Tobacco: Smuggling

Lord Newby Excerpts

Thursday 16th May 2013 Lords Chamber

[Lord Sheldon]

To ask Her Majesty’s Government what action they are taking to reduce tobacco smuggling.

[Lord Newby]

My Lords, the joint HMRC and UK Border Force efforts to tackle tobacco smuggling were strengthened in 2011. This included further investment of more than £25 million from the Government’s 2010 spending review to increase HMRC’s capacity to target and disrupt illicit trade and investigate those behind that trade. Latest estimates indicate that the illicit cigarette market has more than halved since 2000, from 21% to 9%, and the hand-rolling tobacco illicit market share has reduced from 61% to 38%.

[Lord Sheldon]

My Lords, is it not essential to reduce the smuggling of tobacco? It affects any increase and clearly results in an artificial weakness.

[Lord Newby]

My Lords, I completely agree with the noble Lord, which is why the Government have put more money into this. The money that we have put in will mean that 120 additional enforcement staff are employed at borders, looking specifically at this. There is a 20% increase in criminal investigations and a 20% increase in the overseas intelligence network, which is instrumental in identifying the sources of smuggling.

[Lord Mawhinney]

My Lords, is my noble friend aware of the reported considerable smuggling of tobacco across the Northern Ireland-Republic of Ireland border, despite the best and combined efforts of the Police Service of Northern Ireland and the Garda Siochana? What are the Government planning to do in addition to reduce that smuggling?

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[Lord Newby]

My Lords, some of the additional effort that I have been talking about is being deployed in that area. The Irish tax rate on tobacco has increased recently, so the differential is less. But there is also an issue that is currently being looked at by the Northern Ireland Affairs Committee, which is relevant here, namely that the penalties for tobacco smuggling are significantly less than those for drug smuggling. There is a discussion about whether the sentencing guidelines for tobacco smuggling should now be tightened to move them more closely into line with drug smuggling.

[Lord Hannay of Chiswick]

My Lords, does the Minister recognise that this crime is, almost by definition, an international one, handled very often by international networks? Is he satisfied, and are the Government satisfied, that they are making full use of the machinery of Europol and OLAF in the European Union, and all the other structures that exist, for getting a genuine international effort to bear down on this crime?

[Lord Newby]

Yes, my Lords, I am. The co-operation on Customs and Excise matters is long developed, and a lot of effort has gone into it over the years. Noble Lords may be as surprised as I was to know that we have deployed staff covering between 60 and 70 countries and looking specifically at tobacco smuggling. They are working very closely with their opposite numbers in the countries in which they work.

[Lord Goldsmith]

My Lords, the Minister mentions additional money being put into criminal investigation. Can he say how much of that has been directed at the prosecution side? I am sure that he would agree that the threat of successful prosecution is important in combating this. Furthermore, what has been the effect of the abolition of the separate, dedicated, Revenue and Customs Prosecutions Office?

[Lord Newby]

The headline figure in terms of prosecutions over the past few years is very significant here, and the key point. Some 3,700 people have been successfully prosecuted since 2000. I think that I am right in saying that there is no diminution in the number of cases or the amount of success that we are having on the prosecution front.

[Lord Cormack]

My Lords, when the last Northern Ireland Affairs Committee looked into this grave issue, we found that a very large percentage of the smuggling into Northern Ireland involved substances far more noxious than tobacco. Can the noble Lord say how much of this smuggling is of genuine cigarettes, which are harmful enough, and how much is of more dangerous substances?

[Lord Newby]

Whether it is in Northern Ireland or anywhere else, the people who smuggle cigarettes do, indeed, tend to smuggle other things, typically drugs, and sometimes even more dangerous things than that. I do not have an exact breakdown, but a lot of this smuggling is carried out on a large scale by criminal gangs who are looking to smuggle anything they can with a high value, of which cigarettes typically are only one component.

[Lord Howarth of Newport]

I welcome the Minister’s statement that the Government are considering introducing greater consistency in their treatment of tobacco smuggling and the smuggling of other substances. Will they consider aligning more extensively their treatment of tobacco, alcohol and other psychoactive substances in making policy across those fields more consistent?

[Lord Newby]

That was an extremely wide question. As a general principle, that is what the Government are seeking to achieve. As I say, we are putting additional effort into combating smuggling not just tobacco but across the piece.

Economy: Growth

Lord Newby Excerpts

Thursday 16th May 2013 Lords Chamber

[Lord Newby]

My Lords, I thank the noble Lord, Lord Soley, for initiating this debate because he asks the single most important question facing the country: how do we get more growth? He and the noble Lord, Lord Davies, have a relatively straightforward answer. Sadly, we believe that it is the wrong answer. Their answer is to borrow more. It was not the answer of the previous Labour Government. The Fiscal Responsibility Act required the Government to have halved the deficit by the financial year 2013-14. I am not sure whether the Labour Party has finally and formally renounced that legislation, but that was the course that it set.

The noble Lord, Lord Soley, points out that we had 225% of GDP borrowing after the Second World War, but I should have thought that he could see that the circumstances at the end of the Second World War were so fundamentally different in almost every respect from those of today that that is not a useful analogy.

There are a number of reasons for getting the deficit down. In my view, the most clearly demonstrable one is that a higher deficit and an incredible fiscal consolidation programme would undoubtedly lead to higher interest rates. Why is it that at the end of last week the UK was paying 1.84% on its debt, the US was paying 1.86%, Italy was paying 3.89%, and Spain 4.25%? The answer is: because this country has a credible economic policy in which the markets believe. Without that, there is no reason why our interest rates could not rise by 1% or 2%. Bear in mind that a 1% increase in interest rates means that a mortgage payer with a £100,000 mortgage is paying out an extra £1,000 per year, leaving aside the additional costs to industry and the additional billions of pounds extra that the Government will be paying to service their debts.

When the Government came in, national debt was running at 11.2% of GDP. That was possible in a crisis. I do not think anybody believes that such a level of national debt, which seems to be the level that the Opposition are talking about—we still have national debt running at more than 7%—is sustainable. The noble Lord, Lord Soley, talked about Keynes. People disagree about Keynes, but I am pretty certain that he never advocated sustained levels of borrowing over a long period. He knew, as everyone else knows, that although such a thing is possible, and desirable, over a short period, it is not possible in the long term.

Today, in part, we have been discussing another of Keynes’s aphorisms, which is hugely important at the point at which we find ourselves in the economic cycle: his emphasis on the role played by “animal spirits”, to use his phrase, on investment decisions and a whole raft of economic decisions. Indeed, that was the burden of the speech by my noble friend Lord Bates. At this juncture, the turn in the cycle that we are clearly seeing will accelerate because the view of people in the markets—“animal spirits”: what people are saying to each other—is changing positively.

I would like to address specifically several of the points made by the noble Lord, Lord Soley, about the components of growth. Indeed, most of these features have been about one or more components of the growth picture. I start with infrastructure, where there was widespread agreement that more needed to be done. Last year, according to the World Economic Forum, the overall quality of our infrastructure was 24th in the world. We do not believe that this is good enough, which is why we are investing more in transport infrastructure in this Parliament than was the case under the previous one. Our railways are seeing the largest programme of investment since the Victorian era. Incidentally, I am pleased to see, as I am sure the noble Lord, Lord Soley, is, that the amount of freight carried on the railways is going up significantly, which reverses a very long-term trend and is very welcome.

Total public and private investment in infrastructure between 2010 and 2012, at £33 billion per year, is higher than that of the final five years of the previous Government. At Budget 2013, the Chancellor unveiled an increase in capital spending plans by £3 billion per year from 2015-16. That is in addition to the £5.5 billion of investment in infrastructure announced in last year’s Autumn Statement. This included £1.5 billion for the road network.

The noble Lord, Lord Soley, and my noble colleague Lady Kramer talked about airports, which is clearly a significant component of the nation’s infrastructure. I do not believe that there is total agreement that we need to have a major national airport hub in this country, but the Government believe that it is a requirement. As noble Lords know, the Airports Commission, headed by Sir Howard Davies, is looking at airport capacity in the short and the long term. We are looking forward to seeing his interim report later in the year. In the mean time, Heathrow has spent £1 billion upgrading and Gatwick is spending £1.2 billion, so it is not as though our airports are atrophying. We know that it is a long-term issue and has been a long-term problem with no consensus within or between parties, but that is what the Davies commission is looking at.

The noble Lord, Lord Soley, talked about housing, which again is a long-term challenge. All parties have taken their eye off that issue over the past decade as house prices have risen inexorably and the proportion of the population owning their own homes has risen. There are three components to improving the stock and appropriateness of housebuilding. First, we have to make it easier to build houses. Secondly, we have to help to supply more houses. Thirdly, we have to make sure that there are no artificial restraints on demand for housing.

We believe that the National Planning Policy Framework, which we published in March 2010, has had some effect in a positive direction. The proportion of planning applications being approved is at a 10-year high, a significant proportion of which are around housing. As for building more houses, we already have an £11 billion commitment in the spending review. The Budget 2013 announced a housing package totalling £5.4 billion, including the Help to Buy and mortgage guarantee schemes. There is a lot of activity on that front. However, I agree with most noble Lords that we have to do more, and we are actively attempting to do so in three strands: to make it easier to get planning, to help have more finance to build houses, and to make it easier for people to afford a mortgage.

The international component of our economic activity is clearly crucial. To rebalance the economy, we need to export more. Last week’s evidence of a narrowing of our trade deficit is a positive sign that UK exporters have faced significant challenges in recent years. Yesterday’s data confirmed that the recession in the euro area, which is our most important export market, continued in the first quarter of this year. Therefore, as the noble Lord, Lord Marland, explained, we are right to be looking more widely.

In the period 2009-12, our goods exports to China increased by 96%, to Brazil by 49%, to Russia by 133% and to India by 59%. Last year, while our exports to the rest of the EU fell by 2.5%, our exports to the rest of the world rose by 1.2%. While we look elsewhere, we should not forget that we are still exporting 42% of our goods and services to the eurozone. As we try to get more SMEs involved in exporting, many will go to the eurozone because it is so much easier for a whole raft of reasons. Getting on a plane or a train to get to a potential export market in an hour is very different from going to Brazil or China.

I have seen that with a small manufacturing company in West Yorkshire which exports mainly to Europe. Through its website, out of the blue it has had a couple of orders from Brazil for £25,000, which is pretty good for this company. The question is what it will do to capitalise on it. It has no idea who the people are who have asked for this export. The directors have had a long discussion about whether they should go to Brazil. Eventually, they decided that they would go but the cost, in time and money, meant that that was a very difficult decision. If that order had come in from Spain, they would have been off straightaway. Therefore, as we rightly put more emphasis on the rest of the world, we must not ignore the fact that the bulk of our exports are to the EU and will remain to the EU. The EU is where people dipping their toe in the export market will start.

Over the past year, we have increased UKTI’s budget by £70 million to help to deliver world-class services to move SMEs into exports and to focus our activities on the high-growth market. I hope noble Lords will feel that we are making a real impact in that crucial area.

My noble colleague Lady Kramer discussed the challenge of corporates paying the right amount of tax, an area on which we the Government have put a lot of additional emphasis. At the G8 meeting, we made clear that international tax avoidance and rebalancing the rules around taxation are our top priority. At the recent meeting of G8 Finance Ministers, which included George Osborne, it became clear that we had the support of all the leading countries to look at this. It is not something that we can do unilaterally. It has to be done on a global basis. I think that for the first time ever there is a global consensus that we have to do more around corporate tax avoidance.

In that respect, I should like briefly to mention the personal and corporate tax avoidance in tax havens where up to now there has been a huge degree of secrecy. There is a growing momentum of considerable proportions to open up data about people and companies that have set up entities, which until now have been secret, in the principal tax havens of the world. It is worth while looking at what has happened in the past year. Having signed an agreement on the automatic exchange of information with the US in September, we have done the same with the Isle of Man. In March, we reached agreement with Jersey and Guernsey. In April, France, Germany, Italy, Spain and the UK agreed to develop and pilot multilateral tax information exchanges. Also in April, we set out our priorities around tax transparencies for the May European Council. Most significantly of all, perhaps, within the past month the overseas territories have agreed to greater automatic information exchange with the UK. Here, we are talking about the Cayman Islands, the BVI and other places that have had a degree of secrecy which we believe is simply no longer acceptable.

The noble Lord, Lord Bhattacharyya, spoke with his unrivalled knowledge about the constraints on innovation and investment. I had a great deal of sympathy with much of what he said, particularly about supporting reshoring, which to a certain extent is happening anyway. However, as he suggested, I am sure that the Government should look at ways of doing more. I am particularly aware of an initiative that my noble friend Lord Alliance is heading up on the textile industry and which is bearing considerable fruit. His view is that the potential from reshoring textile manufacture, so that we can have the just-in-time manufacture of textiles in the UK, could be as much as 250,000 jobs in the north-west. This is potentially a huge thing.

I agree with the noble Lord, Lord Bhattacharyya, that we could be doing more. I was particularly interested in his suggestion of how we might use public procurement to help. We should look at that further, and I will discuss it with my colleague Vince Cable, because it seems an interesting idea. I say in passing that the suggestion that we should be emulating the Americans to increase car manufacturing here seems to ignore the fact that car manufacturing has increased here substantially, without government bailouts but with government support. That is because we have had fantastic investment by companies such as Tata, which have completely turned around iconic British brands by investing more than £100 million of their own money in innovation and investment. They are working very closely with the universities, possibly including the university of the noble Lord, Lord Bhattacharyya, and are placing their own research people in those universities. That has happened without direct government subsidy, on the American model, but because this is a good environment for that kind of activity.

We have a raft of initiatives on the table. There are the Catapult centres, whose work includes high-value manufacturing, initiatives on science and innovation and capital projects from the research partnerships fund. We have done a raft of things to help small businesses to generate capital and have access to it, from abolishing stamp duty on shares and expanding the small business research initiative to £100 million and having further funding committed via the new investment bank, which we are in the process of establishing.

For three-quarters of his speech, the noble Lord, Lord Bates, did a tremendous job in helping the movement of animal spirits in a positive direction. Then he slightly undermined that by saying that the figures on which we are placing a certain amount of hope are perhaps not worth the paper they are written on. I paraphrase slightly. However, I think we will have in the UK what has just happened in the US, where the basis of the GDP figures is being looked at. I believe this is the case, although it may not be on exactly the same basis as he wants. The sad thing is that if the consequence of that rebasing of GDP leads to GDP figures going down, everybody will say that this is the Government’s fault for being completely incompetent, while if it shows them going up, that will lead to everybody saying that they have been fiddled, so I do not place too much hope on that. A consistent series of figures is probably the best that can be done. Although it does not necessarily reach an absolutely precise representation of the truth, that is good enough.

[Lord Bates]

If the noble Lord will allow me, I just need to correct for the record that I did not say that the GDP figures were worthless. I never used that term. I simply queried the mix between the construction and service sectors—be it 5,000, 10,000 or 12,000—and whether that mix was under review in order to ensure that we are accurately reflecting the performance of the economy.

[Lord Newby]

I apologise to the noble Lord. As I was saying, I believe that the ONS is doing a pretty fundamental review of that at the moment.

The Government are under no illusions at all about the challenges ahead in respect of growth. Implementing our ambitious programme of reform and securing strong, sustainable growth will not be easy, but the Government will not deviate from their course. The prizes in the global economic race are great and we are determined to win more of them.

Arrangement of Business

Lord Newby Excerpts

Monday 13th May 2013 Lords Chamber

[Lord Newby]

My Lords, there are currently 166 speakers on the lists for the remaining three days of debate on the humble Address. If Back-Bench contributions are kept to eight minutes, the House should be able to rise by 10 pm tonight, around 11 pm on Tuesday and around midnight on Wednesday.

EU: Budget Report

Lord Newby Excerpts

Thursday 25th April 2013 Lords Chamber

Moved by

[Lord Newby]

That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook, which forms the basis of the United Kingdom’s Convergence Programme.

[Lord Newby]

My Lords, I welcome this opportunity to debate the information that will be provided to the Commission this year under Section 5 of the European Communities (Amendment) Act 1993. As in previous years, the Government report to the Commission on the UK’s economic and budgetary position in line with our commitments under the EU’s stability and growth pact. The Government plan to submit their convergence programme by 30 April, with the approval of both Houses.

The convergence programme explains the Government’s medium-term fiscal policies as set out in the 2012 Autumn Statement, Budget 2013 and OBR forecasts and is drawn entirely from previously published documents that have been presented to Parliament. It makes clear that this year’s Budget reinforces the Government’s determination to return the UK to prosperity and it reiterates the Government’s number one priority: tackling the deficit.

This debate also provides the opportunity to debate aspects of the European semester, specifically the annual growth survey and the alert mechanism report, the first stage of the macroeconomic imbalances procedure. The European semester as a whole provides a broad framework for the monitoring and surveillance of member states’ fiscal and economic policy at EU level. It attempts to exploit the synergies between these policy areas by bringing together their reporting cycles. The Government fully support the European semester as it is vital that the EU as a whole grips the urgent growth challenge it is facing and the semester provides a framework for co-ordinating the structural reforms necessary across the EU.

Progress is being made to tackle the crisis in the euro area, but the challenges facing growth in Europe continue to be serious. We have seen a welcome fall in borrowing rates, particularly for Spain and Italy, from the very high levels they reached last summer. This reflects the gradual progress that the euro area authorities have made in tackling the crisis and, in particular, the commitment by the ECB to stand behind the euro, but recent events in Cyprus remind us that the euro area continues to be a fragile environment. Only a sustained period of successful reforms and improvements in financial markets can lay the foundations for growth.

Economic activity in the European Union remains very subdued. EU GDP contracted by 0.5% in the last quarter of 2012 and recent economic indicators suggest that the slow end to 2012 has carried over into 2013. In the euro area, most periphery economies are in serious recessions, with weak labour markets, adverse credit conditions and an ongoing process of deleveraging all weighing on growth. Without sustainable economic growth, the EU will be unable to repay its debts, create jobs or maintain its standard of living. In order to return the EU’s economy to a sustainable footing, ambitious and far-reaching structural reforms will be required. These are the reasons why the EU semester is as relevant as ever.

The annual growth survey and alert mechanism report, the two semester documents we are debating today, were published on 28 November 2012 and officially launched the European semester for 2013. The annual growth survey presents the Commission’s view of EU policy priorities for the forthcoming year. It highlighted five broad priority areas for reform in EU member states for 2013: pursuing differentiated growth-friendly fiscal consolidation, restoring lending to the economy, promoting growth and competitiveness, tackling unemployment, and modernising public administration. These priorities closely reflect the Government’s approach to growth through low-cost, supply-side structural reforms while maintaining the importance placed on fiscal consolidation as set out by the Chancellor at Autumn Statement 2012 and Budget 2013. Budget 2013 set out the Government’s assessment of the UK’s medium-term economic and budgetary position. As confirmed by the OBR, the UK economy is still recovering from the biggest financial crisis in generations, one of the deepest recessions of any major economy, and a decade of growth built on unsustainable debt levels.

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Why are we not getting that? It is because business also lacks confidence. If the IMF thinks we are getting it wrong, and is quite clear that we need to change course, is it surprising that informed business leaders are not prepared to take risks, particularly in an economy in which demand has shrunk so much? If Saatchi & Saatchi was in the truth business rather than in public relations, it would reuse the old slogan with a little redrafting: “Plan A isn’t working”.

[Lord Newby]

My Lords, I thank all noble Lords who have taken part in today’s debate. As the noble Lord, Lord Davies, said, we have covered everything, from macroeconomic theory to House of Lords procedure, and I will do my best to respond to as many of the issues raised as I can.

I will start with the noble Lords, Lord Eatwell and Lord Barnett, who both discussed growth, and in particular the growth forecast. The noble Lord, Lord Eatwell, suggested that the growth forecasts were wrong for theoretical reasons and because the assumptions that were made might be unsustainable. The noble Lord, Lord, Barnett, had a more fundamental problem, which was that he does not believe any growth forecasts, almost by definition. We see in today’s figures, with the 0.3% increase in GDP in the first quarter, that, as they say, if present trends continue the OBR will have got it wrong again. This time, however, it will have got it wrong on the downside instead of the upside. I hope we will not be too unhappy in those circumstances if they perhaps do not get it right. I agree with the noble Lord, Lord Barnett, that growth figures, or indeed any forecasts for five years ahead, have to be treated with a very large pinch of salt. However, there are only two alternatives. Either you do your best and work on the best that you can do, or you throw your hands up in horror. On balance, the Government prefer to do the former.

I will deal with a core assertion of the noble Lord, Lord Eatwell, that everything was fine in 2010, the economy was growing by 2%, and that if only the policies that were in operation then had been carried on, growth would have continued and possibly increased. In 2009-10 the borrowing was £158.9 billion, some 11.2% of GDP. At the time, my colleagues and I supported that borrowing on the basis that the Government were dealing with what Vince Cable called “a massive heart attack” to the economy, and so this had to be dealt with by very significant public expenditure to prevent a total collapse, and in particular, to shore up the banks. What I cannot accept is that that level of borrowing was sustainable in the medium term, and neither could Alistair Darling. A number of noble Lords have spoken in support of Alistair Darling’s economic policies, but remember that they were in two parts. There was a high level of immediate expenditure, but we passed a Bill that would have required by law the Labour Government, had they been re-elected, to halve the deficit by the current financial year. Does anybody believe that if Mr Darling had been in power, he could have continued putting money into the economy at anything like the rate he did in 2009-10 if he wanted to meet that outcome? It is inherently implausible. The question that was being debated as we reached the election in 2010 was not whether there would have to be reductions in public expenditure, but purely about their scale and size. Therefore, the suggestion that all was well in 2010 and that we could have continued with high levels of growth by pushing public sector borrowing along at an unsustainable level does not hold up.

[Lord Eatwell]

My Lords, the noble Lord has rather ably misrepresented what I said. I said that the economy was growing at 2%, which it was, and that the 2% growth would lead to a fall in the deficit, which it did. I did not say that at the time there was a need to increase the deficit. What happened was the destruction of business confidence by the foolish remarks of the new Chancellor of the Exchequer—the comparisons with Greece and so on—that led to a collapse in private sector investment and growth.

[Lord Newby]

My Lords, businessmen take some notice of politicians, but they do not make investment decisions purely—or even largely—on what politicians say. They look around the market and see what is happening elsewhere in the world. The speech of the noble Lord, Lord Eatwell, was notable in a number of respects. One was that although he used the word “Europe” in his first and last sentences, he did not refer at all to the crisis in the eurozone and to the fact, supported by the OBR, that one of the greatest problems and brakes on growth in the UK has been what happened to the eurozone. It is a crisis in which we had no part and that we were obviously unable to deal with. The eurozone countries are dealing with it themselves.

I will move to an area where I have a greater degree of agreement with the noble Lord, Lord Eatwell. It is the importance now of infrastructure expenditure as a source of growth going forward. There are two elements that are linked but separate. One is non-housing infrastructure and the other is housing infrastructure. On non-housing infrastructure, as the noble Lord will be aware, the Government have made available up to £40 billion of guarantees to enable private sector investment in key infrastructure. He will have seen that the policy bore fruit yesterday with the announcement that the Drax power station is using the facility to enable it to invest £75 million in upgrading the station. We hope and expect that this will be the first of many such deals.

Housing is a major problem. It was a major problem during the previous Parliament and remains so, to the extent that the demand for new housing is increasing by about 250,000 units a year. Nothing like that amount of housing has been built for many years. The Government are attempting to deal with this with a three-pronged approach. First, we will make it easier to get planning permission for new housing development. Secondly, we will increase demand. This is why we are supporting first-time buyers and others who want to take out mortgages in circumstances where the banks are requiring prohibitively large deposits from most people. Thirdly, we will improve the supply of housing. That is why, in addition to the £40 billion guarantee for other infrastructure, we have in place a £10 billion guarantee programme for housing.

There remains a major problem with getting the banks involved in funding developers, particularly small developers, and I am engaged in discussions with the BBA to see whether we can help. However, in terms of government support for new investment, both for housing and general infrastructure, which the noble Lord, Lord McFall, suggested we should be doing, I remind him that we have established the Green Investment Bank. We are also establishing a small business bank. This is a degree of banking activism that was absent during the time of the previous Government.

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[Lord Harrison]

I must say that we spotted these inherent flaws in our 2011 report and repeated them. The problem was that the Government were supine in their approach. It was only by our goading, and at the very last moment, that they began to act. The point that I make in so many of these areas is that the UK has to intervene early.

[Lord Newby]

My Lords, I am all in favour of increased early intervention in all matters European, but it is fanciful to believe that anything that the UK could have done or said at a significantly earlier stage would have stopped a very significant move in many European countries that was led by the trade union movement, which is desperately keen to get an FTT going. We have been extremely critical of it, but it is for other countries to decide. We will see how discussions go in the coming months.

The noble Lord asked about a debate to approve the basis of the national reform programme. We do not think that there is a legal obligation to debate the basis for the national reform programme, and we are not aware of any occasion on which it has been submitted for parliamentary clearance, including under the previous Government. Of course, the national reform programme does not include any material that has not previously been published and debated.

I now move to the other end of the spectrum of considerations from high economics to the question from the noble Baroness, Lady Noakes, about why there was no speakers list. I absolutely share her view, and I raised the question myself, because I would have welcomed having some sense of how many people were going to speak. I was told that, because these are Motions, it is not the normal practice of the House to do it. However, I would be very happy to take to the Procedure Committee a suggestion that we have a speakers list for this kind of debate, because I think that it would be helpful to the House.

The noble Baroness also asked why we bothered to have this debate at all, and said that we should repeal Section 5. As any Minister would say, I am sure, I can see some advantage in doing that, but it is highly unlikely that we will. The main thrust of her comments was that it was all a waste of time and why bother, not just with this debate but with getting involved in all this EU stuff. We support the European semester as a means of ensuring that what we consider to be necessary structural reforms take place across Europe, because, simply, we believe that it is in our national interests to see strong economic recovery in Europe.

The noble Baroness and a number of other noble Lords said that we placed too much emphasis on trade with Europe and not enough on trade with the rest of the world. In my view, it is not an either/or. We have about 40% of our trade going to the EU, and we cannot afford to see trade with the EU suffer. What we need to do is to see trade with the rest of the world growing strongly, as we have been doing, while, one hopes, seeing trade with Europe growing strongly as well.

The noble Lord, Lord Layard, queried whether this Government have as their overriding objective a better life for the people. I assure him that this Government do have that as their overriding objective, which is hardly surprising. I cannot agree either with his view that we should be borrowing a lot more or, indeed, with the comment of the noble Lord, Lord McFall, that the markets have turned against the Government. Last Friday, borrowing costs for the UK were 1.69%; for the US, they were 1.71%; for Italy, they were 4.22%; and for Spain they were 4.62%. For Italy and Spain, the proportion of borrowing to national income is very significantly less than it is in the UK. So I do not think that the markets have turned against the UK at all. It is only because we have a very clear deficit reduction policy that that remains the case.

The noble Lord, Lord Hollick, prayed in aid the last Chancellor, and he and other noble Lords referred to the IMF. For me there is a slight irony in this, because for most of my political career Labour politicians have been explaining why the IMF was the worst possible organisation in the world. They said that it had all the wrong priorities and had never once got it right. So it is interesting that they have changed their view. I would say only that their description of the view of the IMF is somewhat less nuanced than the view of the IMF itself. As Christine Lagarde reiterated last week, the IMF supports the UK’s policy of deficit reduction and said that the pace of consolidation was in line with the IMF’s recommendations for advanced economies.

The noble Lord, Lord Marlesford, urged us to put up the tax on petrol. We think that the arguments for freezing petrol tax in terms of its impact on small businesses, rural areas and elsewhere, are very strong, and that is why we have done it. He was also very keen that we switch our efforts to other economies than the eurozone. Of course, the significantly increased funding for UKTI will allow us to put a lot more effort into developing our exports to those new markets.

The noble Lord, Lord McFall, suggested that we should investigate the possibility of a UK digital university. That sounds an extremely sensible idea. The way in which universities are making material available free is a huge potential benefit, and the quicker that that happens the better.

The noble Lord, Lord Davies of Oldham, basically said about job creation, “Well, there may be jobs, but they are not proper jobs”. In my view, the debate about what constitutes a proper job, or a job, is a false one, because for the person who is doing it, it is a job, and they would rather have it than not. Incidentally, it is not true to say that in recent months the bulk of jobs that have been created are part time. Certainly, the latest figures that I saw suggested that there had been a reduction in part-time jobs and a significant increase in full-time jobs. I completely agree with him about skills, and the need to upskill the labour force. I point out that under this Government there has been a massive increase in the number of apprenticeships, which by common consent is the area where for many decades this country has lagged behind the rest of the developing world.

Ultimately, the return to sustainable growth is the only way for EU member states to pay down their debts and improve the way in which the single market works. The UK Government are leading the EU growth agenda and making the case for ambitious EU reform. On that basis, I am pleased to commend the Motions to the House.

Motion agreed.

EU: Domestic Growth

Lord Newby Excerpts

Thursday 25th April 2013 Lords Chamber

Moved by

[Lord Newby]

That this House takes note of European Union Documents No. 16669/12 relating to the Annual Growth Survey 2013, and No. 16671/12 relating to the Alert Mechanism Report 2013; supports the five key priorities of the 2013 Annual Growth Survey which are in line with the Government’s domestic growth agenda; supports the Government’s view that it is important to focus on implementation of existing reform commitments; agrees that European Union Member States should continue on the path of growth-friendly fiscal consolidation and increasing competitiveness to support growth and jobs; supports the Alert Mechanism Report and the Macroeconomic Imbalances Procedure as a means of strengthening European economic governance, particularly in the euro area; and supports the Government’s view that is it is right for euro area countries to be subject to more binding surveillance of macro-economic imbalances, with the prospect of sanctions for failing to take corrective action.

Motion agreed.

Public Service Pensions Bill

Lord Newby Excerpts

Wednesday 24th April 2013 Lords Chamber

Moved by

[Lord Newby]

That this House do not insist on its Amendment 78B and do agree to Amendment 78C proposed by the Commons in lieu of that amendment.

[Lord Newby]

My Lords, as the House is aware, the Government accepted on Monday the substance of the amendment of the noble Lord, Lord Eatwell. I said we would make some small, technical changes to ensure that it works as intended. The government Motion before us makes all those necessary tweaks, while upholding the principles of the policy in full.

I briefly explain the reasons why the tweaks were necessary. The Government’s redrafted Motion seeks to address some inadvertent consequences that could arise from accepting the amendment that the House approved as it stood on Monday. First, the names of the workforces were not quite right. We have corrected this to ensure they are consistent with other statutory references to these groups of public servants. Secondly, there was the potential for confusion about the role of the Secretary of State for Defence, who is included in the general term Secretary of State. The noble Lord’s amendment implied that he would carry out any review of the terms and conditions of these workforces in conjunction with himself. That has now been corrected. I suspect that the original wording sought to ensure that the Treasury and the MoD worked together on the review; I can confirm that that is the intention.

Finally, there is the issue of commencement—the timeframe for when the Motion would come into force. The amendment of the noble Lord, Lord Eatwell, would have started the clock only after the entire Bill came into force, which would delay the review considerably. Instead, the Government’s Motion creates a specific deadline linked to the relevant clause of the Bill, a timescale which has been further clarified by the Economic Secretary in another place. I am also happy to confirm to noble Lords that the Government will commence the relevant sections promptly to ensure that the review takes place without further delay with a view to concluding and reporting within eight months.

My colleague the Economic Secretary has already committed in the other place that the Government will not be blind to the context in which the review will take place. The review of pension arrangements will take account of the wider pay and remuneration package of the forces involved.

The Government will now work closely with the relevant interested parties to pursue the appropriate way forward. Workforce representatives are some of the most important and interested parties, and so will be fully involved. I hope that noble Lords will agree that the Government have been very clear in their support for this review. We are now keen to get on with it and to establish the best way forward. On that basis and in this spirit, I urge noble Lords to support the Motion. I beg to move.

[Lord Eatwell]

My Lords, I am grateful for the corrections which the noble Lord has made to the amendment which I put down yesterday, and for the commitment that the review will be done within eight months. There was another change that he did not cover. The term of art, “statements of requirement”, which refers to the level of physical ability that the fire service and police must attain, was changed to “operational requirements”. What is the significance of that change?

[Lord Newby]

My Lords, I do not think that there is any significance in the change. As I said earlier, there has been no change of substance in the content of the Motion as it appears before your Lordships’ House from the amendment that the noble Lord moved on Monday, which was accepted by the House. I am 99% certain that that was the case. If I have misled him or the House, I will write immediately to correct it. I can assure the noble Lord that the aim and the intention is simply to have language that is clear, unambiguous and enables us to get on with it. I beg to move.

Motion agreed.

Public Service Pensions Bill

Lord Newby Excerpts

Tuesday 23rd April 2013 Lords Chamber

Moved by

[Lord Newby]

That this House do not insist on its Amendment 78, to which the Commons have disagreed for their Reason 78A.

[Lord Newby]

My Lords, your Lordships’ House now returns to the Public Service Pensions Bill, on which there remains one outstanding issue. The other place has invoked parliamentary privilege on the amendments made by this House that sought to reduce the normal pension ages for fire and police workforces employed by the Ministry of Defence.

I will explain in a moment the reasons why the Government cannot simply agree to give these workforces a normal pension age of 60. First, I put on record that I recognise the arguments that have been made here and elsewhere. I have met members of these workforces to discuss their position, and there is no question that they deliver an extremely important service, often in demanding and dangerous circumstances. However, sympathy for these individuals should not lead to our oversimplifying the issue that we are discussing. The debate today is over just one design element of their pensions, which in turn forms just one element of their overall remuneration and employment package.

We have heard the argument that these individuals are identical to their local authority counterparts. But these workforces are subject to separate working practices, terms and conditions and, specifically, pensions entitlements. These workers receive different pay, pay a much lower level of contributions, have access to a compensation scheme, unlike their local authority counterparts, and receive different allowances—for example, when they work abroad.

We must recognise that the proposal to reduce the retirement age involves substantial changes in their terms and conditions. Those changes to date have not been subject to thorough consideration or the proper process. That is why we should not attempt to conduct detailed discussions here about what the changes may look like. This is not just about normal pension age; there is much more to be explored, and there are several interrelating factors that must continue to be discussed between the parties. It is right that those discussions take place outside the legislative process, and we do not have to resolve this in the Bill. My colleague, the Economic Secretary, said yesterday in the other place that further primary legislation is not necessary in order to do so.

The Ministry of Defence has already committed to discussing this issue further. This is the right approach. As we have these discussions, we cannot shy away from discussions about the costs. Reducing the normal pension age of those workforces to age 60 could create extra expenditure for the Exchequer of up to £10 million in every year that the scheme operates. That is why these two amendments are subject to the Commons financial privilege. These costs would have to be picked up by somebody—either the taxpayer, possibly at the cost of front-line MoD services, or extra contributions from the members of these workforces. The current situation is that dialogue is already under way between the DFRS, the MDP and the MoD. The MoD has written to the representatives of the members of these forces and offered to discuss how a normal pension age of 65 might be maintained when the new schemes come into force. The first step has, therefore, already been taken, and we will keep up the momentum in the coming weeks and months.

I realise that there is some concern about how long these negotiations might take, which was reflected in the Commons yesterday. While I do not wish to tie the hands of either the unions or my colleagues at the Ministry of Defence, I should think that working towards agreement over the next 12 months is an achievable goal. We are definitely not seeking to kick this issue into the long grass. Colleagues in the other place also wanted assurance that if—I stress that this is very much an “if”, not a “when”—the MoD decided that a reduction in its current NPA was appropriate, the Bill would be flexible enough to allow this. I can reassure the House that this is indeed the case. This Bill is framework legislation. This is usually the case in the public service pension arena and, as such, a number of things are possible within the framework of the Bill that do not require amendments to primary legislation. I am, therefore, happy to repeat that if the Government decided that it would be appropriate for some or all of these workforces to be able to access an unreduced pension before normal pension age, there are ways that this change can be delivered using only secondary legislation.

The opposition amendment would effectively require a review of the effect of this Bill on the Ministry of Defence fire and police services. In particular, it would require the Government to have regard to impacts on the health and well-being of the individuals affected; the ability of the MDP and DFRS to meet the Ministry of Defence’s statements of requirement; and early retirement statistics in these forces. I have already stated that the Ministry of Defence is engaging with these forces to look at their pension ages in the new schemes. These are exactly the kinds of factors which they would look at in doing so. As we had already intended to look at this issue again with these workforces, I am happy to accept this amendment from the Opposition, and the Government will support it. I hope that seeing this provision on the face of the Bill will give the forces and Members opposite the reassurance they need that the review will indeed be carried out.

As is normal practice, a few elements of wording will need to be ironed out. The Government will look to make these changes in the other place when the Bill returns there. Allow me to reassure the House that any changes to the wording will be purely to ensure that the provision works properly. However, the Government can today accept the substance of the amendment, and I am grateful to the noble Lord, Lord Eatwell, for taking this very constructive approach to the remaining issue in the Bill. I invite the House to accept the decision of the other place and also to accept the amendment. I beg to move.

--- Later in debate ---

[Lord Whitty]

My Lords, I join the noble Baroness in congratulating the Minister on his change of heart. He has in effect very graciously recognised not only the justice of the case that we on this side of the House, and the noble Baroness, Lady Harris, put in Committee, but that it is pretty absurd for the Government simply to claim financial privilege to resist an amendment that manifestly will bring justice and equity to an extremely special group of workers, putting them on the same basis as people who are doing almost exactly the same job but who are employed by other public sector employers.

I suspect the Minister had some difficulty with the Treasury and the Ministry of Defence in reaching this conclusion. I therefore doubly congratulate him on seeing it through and at least recognising the very difficult position we all find ourselves in. We cannot really resist the Commons claiming financial privilege, but we can ensure by my noble friend’s amendment that the Government think again about this and address the real issues.

I do hope, however, that the Government do not make a habit of using financial privilege to resist a principled amendment from this House that has a minimal cost even in the Government’s terms and, as my noble friend has said, that is probably actuarially inaccurate in any case. If the Government continue to do this, this House has some serious thinking to do about how seriously our amendments and our scrutiny are taken. However, I return to my congratulations to the Minister on seeing sense over this. I hope it is a precedent that will be followed by some of his other colleagues in future.

[Lord Newby]

My Lord, I am grateful to the noble Lord, Lord Eatwell, and other noble Lords who have spoken in this debate. I would just like to deal with the issue of financial privilege, because there is a widespread misunderstanding of how financial privilege works. Privilege is not determined by the Government. Privilege is determined by the Speaker in advance of debate. In this case, the classification of your Lordships’ amendment as being subject to the Commons financial privilege has been known for a month. Once an amendment has been classified by the Speaker as being subject to financial privilege, obviously the Commons considers whether to agree or disagree with each Lords amendment. If it disagrees, it must offer a reason. The only reason it can give is privilege. The Clerk of the Commons explains this as follows:

“If an amendment infringes privilege, that is the only reason that will be given. This is because giving another reason suggests either that the Commons haven't noticed the financial implications, or that they are somehow not attaching importance to their financial primacy”.

I strongly recommend that all noble Lords who seek enlightenment on this matter look up the Hansard of 14 February last year, when the Leader of the House gave a little tutorial on financial privilege before your Lordships discussed a number of issues relating to a Bill. There is a long-established pattern of financial privilege that has in essence been unchanged for several centuries, and it is not for the Government to decide whether an amendment is covered by it. The Speaker does that.

[Lord Whitty]

My Lords, I fully accept that it is for the Speaker to designate financial privilege, but the debate last year to which the noble Lord referred related to expenditure of several hundred million pounds of the welfare budget. During that debate, several Members referred to the fact that there must be a threshold beyond which a Lords amendment was considered an issue of financial privilege. The only point I am making is that the Commons, or whoever jogs the Speaker’s elbow in these matters, needs to take into account the issue that a relatively small amount of financial expenditure and alteration in either direction should not be taken as an issue for claiming financial privilege. I do not want to labour the issue, but there would be a danger of the two Houses coming into conflict if this position were to be adopted by the Commons on a regular basis in relation to relatively small amounts of money.

[Lord Newby]

My Lords, I hope that the Speaker in another place is listening to your Lordships’ debate and taking note.

The noble Lord, Lord Eatwell, asked whether we had sought the views of the heads of the Ministry of Defence fire and police services. The Government are routinely in contact with all their employers and discuss a number of issues with them. We are accepting the idea of a formal review, and the heads of those workforces will be consulted as part of that process. The noble Lord also asked me how many times the Civil Service Compensation Scheme had been used. I simply do not have the answer, but I will seek it out and write to him about it.

I realise that although the Government are accepting the opposition amendment, a number of noble Lords would like us to go further today. In urging patience on noble Lords, I end simply by reminding them of the words of that well known hymn, “Lead, kindly light”, which says,

“I do not ask to see the distant scene.

One step enough for me”.

I hope that we have taken a positive step today.

Motion A1 agreed.

Lords Amendment 79: Schedule 1: Page 23, line 27, at end insert—
“(c) includes members of the Ministry of Defence Police nominated under section 1 of the Ministry of Defence Police Act 1987”
Commons disagreement and reason
The Commons disagree to Lords Amendment No. 79 for the following Reason—

--- Later in debate ---

Moved by

[Lord Newby]

That this House do not insist on its Amendment 79, to which the Commons have disagreed for their Reason 79A.

Motion B agreed.

Banking: Quantitative Easing

Lord Newby Excerpts

Wednesday 27th March 2013 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government whether they agree with Sir Mervyn King, the Governor of the Bank of England, that quantitative easing should be increased by £25 billion, as stated at the most recent meeting of the Monetary Policy Committee.

[Lord Newby]

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. It is for the MPC to make decisions on monetary policy, including the scale of quantitative easing, based on its own judgment and the balance of risks to inflation in the medium term.

[Lord Barnett]

My Lords, under Section 19 of that Act the Chancellor has power by order to stop the committee doing that just that. Can I assume that as he did not say he did, he does not oppose the idea of there being more QE? On the other hand, we have a new remit for the new Governor of the Bank of England. The Chancellor said:

“the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy”.—[Official Report, 20/3/13; col. 935.]

Does that not mean that there will have to be a change to the Bank of England Act? Without it, how can there be such a change?

[Lord Newby]

My Lords, to deal with that last point I will say that we do not need a change in the Bank of England Act because its basic provisions—namely, of inflation-targeting, and this year, as in previous years, we have a 2% inflation target—remain in place. The Chancellor has suggested, in changing the remit, that it would be appropriate for the MPC to deploy new explicit forward guidance, including intermediate thresholds, in order to influence expectations and meet its objectives more effectively.

[Lord Lawson of Blaby]

My Lords, on the subject of the Bank of England’s remit, I warmly welcome the fact that the Government have firmly decided not to move away from the inflation target to a nominal GDP target, and have given very good reasons why that would be a disastrous course. Will the Minister take this opportunity to make it clear that neither the Government nor the Bank of England are pursuing a policy of exchange rate depreciation?

--- Later in debate ---

[Lord Newby]

I can absolutely give that assurance.

[Lord Peston]

May I break the habit of a lifetime by saying how much I agree with the opening remarks of the noble Lord, Lord Lawson? In all the years we have known each other, I think that is a one-off. As far as I recall, the Minister did not take part in the deliberations on the 1998 Act. He is indicating that he did. Then he must remember that the noble Lord, Lord Barnett, and I spent a large part of our time trying to move the Monetary Policy Committee’s remit in exactly the direction in which the Government are moving it; and claim to be moving it, let me add—the relevant words are there in the speech of the Chancellor and that of the noble Lord, Lord Deighton. They have updated it. My knowledge of the English language is not that large, but I think that “update” means change. How have they produced this most remarkable sleight of hand? The noble Lord, Lord Barnett, and I were told regularly that we could not change the remit because amendments were not acceptable to the Government. How has the Chancellor produced an extraordinary sleight of hand and changed the remit without bringing it before Parliament?

[Lord Newby]

I do not think that there is any sleight of hand. Since 1998, the Bank of England has introduced a number of innovative measures within the remit and the terms of the Bank of England Act. Quantitative easing, which, in 1998, many of us could hardly spell, far less understand, has happened on a big scale and finance for lending has been introduced. These innovative things have been introduced under the terms of the Bank of England Act. The remit change reflected in this year’s statement by the Chancellor accepts that there have been a lot of changes since 1998 and suggests that the Bank should look at introducing further innovative operations.

[Baroness Kramer]

My Lords, the Minister will be aware of a recent speech by Spencer Dale, the chief economist of the Bank of England, which identifies the constraint on growth, not on the demand side but far more on the supply side, because the banks are not back to normal lending, so does he see monetary activism as a mechanism to return to normal lending or are we relying much more on actions such as the business bank? Is that where the Government’s emphasis should be placed?

[Lord Newby]

My Lords, we need to pursue more than one course at the same time. The Green Investment Bank and the new business bank are one way forward; further innovation by the MPC is another. We need the full range of tools at our disposal to promote growth.

[Lord Eatwell]

My Lords, given that interest rates have been at record lows for three years and that liquidity is high, with no notable impact on the overall rate of growth, will the Minister tell us exactly what the mechanism is by which this greater monetary activism will stimulate growth?

--- Later in debate ---

[Lord Newby]

My Lords, the Bank can do a number of things. However, on the change in the remit, the idea of having intermediate thresholds, which the Fed and other banks around the world have adopted, is to give longer-term certainty about the path of interest rates, which, we hope, will stimulate business confidence.

[Lord Forsyth of Drumlean]

Did my noble friend see the report in the Financial Times on Monday that the Japanese company, Fujitsu, was going to invest £800 million in Britain, but that all that money will go to reducing the deficit on its pension fund? How much longer will we see artificial deficits being created because gilt yields are used to calculate the liabilities of pension funds, and these liabilities are being exaggerated by the effects of quantitative easing? When are the Government going to do something about this?

[Lord Newby]

My Lords, there is obviously a tension in respect of interest rates in that some people benefit from low interest rates and some people lose from low interest rates. It is the Government’s view that low interest rates are in the interests of the economy in promoting growth in a very difficult economic environment.

[Lord Hughes of Woodside]

My Lords, given that the Minister was in purdah the last time I raised this issue, can he now say what the possibility is of banks being allowed to levy negative interest on savings accounts? Who will be in charge of this, as the new Governor of the Bank of England has said that he was within days of doing this in Canada? Who is going to protect savings?

[Lord Newby]

My Lords, I do not think that anybody in the Bank of England and the MPC at the moment is suggesting that we move to negative interest rates.

EUC Report: MiFID II

Lord Newby Excerpts

Tuesday 26th March 2013 Grand Committee

[Lord Newby]

My Lords, like other speakers, I congratulate the noble Lord, Lord Harrison, and his committee on producing such a comprehensive and thoughtful report on such a technical subject. I hope that noble Lords will forgive me if I start by dealing with some of the technical issues that the report covers before I get on to some of the broader issues that we have discussed.

As noble Lords have accepted, since it came into force in 2007, MiFID has had a major impact on how EU financial markets operate. This in turn has fed through to a significant impact on the wider economy. The directive has been instrumental in reducing barriers to trade in financial services and increasing competition in trading services. To build on these benefits, the Government agree with the committee that a review of MiFID I was necessary. The Commission’s proposals for a new directive and regulation broadly seek to address three areas where problems have arisen: negative side-effects resulting from the implementation of the original legislation; technological developments in how financial markets function; and issues exposed by the financial crisis.

There is much to welcome in the proposals. For instance, the creation of a new category of trading venue, called the organised trading facility, will capture virtually all organised multilateral trading. Another objective of the review—greater transparency in financial services—should help to protect investors and generally lead to greater efficiency in price formation. A policy of open access between trading venues and clearing houses will remove an important obstacle to competition, helping to create a more competitive single market in clearing and trading services. However, the policies contained in the MiFID review must be extremely carefully designed. The Government’s primary focus is ensuring that the measures contained in the review meet their objectives and do not damage competition or the efficiency of financial markets.

First, the Government share the committee’s concerns over the design of the organised trading facility. The Government continue to work hard in negotiations to try to ensure there is sufficient detail in primary legislation so that the proposals achieve their purpose.

Regarding the Commission’s proposal to extend the rules on market transparency to non-equity markets, the committee rightly notes that we must avoid a one-size-fits-all approach, as trading characteristics can differ significantly across asset classes. As the committee also observes, without proper understanding of these issues there could be an impact on liquidity and the cost of capital. The Government agree with both these points and continue to prioritise these issues in negotiations.

The proposals also increase transparency for so-called systematic internalisers. The Government believe that the systematic internaliser model has a role to play, but we acknowledge the committee’s comments that this category has not been heavily utilised and that some clarification of the purpose of the regime may be helpful.

As a consequence of recent technological advances in financial markets, the Commission has proposed new rules governing the operation of high-frequency trading. As the committee recommends, the Government’s position is that measures applied to algorithmic and high-frequency trading should be firmly grounded in evidence about its real impact. The Government note the welcome contribution that the Foresight report has made in this regard.

The Commission’s proposals also introduce an EU-wide third-country regime. This would harmonise the rules under which investment services can be provided by non-EU firms into the EU. Although we believe that there would be an economic rationale in extending the benefits of the single market to third-country firms, we fully agree with the committee’s comments on the global nature of financial markets. Our prime objective is to ensure that the UK, and indeed the entire EU, remains open to trade in financial services worldwide. The UK has worked hard in Council to amend the proposal and we believe that the current compromise will avoid the disadvantages and difficulties that the committee has identified.

While we support greater transparency in commodity markets, the Government agree with the committee that price volatility in these markets is dependent on a range of factors. In particular, in 2011, the G20 commodity study group was clear that fundamentals—in other words, supply and demand—have been driving commodity prices. The Commission’s proposed rules for commodity markets did not recognise this, placing undue emphasis on a particularly rigid regulatory regime. However, we are satisfied that the current compromise in Council provides for a suite of position management tools that will ensure that commodity derivatives markets are properly regulated throughout the EU.

Turning to the powers granted to ESMA under the MiFID review, the Government agree with the committee that ESMA has a strong coordinating role to play. However, it is important to ensure that powers assigned to EU agencies are in accordance with the treaties and relevant EU case law. The outcome of a legal challenge on certain powers conferred on ESMA in the regulation of short selling and certain aspects of credit default swaps will inform our long-term approach on this issue.

Finally, the Government believe that the Commission’s proposed measures to improve investor protection could be strengthened. However, there is considerable pressure from other member states to not implement an inducements ban at EU level. Therefore, the Government’s main objective in the remaining discussions is to ensure that the UK is still able to implement tougher measures domestically under the FSA’s retail distribution review.

The noble Viscount, Lord Brookeborough, talked about inducements. Our view is that the evidence suggests that inducements are being shown time and again to bias advice. Mis-selling, as we have seen many times in the UK, is an extremely serious issue and we must protect people against future scandals. It is relevant that research for the European Commission by Synovate suggests that as many as 57% of investment recommendations in Europe are unsuitable. We cannot ignore this very serious and ongoing issue.

I will say something about where we have got to in the negotiations. Our current expectation is that the Irish presidency will try to seek political agreement in May, although no firm schedule has yet been confirmed. There are still a few areas of outstanding disagreement. The main obstacles are the open access provisions, which Germany and a group of member states oppose, and the equity transparency regime, where France and some others want to see a uniform standard of transparency across all venues. On both these issues, the Government’s objective is to ensure that the regulatory framework does not impose unnecessary costs on the end users of financial services and supports growth in the real economy. We continue to work constructively on these high priority areas in Council, with the aim of reaching a compromise.

Questions were asked about the European Parliament and whether we are trying hard in both the Council and the Parliament. The Parliament compromise was agreed in September. As it stands, it is likely that the biggest difference between the Parliament and the Council will be the third-country regime. Although the Council has deleted much of the regime, Parliament has broadly opted to retain it, but with some positive amendments. However, in many other areas the Parliament and the Council texts are broadly aligned. We have been lobbying hard in Strasbourg and are working extremely hard in the Council to ensure that we get the best possible outcomes.

I turn to some of the broader comments which have been made. It is fair to say that they have occupied the bulk of this afternoon’s deliberations. There has been a lot of discussion about the financial transaction tax and where we are on it. The noble Lord, Lord Kerr, asked me six questions about that tax. As he knows, the proposals are relatively recent; some aspects of them are relatively unclear and the Treasury is, at the moment, analysing the proposals and seeking to understand them in greater detail.

[Lord Kerr of Kinlochard]

I have tremendous respect for the noble Lord, but that is the kind of answer we have been getting for a year on the financial transactions tax. The Council made a decision in January, with the UK—absurdly, in my view—abstaining. The point of principle is whether we agree that they may go ahead with levying a tax among 11 countries but requiring the rest of us, including the UK, to collect the tax for them and send it to them. Do we agree to damage our market? Do we agree that they have the right to do that? The key question is whether our interests are adversely affected. If so, they do not have the right to do it. Why did we abstain?

[Lord Newby]

We agree that they have the right to do it. The question which the noble Lord asked about whether this measure would damage the EU and the UK is not one to which there is a simple or straightforward answer. There are two completely different views about the impact of this tax on London. To a certain extent, we will not know, until it is implemented, which of these two views is correct. One view is that London will benefit significantly because we are out of it. If you look, for example, at what happened in Sweden, which had a transaction tax, the bond market collapsed totally and Sweden had to abolish it. If you take that view, a financial transaction tax is good for London.

Other people take a completely opposite view. The modalities of collecting the tax, and exactly how those will work, are clearly, from everything that the Commission has said, a work in progress. It is not, I believe, a unique suggestion within EU law and practice that member states will collect taxes that revert to other member states. I do not think it is a matter of principle; it will be a matter of practice and whether it is possible to put in place a practical solution.

[Lord Kerr of Kinlochard]

Surely, the complacent school of thought that says all the business will flow to the United Kingdom, others will damage themselves and we stand to gain, does not still exist in Whitehall. Surely, Whitehall has now persuaded itself that putting more grit in the cogs of the London financial markets is a bad thing, as is trying to persuade two American banks doing a transaction in London that, according to an instrument which originated in Germany, we should collect from both banks not for the British Exchequer but to send the money to the Germans. Surely, Whitehall has decided that that scenario is mad because the American banks will not trade in London if we apply this absurd regime. Surely, Whitehall is clear that we are approaching a crossroads and that we do not know which road to take. What are we going to do? Are we going to sit at the crossroads?

We have to decide what to do on the balance of the evidence. Surely, the balance of the evidence is overwhelming that this measure is a bad thing for the EU and a bad thing for the UK. Eleven countries do not agree, but I guess that 15 or 16 other countries do agree with us. Are we trying to construct an alliance with them or have we, as the noble Lord, Liddle, said, such a pariah status that we cannot construct an alliance? I do not believe that. I still think that this situation could be remedied. Are we going to go to law? We need legal advice on who is right. I believe that if we could be damaged by this measure, and the chances are that we will be, it is not permitted under the treaty. Therefore, I do not understand why we abstained and I do not understand why the Prime Minister was silent.

[Lord Newby]

My Lords, if I did not know the noble Lord better, that speech would seem to me to typify the attitude that gets us into difficulty. He asserts with absolute certainty that the French do not know what is best for them, the Germans do not know what is best for them and the other nine who have signed up to this tax do not know what is best for them as he believes that it will be very damaging.

[Lord Kerr of Kinlochard]

I am sure that none of my friends or none of the noble Lord’s friends would do this but it is just possible that some people in France would like to damage the London market.

[Lord Newby]

I am sure that some people in any country will want to do virtually anything, but the question I was addressing was whether the 11 countries that have signed up to this tax can be dismissed as not knowing what is best for them, even though we are deeply sceptical about it and are not going to sign up to it. We have had a number of debates in your Lordships’ House about Greece, for example, in which some noble Lords seem to have known what is best for Greece. It is just that the Greeks have not agreed. We have to let other member states move forward with this within the rules because they are keen to do so.

[Lord Hamilton of Epsom]

Does my noble friend accept that at one stage the Germans were very much against this proposal and then they changed their mind? Was it that they did not know what was best for them originally and then they did know subsequently, or did they get it the other way round?

[Lord Newby]

I think that my noble friend should ask them because I have not the faintest clue what was in their mind, but they have now formed a view. If the German Government have a settled view, even if I do not agree with it, I would not write it off as a mad one. I am sure that we will come back to the financial transaction tax, but it is not unreasonable to say that an extremely complicated tax using very difficult mechanisms to make it work should necessarily be capable of instant analysis in terms of how we are going to deal with it. We are looking at it. We have had the proposal for only a few weeks, and my right honourable friend Greg Clark, as the noble Lord, Lord Harrison, pointed out, is actually one of the better Ministers in any Government in terms of working with Parliament and, indeed, across the EU. I am sure that in due course he will come back with a full description of our response.

[Lord Kerr of Kinlochard]

I am testing the Minister’s patience, but we are now past the point where we can affect it. The only question remaining for us is whether we can overturn it. After the January ECOFIN it is now up to those who participated in it to devise the tax as they think is best for them. We cannot affect that, but we will be obliged to collect it. I am not clear what we are working hard on at the moment. What are we trying to do? We are not in the room any more. I would say that we ought to try to derail this exercise by going to law. We need to mount a legal challenge. We must create a political alliance and mount a legal challenge.

--- Later in debate ---

[Lord Newby]

My Lords, I am conscious of the time. Much as I would like to go on until eight o’clock on this subject, I think that we are going to have to return to it.

I shall turn to some of the other points that have been made in the debate. I would say to the noble Viscount, Lord Brookeborough, that one person’s harmonisation is another person’s single market rules. Sometimes harmonisation works very much to the benefit of the UK and sometimes it does not. We have to take this on a case-by-case basis, but let us remember that by common consent the single market has been very beneficial to the UK. If we can, we want to strengthen it even if, as inevitably will be the case, some of that strengthening includes common rules.

[Viscount Brookeborough]

I did not say that harmonisation was not a good thing, rather I looked at the way this tax is being brought forward. They were talking about harmonisation before they started raising the money. They did not like to talk about why they were raising the money and doing it only over a certain number of countries.

[Lord Newby]

I am grateful to the noble Viscount for that clarification. The noble Lord, Lord Kerr, asked about the benefit of the EU to the City as a whole, and both whether the Government recognise that and whether are doing anything to promote it. There is no doubt in my mind, having watched the Government in action, that they absolutely understand the role of the City and how having a strong financial services sector is immensely valuable to the UK and to the EU. The Government themselves are working very hard, as noble Lords have said, on this directive and others to make sure that we end up with proposals which are compatible with the ongoing success of the City.

One of the frustrations I felt before I was a Minister and which, to a lesser extent, I still feel, is that the City is not always its own best advocate. Although things have improved considerably with the formation of TheCityUK, and there is now a much wider recognition that the financial services sector needs to get its act together, as it were, to promote itself, there is still some way to go. Although the UK Government are active in the Council and in the European Parliament, they need the UK financial services sector to be independently active in those institutions as well. There was a period when a lot of senior people in the City felt so battered with the experience that they had following 2008 that they were not willing to put their heads above the parapet and make the arguments. I think that that phase is over, to a certain extent at least, and the Government are encouraging them very much to do that. I am very grateful to the noble Lord, Lord Kerr, for quoting Lord Thomson of Monifieth. He, of course, was from that great tradition of canny Scots who could fully understand the benefits of engaging with the EU.

I will make just two points before I finish in response to the noble Lord, Lord Liddle. First, he talked about asymmetries. There are a number of asymmetries. Looking at the future of this directive, we are talking about the possibility of making considerable progress while Ireland still has the presidency. However, the amount of financial services expertise which Lithuania is going to bring to the party in the second half of the year is relatively limited. It is a terrible burden on the officials and Ministers from small member states who have to grapple with what, by common consent and as anybody who has read the report knows, is an immensely technical subject. Virtually the only people other than members of your Lordships’ committee who understand it are the people who work in it every day. The truth is that there are not many of them in small member states, which is an asymmetry. Clearly, there is also an asymmetry between the Commission and the UK. There is one asymmetry that we can benefit from by using our expertise. I was extremely interested that, despite the fact that we are not in the euro, a group of Treasury officials went to Cyprus at the weekend in order to help sort out that problem. It will be very interesting when they get back to see what they have learnt from it.

The final point is about how we exercise influence in an environment where we are not part of the euro-in group. In my view, the model—which I have seen in operation—is that adopted by my colleague in another place, Ed Davey, when he was in BIS, who established something called the “like-minded growth group” for promoting the single market. At every point, Mr Davey carried in his pocket a little laminated piece of paper which showed the voting strength of every member of the 27, and he was forever working out how you got that qualified majority or majority. He worked very hard, and succeeded, at getting a majority of member states, both euro-ins and euro-outs, to co-operate to promote the single market. That is a model that I think is still pursued within BIS. We have got to, as the noble Lord, Lord Kerr, said, be very active working out where we can form alliances, which we can do on many things. One of the ironies about the current financial circumstances is that we, as a euro-out, have much more in common with some of the northern European countries that are trying to impose fiscal discipline. For good or ill, we are now something of an expert on that in this country and we need to make the most of it. There are no permanent alliances; you have to rebuild and refresh them. One of the challenges for the Government—or any Government—is to do that as best they may.

Finally, reverting to the splendid report that we have been discussing this afternoon, the Government welcome it and agree with all the points it raises. We accept, as I have attempted to explain, that the devil is in the detail. The Government will continue to negotiate carefully so that MiFID II does, indeed, get it right for the City and, most importantly, for the users of financial services.

Welfare Benefits Up-rating Bill

Lord Newby Excerpts

Monday 25th March 2013 Lords Chamber

[Lord Newby]

My Lords, this amendment would require the Government to produce revised costings of this policy annually. I fully understand the inflation risk about which the noble Lord, Lord Kirkwood, is concerned. However, as I said last week, while I share his concerns about measuring the impact of government policies, I believe that additional reports on the Bill are simply not necessary. As I said last week, the Government already have comprehensive arrangements in place to report on the impacts of government policy. We publish impact assessments of every Bill, including the Exchequer impacts. These are based on the OBR forecasts available at the time.

At Budget, we publish an updated account of the Exchequer impact of any government policy that has changed due to modelling or forecast changes and has not yet been implemented. The DWP publishes benefit rates and expenditure tables of all its benefits, and we produce analysis of the cumulative impact of government policies on changes to households across the income distribution at every major fiscal event. This analysis will use updated inflation projections and will look at the cumulative impacts of all changes, rather than artificially isolating just one policy. These mechanisms go further than any Government have gone before in increasing transparency and enabling the effective scrutiny of policy-making.

Since we previously debated this matter, we have had a Budget. As the noble Lord, Lord Kirkwood, said, at Budget last week the OBR revised its forecasts for inflation slightly upwards. The forecasts increased by 0.3 percentage points for the purpose of uprating in 2014-15, and by 0.1 percentage points in 2015-16. As I said last week, it was always a possibility that the forecasts would change. Similarly, they can change again at the Autumn Statement, and again at Budget 2014. These forecasts could go up as well as down. However, Governments must make decisions based on the best forecasts available at the time. The OBR’s forecast at the Autumn Statement showed that while inflation is forecast to be above 2% in the near term, it is then forecast to fall back towards the target in the medium term. This has not changed. As I set out last week, the OBR is not alone in taking this view. The IMF, the OECD and the Bank of England all show inflation falling back to target in the medium term. Nor has the inflation target changed: it remains at 2%.

One thing that has changed since we were last in this House is the Budget announcement on public sector pay. The Budget announced that public sector pay awards will be limited to an average of up to 1% in 2015-16. This will be on top of four years of pay being either frozen or capped at 1%, which included the period when inflation was at 5.2%, far above the forecasts for the periods covered in the Bill. This is not a justification for the Bill, but it is a reminder that people face inflation risk in everyday life. The decision that the public sector should continue to face a further year of pay restraint was a difficult, but necessary, decision to support fiscal consolidation.

It is against this background that I repeat what I have said many times on the Bill: that this Government do not take decisions to find savings from welfare lightly. However, this Bill is necessary to make vital savings from welfare, to help reduce the deficit and to restore economic recovery. The Government have set out their plans for spending in advance to give confidence to the markets that we are taking the necessary tough decisions. We can do that only by using the best forecasts available at the time. These forecasts have changed, but they continue to show inflation falling back to target in the medium term. I hope I have reassured the noble Lord that the amendment is simply not necessary, and I beg him to withdraw it.

[Lord Kirkwood of Kirkhope]

My Lords, the House has a busy schedule for the rest of the day and, as I said earlier, I am happy to withdraw the amendment. I am grateful to colleagues who have contributed. We are all of the same mind that we need to be very careful and monitor the consequences of these Bills. The noble Lord, Lord King, is correct that the Treasury does that annually, but I will make it my own business to make sure that working-age, low-income families do not suffer more than the Government feel they will in the course of the next five years as a result of this Bill. I beg leave to withdraw the amendment.