(11 years, 1 month ago)
Grand Committee
That the Grand Committee do report to the House that it has considered the Alternative Investment Fund Managers Regulations 2013.
Relevant documents: 4th Report from the Joint Committee on Statutory Instruments.
My Lords, these regulations implement the alternative investment fund managers directive, taking into account the European venture capital fund regulation and the European social entrepreneurship regulation. Member states are required to transpose the directive by 22 July this year.
The directive creates a new regulatory framework and a passport to market funds across the EEA for managers of investment funds that are not already authorised under the undertakings for collective investment in transferable securities, or UCITS, directive. The regulations also create an optional lighter framework for smaller managers of venture capital and social investment funds, including a marketing passport.
The investment management industry is one of the UK’s success stories. It serves millions of customers all around the globe and forms a key part of the UK’s financial sector, managing £4.9 trillion of funds and earning an estimated £12 billion a year for the UK economy. Around one-third of European assets under management are managed out of the UK and the industry is a significant provider of high value-added jobs and skills, with clusters of expertise in London and Scotland and across many UK regions.
Because of the importance of this sector to the country, sensible and proportionate application of the requirements of the directive is vital to safeguarding its future. Therefore, we have consulted extensively with industry and other stakeholders while developing these regulations. As well as setting up face-to-face meetings with a range of trade associations and individual firms, we published a discussion paper and two consultation papers. We received 27 responses to the main consultation paper. Jointly with the Financial Conduct Authority we also set up an open forum event, which was attended by more than 300 stakeholders. The regulations have been developed in line with the feedback that we received, and the asset management sector has been very supportive of our overall approach to their introduction.
We have made full use of the flexibility provided by the directive to ensure that our industry has as reasonable a timetable of transition to the new regime as possible. UK firms must therefore be authorised or registered in accordance with the directive before 22 July next year. A firm will need to comply with the relevant directive requirements by the time that its authorisation or registration is approved. The full scope of the directive applies to firms managing cumulative assets with a value in excess of the threshold of €500 million, or €100 million if they are leveraged—that is, if they have used debt to supplement investment. Other firms may also opt in to the full scope of the directive if they choose.
The directive prescribes uniform regulatory standards for fully AIFMD-authorised firms, in particular a requirement to appoint a depositary, new rules on delegation, disclosure of leverage to investors, liquidity management standards, common standards on valuing fund assets and restrictions on asset-stripping for private equity firms. In exchange, fully authorised firms will be able to benefit from a marketing passport. This will allow them to market the funds that they manage across the EEA, based on a single authorisation with the Financial Conduct Authority.
There is little discretion for individual member states on exactly how they implement these requirements. However, we are working closely with the FCA to ensure that these new rules are applied in a pragmatic and proportionate manner. We will not add any new regulatory requirements to firms below the threshold, with the exception of a few minor obligations imposed by the directive.
Implementation of the directive will represent a significant shift in the way that the European alternative investment fund management sector operates, and it is likely to increase operational costs for many firms. We have therefore explored every opportunity to minimise the negative impacts on UK firms. In addition to the 12-month transitional period to which I have already referred, we have made a number of policy decisions, including the use of available derogations to keep these impacts down. Also, we have not applied any gold-plating in our implementation of the directive. No directive requirements above the minimum required for implementation will be applied to UK firms and no other new requirements are being introduced.
Our regulations are also designed to ensure that UK investors continue to have access to funds in other jurisdictions, so that EEA and third-country managers seeking to market here will benefit from a similar transitional period to UK firms. EEA managers who cannot make use of the marketing passport will be able to market to UK retail investors on the same terms as a UK firm would, provided that the fund has been recognised as providing sufficient investor protection.
Third-country managers will be able to market to UK investors once they have completed a simple notification process with the Financial Conduct Authority. They will also cease to have to comply with the reporting requirements imposed by the directive as soon as there are no longer any UK investors invested in their fund. Again, this overall approach to non-UK firms follows the strategy of replicating the status quo of marketing arrangements as closely as possible within the framework of AIFMD.
Although the directive has not been without controversy in the industry, I hope that I have been able to reassure the Committee that the Government have worked closely with the sector to ensure that we have taken the most sensible approach possible to the implementation of the regulations. I am confident that the regulations will help to ensure an appropriate balance between protecting the interests of investors and promoting and safeguarding an important and successful UK industry.
My Lords, I am delighted to have the Floor. I cannot think of anything more exciting than to discuss this SI with the Minister. It looks as though only the two of us will participate in this absolutely fascinating debate.
Of course, we agree with the broad terms of the SI. After all, the origins of the directive were derived several years ago from a position that we largely endorsed in government. The Minister will appreciate that we very much agree that supervision and control should be robust and effective, and we expect the Financial Conduct Authority to fulfil that function. The SI indicates the need of this important part of our investment and service economy to have the opportunity to seek custom right across the European Community.
The Minister may nod his head enthusiastically, because I know his views on the European position, but I notice a dearth of Conservative support in the Committee on this issue. On issues such as this, in the absence of some of those noble Lords who, like their colleagues on the Conservative Benches in the Commons, always smell a rat in anything to do with the European Community, one always worries whether any such indication exists as far as this SI is concerned. Certainly, our side supports it.
The Minister identified the issue of costs, which, it is clear from the documentation, are not negligible. However, I ask the Minister to come clean on something that I do not think occurred in the other place. When this SI was being considered and the consultation had taken place with the industry, how is it that the Government, with extraordinarily adroit timing, also included in the Finance Bill £150 million of tax cuts to the industry? In this a case once again of the Government, with their well-known friends in the City and conscious that some costs are involved—I am not underestimating the costs—thinking that some softening of the impact must be made by other aspects of government policy?
All I can say is that I do not agree with that. I am not at all convinced about the necessity for that. After all, as the Minister was at pains to point out, and as was also made clear in the other place, there are considerable benefits from what the noble Lord referred to quite clearly as a passport for effective operation in Europe. That is not a negligible thing. Ordinary citizens pay for a passport when they have the right to go abroad, so I am not clear why the costs appear to have been partially defrayed by the Government acting in another legislative capacity to moderate costs for the industry with the tax concessions that they have made. After all, it is not as if the industry has not for some time been quite adroit at lobbying on this issue—with considerable effect, I might add.
I apologise if I am a little slow in understanding the position but perhaps the Minister can spell it out. I understand entirely the €500 million threshold on activity and the €100 million base, but I take it that those who fall below that threshold yet are in this category of activity are subject to some regulation from the Financial Conduct Authority. I was not quite sure whether the Minister had spelt that point out. I apologise to him in advance if he did and I merely missed it.
We endorse this SI and hope that it will bring to the industry the opportunities of using the passport for effective operation in Europe. I have one last question. The Minister referred to the date by which we were obliged to comply. What are the prospects of the other 27 states complying with that timetable? He says, “Well, we haven’t gold-plated this particular SI”. No, but fair is fair and a level playing field must exist across Europe. We therefore want some assurance that other actors on the European scene will meet the same obligations with the same degree of scrutiny and control as is to be applied in the United Kingdom.
My Lords, I am most grateful to the noble Lord for his intervention. Since he referred to the timing of this debate, I must apologise that we have chosen to have it on a particularly exciting afternoon in the first test. Australia were 19 for two when I last heard.
That is almost the best news that the Minister has ever presented to me in any Committee, or in the House.
I do not want to dampen the mood but the noble Lord will know the score at which England were all out, so I am pleased to have been able to assist him marginally.
Regarding the noble Lord’s questions, he raised the point about whether the decision in the Budget to abolish Schedule 19 stamp duty reserve tax was a sop to the industry that was being hit by this directive, to which the answer is no. It is not, if for no other reason than that the firms covered by this directive were not bearing the stamp duty. This directive covers hedge funds and private equity, which were not paying the stamp duty reserve tax in the first place, so that is not the case. The reason for abolishing that relatively modest bit of stamp duty was that we were undertaking a package of reforms designed to enhance the competitiveness of the funds industry, and to help secure our status as the global asset management centre. The scope within the EU to expand that kind of activity of fund management is considerable, in our view, and we do not want to constrain it by unnecessary burdens of any sort.
The noble Lord asked about the state of play in terms of the implementation of the directive elsewhere. We are aware that Austria, Bulgaria, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Romania, Slovakia and Sweden have stated that they will implement the directive by the deadline. The majority of those member states now have relevant legislation being considered by their parliaments. I am afraid that I cannot give the noble Lord any information on the state of implementation in Belgium, Estonia, Greece, Hungary, Lithuania, Poland, Portugal, Slovenia or Spain. However, as far as we are aware, there is no reason to believe that any of those jurisdictions will miss the deadline.
The noble Lord asked whether sub-threshold managers are authorised by the FCA. Yes, they are. All sub-threshold managers will be subject to at least the same regulatory standards and oversight by the FCA as they are now, so they are not unregulated. I hope that I have answered the questions posed by noble Lords and, on that basis, commend the regulations to the Committee.
(11 years, 1 month ago)
Lords Chamber
To ask Her Majesty’s Government what is the Chancellor of the Exchequer’s assessment of the latest statement by the Monetary Policy Committee of the Bank of England.
My Lords, the Bank of England Act 1998 gives powers of operational responsibility for monetary policy to the independent Monetary Policy Committee of the Bank of England. The updated MPC remit set at Budget 2013 by the Chancellor requests the MPC to provide an assessment of the merits of using intermediate thresholds in monetary policy in its August 2013 inflation report, which will be published on 7 August.
My Lords, in the House last week, in answer to me, the Minister quoted the Prime Minister as saying at the G8 that the UK Government were “supporting … [an] active monetary policy”. How can he say that when it is not their responsibility? Is it because the new governor is virtually unsackable at the moment? Or is it that the Government are simply not interested at all in monetary policy? The new governor took his first meeting, to which the Minister referred. During the meeting, unusually for a governor, he gave some guidance and said that interest rates would be low for a long time, and could even go a little lower. In those circumstances, the pound dropped substantially. Some people are very happy with that. Is the Chancellor?
My Lords, on the first point, the Government updated the remit of the Monetary Policy Committee at Budget 2013 to give it greater powers to clarify the trade-offs that are involved in setting monetary policy to meet a forward-looking inflation target. That is what the governor and the Monetary Policy Committee will do over the coming months. On exchange rate policy, as the noble Lord knows, the previous Government did not have a policy for an exchange rate, and this Government do not have one, either.
My Lords, perhaps the Minister will comment on one aspect of the asset purchase scheme—quantitative easing—about which there has been some argument. When the original document setting up the asset purchase scheme was signed, and it was made consistent with the Bank of England Act 1998, was it set down that increases in the scale of the asset purchase scheme required the agreement of the Government, and that while day-to-day monetary policy may be the responsibility of the Bank of England, an increase in the scale of quantitative easing would require endorsement by the Government? Is that correct?
My Lords, my understanding is that it is for the MPC to decide on the scale of quantitative easing. As my noble friend will know, there is a Treasury representative at all meetings of the MPC. That representative is allowed to speak but does not have a vote.
My Lords, last week the New Economics Foundation suggested a new approach to quantitative easing. It suggested channelling investment directly into housing infrastructure and SME lending. Does the Minister agree with that suggestion?
My Lords, the Government are looking at a number of ways of increasing investment in all those areas of infrastructure. We set out in the spending review our plans for doing that in 2015-16 and subsequently. Plans or programmes already in place, such as the finance for lending scheme, are already having a significant impact on new housing construction.
My Lords, would not a word of caution be apposite at this time? Is not the American experience—where it has been difficult for the Federal Reserve to press on the monetary brake without destabilising the markets, as we have seen—a lesson that we need to learn for the British economy, particularly if there is any pick-up at all and the possibility of rising inflation?
My Lords, the American experience demonstrates how tricky it is for central banks to give forward-looking guidance without it having an effect on the market. However, as the MPC said at its meeting just last week, it viewed the implied rise in the expected future bank rate as not warranted by recent developments in the domestic economy. It is trying to be cautious and reduce any potential volatility.
My Lords, the world’s biggest gilt brokers, PIMCO, wrote about four weeks ago, as reported in the Financial Times, that the new Governor of the Bank of England would have only one shot in his locker, and that is to let the pound depreciate. Is it such a bad thing if, after 30 years, a trading nation begins to consider the rate at which it trades with the rest of the world? Is not our failure to look at the rate of our exchange in the past one of the reasons why we have such a high imbalance of trade?
My Lords, the pound has fallen in value against other international currencies by about 20% in recent years and that has not automatically had a vast impact on the balance of payments. There are considerable signs of optimism about that. For example, exports in goods to the EU increased by almost 7% last month. However, I think that recent experience has shown that devaluation on its own does not cut the mustard—we also need to have a whole raft of supply-side measures in place. That is why things ranging from the additional resources to UKTI, at one end, to bringing more money into science and apprenticeships, at the other, are necessary if we are to have a significant improvement in the balance of payments.
(11 years, 1 month ago)
Lords Chamber
To ask Her Majesty’s Government what discussions they have had with Welsh Government Ministers about the effect of the Comprehensive Spending Review on the delivery of devolved services in Wales.
My Lords, Treasury Ministers and officials have regular discussions with the Welsh Government on a wide variety of topics. Finance Ministers from the devolved Administrations met the Chief Secretary in Belfast on 3 June to discuss the forthcoming spending round. We have also received a joint written representation from all three devolved Administration Finance Ministers.
My Lords, is the Minister aware that Wales has the lowest level of GVA per head of any nation or region in these islands? Does he also accept that the key to regeneration is infrastructure investment, particularly to stimulate local economies? Why was it then that, in the review last week, while Scotland and Northern Ireland received an increase of 2.7% and 1.5% respectively in their capital DELs—departmental expenditure limits—Wales received a paltry 0.3%? As Anglesey has had the lowest GVA per head of any county in the United Kingdom during the past decade, will the Government now find capital funding for a much needed new road bridge over the Menai Strait to Anglesey, both to improve the traffic bottleneck there and to stimulate economic development on the island?
My Lords, as the noble Lord said, the Welsh Government’s capital budget for 2015-16 will increase by 0.3% in real terms, but that is only part of the story in terms of government capital expenditure in Wales. As he knows, south Wales is set to benefit from the electrification of the main line to Swansea and of the valley lines. He will be aware also that the Government have committed to spending £0.25 billion on a major new prison in north Wales.
My Lords, given the high dependence of Wales on public sector expenditure and public sector employment, what is the Government’s best estimate of the number of jobs in Wales which will be lost as a result of the review?
My Lords, I do not think that it is a question of jobs being lost in terms of the review. As I said, the capital budget for Wales is increasing. The resource budget for Wales will fall only very marginally in cash terms, by 0.4%, which is significantly less than the cut in the non-protected budgets of departments in the UK.
My Lords, in view of the dreadful shortage of money that we have for health services—in north Wales, we had a meeting last week that might threaten the existence of one of our district general hospitals—could not the Barnett formula be immediately reviewed to bring some areas in Wales more up to date?
My Lords, as noble Lords are aware, the Government have made it clear that we will not be reviewing the Barnett formula during this Parliament, at a point when we are sorting out the country’s finances.
My Lords, do not the Welsh Government desperately need to increase their borrowing capacity and was this not dealt with specifically by the Silk commission report last November? The Government promised their response to the report in the spring. Allowing for the vagaries of our climate, when, please, is spring coming?
As the noble Lord has pointed out, it has been a late spring this year. I can tell him that the result of the Government’s consideration of the Silk review will be published shortly.
My Lords, how much was the older population in Wales taken into account in the spending review, given that our elderly population is 4% greater? In fact, we are net importers of elderly people, who come to retire in Wales. They come with comorbidities and needing high healthcare spending, which is then borne by the Welsh Government.
That is obviously one factor out of a whole raft of factors relating to the different demographics and needs of the nations and regions of the UK. The elderly population are, of course, protected by the triple lock on pensions. It means that their state pension has done pretty well during this Parliament.
My Lords, does the Minister agree that the impact of the comprehensive spending review on Wales could have been radically different if the £9.6 billion of VAT uncollected over the last period had been collected? Perhaps if HMRC’s spending had not been reduced by 5%, that would have enabled it to collect what was due and Wales could even have had two prisons.
My Lords, I did not know that the noble Baroness was in favour of such radical spending on prisons. In terms of the tax cap and VAT, the next figures on the tax cap will be coming out in September. HMRC has been very successful during this Parliament in collecting previously uncollected taxes from a range of sources and, as the noble Baroness knows, we have put a lot of additional resources, almost £1 billion, into tackling tax avoidance and evasion.
(11 years, 1 month ago)
Lords Chamber
To ask Her Majesty’s Government what action they intend to take to increase the collection of tax revenue following Apple’s zero return for United Kingdom corporation tax.
My Lords, I am unable to comment on the tax affairs of individual companies, as doing so would be a breach of taxpayer confidentiality. Tax avoidance by multinational enterprises is an issue that requires co-ordinated global action. The UK is committed to supporting multilateral action through the G20 and the OECD. The OECD will present an action plan for tackling these issues to the G20 later this month.
My Lords, I thank my noble friend the Minister for that reply. What conversations are the Government having with the Republic of Ireland to prevent footloose and stateless subsidiaries paying derisory levels of corporation tax in its domain? I come back to my fundamental question. Is it right that my wife’s small printing business last year paid its full dues of £22,000 of corporation tax, when Apple, with a turnover in the UK of £1 billion, paid absolutely nothing?
My Lords, the noble Lord raises an important point. Eighty-four per cent of Apple’s non-US operating income was booked by an Irish subsidiary that was not tax-resident anywhere and paid tax at a rate of 0.05%. That is clearly unacceptable and is why the G20 will look at the issue later this month. It will be presented with a report from the OECD that suggests not only what action is needed but sets deadlines for taking it and makes proposals on the resources that are going to be needed to implement the new rules.
My Lords, the issue here is one of transfer pricing policy by foreign companies such as Apple, where, to put it simply, the prices of their merchandise are inflated and the margins that they make parked outside the UK. The merchandise is then sold on for virtually cost price in our country. Will the Minister consider making an assessment of these companies’ sales and applying a profit margin criterion, based on industry standards? They can argue about it afterwards, including about the disclosure of their true costs.
My Lords, this is exactly the issue which the OECD is looking at currently. Along with the French and the Germans, we have made a significant financial contribution in terms of getting experts working on this. There are a number of ways of dealing with it. The noble Lord suggests one way. The key thing is that we rapidly come up with new rules and get them implemented at an international level.
Pertinent to the last question, some 20 years ago when transfer payments were introduced, I acted for the company that I was running in discussing with the Inland Revenue, as it was at the time, how they would operate. The arrangements were not based on legal matters, but on commercial reality. We went through each area of activity to see what was going on where and what would be a fair allocation of costs, revenues and profits. I cannot understand why transfer payments are not operated thus today. Will the Minister say whether we are operating transfer payment regimes in the way that they were intended and started 20 years ago?
There is considerable scope for HMRC to undertake the kind of discussions that the noble Lord describes. The additional resources that we put into compliance have been spent in no small measure dealing with exactly that. The amount of revenue that we have been able to recover has increased by a number of billions, but this does not deal with problems such as the ones that my noble friend Lord Teverson has described.
My Lords, 40 years ago I was junior counsel to the Inland Revenue for a time. At that time, I and the Inland Revenue understood the legal position to be that every taxpayer had the right to arrange their affairs to reduce their liability for tax. I understand from what the Minister has already said that it is proposed to reconsider that situation. So be it. However, until it is changed, does the Minister agree that the principle that I have just enunciated is still a good principle of law and one to which the Inland Revenue still has to have regard?
My Lords, I agree that it is a good principle, but the problem we face at the moment is that large multinationals are able to order their affairs so that in some cases they end up paying virtually no tax, or nothing that is proportionate to the tax regime in any major country.
My Lords, the Government’s rhetoric on this subject is good, but we need an action plan to follow up that rhetoric. The Minister spoke about the OECD’s efforts, but what specific efforts are the UK Government putting into this problem? What additional resources will they be putting in and how do those additional resources sit alongside the 5% cut for HMRC in the CSR? Why did the Government resist the amendment in the other place calling on the Chancellor of the Exchequer to report on the progress on this important issue within six months? The abuse by these companies is expensive to HMG and an insult to the public. To get something done, we need a plan, resources and reporting.
My Lords, as the noble Lord will be aware, Ministers get a brief for Questions which always has a section headed: “The Previous Government’s Policy”. I shall read out what the brief says under that heading:
“None—the taxation of multinationals is a relatively new area of policy”.
The truth is that this Government have put in an additional £1 billion and several thousand additional people to tackle this. The pace of change in this area of tackling abusive tax arrangements has never been at this level. The UK Government have led it and will be reporting frequently on it. Frankly, the argument that this Government have somehow been deficient in tackling this problem does not bear thinking about.
(11 years, 1 month ago)
Lords Chamber
To ask Her Majesty’s Government what discussions the Prime Minister had on the issue of economic growth in the eurozone and the United Kingdom at the recent G8 summit.
My Lords, the G8 summit economic discussion focused on the issues that matter—jobs, growth and mending our economies. The UK’s approach to supporting the recovery through fiscal sustainability, active monetary policy and structural reforms was shared by all other G8 members.
My Lords, I am not sure whether that means anything. However, can the noble Lord tell me whether it means that the Prime Minister explained that there was nothing in last week’s review to help growth? In practice, we may, happily, get some over the next year or so but the Bank of England has reversed its former forecast for 2015. In fact, as the Chief Secretary has said, the expenditure for infrastructure will not start until 2015, so what on earth did the Prime Minister tell the summit about what we are doing to enhance economic growth, which is so vital, between now and 2015?
My Lords, the noble Lord has no doubt seen the report today from the British Chambers of Commerce, which shows that services and manufacturing report confidence rising to levels last seen in the last pre-recessionary period. Service exports reached levels not seen since 1994, and the proportion of the BCC’s members who are exporting rose in a year from 32% to 39%.
My Lords, as recent statistics show that for every public sector job lost five private sector jobs have been created in the past three years, and as unemployment in this country is around 8% and falling, whereas in the eurozone it is 12% and rising, and as we now know that the recession caused the fall in GNP of over 7% under the previous Government’s crisis, can I commend to my noble friend that the Government continue with the policies that are slowly but surely yielding genuine results?
I am extremely grateful to my noble friend for that suggestion, which I shall pass on to my ministerial colleagues in the Treasury.
I know I do not have to tell the noble Lord not to count chickens, and I know I do not have to remind him that good news may be good news but let us wait for things actually to happen. However, to be serious about this subject, surely what is needed is for Britain to get back on to its long-term sustainable rate of growth and, better still, to raise that long-term sustainable rate of growth. Neither of those things can possibly happen for the next three years, despite what the noble Lord opposite said about supporting current policies. Would it not be a good thing if, instead of the individual countries of Europe all going their own separate ways, we at long last had, as was intended when we set up the Common Market, a joint European economic policy? I think that that would lead to major growth throughout this continent.
My Lords, the Government support the efforts being made within the eurozone to develop closer economic co-ordination and they obviously also support some of the measures announced at the last EU summit, which will, to a limited extent, support the combating of youth unemployment.
My Lords, on the other hand, is not the only hope for economic growth to get our political class and its over-regulation off the backs of our productive industry and commerce? Therefore, are not the expressions “economic growth” and “eurozone” a contradiction in terms?
My Lords, the summit also addressed the issue of the international tax regime. Will the Minister recommend to this House the website www.fairtaxmark.net, which ranks companies as part of its campaign for greater transparency and fairness in corporate taxation? It is rather sober reading for the Government to see who pays tax and who is transparent, and it is most helpful to us as consumers, since consumers and the Government need to work together on these issues.
My Lords, I absolutely agree with my noble friend and I do commend the website to Members of your Lordships’ House. However, I also point out that at the G8 summit significant progress was made on tax transparency, whether in promoting the standards of the Extractive Industries Transparency Initiative, promoting a new global standard for automatic information exchange, or making more information available on beneficial ownership. These are big changes on which the UK is taking the lead.
My Lords, is the Minister aware that the economies of Germany and other countries are far more regulated than ours and are performing far better than ours in terms of sustained growth and exports? Does he accept that it can hardly be regulation that is the fundamental cause of the problems confronted by our people now? Is it not more to do with a stranglehold on consumption, and can he tell us how the further constriction of consumption can possibly help in generating the additional growth that we need to restore the performance of the United Kingdom?
My Lords, the key thing now is to drive unemployment down by continuing growth. That is the way in which consumption will rise. A key element of that is making sure that interest rates stay at a low level, which is the centrepiece of what the Government have been seeking to achieve. I absolutely agree with the noble Lord, Lord Peston, that one should not count chickens, but I think that he is almost wilfully failing to count those very small chickens that may be poking their beaks out into the sunshine.
My Lords, at the summit, did the Prime Minister take the opportunity to discuss with the President of the United States the strategy that it has pursued over recent years? The United States has had a 6% growth rate over that period. That is the growth rate that the Chancellor predicted for us in 2010 and, of course, we have achieved negligible growth over that period. Is it not quite clear that the Government have to change the strategy that they have been following and failing on over the past three years?
My Lords, the Prime Minister has had very constructive conversations with the President of the United States around the key pillars that will provide the basis for growth: an active monetary policy, addressing global imbalances, restoring medium-term fiscal sustainability, and structural reforms.
(11 years, 1 month ago)
Lords ChamberMy Lords, I refer the House to the “Investing in Britain’s Future” Statement made earlier in another place by my right honourable friend the Chief Secretary to the Treasury, copies of which have been made available in the Printed Paper Office and the text of which will be printed in full in the Official Report. I commend my right honourable friend’s Statement to the House.
“I am grateful to you, Mr Speaker, for allowing more time than is usual for a Statement, given the range of announcements to be made today.
Yesterday, my right honourable friend the Chancellor set out the difficult decisions that the Government have taken to continue the process of restoring our country’s finances. I pay tribute to his work to see the country through these most difficult of times.
Today, I will set out how the British economy can succeed in the global race by creating balanced growth and delivering lasting prosperity. Most past Governments of every colour have prioritised short-term convenience over the long-term national interest. Today, we change that. We are shifting the Government’s policy horizon to match the modern economy’s horizon, because the coalition Government want to make the right long-term choices for Britain.
I therefore announce the most comprehensive, ambitious and long-lasting capital investment plans this country has ever known. We are putting long-term priorities before short-term political pressures. I tell the House in all candour that these are not easy choices. There is no easy way to create jobs and prosperity. It is a difficult path, but the right one.
Today, it is clear that the British economy is moving from rescue to recovery. We inherited an economy in dire straits. Official statistics published this morning show that the recession in 2009 was even deeper than we first thought. We have made painful choices to get our economy back on the right track. We are making good progress—the deficit is down, jobs are up—but as we move from repair to renewal, we need to invest in the fabric of our nation. I can do that because we have chosen to find savings from day-to-day budgets, allowing us to recycle billions into long-term capital spending. That is not the easy choice, but the right one.
We can guarantee £300 billion of capital spending by the end of the decade. Today, I can set out our plans for more than £100 billion of that for the infrastructure of our country: the biggest public housing programme for more than 20 years, the largest programme of rail investment since Victorian times, the greatest investment in our roads since the 1970s, fast online access for the whole country and the unlocking of massive investments in cleaner energy to power our economy forwards, all at a price that we can afford to pay, without adding a single pound to our borrowing forecasts. Investing in stronger communities, in better infrastructure, in new sources of energy—that is how we will build a stronger economy in a fairer society, enabling everyone to get on in life.
At every stage of the process, we have sought to cut waste and inefficiency first, focusing on the back room, not the front line. We should not pretend that that is painless. Back-office efficiencies mean thousands of job losses. Contract renegotiation means rightly asking more for less from our suppliers. But that is the right way to make savings, while improving the quality of our public services.
Across government, we are using our capital budgets to help our public sector become smaller, more efficient and more effective. In 2015-16, we will invest £25 million in the best digital equipment for our police and £100 million in a new prison in north Wales—a scheme that will eventually save £20 million every year. More than £200 million is being invested over three years to increase the digitisation of Her Majesty’s Revenue and Customs’ customer services, a move that will save more than £50 million every year in administrative costs.
I pay tribute to the Minister for the Cabinet Office and Paymaster General and his team for their expertise and insight in unlocking these savings. I am the first Chief Secretary ever to have had this pool of commercial expertise at my disposal during a spending round. They tell me that we can do more to save money for the taxpayer. So, working closely with the Minister for the Cabinet, I will conduct a further rolling efficiency review of all departments to unlock savings to support our economic priorities. I will strengthen the financial management capability in government, too. We will take action to sell off £15 billion-worth of public assets by 2020. Some £10 billion of that money will come from corporate and financial assets, such as the student loan book, and the other £5 billion will come from land and property.
The Government are the custodians of taxpayers’ assets. When we no longer need them we should sell them back at a fair price and not act like a compulsive hoarder. Too often, local and national government sit on an area of land that could be put to good use for the economy, housing or schools. Today, we say this to businesses and communities, ‘If there are any publicly owned sites out there that you can make economic use of, then tell us’. Unless Ministers can be convinced that the site is needed, we will sell that land at a fair price and we will use the proceeds to pay down our debt and invest in our economy.
Let us not forget that the plans we inherited from the previous Government included significant cuts to capital spending in this Parliament. We have added to those plans year-on-year with more money for investment in this Parliament. Some people say that we are not delivering, but since we came to office more than 30 transport schemes have been completed, 150 railway stations have been upgraded and we have built 84,000 affordable homes. However, we need to work more smartly to improve delivery. No single Government infrastructure project in recent memory has been quite as triumphant as the 2012 Olympic and Paralympic games, so we appointed Lord Deighton, the man who oversaw that success, to improve infrastructure delivery across government. He is working his way through Whitehall department by department, helping to develop clear delivery plans. Today, the Government are accepting his central recommendation that we take crucial infrastructure delivery out of the hands of civil servants and into the hands of commercial experts.
Our innovative UK guarantee scheme is enabling privately funded projects to go forward, too. It has already provided certainty to investors in the Drax power station and the Northern line extension. I can announce that UK guarantees will be available for two more years to December 2016. I can announce today that we will offer a guarantee of up to £500 million to support investment in the Mersey Gateway bridge and a multimillion pound guarantee to advance the new nuclear power station at Hinkley Point, a guarantee that could provide growth in Liverpool and a guarantee that could provide power to 8% of the UK’s homes. These deals are not yet done, but they are a major step forward for our country’s future.
Let me turn to how we will invest in stronger communities. The Government have made a very strong commitment to education. We have protected the schools budget, including the pupil premium. We know what parents want: a good school nearby in a good state of repair, and this is how we will give it to them. First, some buildings simply are not good enough, so we are rebuilding 261 of the worst schools as part of the Priority School Building programme. With the moneys I have committed today, we will complete this by 2017—two years early. There are many other schools in need of repair and investment. The previous Government stopped even checking just how many schools were in need of repair. We have started again. We will put £10 billion behind this, which will be enough to clear the urgent backlog. We are investing, too, to create 1 million new places in a decade across the country, including in Lancashire, Leeds and London—better buildings and a place for every child are the best investment in our future generation.
We will continue to invest in the health of the nation, too. The health budget will rise in 2015, including on capital. That means we can begin redeveloping the Royal Liverpool hospital next year, and I can also announce a further £150 million for health research infrastructure, including facilities for our world-leading work on dementia.
Our new approach to housing is truly transformative. Our Help to Buy scheme is already getting people on to the ladder. But, put simply, this country does not have enough homes that people can afford. The previous Government allowed the number of affordable homes to fall by a shocking 420,000. A good home should not be a luxury for the few, but an achievable aspiration for the many. We are already ensuring that the affordable housing supply increases every year, not decreases, as it did in every year but one under the previous Government. But our housing associations have told me that they can do more. To do that, they need certainty on rents, alongside public investment. So today I can provide both those things: I can guarantee that social rents will be set at the consumer prices index plus 1% out to 2025—the longest period of certainty ever; and I can provide £3 billion more capital over three years from 2015 to deliver 165,000 new affordable homes. On average, that is more each year than in any of the past 20 years; it is more in three years than the previous Government managed in seven. And we can do all that because our approach gets twice as many houses as they did for every pound we put in, getting more for the taxpayer and more for this country. This spending round also funds over 2,500 more new homes specifically designed for older and disabled people, and £160 million for decent homes, mainly in London. I know that issue is important to many MPs, particularly my right honourable friend the Member for Bermondsey and Old Southwark (Simon Hughes). This is the most ambitious and significant investment in affordable housing for a generation.
Too many Members of this House, on both sides, have in recent years seen the devastation that flooding can cause in their constituencies. We need to work with the private sector to protect families from the threat of flooding, so we will provide £370 million in 2015 and increase that in real terms every year to 2020. More than 400,000 households will be protected over this decade. Insurance also has a vital role to play in helping households deal with the consequences when flooding does occur. I am pleased to tell the House that we have now reached an initial agreement with the Association of British Insurers on the future of flood insurance. The industry wants to do the right thing and so do we. We have always said that we wanted to find a solution that works for households at risk of flooding, wider bill payers and the taxpayer. The industry’s proposed scheme, known as Flood Re, promises to do that by effectively limiting insurance prices for high-risk households. Up to 500,000 households would be helped, with support targeted towards those on lower incomes. Support would be funded by a levy on insurers, something the ABI has promised us will not increase customer bills in general. Importantly, there will be no cost to taxpayers.
There remain many details to work through, so we propose also to take powers to allow us to regulate for affordable flood insurance should that prove necessary. We are seeking these powers in the Water Bill, which we are today introducing to Parliament. The Secretary of State for Environment, Food and Rural Affairs is today launching a public consultation on our proposed approach, and we welcome views on it. He will introduce our final proposals to Parliament as a government amendment in the autumn.
Local businesses, local communities and local authorities know best how to make the decisions to support growth in their area. For decades we have not given them enough chance to do so, but now we are. Yesterday, the Chancellor confirmed that we are establishing a single local growth fund to transfer funding streams to local enterprise partnerships, as recommended by Lord Heseltine, with £2 billion in 2015 and at least that in every year for the rest of the decade. In total, at least £20 billion will be under the control of LEPs to 2020. The details of how that will work are set out in the document published today.
We have also reached agreement with Greater Manchester on its innovative ‘earn back’ scheme, which will allow it to invest in its priorities, such as the Trafford Metrolink and the A6 to Manchester airport relief road. I know that many honourable Members, including my honourable friend the Member for Cheadle (Mark Hunter), have been campaigning on that for many years—as indeed has the Chancellor, for that matter.
The regional growth fund has also been a fantastic success, thanks to the drive of people up and down the country, led by my right honourable friend the Deputy Prime Minister. The £2.4 billion in this Parliament is safeguarding half a million jobs, spread across every English region. Furthermore, we are today investing an extra £600 million so that we can do even more to strengthen our communities.
For our economy to grow, however, we need those communities to be better connected. In the last two decades, rail passenger numbers have doubled, and that figure is set to rise by nearly 15% over the next five years. More people are using our railways than at any time since 1927, so we have set out a clear, long-term plan to cope with that demand. Last year, we announced that Network Rail had been funded to deliver the largest programme of rail investment since the Victorian era, and today I reaffirm that commitment. This investment will bring new life to our rail networks, upgrading stations such as King’s Cross, Manchester Piccadilly and Birmingham New Street, improving links from Liverpool to Newcastle through the northern hub and opening up a new line from Bedford to Oxford. We are also electrifying 850 miles of railway. By comparison, the previous Government managed nine miles in 13 years.
My honourable friend the Member for Westmorland and Lonsdale (Tim Farron) will be pleased to hear that Network Rail is conducting a feasibility study into electrifying the Lakes line between Oxenholme and Windermere. We are going one better in London, and from 2015, we will fund Network Rail to begin work on electrifying the line connecting Gospel Oak and Barking. Nowhere is fast commuter transport more important for our economy than in London, and our investment in Crossrail will support more than 120,000 additional peak-time commuters every day. The Government are committing £2 million to support a funding and financing study into Crossrail 2. The challenge for the Mayor of London now is to determine how at least half of the cost of the scheme can be met through private sources, ensuring that it will be affordable to the UK taxpayer.
Keeping London connected is crucial, but it must not be done at the expense of our other great cities. It is not good enough that the UK has just 68 miles of high-speed rail, compared with 1,000 in Germany and more than 2,000 in France. We want a high-speed line that connects eight of the UK’s 10-biggest cities, making daily commuting between them possible for the first time. Today, therefore, we provide long-term financial certainty for High Speed 2, setting a funding envelope of £42.6 billion for construction costs and £7.5 billion for rolling stock, and we are setting a clear budget for the scheme of £16 billion for the next Parliament.
Yes, that is a higher overall budget than previously put forward. We are learning from our Olympic experience and setting a long-term, realistic financial plan with the right contingencies. This is the longest and largest transport budget the Treasury has ever set aside, and the people running the project will have to deliver within it. This project will change the economic geography of our country, and I urge honourable Members to support it. It is not being built at the expense of a single other rail project. Taken together, we are supporting more than £30 billion of investment in rail, making this coalition the most pro-rail Government in history.
We also need to think of the remote parts of the UK that HS2 will not reach. Air connections are crucial to those regional economies, so to help maintain those connections, I can announce today that we will provide £10 million a year for a new regional air connectivity fund. I look forward to Howard Davies’s report into that and other aviation issues.
Millions of people rely on our road network. We have worked hard over the past three years to protect road users, cancelling fuel duty increases and saving 13p on a litre of petrol, but our road system has been decaying for decades, and without further significant investment now, by 2040, nearly a quarter of motorists’ travel time could be spent stuck in traffic. I can therefore announce today the biggest programme of investment in our roads in 40 years. The Government will invest more than £28 billion over the six years from 2014 in the enhancement and maintenance of national and local schemes. First, we will take action to fix the backlog of maintenance that has left road surfaces crumbling in communities up and down the country. We are committing £10 billion of investment in road repairs between 2015-16 and 2020-21. More than £4 billion of that money will be spent on national road maintenance—enough to resurface more than 21,000 miles of road, which is the equivalent of London to Beijing and back—while the other £6 billion will be spent locally, allowing local authorities to fill the equivalent of 19 million potholes a year.
Secondly, we will deliver all the major projects in the Highways Agency’s pipeline. We will add two lanes to the busiest motorways, bringing another 221 lane miles to our road network, and we will tackle some of the most congested parts of our network, through projects such as the £1.5 billion A14 scheme between Huntingdon and Cambridge. This scheme is of strategic national importance and will unlock jobs, housing and growth in the region, as well as providing key relief for a major freight route. I am delighted to announce that we will be bringing forward the start of construction by almost two years, to 2016.
I can confirm today that there is more: the A19 between Newcastle and South Shields, the A63 in Hull, the M6 junctions between Birmingham and Manchester, the M5 junctions from Bromsgrove to Worcester, the A38 Derby junctions, the M1 junction near Long Eaton and south of Rugby, the A21 between Tonbridge and Pembury, junctions on the M4, the M23 Gatwick junctions and the A27 Chichester bypass.
This money will pay for us to identify and deliver solutions for the most notorious problem spots across the country. Any honourable Member from the Prime Minister down who lives in Cornwall or who has driven there for their holidays will want to see a better A303. Any hon. Member planning a trip to Scotland—Scotland as part of a strong United Kingdom—will want to see a better A1 north of Newcastle. We will also look at the A27 corridor, the trans-Pennine route and connectivity to Leeds airport.
We will ensure that these investments are delivered, because I can also announce that we are transforming the Highways Agency into a publicly owned corporation, an organisation that will have the long-term funding certainty and flexibility to deliver the best possible road network for the UK’s motorists. We are legislating to ensure that these reforms and this investment are guaranteed.
Where our predecessors left the road network on the hard shoulder, we are bringing it into the fast lane. We are not only building the roads of the future but developing the cars of the future. This Government remain committed to ensuring that the UK remains at the forefront of decarbonising road transport and investing in electric vehicles.
In the 21st century, good communications are not just about faster roads and high-speed railways, however; they are also about high-speed internet access. The Government have already committed £1.2 billion of public investment to fixed superfast broadband. I saw at first hand the impact that that investment is having on smaller communities when I visited Rothbury in Northumberland. It is crucial, if we want to rebalance our economy, that it is not just the biggest cities that have access to the fastest broadband.
The UK already has better broadband coverage, usage and choice than Germany, Italy, France and Spain, but we want to go further. I can announce today that we are providing a further £250 million to ensure that fixed superfast broadband reaches 95% of the population by 2017. We will work closely with industry to ensure that at least 99% of the UK population have access to superfast broadband—whether fixed, wireless or 4G—by 2018.
Let me now turn to how we support the private sector to deliver our energy needs. Some Members will know that I was privileged to spend my early years on the Hebridean island of Colonsay. Then, the island had no mains electricity. Unreliable diesel generators powered the island, and regularly broke down. Until mains electricity arrived, we never quite knew when the lights would go out. We do not want any community in our country to face that problem in the future. Our existing power stations are closing, as they are too old or too dirty to continue. They must be replaced and added to as our need for electricity grows.
Thanks to the hard work of the Secretary of State for Energy and Climate Change, we are ready to unleash the energy revolution that our country needs. Today’s news from the British Geological Survey of 1,300 trillion cubic feet of shale gas—double the previous estimate—confirms its huge potential for the UK. That is almost as much hot air as the shadow Chancellor produces in a year. The plans that we are setting out today provide the framework to kick-start this industry in a way that protects the environment and supports local communities.
As well as revolutionising the way in which we get our energy, we are transforming how we generate and supply it. As we face the challenge of climate change, we need to bring forward investment in low-carbon technologies. This country has massive potential in wind, wave and tidal. We need to harness it. We are putting in place a comprehensive energy policy through the Energy Bill that is in front of this House. This is an approach that we know will work for consumers and investors alike. Last year we made the unprecedented decision to set out funding plans for low-carbon generation all the way to 2020, providing up to £7.6 billion in real terms.
Now we can set out what this means for investors. We do this through setting strike prices. If future prices are below this level, we will guarantee a price to the generator, giving them the confidence to invest now. But if they rise above it, we will claw back money for consumers. We were planning to set strike prices next month, but we have been able to make faster progress so, today, I can announce that we are publishing the prices for renewable generation ahead of schedule. Prices have been set for key renewable technologies, including onshore and offshore wind, tidal, wave biomass and solar. The prices are broadly similar to those we would have to pay under the renewables obligation. We will set the price at the level we need to bring forward sufficient investment, but not a penny higher. As these technologies develop, costs will fall, so we will reduce the price too. For instance, next year we will guarantee generators £155 per megawatt hour of offshore wind. By 2018 this will fall to £135. We expect our reforms to bring forward 8 GW to 16 GW of offshore wind capacity. Industry asked for certainty; we have given it. Now industry needs to get on with it.
Yes, this approach has costs now but, in the long term for consumers, they will be more stable than they would otherwise have been. In fact, when this investment goes alongside our plans for energy efficiency, overall our policies could save an average of £166 per household by 2020. We are taking the right decisions now for the good of our country.
In addition, we need to guarantee that capacity will be available at short notice to meet spikes in demand, for instance through gas-fired stations. Today we can provide details on a new regime that will achieve this. The first auction for this new capacity market will run next year to provide certainty for the winter of 2018. But there is financial risk for construction, too. That is why we have set up a Green Investment Bank to back green energy projects. It has committed over £600 million already; for instance, it has invested in the Walney wind farms off the north-west coast of England, which are expected to provide energy to the equivalent to 300,000 households. We have already pledged to provide £3 billion for the bank and, today, I can announce that we will provide an additional £800 million so that it can expand further. Crucially this will include, for the first time, the power to borrow half a billion pounds in 2015-16 from government. This is a real milestone in green investment, delivering a key promise we made in our election manifesto, unlocking over £100 billion of private investment into our energy networks, and supporting jobs, growth and prosperity for years to come. Our energy policy is a win for consumers, a win for investment and jobs and a win for our climate; the greenest Government ever.
In the last three years we have re-secured for this country a very precious commodity: credibility. No one doubts that the coalition is serious about sorting out the economic mess that we have inherited. People have the right to know that we will continue to work hard to repair the economy, that interest rates will stay low and that we will get our country back on an even keel. But repair is not all we do, because people also have the right to expect that Britain stays one step ahead in the world, that we ease congestion on our roads and deliver faster broadband to make sure businesses in every corner of this country can serve their customers, and that we make sure all parts of Britain keep going. They expect that we will invest in a modern railway so that commuters get to work on time and home in the evening to see their kids. People have the right to expect that we keep spending serious money on the schools and hospitals on which all families rely, and that we make sure that the lights stay on in our homes, even when the demand on energy is surging.
The plans I have set out today deliver all that and more. This is an ambitious plan to build an infrastructure of which Britain can be proud and, in doing so, to help build a stronger economy in a fairer society where everyone can get on in life. I commend this Statement to the House”.
My Lords, I am extremely grateful to the noble Lord for his tour d’horizon. He asked why the Minister for infrastructure is not here. There are two reasons why he is not here: first, in the spirit of the coalition, I am repeating the Statement as my colleague Danny Alexander made it in the other place; and secondly, the Minister for infrastructure is spending every moment of his waking hours ensuring that the infrastructure programme moves forward more rapidly.
Does the Minister not regard himself as accountable to this House?
The Minister for infrastructure does regard himself as accountable to this House; that is why he made the Statement here yesterday and why he will make further contributions to the work of your Lordships’ House over the next few weeks.
The noble Lord made a number of scathing comments about the forward projections in the infrastructure programme. Perhaps I may remind the House that this is a proposal for long-term planning for infrastructure. What was the long-term legacy left by the previous Government of whom the noble Lord was a member? It consisted of a note that said, “There is no more money left”. His Government presided over what we now know was a GDP falling by 7.2%, which we have spent the last three years turning round. We are now doing what everyone involved in infrastructure wants to happen—that we set out a long-term, credible plan for infrastructure development. He talks about the level of planning and the expenditure planned. However, this Government, and these plans, would generate a degree of expenditure on capital investment and infrastructure over this decade that is greater than that achieved over the lifetime of the last Labour Government. These are ambitious plans that we are determined to carry out.
The noble Lord raised a very important point about the speed at which things happen. This is one of the reasons why my noble friend Lord Deighton is now part of the Government and why, for the first time, we are setting up in each department dedicated teams with commercial experience to enable infrastructure expenditure to take place on a sensible and sustainable basis.
The noble Lord talked, for example, about schools. We are delivering a school building programme with a cost per school that is 40% less than was achieved under the previous Government. This is absolutely essential if we are to undertake the degree of new expenditure required.
The noble Lord talked about affordable housing. This Government will deliver more affordable housing than the last Labour Government, and in much worse economic times. The noble Lord talked about whether plans to stimulate the housing market and house purchases had been successful. He will know that the announcements made by the Chancellor at the general election have already resulted in many people who would otherwise not be able to afford a deposit for a house, being able to get a house. Not only are mortgage approvals at their highest level for a considerable time but private sector housebuilders are now saying that they are making significantly enhanced plans to increase housebuilding. These are real, positive developments in an area where everybody agrees we needed to do more over a number of decades, and now we are doing more.
The noble Lord raised a number of questions about rail. He asked why we have not got an agreed route for Crossrail 2. We are looking at developing the route and at the detailed feasibility plans for Crossrail 2. I remind the noble Lord that we are in charge of the biggest rail construction programme since Victorian times—not just High Speed 2, but also a huge electrification programme that completely puts into the shade anything achieved by his Government. As for the pace of High Speed 2, we are bringing forward the hybrid Bill and a paving Bill.
The main reason for the delay on High Speed 2 is, as he knows, that we have undertaken a huge public consultation. Many aspects of the scheme have been changed because very strong public opinion was expressed against certain aspects of the original programme. For example, there will now be more tunnelling. Is he saying that he would rather we tried to bulldoze the whole thing forward without that consultation and without ensuring that when the scheme goes ahead, it is done with the minimum of disruption to the communities through which the railway will pass?
I know that the noble Lord has considerable interest in the A14. This is a programme that will cost £1 billion. We have announced today more detail about the balance of funding and the fact that we are now going to be getting £100 million from the local authorities that stand to benefit from the road. He said that he was not sure whether it is still planned to toll the road. As the document makes clear, it is still the plan to toll it, but the details of how that will be done have yet to be finally worked out. I am sure that he will barely be able to contain himself until they are.
The noble Lord said that there is a gaping black hole in our airport policy. There is no gaping black hole in our airport policy; rather a process is under way which will lead to proposals for a new hub airport in the south-east—
I am sorry, for an enhanced hub airport. I do not want either to enthuse or depress the noble Lord as to what the outcome of that process will be. He knows as well as I do that no conclusion has been reached and, equally, he knows that all parties went into the last election with very clear plans for what they would not like to see happening in terms of enhanced capacity. As with High Speed 2, we need to try to produce something that is not just deliverable but capable of generating significant public support.
He commented on the fact that we have not made as much progress on the UK guarantees scheme as he would like to see. As he said, we have made considerable progress with the Mersey Gateway bridge and at Hinkley Point. He asked when there will be a real contract with EDF for Hinkley Point. There will be a real contract as soon as we have a sensible contract that is fair to both parties. The noble Lord and the whole House know that if it was easy to sign contracts on nuclear energy, perhaps his Government would have done that. We will certainly be doing it more quickly, but it is not easy in this environment to reach agreement on these extremely complicated, long-term, multibillion pound contracts. Again, is he saying that he would prefer that we rush into an arrangement like some of the PFIs, which have turned out to be extraordinarily bad value for the taxpayer, rather than make sure that we get it right? We are committed not only to doing this, but to getting it right.
This programme sets out the biggest degree of capital expenditure in the railways since Victorian times and the biggest capital programme for the roads since the 1970s. It puts forward affordable housing plans that are significantly greater than the noble Lord’s party was able to achieve when it was in Government. It gives me great pleasure to commend it to the House.
My Lords, does the Minister accept that these long-term plans—in some cases very long-term—are mostly welcome, but that the problem lies in their delivery and implementation over the years? He may be too young, but does he recall that back in 1980, I announced in the House of Commons on behalf of the Government the introduction of a programme of nine new giant pressurised water reactor nuclear power stations, but only one ever got built? Of course, life would be very different today for our power sector, and we would have much more opportunity for low carbon, if we had those machines in place but the programme failed. Will he make sure that his colleagues in government, particularly in the Department of Energy and Climate Change, are fully aware of why the failures occurred, why the vast stabilisation and drop in fossil fuel prices undermined most of the economics of nuclear and why the political resistance built up? There are lessons to be learnt there which, unless they are absorbed properly, may yet damage our own attempts to move to a low-carbon, long-term nuclear base load for electricity.
My Lords, I am happy to give that assurance but the noble Lord underlines what has been a leitmotif of the nuclear programme. On paper it has looked a lot better in a number of respects and easier to deliver than has been achieved in practice. What we are committed to trying to achieve when we set our face to get new nuclear capacity is that we are able to deliver it on a reasonable budget and within a sensible timeframe.
My Lords, will the Minister confirm that, as a result of the postponement of major capital projects until the later part of the decade, they will incur significantly higher interest rate costs than they would have done if they had been planned and financed earlier? Will he also confirm that, as a result of the postponement of employment-generating projects, the social security bill will be significantly higher than it would otherwise have been in the interim?
My Lords, the Bank of England has expressed the view that low interest rates are here to stay for a significant period ahead. Only an idiot would predict what interest rates will be in 2020 but if we look at the next three or four years, I do not think that anybody would say that interest rates were going to rise significantly, if at all. As for whether employing lots of people to build houses or roads means that fewer people are unemployed, that is self-evidently the case. That is why we are keen to get these programmes moving as quickly as we can.
My Lords, I thank the Minister for the Statement on infrastructure investment, in particular the commitment to removing bottlenecks on the A19 in Tyne and Wear, both to the south and to the north of the Tyne Tunnel. May I ask him about the proposals for the A1 north of Newcastle and the western bypass? As I understand it, there is a feasibility study to consider problems and solutions to the A1 north of Newcastle. The solution is clear; it is the dualling of the A1. I interpret the Statement as saying that the Government are now moving to the next stage of dualling the A1 north of Newcastle and that we should have cause quietly to celebrate.
May I ask him one thing on affordable housing? I welcome the Statement that has been made today. Has any further thought been given to increasing the borrowing cap on local authorities? The average debt on a council house at the moment is £17,000. There is enormous headroom to increase borrowing. It should not be on the public balance sheet, following decisions to make this a trading account from April last year. There is the capacity to deliver around 40,000 to 50,000 council houses as a consequence of raising that borrowing cap if the Government would do it.
My Lords, in respect of the A1, the noble Lord is absolutely right. There is a commitment to a feasibility study. Upgrading the A1, as he says, means dualling it. I think that quiet optimism strikes the right note. Obviously, if local authorities had their borrowing powers increased they would be able to do as he says. As he knows, the Treasury down the ages has set its face very firmly against such a move. I would be happy to raise his suggestion again with my colleagues in the Treasury.
My Lords, does the Minister accept that the north-east has suffered most since the last general election? Our unemployment is higher than any other region’s and the prospects coming from the spending review yesterday mean it is likely to increase rather than decrease because of the push on public-sector employment. The change in benefits will also have a significant effect in the north-east.
Despite all that, we are a region that always looks to be optimistic. I hope that the Minister’s noble friend is right about the A1—I have a bit more scepticism—but that is not enough. What else will the Government do to make sure that they invest in the region that is paying the greatest cost but still manages to be one of the best exporting regions in the country? The Government are letting the north-east down. People in the north-east want to contribute to the future. What will the Government do to enable them to do that? Maybe some affordable housing before the next election would be a good idea.
I absolutely agree that the north-east has had a high level of unemployment for many decades and compared to the rest of the country. I accept also that it has suffered particularly in recent years because there has been a high level of public sector employment there, which has fallen significantly. The attempts by the Government to shift priorities towards manufacturing and the private sector have already, in some respects, begun to bear fruit in the north-east. Nissan goes from strength to strength and the number of apprenticeships that we are funding helps people in the north-east, as elsewhere, to get skills that enable them to get jobs in the long term. That is how we will get sustainable growth in the north-east.
My Lords, I seem to recall that we were discussing dualling the A1 when I was Secretary of State for Scotland nearly 20 years ago. What is needed now are projects that are actually happening on the ground. So what on earth are the Government doing, for example, in persisting with this HS2 project, which we were told yesterday has increased in cost by a third even before a single activity has happened on the ground? It is now set to cost more than £40 billion. It is perfectly possible to have privately funded projects, such as the third runway extension at Heathrow, going ahead, creating jobs and dealing with the very substantial disbenefit created by the chaos at Heathrow. Why is it jam tomorrow when we could have jam today?
My Lords, the noble Lord is usually very good at reminding us about the financial constraints under which the Government are operating. It is not a case of jam tomorrow and no jam today. As I said earlier, in the housebuilding sector, we are putting more money into building affordable housing and all the big housebuilders have said in the past three months that they are increasing their plans for building private sector housing. The great thing about housing is that it starts quickly. As the noble Lord knows, we just do not agree with him on High Speed 2. We find it surprising, when the rest of Europe and much of the rest of the world are investing very significantly in high-speed rail, that some people in this country feel that it is not a sensible technology and a potential source of economic development.
My Lords, for many years, I campaigned for an A27 bypass around my constituency of Worthing. Just before I left the House of Commons in 1997, preparations were well advanced for this to happen. However, the project was dropped completely by the Labour Government. Can my noble friend give me an assurance that he will do everything possible to ensure that the appalling congestion on the A27 is relieved by the building of a bypass as soon as possible?
My Lords, I apologise that I have not been able to flip through my papers to be absolutely certain what our plans are, if any, for the A27. I will certainly make sure that his representations are passed on to my colleagues in the Department for Transport.
My Lords, will my noble friend accept that those Members of this House who will be engaged in the Committee stage of the Energy Bill are extremely grateful that in this Statement, the Government have brought forward the details of the arrangements for the low-carbon generators. However, as has already been mentioned, it makes no reference to nuclear, only to renewables. They are also grateful that the Government are bringing forward details of the auction for the capacity market from next year, together with this Statement today. However, will he tell us why there is, as far as I can see from the Statement, no reference to investment in network transmission, where there is certainly a need for work to be done in the near future?
My Lords, I shall have to write to the noble Lord about network transmission. I know that this is something that concerns my colleagues in the Department of Energy and Climate Change, but I am afraid that I am not close enough to it to know exactly where we have got to.
(11 years, 1 month ago)
Lords ChamberMy Lords, I thank my noble friend Lady Brinton and all noble Lords who have spoken in this extremely interesting debate. The Government remain committed to creating the right conditions for the private sector to grow and to create jobs. Despite the challenging economic context, employment has been increasing robustly and today it stands at record levels. While employment in the UK is higher than it was before the recession, it remains below its pre-recession level in the US, Japan and all the major European countries except Germany. Over 2012, UK employment growth was the strongest of all the G7 economies, and the Office for Budget Responsibility has forecast employment to continue rising, to reach 30.5 million by 2017. The performance of the UK labour market has also been strong compared with previous downturns. At this point after the recessions of the 1980s and 1990s, employment was still around four percentage points below its pre-recession peak.
Some of the increase in employment that we have seen since 2008 has come from an increase in part-time working and self-employment. While these increases have been part of a longer-term trend, the last few years have also seen an increase in those who are working part-time but would like a full-time job. The shift in the composition of employment during this downturn has been a testament to the flexibility of the labour market. This is something we have not seen to the same extent in previous recessions. While it means that some may be working fewer hours than they would wish, they are employed, keeping unemployment lower than it otherwise would have been and meaning that, as growth strengthens, we will be in a better place to benefit from the recovery. Over the past year alone, over 80% of the increase in employment has come from full-time employment.
Policies announced by the Government have increased the incentives for people on benefits to enter paid work. Participation in the labour market is now around its highest rate for 20 years and is in stark contrast to previous recessions when vast swathes became discouraged and gave up looking for work. From our experience in previous downturns, we have learnt the potential lasting costs of detachment from the labour market, a point that a number of noble Lords made clear, so we are encouraged by the flexibility and resilience of the labour market over the past five years. This flexibility has also been demonstrated as a result of relatively low earnings growth, which has supported the strength we have seen in employment. While earnings growth has not been keeping pace with inflation because of the strength in employment, household income has risen by 2.1% more than consumer prices over the past year, and that is not least because of the increase in the income tax threshold. With less flexibility and higher wages, employment would be lower and unemployment would be higher, and this would be a less fair way of making the necessary adjustment after the crisis.
When this Government announced the difficult decisions we had had to take to reduce the budget deficit and reduce employment in the public sector, we were told that the private sector would never replace the public sector jobs being lost. But, instead, private sector job creation has offset public sector job losses more than three times over. Nevertheless, as many noble Lords have pointed out, unemployment still remains too high, particularly youth unemployment. We are not complacent, but have introduced several policies to support those out of work back into employment, alongside the £3 billion a year the Government spend on employment support to job seekers through Jobcentre Plus.
This Government recognise that young people may be more vulnerable when the labour market is tough, and so last year we launched the £1 billion youth contract. This support brings together a menu of options to help young people build the experience and skills that they need to compete in the job market. These options range from getting young people into the jobcentre on a weekly rather than fortnightly basis to help focus their job search, to funding more work experience and sector-based work academy places so that we have at least 100,000 of these places to offer our young people, and offering 160,000 wage incentives worth up to £2,275 to an employer who recruits an 18 to 24 year-old who has been unemployed for at least six months. For an employer, this wage incentive covers four and a half times the national insurance contributions cost of taking on a young person. The point of this, and of the youth contract more widely, is to help provide young jobseekers with sustained job outcomes and to help them build their longer-term employment prospects.
We know that long-term unemployment can have potentially damaging effects on a person’s longer-term employment prospects. While 90% of those claiming jobseeker’s allowance move off benefit within the first 12 months of their claim, there is still 10% who do not. To help combat the cycle of worklessness and despondency that long-term unemployment can bring, the Government launched the Work Programme in 2011, the purpose of which is to provide personalised support to an expected 3.3 million long-term and vulnerable jobseekers over the next five years. The premise of this support is simple. We have given providers the freedom to design interventions that are better tailored to individual and local needs. The incentive is strong: to providers we say, “If you do not get these people into work and stay in work, you do not get paid”. Moreover, the concept is innovative. For the first time, providers will be paid partly out of the benefit savings that they help to realise by getting these people into sustained employment. This is the biggest individual payment-by-results programme ever attempted in the United Kingdom.
As my noble friend Lord Kirkwood observed and as we recognise, people coming out of the Work Programme who have still not found sustained employment are the hardest to help and many in this group face significant and multiple barriers to work. Building on the expert training and support that the Work Programme will have delivered, all claimants will receive flexible support tailored to their individual needs and underpinned by a core regime of face-to-face meetings. Those who do not take the necessary steps to prepare for work face a tough sanctions regime. These programmes replace much of the complex range of employment support that was previously on offer, such as the New Deal, employment zones and the Future Jobs Fund. Those programmes were overly prescriptive, failed to achieve enough sustained job outcomes, and did not deliver good value for money for the taxpayer.
My noble friends Lord German and Lord Kirkwood discussed the effectiveness of the Work Programme. As my noble friend Lord German pointed out, the figures released today show that since March this year, the number of people who have found lasting work through the programme has increased to 132,000. I am not saying that that is enough, but it is a very significant increase from the position in the previous year. My noble friend also pointed out that the outcomes in terms of ESA recipients were significantly below those we had expected. That is undoubtedly the case, but this is by common consent the most difficult group to deal with. We have a double problem here in that it is not just about getting recipients ready for work but about persuading employers to consider them as potential employees, particularly in an environment where many people are looking for a job. Lastly, my noble friend asked what we could learn from the black-box approach. As I said, we are allowing providers to innovate and test new methods. We are asking them to share best practice and we are doing our best to facilitate it so that when we can see that something is working, we can replicate it.
The noble Lord, Lord Kirkwood, asked what happens if providers do not reach their targets. We are taking decisive action with those who are not delivering the standards we expect. We have issued performance improvement notices on 12 contracts that we deem are not delivering the Work Programme to the agreed standards and we are also introducing the concept of market-share shift, which means that we will be increasing the proportion of claimants we refer to those providers who have outperformed their competitors by reducing the number of claimants we send to the lower-performing providers. We will be implementing this programme in at least 16 instances from August.
The noble Lord, Lord Kirkwood, also asked what happened to the underspend. Any underspend in the Work Programme will be subject to the usual budget exchange rules, which means that the Chief Secretary to the Treasury has the discretion to allow a proportion of a department’s budget to move across to the following financial year. I direct the noble Lord to my right honourable friend Danny Alexander because he is the man who can deal with that issue.
The noble Baroness, Lady Brinton, very astutely started with export, an area where we have seen and will see many new jobs. She talked about the need to build up the work that UKTI is doing. We are doing that. More resources are going into UKTI, as we announced in the Autumn Statement. We are redirecting people working for UKTI to the higher-growth markets and we are already beginning to see some improvement in that area. The British Chambers of Commerce survey of members which came out earlier this week showed that the proportion of its members who were exporting had increased over the year from 32% to, I think, 39%. That is a sample but over a year it is a significant shift. However, there are major barriers to exporting and one of the chilling figures in that survey was that 70% of BCC members who export do not have a single member of staff with the relevant language skills to undertake business. So language training, among many other things, is very important.
The noble Baroness raised the point that if we are going to get small businesses taking on more staff, we are going to need greater bank lending. This, as she knows, has been a huge source of frustration to the Government. We have introduced the Funding for Lending scheme with the express purpose of incentivising banks to lend to SMEs and in the last Budget we increased that incentive by introducing a 10:1 ratio in terms of the amount that banks can draw down under Funding for Lending for every pound they lend to SMEs. There is a bit of evidence that that is beginning to work. Much more encouraging is the growth of new, admittedly smaller, challenger banking institutions which are lending to SMEs. We have discussed in this House before the success of Handelsbanken and Aldermore. Cambridge & Counties is a very interesting new institution which has been set up by Trinity Hall and the Cambridgeshire County Council pension fund specifically to lend to SMEs in the east Midlands. It is new but it has grown at a rapid rate, which gives the lie to the argument that there is no demand from SMEs for borrowing. The more these challengers grow, the quicker we will see a more positive response from the larger lenders, who, in fairness, are trying to do more.
The noble Baroness talked about the importance of literacy and numeracy, not least in respect of apprenticeships. From next year all apprentices who begin an intermediate apprenticeship with level 1 in English or maths will have to take up study of level 2 in those subjects, and apprentices who begin their apprenticeship without level 1 in English or maths will be offered the chance, but not be obliged, to study at level 2. They will still be required to achieve level 1 in English and maths as part of their intermediate apprenticeship, so we are doing something about that. I will not repeat the extent to which apprenticeships have increased in numbers and the extent to which they are popular. I was very struck by the point the noble Baroness made about Jobcentre Plus pulling young people off college courses to go for job interviews so that they then lost their place. This seems short-sighted and I will certainly raise that with ministerial colleagues because that is not what we are seeking to achieve.
The noble Lord, Lord Teverson, talked about the possibilities of generating more jobs via the move to the green economy. I completely agree. The Government announced yesterday that we will be making an additional £800 million available to the Green Investment Bank, which is doing very well and is proving popular. We are already seeing a growth in employment in that sector and the Government will be doing everything in their power to promote that.
The noble Baroness, Lady Sharp, talked about the skills shortage paradox. There has been a skills shortage paradox for as long as I have been involved in these debates. I seem to remember as a student hearing about it. I was pleased that she talked about the trainee programme being expanded and felt that was a good start.
The right reverend Prelate the Bishop of Bristol talked about the value of co-operatives and social enterprises. I completely agree. I was pleased to be able to help pilot through Parliament the Public Services (Social Value) Act, which makes it easier for public sector bodies to take on co-operatives and social enterprises, and I hope very much that it has the effect that we wish. The most telling figure the right reverend Prelate gave was that 39% of social enterprises operate in the top 20% most deprived wards. I urge him and his fellow prelates and the church as a whole to build on the Portsmouth model. I cannot help saying that if the church spent more time doing that and less time worrying about sex and gender it would be to the benefit of the church and to broader society.
With that sideswipe I move quickly on to the noble Lord, Lord Cotter, talking about the importance of the hospitality and tourist industry. I agree with him. It is a very large and undervalued industry in respect of jobs. The visa issue has been widely discussed and we hope that we will move further in a sensible direction on that. I agree with almost everything that the noble Lord, Lord Shipley, said, and I certainly agree that doubt about EU membership generates problems in terms of international employers thinking about the long-term sustainability of jobs in the UK.
I want to finish by touching on the issues raised by the extremely thoughtful speeches by the noble Lords, Lord Kirkwood and Lord Wood, which were on the same theme. It is now a well established, if not hugely long-standing, trend that there is a decreasing proportion of jobs as we know them in the labour force as a whole. Instead, we are seeing jobs with no guarantees, temporary or zero-hours contracts and low wages, even for people in work. The noble Lord’s suggestion that we discuss this on a cross-party basis is extremely sensible because of long-term development. This situation may have been hastened somewhat by the recession but it was not caused by it. It predated it and it will undoubtedly carry on. There are so many examples of very successful companies operating like this. Amazon is a good example as one of its major distribution centres pays a penny more per hour than the minimum wage. There is very little job security. However, it is seen by the outside world as an immensely successful company and a company of the future, and the fact that it is doing that kind of thing is rather depressing.
We need to think about how we can engage with employers to ensure that they think, in some cases, rather more about the long-term implications for their employees of these extremely difficult economic conditions and how we can confront them with the uncertainty that these kinds of practices cause. It cannot, at the very least, be good for productivity. These are hugely important, long-term issues and we will definitely return to them.
I hope that I have gone some way to answering the points that have been made in the debate this afternoon and to reassuring noble Lords that encouraging job creation is a key priority of this Government. We will continue to build on the progress that we have already made to ensure that we are creating the conditions that businesses need to grow and create jobs and that we are providing people with the support that they need to get back into work.
(11 years, 2 months ago)
Lords Chamber
To ask Her Majesty’s Government what steps they are taking to bring about a lower exchange rate for sterling.
My Lords, the UK does not have an exchange rate target. The Government’s macroeconomic framework includes an independent Monetary Policy Committee responsible for monetary policy that seeks to deliver price stability through an inflation target of 2% as measured by the 12-month increase in the consumer prices index. Under this framework the exchange rate is allowed to adjust flexibly.
It is a great source of disappointment to me, and I am sure to many in your Lordships’ House, that the export-led recovery which we had all hoped for has not yet occurred. Does the Minister agree that while we take no action with our exchange rates and play by the Queensbury rules, our principal trading competitors in China and Japan are not so constrained as they deliberately manipulate the value of their currencies to the grave disadvantage of our exporters? Will he join with US President Obama, who in the past few weeks has expressed similar concerns?
The UK exchange rate has fallen by about 20% since 2007. It was hoped that that would give a big stimulus to exports; it has given some, but not as much as we would have liked. On China, our trade to China over the past three years has increased by 76%. In April, for the first time, trade in goods to China reached £1 billion in a month. The access to China is proving rather better than the access to some other countries.
I congratulate the noble Lord on his answer, which seems to me for once to be entirely right. The exchange rate did collapse but it had no noticeable effect on improving the balance of payments, as he said, because the supply side of our economy has not been able to respond. Apart from that—theoretically—we do not know whether it is the balance of payments that affects the exchange rate, the exchange rate that affects the balance of payments, or whether it is the two interacting. In other words, we do not know very much about this at all. A sensible Government will therefore concentrate on trying to improve the supply side of the economy and leave the exchange rate to go where it will.
My Lords, I agree with the noble Lord. I would just say, however, that we have been successful in reorienting trade towards the BRICS countries. China trade has increased by 76% while trade with Russia has increased by 71% and trade with other countries has increased by an almost similar amount. The problem we have been up against more than anything else is that the demand in our principal market area, the EU, has been very flat and declining. There has been a rebalancing of trade, and as the EU comes out of recession later in the year we hope that we will be able to pick up exports there as well.
My Lords, considering the massive devaluation of sterling since 2007 and the present state of our trade balance, is it not evident that devaluation is a tool of limited use in dealing with our economic problems?
My Lords, it is a tool of limited use but that does not mean it is of no use at all. Obviously, you cannot have over a prolonged period all countries devaluing or competitive devaluation becomes a race to the bottom. The Governor of the Bank of England and the MPC would argue and have argued that without that devaluation our trade position would have been worse than it has been.
My Lords, is not the truth that the price devaluation of sterling can hardly be zero and that saying that price does not matter in export markets would make a nonsense of the whole argument about competitiveness? Would it not be more true to say—here I echo my noble friend Lord Peston—that when it comes to our manufacturing in particular exports, where the ratio of visible trade is 2:5 against us, we must have a policy on both sides? We must be competitive in price, which might require the pound to go down further, on that argument, but we must also give a massive shift of economic priority towards manufacturing as against the financial services industry.
My Lords, the Government have been clear from the start that we want a shift away from financial services towards manufacturing. To a certain extent, that is happening. For example, we had an export surplus in cars last year for the first time in nearly 40 years.
My Lords, does my noble friend not agree that the last thing we want is a further devaluation of sterling? Who is thinking about the interests of people who do the right thing and save, but who find that as a result of the programme of quantitative easing the returns on their savings are minimal? Pensioners who go for annuities are robbed blind because they get very little return on their savings. Surely the last thing we need is a weaker pound and the prospect of more inflation, which would hit people on fixed incomes.
My Lords, the Government have no policy in terms of the exchange rate. Equally, the MPC does not target the exchange rate. However, the Governor of the Bank of England, before he retired in recent months, said on a number of occasions that he thought that the level of sterling is, in his view, now about right.
Is it not the case that under the brilliant economic management of this Government we have got the worst of all possible worlds? We have had a devaluation and the classic cost of that—an inflation rate which is about twice the eurozone average—but we have had none of the advantages: the balance of payments has got worse; the deficit has increased not fallen; growth has been imperceptible; we have the third lowest rate of capital investment in the EU; and under the most recent growth and employment figures, it appears that productivity is either static or declining.
I do not agree with the noble Lord. The April trade figures show a deficit in goods and services of £2.6 billion, compared with a figure of £4.6 billion 12 months ago.
My Lords, does my noble friend accept that, according to macroeconomic theory, one of the drivers of a trade deficit is a government deficit, because any public borrowing tends to be offset by savings from overseas savers? Would not those noble Lords who are concerned about the trade deficit, rather than trying to manipulate the exchange rate, be better off supporting the Government’s efforts to reduce the government borrowing level?
My Lords, that is a very sensible point. I think that everybody is agreed that we need to do everything we can, as UKTI is, to promote exports, because growing exports means growing jobs, greater growth and a smaller deficit.
(11 years, 2 months ago)
Lords Chamber
To ask Her Majesty’s Government what assessment they have made of the impact of the reduction in the top rate of income tax from 50 per cent to 45 per cent.
My Lords, the cost of reducing the additional rate of income tax is estimated at around £100 million per year. This takes account of the significant behavioural response associated with changes in personal tax rates. Details were set out in an HMRC report published alongside Budget 2012. The Government believe that it is not efficient to maintain a tax rate that is ineffective at raising revenue from high earners and risks damaging growth.
Does my noble friend agree that, in a difficult economic environment, maximising tax revenues while avoiding the counterproductive in pursuing it is a huge task which is currently facing all European economies? Does he agree that, following the reduction of the highest rate of tax from 50% to 45%, the number of people in the highest tax category is increasing, and that the revenue generated from the highest-rate taxpayers will increase this year by 57% to over £49 billion? What conclusion does he draw from this?
My Lords, I think that the conclusion I draw is that the Government always have a tricky task in maximising tax revenues, particularly at a time of austerity and when people are looking for tax changes to be fair. In that context, at the same time as the Government reduced this tax rate they introduced changes to stamp duty land tax and anti-avoidance measures on residential property which will raise several times the amount of tax lost from reducing the 50p band.
My Lords, the noble Lord has introduced the issue of avoidance. What is the Treasury’s estimate of the loss of revenue due to bonuses and other payments being held back after the Chancellor provided his friends with such an easy means of tax avoidance by pre-announcing their top-rate tax cut?
My Lords, there is an awful lot of hype about what may or may not be achieved by reducing or retaining the higher rate of tax. HMRC produced its report on the matter last year and estimated that, in the short term, the cost to the Exchequer was £100 million. It said that the “direct yield” from the higher rate,
“might fall over time toward or beyond zero”.
My Lords, since this Question looks at the impact of tax policy, can the Minister give me his assessment of the impact of raising the tax threshold in this Parliament?
My Lords, the effect of raising the tax threshold is that some 2.7 million low-income earners will be taken out of tax by April 2014 and that 23.6 million individuals will benefit by paying less tax.
Can the Minister explain how it was that he was able to give a very positive answer to his noble friend about, as he described it, the benefits to the Exchequer of reducing the top rate of tax, but that when my noble friend Lord Eatwell asked him a very valid question about people who had deferred taking their bonuses from the high-tax period to the lower-tax period, he said that it was impossible to speculate about it? He understands the benefits but he cannot acknowledge the simple statistic that my noble friend put to him.
The absolutely bald point that lay behind the question of the noble Lord, Lord Eatwell, is that when you do this kind of thing at the top end of tax rates, very well-off people take evasive action. That is why it is an ineffective way of raising additional amounts of money. People do not just sit there and pay the tax: they forestall it, postpone it and avoid it. This is why it was a very ineffective way of trying to raise additional funding.
My Lords, can my noble friend tell us what the effect was on revenue of increasing the rate of capital gains tax?
My Lords, I do not have that figure immediately to hand, but it was very significant. It was more than the potential loss of revenue from reducing the top rate of tax.
My Lords, Colbert famously said that the art of taxation is to raise the maximum of revenue with the minimum of squawking. This Government are raising their revenue with a maximum of purring. Should that not make us suspicious?
My Lords, perhaps I may help. According to the Office for Budget Responsibility, two or three years ago the loss to the Revenue due to anticipation was £1 billion. That was the figure that the OBR gave and it has not been contradicted. When will we know what the degree of postponement is this year? If I may say so, in my opinion both of these losses could have been stopped with a two or three-line clause in the Finance Bill, which both he and I could have written.
My Lords, according to this bit of paper the original Question asked “what assessment” the Government have made. As far as I can see, they have made no assessment. Does the noble Lord remember, from whenever he learnt some economics, that economic theory does not tell us anything at all about the optimum rate of tax? This is because people with a greater preference for leisure will work less and pay less tax, if you cut the tax. That is why economics and economists are such a pain in the neck.
My Lords, I could not possibly comment on that last point. I refer the noble Lord, and indeed all other noble Lords, to the extremely comprehensive assessment made by HMRC last year, entitled The Exchequer effect of the 50 per cent additional rate of income tax.
My Lords, the Minister acceded to the point that announcing in advance that tax rates will change leads to a change in people’s habits. Why did the Government give people so long to avoid paying this tax? The proposed spending on facilities for troops returning from Afghanistan, for example, will have to be paid for over a long time. Does the Minister accept that this could be paid for much more quickly if that decision had not been taken?
My Lords, the noble Baroness will remember that the 50p tax rate was introduced by her colleague Gordon Brown during his premiership and that a long period of notice was given. The rate was not introduced by this Government. As far as paying for troops who are coming back from Afghanistan is concerned, that will be paid for out of general revenue, which is the right way of doing it.
(11 years, 2 months ago)
Lords Chamber
To ask Her Majesty’s Government what proportion of the national debt is currently held by the Bank of England.
My Lords, Bank of England data state that the Bank of England’s asset purchase facility currently holds £326.3 billion of gilts by nominal value. This was equivalent to 24.1% of the total stock of gilts and Treasury bills at the end of March 2013.
My Lords, if the Minister were to consult Wikipedia, he would see that the figure is rather higher. Something like a third of the national debt is now owned by the Bank of England. Given this, does the Minister agree that in time this position must be unwound, and how will this be achieved?
My Lords, this measure was taken to deal with the heart attack suffered by the British economy and over a period it will be unwound. This is a matter for the Monetary Policy Committee of the Bank of England to manage. At the point at which it feels it right to start unwinding, no doubt it will explain how it plans to do it.
My Lords, the Prudential Regulation Authority has said that the banks must raise an additional £27 billion in capital. Will the Minister tell the House how the Government intend to make sure that this increase in capital requirements will not lead to further reductions in lending to SMEs?
My Lords, the Government are not responsible for the way in which banks may or may not raise capital. We are very keen for the banks to continue to lend money to SMEs and, indeed, to increase the extent to which they do it. One way in which we hope that this will happen is through increased competition in the banking sector. We hope that current trends in some aspects of that, with some of the new smaller banks lending to SMEs, will continue.
My Lords, does the Minister recall that in 2010 the Chancellor forecast that the total national debt as a percentage of GDP would start to fall in 2015? He later changed that to 2018. Now that forecast might need to be altered, given the review that he will announce on Wednesday, and further cuts. When does the Minister expect the national debt itself to start falling?
My Lords, the noble Lord is right to say that the point at which the national debt will fall as a proportion of GDP has been pushed out by a couple of years. The statements made at the Budget showed that we still believe that it will happen in 2017-18, and the spending round being announced later this week is designed to ensure that we meet that target.
My Lords, can my noble friend explain how this process of unwinding is to take place? Does he mean that the Bank of England will sell back the same gilt-edged securities to the market and, in that case, are they likely to have the right degree of duration and so on?
My Lords, at Question Time with less than three minutes to go, I cannot give a very detailed description. The key point is that the Monetary Policy Committee is committed to working with the Debt Management Office to make sure that, as and when the present situation is unwound, that takes place in an orderly manner so that we do not have undue volatility in the market.
My Lords, what contingency has the Treasury made for repaying to the Bank of England the revenues it currently receives should the Bank incur a loss on its bond holdings?
My Lords, the Treasury has always accepted that it might find itself paying back money to the Bank of England. The noble Lord will be aware that the original situation was that the Bank was buying Treasury bills and collecting interest on them. The Treasury was paying the interest to the Bank, which was then sitting on the interest. What we have done, in line with America and Japan, which have broadly the same scheme, is ensure that that money, which amounts to some £19 billion to date, has been transferred back to the Treasury. We have always accepted that there could be a reverse flow as bills are sold back into the market or expire, but that will take place over a significant period. We believe that it is sensible to operate in that way.
My Lords, following the supplementary question from my noble friend from the Liberal Democrat Benches, can my noble friend the Minister confirm that the requirement on banks to raise more capital will in no way reduce the amount of lending to SMEs? That is just special pleading by the banks. In fact, more capital will be enabled to be lent to SMEs. While he is on his feet, can he also confirm that a good bank/bad bank split of the Royal Bank of Scotland Group as soon as possible would also greatly assist more lending to SMEs?
My Lords, the noble Lord’s views on the good bank/bad bank split are well known. As he knows, the Treasury is now looking at that. We are hopeful that as economic conditions improve, lending to SMEs will increase in any event, but I have been surprised over the past three years by the extent to which the views of the banks about the demand from SMEs for lending have not been matched by the self-professed requirements of SMEs. I think that at every stage the banks could and should have done more.