(11 years, 9 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, 9 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.
(11 years, 9 months ago)
Lords Chamber
That the draft regulations laid before the House on 21 May be approved.
Relevant document: 2nd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 12 June.
Motion agreed.
(11 years, 9 months ago)
Lords Chamber
That the amendments for Report be marshalled and considered in the following order:
Clauses 1 and 2, Schedule 1, Clause 3, Schedule 2, Clauses 4 to 7, Schedule 3, Clauses 8 to 12, Schedule 4, Clause 13, Schedule 5, Clauses 14 to 17, Schedule 6, Clauses 18 and 19, Schedule 7, Clauses 20 to 22.
(11 years, 9 months ago)
Lords ChamberMy Lords, I beg to move that the House do now adjourn during pleasure until not before 1 o’clock to enable those who wish to do so to make their way to the Queen’s Robing Room to hear an address from the Prime Minister of Canada. All Members of the House are welcome to attend, and I encourage them to do so.
(11 years, 9 months ago)
Grand Committee
That the Grand Committee do report to the House that it has considered the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Referral Fees) Regulations 2013
Relevant documents: 2nd Report from the Joint Committee on Statutory Instruments
My Lords, these regulations concern the ban on referral fees introduced by the Legal Aid, Sentencing and Punishment of Offenders Act 2012. They make provision for the implementation of the ban in two specific areas. First, they provide for the ban on referral fees to apply to certain types of financial services firm—namely, those in the insurance sector. Secondly, they provide for the enforcement of the ban, as it applies to financial firms, by the Financial Conduct Authority.
I turn first to the rationale for the ban. In late 2008 Lord Justice Jackson was commissioned to undertake a review of the rules and principles governing the costs of civil litigation in England and Wales and to make recommendations to promote access to justice at proportionate costs. His report set out a number of proposals to tackle the disproportionate costs of civil litigation. In responding to these proposals the Ministry of Justice included provisions to ban referral fees in relation to personal injury cases in the LASPO Act 2012. Referral fees are typically paid by solicitors to third parties who refer business to them. Most personal injury claims are referred to solicitors by claims management companies. However, other parties, such as insurers, are also often involved. In cases where policyholders contact insurers to make a claim on their motor insurance policy, the insurer may check whether there is a related personal injury claim and refer the policyholder to a lawyer in return for a fee. If the case is successful, the lawyer’s costs, including the referral fee, would be recovered from the losing defendant. In many cases, the losing defendant could be another insurance company.
Referral fee payments have increased from around £250 per case in 2004 to around £800 per case in 2009. Both the Law Society and the Association of British Insurers raised the concern that the circular flow of money generated by referral fees incentivises and rewards making claims and therefore inflates the cost of claims and ultimately insurance premiums. According to the ABI, the average insurance premium increased by approximately 10% from 2009 to 2010 in order to make up for insurance underwriting losses of over £2 billion in 2010, when 20p was lost in every £1 of premium earned.
Lord Justice Jackson recommended that the payment and receipt of referral fees should be banned. A ban discourages lawyers from bringing unnecessary claims for compensation, including unmeritorious lower-value claims, while reducing the overall level of legal costs in personal injury cases and related insurance costs. The Ministry of Justice took forward Lord Justice Jackson’s recommendations. Rules against referral fees in personal injury cases were included in the LASPO Act 2012. The rules cover both the payment and the receipt of referral fees. The ban captures all the main businesses involved, such as solicitors, claims management companies, insurers and insurance intermediaries. Under the provisions of the 2012 Act, the individual regulators in each sector are required to effectively enforce the ban. For regulated financial services firms, the relevant regulator is the FCA.
I will now explain the specifics of the regulation. The provisions in Sections 56 to 60 of the LASPO Act 2012 introduce rules against the payment and receipt of referral fees for legal services in relation to personal injury cases. The ban on the payment and receipt of referral fees generally came into effect on 1 April.
My Lords, I am most grateful to the noble Lord for his thoughtful comments on these draft regulations. I will attempt to deal with his questions as best I might.
I have an introductory comment. The noble Lord referred to the noble Baroness, Lady Hayter, saying that the referral fee system was supported by some people. The thing that no one is objecting to is referrals. People are objecting to the fact that people are now being paid probably more than £800 on average to do it. That is a heck of a lot of cash. The problem is that it pushes up insurance payments to everyone and gives an incentive to the referrers to refer anything because they are on a winning ticket: if the case is taken up they get their fee, and if it is not then they do not lose anything. That means that there is a perverse incentive in the system for people to take cases that may or may not have huge validity, particularly when the amount being claimed is relatively small. If I am right in thinking that people like the prospect of being referred on but do not like the idea of paying fees, I would have thought that that would apply to NGOs, unions and others as well. However, as the noble Lord said, we are not discussing that principle today; the die is cast on that one.
The noble Lord asked about alternative business structures and whether they would be able to get around the ban. As the Committee knows, the Government strongly support alternative business structures to increase competition and innovation. Alternative business structures do not allow organisations to avoid the ban but allow them flexibility to operate in the personal injury market in a way that is compliant with the law.
(11 years, 9 months ago)
Lords ChamberMy Lords, I begin by thanking the noble Lord, Lord Foulkes, for initiating this debate. It is a very important subject and this is a timely point at which to be discussing it. I reassure noble Lords that despite the tenor of the debate, the vast majority of UK taxpayers do not avoid or evade tax. They pay the tax that is due and they pay it on time. However, some do not, and that is what we have been discussing today. The economic and social consequences of tax avoidance and evasion are not insignificant. A number of noble Lords referred to the tax gap, which is estimated to be around £32 billion, in total of which the amount due to avoidance and evasion was estimated in 2010-11 at £19 billion. This tax gap exists everywhere, and it is rather lower in the UK than it is in most other countries. Furthermore, it has been falling over a period both before and since this Government came to office, but it is still significant and too big.
As a number of noble Lords have said, the money that we are not collecting in taxes is money that we could be spending on services, something that I am sure we all wish we were able to do. The social consequences of failure to collect the right amount of tax are in many ways as significant as the economic ones. Many individuals and companies up and down the country are honest and pay the tax they owe on time, and it is not right that they should shoulder the burden for those who dodge or completely evade their responsibilities. It generates a huge sense of unfairness and anger, and erodes confidence in the tax system. At a time when the Government are facing tough spending decisions, it is even more important that the right amount is collected.
I agree that this issue has a moral dimension. Failure to pay tax that is reasonably due weakens the bonds that hold society together. I also accept that while there is a moral element to this, there are some companies whose moral compass is, by common consent, lacking. This has been attacked in a number of ways. The Companies Act 2006 lays on directors a range of duties that go beyond fiduciary ones. It is a statutory obligation for directors to have regard to the impact of their company on society as a whole. In my view, sometimes they put less emphasis on that than they do on some of their other duties. However, they already have this requirement.
The question is how we translate our moral outrage into effective action. Before coming on to what the Government are doing, I will take up a comment made by my noble friend Lady Kramer about a potential kite mark, and the remarks made by a number of noble Lords about the effect of consumers. There are some things that consumers can do more effectively and quickly than government, and it seems that some of the actions that have been taken against some well-known companies have had more of an impact in a matter of days or weeks than anything that government, with the best will in the world, could do in the same length of time. I do not have a suggested kite certification body, and I do not think that such a body should come from government, but it is a good idea that should be pursued.
We believe that this Government have a strong track record on tackling both tax avoidance and evasion. That is demonstrated, for example, in the 33 changes to tax law that have been made since 2010 to close down numerous tax avoidance loopholes, and illustrated by the 1,560 individuals who have been prosecuted for tax crimes by HMRC since then. We have shown a similar willingness to confront those who try to hide their money offshore. Some 50,000 taxpayers have already come forward in response to all the offshore disclosure facilities, of which Liechtenstein disclosure facility was the first. To date, these have generated over £1 billion of tax in penalties and interest, and in the years to come there are many billions more to come from that relatively narrow source. That activity reflects a wider transformation in the way HMRC now tackles avoidance and evasion.
Since 2010, some 1,000 additional staff have been deployed to tackle avoidance, evasion and criminal attack, and to cut back on tax debt. I shall deal head-on with the issue of how cuts to the overall HMRC budget have reduced the focus and effort being put into this area. Nothing could be further from the truth. One of the main reasons it has been possible to cut both the budget and the staff at HMRC while increasing effort and resource in this area is that the way people pay their taxes has changed. A huge number of companies and individuals used to pay their taxes using paper tax forms, but now virtually no one does. That has enabled HMRC greatly to reduce the number of people whose job was essentially to manage bits of paper. I do not know if there is a figure for it, but the amount of paper that goes through HMRC is a very small fraction of what it used to be. It means that we have already been able to allocate around an extra £1 billion to this area. So in answer to the first of the questions the noble Lord put to me, I can say that I am pretty confident, indeed very confident, that HMRC has the resources to tackle this issue more effectively than it did in the past, and we have said that we shall look at whether there is scope for putting more resource into it in the future. However, there is something to consider with regard to further resource: you cannot do it too quickly because we are talking about highly trained staff if they are going to be effective. We have put in a lot more and we are keeping the position under review.
In connection with HMRC, the noble Lord asked about it cutting deals with big business. He was concerned about that. The settlements he referred to were reviewed independently by a judge and found to be satisfactory. However, HMRC has put in place robust new assurance and governance rules for settling large cases, so I think that some lessons might have been learnt.
In the Budget, we vowed to do more to tackle avoidance and evasion. We announced the signing of major new automatic exchange agreements and disclosure facilities with the Isle of Man, Jersey and Guernsey, and I shall come back to that later. We also announced the introduction of the first general anti-abuse rule, which will shortly be legislated for through the Finance Bill. This will target effectively the most abusive forms of avoidance and provide a strong deterrent against using such schemes in the first place. Is it strong enough? We shall see when we review it. Is it something against which the last Government set their face? Yes, it is. I would not want to get into too much retrospection, so let us leave it at this: having made the case in your Lordships’ House for an anti-abuse and an anti-avoidance rule for many years, I am very pleased that at long last it is now happening.
For those who choose to contrive complex mechanisms to disguise their employment status and thus avoid employment taxes, we have published a consultation to review two areas of the partnership tax rules, while just last week we published a consultation on the use of offshore employment intermediaries. Our focus on tackling avoidance and evasion will continue, but as a result of the investment that we have already made, HMRC is now set to raise total additional compliance revenues of £22 billion per year by 2014-15.
The noble Lord, Lord Foulkes, asked me three questions, the second of which had to do with beneficial ownership. The Financial Action Task Force on Money Laundering sets standards on anti-money laundering and these issues. The FATF standards are at a high level and are implemented at EU level. EU action is driven by the money laundering directives, a new one of which will be negotiated this year. The standards on beneficial ownership place the requirement on countries to ensure that there is adequate, accurate and timely information on the beneficial ownership of companies, which can be obtained or accessed by competent authorities. Member states are now implementing those standards. The Treasury is working with BIS, and BIS is currently drafting a discussion paper on corporate transparency, which includes beneficial ownership. This will be published over the summer. The measures agreed to through the G8 in this area will, as I say, be implemented in the UK through the EU money laundering directive, as well as by UK money laundering regulations and changes to the Companies Act.
Those concerned with these matters have been promoting the multilateral information exchange for a long time. There has been the most extraordinary acceleration of activity in this area in recent months. The key starting point—the stone, if you like, that started the avalanche—was, as noble Lords have pointed out, the US Foreign Account Tax Compliance Act, which requires non-US financial institutions to report extensive information on US customers with accounts overseas to the US authorities. The US is saying, “We want to know from you what our companies and citizens have in your back accounts”. This has been in operation for only a relatively short time.
As an example of how that standard has really become an international norm, I will go through the following year. In June last year, the UK, France, Germany, Italy and Spain agreed a model information exchange agreement with the US to implement FATCA. In September, the UK and the US signed an agreement on that model. In December, the UK announced that we saw it as a new standard and would look to build on it ourselves and internationally. In January, the Prime Minister announced that tax transparency, including this, would be a priority for the G8. I confirm that it is. In February, the Isle of Man agreed to a FATCA-type regime with the UK. In March, Jersey and Guernsey agreed to the same thing. In April, France, Germany, Italy, Spain and the UK agreed to develop and pilot multinational tax information exchange based on the FATCA model and we made it clear that that was our priority for the May council. Last month, the overseas territories and Crown dependencies made a commitment to join the pilot: that is, to join the FATCA approach.
That is hugely significant. It means that, for the first time, places that have become a byword for tax avoidance will be required to make information available to other tax authorities. Also in May, another 12 European member states agreed to join the same process, while the European Council supported the creation of what it calls a new global standard for automatic exchange of information: that is, a FATCA-type approach. All this has happened in a year. It is an extraordinary acceleration of events but is all to the good. It is our intention that it should be pursued even more rigorously in the future.
The noble Lord, Lord Browne of Ladyton, asked about developing countries and the problems that they face in not being able to collect the tax revenues that they are due. There are two elements to how you deal with that. One is that we do our bit to make clear what is happening in those countries in relation to multinational companies. That is why we support the extractive industry transparency initiative and why the EU accounting directive will require country-by-country reporting for the extractive industries, so that at least you can see what is happening in those places.
We have also realised, in recent years, that we can play a major part by helping those countries themselves improve the efficiency of their tax collection. HMRC has been putting money into support for the tax administrations in those countries. In Ethiopia, where we have been doing it for a number of years, tax revenues have risen by as much as 40% in a year. In Zambia, to which the noble Lord referred, although we are committed to spending £235 million between 2011 and 2015 on reducing poverty, we are also committed to building their tax collection capacity, and HMRC has been supporting the Zambia Revenue Authority to build its own tax collection. Obviously, the quicker they can raise their own proportion of tax, the less reliant they will be on aid. In the Budget, we announced a programme of capacity building, which DfID and HMRC were going to promote in many of those countries. I think that is a very important move.
The noble Lord also referred to the future of tax havens and what they are going to do if they do not have a financial services sector. That is an extremely pressing issue but it must not be the principal issue. We cannot delay action in this area because some tax accountants in the Cayman Islands might find themselves slightly shorter of work.
My noble friend Lady Kramer and the noble Lord, Lord Haskel, in particular, talked about the problem of multinationals not paying tax and asked what we were going to do about it. There is a major push via the OECD, in which we have taken a lead, to change the rules. A lot of the accounting rules have been in place for nearly a century, so it is not surprising that they do not deal very well with the current situation. I assure the noble Lord, Lord Davies, that the Prime Minister will take a lead and will push this very hard at the G8 later this month. Next month, the OECD will present proposals to the G20 on how exactly it proposes to revise the rules. There is a huge amount of work going on in this area—I gather there are 15 work streams—so we should not think that this is being taken at all lightly.
The noble Lord, Lord Haskel, asked whether the Government would deny contracts to tax avoiders. In the Budget, the Government announced that businesses must certify their tax compliance if they want to bid for government contracts. That is new, and we hope and think that it will be effective.
The noble Lord, Lord Watson, questioned whether employees of accountancy firms should be able to spend time on secondment with HMRC. We realise that there can be perceived conflicts of interest. At the moment, secondees have to sign an agreement with the host department and their permanent employer to ensure that there is no conflict of interest when they return. On balance, we value such secondments and think that HMRC gains an advantage by taking employees from the big accountancy companies to help with its work and to help bridge what used to be a complete silo between the accountancy firms and the department. It is a bit of a caricature to think that all accountants are necessarily evil-minded and are going to use the information they get to their clients’ advantage. My experience of accountants is that they are part of a very fine profession and are often unjustly criticised.
The noble Lord, Lord Brooke, asked a specific question on the charity tax. I assure him that HMRC is working closely with the Charity Commission to make sure that charities comply. It conducted 10 joint inquiries with the Charity Commission in 2012-13. There are about 20 exchanges of information every month about charities where it appears that there might be a problem. To go back to an earlier point, HMRC has doubled the staff working on charity compliance since 2012.
I hope I have gone some way to answering the points that have been made in the debate this afternoon and to reassuring noble Lords that tax compliance is an issue that the Government take extremely seriously and will continue to prioritise, both domestically and internationally.
(11 years, 10 months ago)
Lords Chamber
To ask Her Majesty’s Government what was meant by the reference to “flexibility in the fiscal framework” in the Chancellor of the Exchequer’s speech to the International Monetary Fund in Washington in April.
My Lords, the Government’s fiscal strategy is grounded in the clear, credible and specific consolidation plans and new fiscal framework announced in the June Budget of 2010. The fiscal mandate to achieve a cyclically adjusted current balance by the end of the rolling five-year forecast period has ensured a flexible fiscal response to economic developments by allowing the automatic stabilisers to operate and by protecting the most productive public investment expenditure.
My Lords, if that was an answer to my Question, I thank the Minister. The Chancellor used to be proud to claim the IMF as a supporter of his policies, but it has now said a number of times, and it is worth repeating, that the Chancellor might revisit his austerity programme. Does that mean that he is or he is not?
My Lords, I know that the noble Lord is a great reader of IMF reports and that he will, therefore, have read the following from its recent report:
“The commitment to a medium-term plan has earned the government credibility … While adhering to the medium-term framework, the government has shown welcome flexibility in its fiscal program”.
We agree.
My Lords, does the Minister agree that this country currently has to borrow over £50 billion a year to meet its obligations, largely due to our inability to export? That £50 billion comes after selling some of our prime assets like our water companies and utilities which, for some reason, pension funds abroad think better of investing in than our own pension funds do. Leaving that aside, we have a floating pound and the only way that we can actually make ourselves more competitive is to let the pound float down. I hope that the Government and the new governor will encourage this.
My Lords, as the noble Lord said, we have a floating exchange rate. The Government do not set a target for the exchange rate; it responds to economic circumstances, including the decisions taken by the independent Bank of England.
My Lords, given the economic mess that the Government’s policies have got the whole country into…
Oh yes. I hope I do not have to remind the coalition how long it has been in power and it is about time it accepted some degree of responsibility. Some flexibility in the fiscal framework is called for, and the obvious flexibility is to extend the planning horizon—I advise the Government on this with no charge—to the whole length of the business cycle so that we could have some expansionary fiscal policies now, followed, in due course, by further fiscal adjustment. That is the way we ought to be going, and the sooner we have a Government that does it, the better.
My Lords, the Government have pushed back the period during which we are going to eliminate the deficit. The rate at which we are doing it, at about 1% of GDP per annum, is exactly in line with IMF guidance to countries that find themselves in the position that we do.
My Lords, I have some sympathy with the noble Lord, Lord Barnett, because he put down his Question before Ed Balls did a U-turn yesterday on the Labour policy that his Question reflects. However, would the Minister not agree that the greatest risk to recovery at the moment is the lack of credit as business returns to its growth phase and will need that credit in order to succeed? What is his assessment of the capacity of the banks to fill that need?
My Lords, the capacity of the banks to fill that need is shown by the latest borrowing figures, which are mixed. Of the 40 banks that are participating in the Funding for Lending scheme, 27 expanded their lending and 13 contracted it. There was a small net contraction—much less than in recent quarters. There is evidence that net lending will expand as the year progresses, as a number of banks—such as Santander, which is winding down its mortgage book—come to the end of programmes.
My Lords, in his somewhat oblique Answer to the Question put by my noble friend Lord Barnett, the Minister mentioned the automatic stabilisers. Will the Government commit, in the forthcoming spending review, to the automatic stabilisers being maintained?
Does my noble friend agree that the impression that one gets of the IMF’s views on the Chancellor’s policies by reading the press are very different from the impression one gets if one actually reads the IMF reports?
I will say yes to that as well. However, the Government completely agree with the point that the IMF made about the desirability of bringing forward infrastructure expenditure. That is why last year we put in place the infrastructure guarantee programme, which is already bearing fruit with the allocation of £1 billion to the Northern line extension to Battersea, and the recently announced £75 million to be given to Drax power station for its partial conversion to biomass.
My Lords, does the Minister agree that running a deficit of over £100 billion when it was planned as roughly half that sum and creating money to the extent of £380 billion is extremely flexible in terms of policy? Some might even view it as rather excessively Keynesian.
Clearly some do view it as that. It is worth bearing in mind that while we are reducing our deficit to the 3% EU Maastricht target over the period to 2017-18, even the relaxation that the EU has agreed in recent weeks with France, Slovenia, the Netherlands and Spain will get them back to a target of borrowing of less than 3% by 2015 or 2016. It is therefore taking us a lot longer. The Government have agreed to phase down borrowing over a much longer period than is allowed even under the reduced timetable elsewhere in the EU.
My Lords, is my noble friend not concerned at the way in which asset prices, particularly housing and shares, are now being inflated as a result of quantitative easing? Will he confirm that this Government will never use inflation as a means to get rid of the debt, because that will result in substantial unemployment, a loss of competitiveness and the road to Carey Street?
My Lords, this Government will make that commitment, which is why the target that we set for the Monetary Policy Committee of the Bank of England has not been relaxed, and will not be relaxed during this Government’s tenure of office.
(11 years, 10 months ago)
Lords Chamber
That the draft regulations laid before the House on 26 March be approved.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments, Session 2012-13, considered in Grand Committee on 20 May.
(11 years, 10 months ago)
Lords Chamber
That the draft order laid before the House on 26 March be approved.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments, Session 2012-13, considered in Grand Committee on 20 May.