this amendment.
We received representations from trade unions in a sub-committee evidence session. The trade unions were very clear to us that their members at the grass-roots level felt pressurised but were scared stiff to do anything about it. I have a number of examples but will give the Minister one in particular. An individual I have known in my own town of Dumbarton for years, who worked in one of the banks for 25 years, left to become a care worker at less than half the salary. I asked her why she left. She said, “John, I was being forced every week to sell products that were not only unsuitable for people but were making their lives miserable. I could not partake in that, so I left”. There was someone who had been committed for 25 years being pressured on issues like that. Surely we should have a system to say “That person has given loyal service. That’s a person who wants to serve their bank and their community. Let’s establish an appropriate structure so that we protect that person, and also make the company better”.
I suggest to the Minister that there is a link between the almost £30 billion that we will be paying out in fines for PPI and the conduct of a company. If the proper procedure was in place and that information came up from the bottom, we probably would not have the abysmal situation we have with the £30 billion.
This amendment is about not just changing the culture and standards but helping the safety and soundness of companies. It was a responsibility given to us, the Parliamentary Commission on Banking Standards, by the Government to give recommendations to change the culture. This is a sound way of doing that and I would have expected a more sympathetic and engaging response from the Minister than we received tonight.
My Lords, this amendment refers to portable account numbers. I am sure that noble Lords will have read in yesterday’s Financial Times the story about the voluntary endeavour by the banks to increase the possibility of customers switching their accounts from one bank to another. The current switching drive does not include portability of account numbers. As the Financial Times boldly declared:
“Account switching drive fails to dislodge customers”.
The general assessment is that the complications associated with the non-portability of account numbers—that is, the complications of changing account numbers—are a significant disincentive to customers to switch their account from one bank to another. This is of course a considerable diminution of competition. The Government have argued very strongly that they are in favour of competition and choice in the retail sector. The noble Lord has repeated that position in discussing some of the amendments that we have already looked at this evening. However, here there is a clear opportunity to increase the possibility of competition in a very concrete way through the portability of account numbers.
The noble Lord will recall how successful this process has been in the telephone industry. The portability of telephone numbers has very evidently provided a significant competitive boost, which suggests that being able to move a number would increase competition significantly in the banking industry as well. I understand that this would be more difficult within the banking industry. For example, the amendment refers specifically to both portable account numbers and sort codes. That makes the issue more difficult because two individuals who bank at different banks may have the same account number but, of course, different sort codes; their entire identification is in the combination of the two. Therefore, a new means of identifying the core bank would have to be developed, and I understand that that would have various knock-on effects.
However, the idea that this would all cost £5 billion, as has been argued by the banking industry, seems to be vastly overstated. We had the same situation with telephony. We were told that this process was going to cost an enormous amount but, in the end, introducing transferable telephone numbers resulted in a tiny proportion of the costs which the industry had said it would need to incur.
Therefore, if we are really going to get competition and choice for the consumer, this seems to be a necessary step. The attempt to develop such competition through facilitating switching but without portability has, it seems, failed. Given that, if the Government are really going to put themselves on the side of the consumer in a competitive market, it is their responsibility to require the possibility of portable account numbers. I beg to move.
My Lords, it goes without saying that the Government are fully behind the objective of increasing competition in banking and making sure that customers who wish to switch banks can do so without impediment. The notion of portable account numbers was considered by the Independent Commission on Banking and in its final report the ICB chose to recommend a new account switching service over portable account numbers. It considered that such a service, if designed correctly, would provide the majority of the same benefits as portability, but with significantly reduced risk and cost.
The Government acted quickly on this recommendation to secure a commitment from the banking industry to deliver current account switching in two years. This was an ambitious timetable for such a big project, but the banks have met the challenge. The new current account switching service was launched on schedule in September and covers almost 100% of the current account market. It has been designed to meet all the ICB’s criteria for tackling customer concerns over switching and to give customers the confidence they need to make the banks improve their services by ensuring that their customers can vote with their feet.
However, it is important that the new system delivers on its promises. That is why the Government continue to engage closely with the Payments Council, which has delivered the service on behalf of the industry, on the progress of switching.
The noble Lord mentioned the Parliamentary Commission on Banking Standards and talked about account portability. But that was not as firm a recommendation as he has suggested, because one of the questions we asked was: why can the banks not allocate an account number that works in the way that mobile telephone numbers do, so that people can swap them around in the same way? The banks replied that the IT costs would be too high, but a cursory examination—that is all we did—of the IT aspect indicated that there were legacy problems with the IT. As we have seen with the horrendous examples involving RBS and others, the IT system is in a very poor state. So now is the ideal time to raise our ambitions and ensure that we get for bank customers the portability that telephone customers have.
My Lords, I did not mention the parliamentary commission; I was referring to the Independent Commission on Banking. None the less, I shall come to the substantive point that the noble Lord has just made.
As I was saying, to aid transparency we have asked the Payments Council to publish statistics regularly, including switching volumes on a monthly basis and more detailed statistics every quarter, which include data on awareness and confidence in the new service. The Government consider that making this information public is the best way to hold the current account switching service to account. As has been mentioned, the Payments Council has just published the first set of data, covering the four-week period following the switching service becoming fully operational. The numbers show that 89,000 switches were completed—an 11% increase on the 80,000 completed during the same period last year. I am a great fan of the Financial Times, but to describe a scheme that has been running for a month as a failure, when it has already got 9,000 extra people to switch, is clearly complete rubbish.
Account portability is a more complicated issue. I am not necessarily disagreeing with the noble Lord, Lord McFall, but the only way to make a properly informed assessment as to whether, or how, steps towards portable account numbers should be taken is to conduct a comprehensive analysis. I must say, almost in parenthesis, that I do not believe that the analogy with telephone numbers takes us as far as might appear at first sight. For a start, as an individual I am quite happy if lots of people know my telephone number —but I am very unhappy if anybody knows my bank account details. This means that I have a completely different view about how I want to deal with that account. That is one of a number of different reasons why this is a complicated issue. It is not, however, an issue that the Government have just pushed to one side. We have made a commitment to ask the new payment systems regulator to undertake the comprehensive analysis that is required.
There has not yet been a proper study of account portability in the UK, but it is clear that operating the payments systems alongside account portability would be one of the significant challenges. That is why we think that the payment systems regulator is the right body to carry out this work. It will have the appropriate expertise and will be able to give an independent view. To be clear, the payment systems regulator will have the powers described in subsection (2) of the proposed new clause. There would be no need to confer new powers on the regulator in order to implement the recommendations of a review. In order to get a complete picture of what benefits account portability could bring, the experience of the current account switching service will need to be fully considered. Therefore, the Government expect the success of the switching service to be firmly within the scope of the payment systems regulator’s view of portability. The switching service is new and the regulator is not yet established. In our view, the logical step is to let them both become properly established and bedded in and then have a proper and comprehensive analysis. On the basis of that, a decision can be taken.
The noble Lord just said that the payment systems regulator is going to be asked to do this. What timetable is the regulator going to be given?
The regulator will be asked to make this one of its top priorities once it has been established, but it is impossible to say at this point that it will have to do it within three or six months. We think that that would be overly prescriptive. However, it is one of the priority tasks that it will be given from its inception.
My Lords, that is why the amendment specifies 12 months. It seems that what the Government are saying is that they are behind the concept of competition but they are not behind the means of making that concept actually work. However, I must say that it is encouraging that the payment systems regulator is being asked to study this matter. It would be more encouraging if we were given some clarity that this will not simply be kicked into touch but will actually be presented to Parliament within a given timescale.
This is a matter of considerable importance if the Government are serious about competition and giving competitive advantage to consumers. It is therefore a matter to which we must inevitably return. In the mean time, I beg leave to withdraw the amendment.
My Lords, I am delighted that the Liberal Democrats are coming behind the proposals developed by my noble friend Lord Mitchell. I hope they acknowledge his success in having the various clauses limiting payday loans and high-cost credit agreements inserted during the passage of the Financial Services Act 2012.
Given that that Act is now in place and the measures advanced by my noble friend Lord Mitchell are on the statute book, the argument of the noble Lord, Lord Sharkey, as I understand it, is about why nothing is happening and why there is a lack of movement towards getting appropriate regulation in place. If he is indeed correct that things are moving so slowly—I have no reason to believe that he is not—the Government owe him an explanation as to why that is the case. Obviously, one is sympathetic to getting my noble friend Lord Mitchell’s measures going as fast as possible, but I have a couple of questions about the amendment.
First, do we really feel that there is a simple read-over between state government in the United States and a local authority in the UK? It seems that we pile responsibilities on local authorities without giving them sufficient funding, in many cases, to fulfil their responsibilities. I do not see that the amendment provides for any resources to go to local authorities to enable them to do the job.
Secondly, as far as I understand it, quite a lot of payday lending is done online. The amendment will do absolutely nothing to address loans that are made online because it is all geographically defined. A payday lender may have a registered address but that may have absolutely nothing to do with the location of the customers of that payday lender. The disjuncture between the registered address and the location of the customers suggests that knowledge of local needs would not necessarily be very relevant in such a case.
I am very sympathetic to the need to get things moving and look forward to the Government telling noble Lords how energetic they are being and giving us some concrete evidence of how my noble friend Lord Mitchell’s measures are being effectively brought into being. I would also like the Government to consider whether the noble Lord, Lord Sharkey, has, with the notion of the local authority—or indeed any other authority—identified a means of getting things moving more quickly.
My Lords, the Government wholeheartedly agree with my noble friend that consumers must be protected when they borrow from payday lenders and use other high-cost forms of credit. As noble Lords have pointed out, the Government fundamentally reformed the regulatory system governing these lenders to protect borrowers by transferring the regulation of consumer credit to the Financial Conduct Authority in the Financial Services Act 2012.
The FCA takes up this new regulatory responsibility on 1 April but has already demonstrated that it is serious about cracking down on high-cost lenders. It is absolutely unfair on it to say that nothing has happened since the Act was passed last year.
On 3 October, as the noble Lord, Lord Sharkey, has pointed out, the FCA set out an action plan on high-cost lending to protect consumers, with tough new rules covering a number of issues, including a limit on rollovers and restricting the use of continuous payment authorities. These proposals have won widespread support and will profoundly change how this industry operates. I completely agree with the noble Lord, Lord Sharkey, that self-regulation has failed, but the industry is not going to be self-regulated any more.
Turning now to the noble Lord’s amendment specifically, I am surprised that he thinks that local authorities should be given additional responsibility for regulating high-cost lenders. I can see why it might work in the States, and having looked at the Florida scheme I completely agree that it has been an extremely successful scheme there. I hope that there are a number of additional elements of that scheme that might, in time, be introduced into the UK. However, I frankly cannot see the case for duplicating regulatory effort within such a small geographic area of the UK, especially as consumers will find this confusing. Nor can this be considered a good use of public funds, given that the FCA, which is fully funded by the industry, already has this responsibility.
Most payday lenders have a national reach, especially the biggest players which dominate the market and, by definition, those which are online, so it does not make sense to permit scores of local authorities, in addition to the FCA, to all regulate the same lender. We believe that a well-resourced and empowered single national regulator will provide the best outcome for consumers. Consumers will be better protected by having a regulator with the resources, expertise and national consistency of the FCA. I am not convinced of the benefits for consumers of a federal approach to regulation. In fact, this could lead to more consumer harm; payday lenders are more likely to target consumers in local authority areas where the authority is less active.
The nub of the amendment is, of course, that the noble Lord has framed it to ensure that the Secretary of State imposes a cap on the cost of high-cost credit. While I entirely support the noble Lord’s ambition to bring down the cost of such loans, I am not convinced that the best way to do that is via a mandatory cap. The Government do not believe that current evidence provides sufficient justification to support a cap on the cost of credit.
The noble Lord has referred to the work commissioned by the Government from the University of Bristol. It does not, as he says, say that the main arguments against a cap on the rate relate to loan sharks. It does point out that although that may happen in some cases, lenders may try to bypass the cap by introducing other charges or fees which are not subject to it. Evidence shows that, with a cap in place, lenders may be less likely to show understanding if customers get into repayment difficulties.
While the Government are not convinced that a mandatory cap is the best overall solution for consumers now, they have made it clear that the FCA has a specific power to impose a cap in future, should it decide that it is needed to protect consumers. The FCA has already committed to start analysis on use of this power from April 2014.
Capping the cost of credit is a major intervention with potentially profound consequences for consumers, so it is right that the FCA contemplates use of this power in a responsible and evidence-based way, which is what it will now do. Noble Lords should not be in any doubt about the FCA’s commitment to using its powers to protect consumers whenever it feels it is necessary. The Government stand ready to support the FCA to ensure the best overall outcome for consumers.
I know it is extremely frustrating that we have not got a comprehensive solution in place, but the Government have moved with considerable alacrity in setting up a new, effective regulatory framework. The regulator has acted quickly to set out proposals and on that basis, I hope that the noble Lord will feel able to withdraw his amendment.
My Lords, my noble friend has made a very strong case. He needed to add one other element to persuade the Government, which is that this would enhance competition. If one improved information in this way, then, given the enhancement of consumer choice, the competitive objective of the Government would be better served. This would be a diminution of some of the severe problems of asymmetric information that distort competition in financial services, especially retail financial services. If it was developed with care it would be a considerable boost to the overall efficiency of retail financial services in this country.
It is very easy to say, “The time is not ripe; it is not really quite the time; there are unintended consequences”. All that is required is a consistent bias towards transparency. The Government should approach this issue by saying, “In principle, we are in favour of transparency”. The argument should be made for not being transparent. In other words, the strong case has to be made for not revealing something. The fundamental prejudice should be that this information should be transparent. Effective transmission of information is a key element in creating an efficient market and enhancing the competitive goal that the Government claim to be their own.
My Lords, as the noble Lord, Lord McFall, pointed out, we debated this issue at great length during proceedings on the previous Financial Services Bill. Sections 348 and 349 of FiSMA govern the treatment of confidential information obtained by the regulators and the ability of the regulators to disclose such confidential information. The noble Lord argued at the time, and repeated today, that there was inadequate transparency and insufficient disclosure of information in the financial services regulatory regime. This led to the argument that Section 348 should be amended to make it as unrestricted as possible.
In response, the Treasury undertook a careful review of Section 348 and its associated provisions. The review concluded, first, that it would be difficult to amend Section 348 without negative consequences. Scaling back Section 348 would increase the risk that firms would become less willing to share information with the regulators, undermining those important relationships and the regulators’ ability to protect consumers. Secondly, even with Section 348 in place, the FCA could and should do more to increase transparency.
With that in mind, the Government decided at the time not to amend or delete Section 348 but agreed with the FSA, as it then was, for it to carry out a fundamental review of how transparency would be embedded in the new FCA regime. This was published as a consultation in April of this year and received positive feedback from consumer groups—that is, the very people the new or changed approach was intended to benefit. The review covered use of disclosure as a regulatory tool by the regulator, disclosure of information by firms, both voluntarily and as a result of FCA rules, and transparency on the part of the regulator.
In terms of publishing details of enforcement action, the FCA is already required to publish details and information about decisions and final notices that it considers appropriate. It can also publish the fact that a warning notice has been issued in respect of disciplinary action. In response to the recent PCBS recommendation that it should require firms to publish more information, the FCA has outlined its plans to issue a call for evidence next year on data that it should require firms to publish to help consumers better understand the firm and product quality.
I hope the noble Lord will agree that this is exactly what the PCBS was seeking to achieve and that it can be done without further amendment to Section 348.
My Lords, again the Government’s response is a little timid. However, the hour is late. It is an appropriate time to say, “Mañana” and we will fight it another day.
My response to that is that it is completely unsatisfactory. We shall need to come back to it. I hope that there can be some discussion, maybe with officials in the Bill team. I am not satisfied that applying these various provisions simply to deposit takers covers all the areas of conduct that really need to be covered.
One other issue came to light in the course of this evening’s discussions about the remuneration regime. The noble Lord, Lord Newby, read out a list of people who are covered. Those are the people who are covered by the current remuneration regime. What was being proposed in my amendment was in effect a senior tier particularly for banking. Once you do that, you have to find a definition of a bank. I thought that we were a bit nearer to getting an answer until I heard from the noble Lord, Lord Eatwell. It is something we need to sort out, otherwise we shall find a serious area of misconduct in an investment banking area only to be told that when we legislated we forgot to cover these kinds of people. That would be completely unacceptable.
My Lords, I thought that I read out virtually verbatim last week what the noble Lord has read out from the Bank of England. We are going to confirm that in a letter. However the most important point is the one that the noble Lord, Lord Turnbull, raised about the scope of the senior managers regime and the criminal offence that goes with it. I can confirm now what I attempted to say last time, that my Treasury colleagues are considering the scope of the new regime and of the new criminal offence of reckless misconduct in the management of a bank in the light of the previous debate. I can assure the House that they take your Lordships’ views extremely seriously.
I infer that I should pay more attention to the letter of the noble Lord, Lord Newby, of 22 October than I should pay to the Bank of England’s response, because I think the former is a more constructive response than that of the Bank of England. On that basis, I beg leave to withdraw Amendment 104E.
“Section 8A | Subsection (3)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” |
“Section 41A | Subsection (4)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” |
“Section 44A | Subsection (6)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” |
“Section 48H | Subsection (5)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person. |
Section 48U | Subsection (4)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person. |
Section 48V | Subsection (6)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person. |
Section 48W | Subsection (9)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” |
“Section 81BA | Subsection (5)(b) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” |
“48F(1) and (2) | Power to amend definition of “excluded liabilities” | Draft affirmative resolution |
48G | Insolvency treatment principles | Draft affirmative resolution |
48P | Safeguarding of certain financial arrangements | Draft affirmative resolution |
52A | Bail-in compensation orders | Draft affirmative resolution” |
“60A | Third party compensation: instruments containing special bail-in provision | Draft affirmative resolution”; |
“152A | Property transfer from transferred institution | Draft affirmative resolution”; |
“Bail-in compensation order | 49” |
“Resolution instrument | 12A” |
“Special bail-in provision | 48B”. |
These amendments address a minor and technical point in connection with Sections 380, 382, and 384 of FiSMA, which govern when the regulators may seek an injunction or a restitution order from the court, or require restitution themselves. To exercise these powers, the regulator must demonstrate that the person concerned has contravened a “relevant requirement”. The current definition of “relevant requirement” in FiSMA does not include the new offences created under Part 7 of the Financial Services Act 2012, which deal with misleading statements, misleading impressions, and misleading statements in relation to benchmarks such as LIBOR. This means that regulators are unable to seek an injunction or restitution in relation to these offences. That was not the Government’s intention. These amendments correct this oversight by extending the definition of “relevant requirement” to bring these offences within the scope of the regulators’ powers to seek an injunction or restitution. I commend these amendments to the House.
My Lords, these are technical amendments relating to a number of the new powers introduced to the Bill as a result of the Government’s amendments in your Lordships’ House.
Amendment 113A amends Clause 17 of the Bill to specify the procedures applying to statutory instruments made under the new powers. It provides that the affirmative resolution procedure will apply to: orders made by the Treasury to exclude certain systems from the definition of “payment systems” for the purposes of the new clauses establishing the new payments regulator; orders to make amendments, which are consequential to the Bill, to other primary legislation, under the power introduced by the second amendment in this group, to which I will return in a minute; and orders made under paragraph 6 of the schedule on the conduct of financial market infrastructure administration, which allows the Treasury to make further modifications to primary legislation to make appropriate provision for FMI administration. Orders made under other provisions of the Bill will be subject to the negative resolution procedure, unless they are required to be made using the affirmative procedure, or they are commencement orders.
Amendment 114 enables the Treasury to make amendments consequential to the Bill—and any statutory instruments made under it—to other primary and secondary legislation. For example, it is likely that this power will be used to bring other legislation in line with the terminology of the new senior managers regime. This power can be used only in certain circumstances and the Treasury can make orders under the power only if it considers it necessary or expedient to do so as a consequence of a provision in the Bill. Furthermore, the power applies only to legislation which is made before the Bill is passed, or which is made in the same Parliamentary Session in which the Bill is passed. I beg to move.
My Lords, first, with respect to Amendment 113A, it is useful to see the use of the affirmative procedure here. However, the noble Lord will recall that the Delegated Powers Committee recommended an amendment which referred to the amendment of clauses that deal with ring-fencing. I asked more than two weeks ago how the Treasury would react to the Delegated Powers Committee in this respect and was told that I would receive a reply. I have not, as yet, received a reply. As we are now reaching the end of the Committee stage, it would be very helpful to know whether the Government are simply ignoring the Delegated Powers Committee, in which case we would require an explanation, or what the Government intend to do about this.
On Amendment 114, these powers are sometimes referred to as Henry VIII powers. Given this new clause, the good King Henry would regard it as rather excessive and would be taken aback by the power that the Treasury takes,
“amending, repealing, revoking or applying with modifications any enactment to which this section applies”.
The enactment applies to,
“any enactment passed or made before the passing of this Act”,
so, presumably, since the birth of Henry VIII. The new clause then refers to,
“any enactment passed or made on or before the last day”.
That I understand. What scrutiny will be given to these measures? We have been through a Committee stage which has identified a consistent rejection of proposals by the banking commission and particularly of the amendments that have been put forward. I have not heard the Government accept a single amendment put forward on behalf of the banking commission—not one—so there has been a consistent rejection of those. Now we are told that we will have the possibility of,
“amending, repealing, revoking or applying with modifications”,
a series of quite controversial measures in which the Government have attempted to water down the proposals of the banking commission. I would like to feel that I could get some reassurance that this power is to be used sparingly and is to be used only if there is some oversight or accountability to Parliament when it is used.
Because of the piecemeal way in which the Bill has been constructed, we now have a piecemeal presentation of the secondary legislation procedure as it applies to each bit—and I have completely lost track of it. The first thing that needs to be done is to set out, for the whole Bill—the bits that were there originally and the bits that have been added—what the secondary legislation provisions are. Then we can make a judgment on whether they are appropriate: whether the right things have been assigned to the negative procedure and the right things assigned to the positive procedure. However, it is virtually impossible to do this on the basis of this piecemeal presentation.
Amendment 114 raises enormous issues. The Minister is shaking his head and may try to reassure us, but there are important provisions here that need to go to various committees which we have set up in this House to examine such things.
My Lords, three issues have been raised. The first is whether we have responded to the Delegated Powers Committee. I explained at some length last week what the Government’s response was. Subsequently, I wrote to the chair of the committee, reiterating what I had said. I am sorry if noble Lords have not seen the letter; I will make sure that it gets to them. I will repeat what I said and what the letter said.
The Government’s view, bearing in mind that the committee said it was for the House to decide and did not make a recommendation on the procedure to be followed, is that, given the technical nature of these statutory instruments, the best way forward, in the light of the Government’s response to the consultation process that they have just completed, is to invite noble Lords who are interested in the secondary legislation to the Treasury to have an informal discussion on the issues, and to see what they feel might be done, and whether any amendments are required. The Treasury does not have a fixed view on the detailed provision of that secondary legislation, and would welcome the further views of Members of your Lordships’ House.
Secondly, I find literally incredible the suggestion of the noble Lord, Lord Eatwell, that the Government took no account of the recommendations of the PCBS.
Which amendment proposed by the PCBS have the Government accepted?
The noble Lord may or may not remember that at the start of today’s discussions the noble Lord, Lord Lawson, pointed out that the size of the Bill had expanded multiple times. I admit that part of this relates to the Government’s amendments on bail-in. However, every other amendment is in order to implement a recommendation of the PCBS. That is what we spent nearly all of last week discussing.
There is a real communication problem here. I was at a meeting with the noble Lords, Lord Turnbull and Lord Lawson, and with Andrew Tyrie, and they all complained about the expansion of the Bill from 35 pages to 199. If the Minister, incredibly, is saying that this is to help the Parliamentary Commission on Banking Standards, perhaps the Government should start communicating with us on this, because we are dismayed by the number of pages in the Bill, not accepting of it.
My Lords, I am sorry; with the exception of the bail-in provisions, the expansion of the size of the Bill is specifically in order to implement recommendations of the parliamentary commission, such as the senior managers regime, the criminal sanctions and the enhanced electrification power. The reason that the Government have not today accepted everything that the PCBS has recommended is that we have already accepted the majority of the commission’s recommendations and put them in the Bill. It is simply not the case that we have accepted no recommendations of the parliamentary commission—quite the opposite.
The final issue is specifically about the powers in this amendment. The powers can only be used to make consequential amendments—that is, those which are needed to deal with the provisions passed in the Bill. The example I gave was in relation to the senior persons regime, and I can reassure the noble Lord, Lord Brennan, that there is nothing sinister or unusual in what is being proposed. These powers are commonly taken in Bills which make significant changes to existing law. I am very happy for Treasury lawyers to set out in a letter the precedents that these powers exactly replicate. The hour is late, but I can assure the House that we are not doing anything here that is in the slightest way unusual.
Will the noble Lord agree that Amendment 114, at least, should be withdrawn until it can be considered by the Constitution Committee and the Delegated Powers and Regulatory Reform Committee? He has plenty of time to bring it back on Report if he then has substantial justification for it, and it would give considerable comfort to the Committee.
My Lords, I do not think that we need to withdraw the amendment. As I say, it is a standard provision. Interestingly, the specific reason that I gave for requiring it relates to the implementation of a recommendation of the Parliamentary Commission on Banking Standards. However, as I say, this provision is not in any way unusual. Therefore, I do not believe it needs the process that the noble Lord suggests.
My Lords, this amendment is consequential upon government Amendments 60A to 60YYV introducing a Payments Systems Regulator, and government Amendments 61 to 78, 107 and 108 which introduced a special administration regime for the operators of financial market infrastructure companies. It amends the Long Title of this Bill to reflect the fact that its scope now extends to payment systems and securities settlement systems and therefore ensures that the Long Title matches the content of the Bill. I commend this amendment to your Lordships.