Eurozone Crisis

Lord Newby Excerpts

Thursday 27th October 2011 Lords Chamber

[Lord Newby]

Reverting to a question raised by the noble Lord, Lord Liddle, and the IMF, the Chancellor very helpfully pointed out in the Statement:

“Let us remember that support for the IMF does not add to our debt or deficit, and that no one who has ever provided money to the IMF has ever lost that money”.

Why, therefore, does he go on to say,

“But the IMF cannot put its own resources in—it can only lend to countries with a programme for adjustment”,

not least because I thought all the countries that we were talking about had a programme for adjustment? I cannot see why the Government are so averse to involving the IMF, particularly given that the eurozone Ministers are very keen to work with the IMF. Secondly, I ask specifically about tax co-ordination. The European statement says:

“Pragmatic coordination of tax policies in the euro area is a necessary element of stronger economic policy coordination … Legislative work on the Commission proposals for a Common Consolidated Corporate Tax Base and for a Financial Transaction Tax is ongoing”.

The implication is that the eurozone countries are considering imposing those taxes themselves. Is it the Minister’s understanding that they will be in a position to impose those taxes and that common tax base—with the UK out, under the outs—and, if they did that, what would be the Government’s attitude towards it?

[Lord Sassoon]

My Lords, first, I shall try to clear up what I think is a small confusion in relation to what the IMF can or cannot do under its own rules and what we would be prepared to be part of or not part of. Of course, the IMF is involved directly in the Greek package, as it is with two other packages within the eurozone. So three programmes out of the 53 in which the IMF is currently involved are indeed eurozone ones and that is perfectly proper and we support the IMF’s commitment in adjustment programmes of that kind. We would not support the IMF participating in some special purpose vehicle fund, but I do not believe that it has the ability to do that anyway and the UK certainly will not be involved in that. If China and other countries want to be involved, that is fine and that is their decision, but we will not be involved and we will not support any IMF involvement in that route. We will support the IMF's involvement in country adjustment programmes, such as it has done throughout its history. That is what the IMF is there for. There may be some confusion on that.

On tax co-ordination, first, the UK Government stick strictly to their position that we believe that taxation is, and should remain, a matter of national competency. It is up to the eurozone if it wants to propose some different arrangements within the eurozone consistent with the need for greater fiscal co-ordination in it. On the one specific proposal that has come forward so far—the financial transaction tax—first, we have said that there may be some basis for such a tax but only where it is globally applicable because if it is applied in Europe it will simply drive business away from Europe and, critically, away from the City of London, and that makes no sense. Secondly, in bringing forward that proposal the Commission was completely clear that the article under which it comes forward is one on which unanimity is required and therefore QMV could not force us into it.

Financial Services and Markets Act 2000 (Exemption) (Amendment No. 2) Order 2011

Lord Newby Excerpts

Monday 17th October 2011 Grand Committee

[Lord Eatwell]

Perhaps, if the Minister would allow me, we can clarify this matter. In the consultation document on the FSA website, the first question is:

“Do you agree with the proposed legislative measures outlined in chapter 3?”.

The order before us today is included in Chapter 3. Does the Minister know the answer to that question from the people of Northern Ireland?

[Lord Newby]

My Lords—

[The Deputy Chairman of Committees (Baroness McIntosh of Hudnall)]

My Lords, I believe that the Minister has not yet finished the speech he wishes to make in order to put the Motion. We must first put the Motion before it can be discussed, so we must wait until he is ready to say that he wishes to put it.

--- Later in debate ---

[Lord Eatwell]

My Lords, I put a question to the noble Lord, which he has not answered, regarding the response of the people of Northern Ireland to the question about whether they agree with the order. On this side of the Committee we are entirely supportive of the objectives of the order. That is not the point that I am raising. My point is that the Merits Committee wrote to the Treasury on 13 October, reminding it to ensure that the summary of this draft instrument was available before the debate in the House. I have not been able to find a summary of the consultation on this draft instrument. Without the reactions of the people of Northern Ireland, who are closely and greatly involved in credit unions, as the Minister pointed out, it is very difficult to offer the order proper scrutiny. Therefore, I cannot continue, other than to say that it would be appropriate for the Treasury to ensure that relevant consultation material is published, as the Merits Committee requires, prior to consideration of draft legislation by the Committee.

[Lord Newby]

My Lords, there seems to be a muddle over the consultation. The Explanatory Memorandum said that the summary of responses to the March 2010 consultation will be published shortly. I think the Minister said that it was published today. I do not know when the March 2010 consultation formally finished, but it was presumably quite a long time ago. It is indeed unsatisfactory that we do not have the results of that consultation.

However, I think it is appropriate to look at what the order says. It is an extraordinarily short order, and it says nothing, as the Minister said, about the detail of how this change will be effected. All it says is that the change will be effected and that Northern Irish credit unions will be brought under the ambit of the FSA. I do not know, but I would be surprised if there was a single, solitary soul in Northern Ireland who would oppose that change, particularly if they look at what has been happening south of the border in recent weeks. Only a couple of weeks ago, the Irish Finance Minister was called upon to inject €1 billion into the credit union sector south of the border, because many of those credit unions—and we are talking about a sector that is as predominant as it is north of the border—found themselves, as a result of rising unemployment and declining income, in some difficulties. Of the 407 credit unions in the Republic of Ireland, some 79 are now in need of this injection of capital. It seems likely not only that that will need to happen but that there will have to be some consolidation in the sector and smaller credit unions will need to merge.

My question to the Minister is, in a completely different sense to that of the noble Lord, Lord Eatwell, why it has taken the Government so long to bring this legislation forward, given that the majority of the population of Northern Ireland would be affected if their credit union got into difficulty. Even if we approve this order in due course, it does not come into effect until 31 March next year. My question to the Minister was going to be, and remains, whether he has any evidence that the travails that afflict the Republic of Ireland credit union sector are spreading north. Does he envisage that any individual credit unions north of the border will get into difficulties over the coming weeks and months? In the absence of any covering FSA jurisdiction, what would the Government’s response be were they to find themselves in the same position of the Government south of the border, where a significant number—in their case about 15 per cent of credit unions—required short-term capital support?

[Lord Myners]

My Lords, I broadly welcome the intention of this order, but I find myself wanting to ask the Minister why it has taken such a long time to bring it forward when it was self-evident that it was necessary and had been agreed by the previous Government and endorsed by the coalition parties when previously discussed. It seems lamentable that the Government have allowed the situation to go on for as long as it has without taking any necessary action.

When it comes to this particular order, we do not have sight of the evidence that we were assured would be available to us in informing our discussion and agreement. What harm would be done if the Government withdrew the order and brought it back after we have had an opportunity to consider the evidence that is so clearly necessary to inform our decision on this matter? It simply cannot be acceptable that the evidence has been published only this morning. As far as I am aware, no effort has been made to make it available to those who are likely to attend this session and discuss this matter. That is an inexcusable failure by the Minister and the Treasury, for which the Minister owes us a full and proper account. The right approach would be to withdraw this order until we have had adequate opportunity to discuss the evidence.

In the mean time, I support the question that the noble Lord, Lord Newby, asked. Can the Minister give us clarity, given that the Government have been so slow in bringing this matter forward, as to the position of people with accounts and business relationships with Northern Ireland credit unions that have experienced difficulty? Do the Government stand behind them until such time as the Financial Services Compensation Scheme becomes an eligible right of those with relationships with credit unions? Will the Minister also assure us that to the best of the knowledge of the Treasury and the FSA credit unions are not currently offering products in Northern Ireland to which they are not entitled by virtue of their authorities? The Minister at the end of his speech listed some of the products that credit unions would be able to offer once this order was implemented, but which they are not currently able to.

Finally—I ask this having dealt with these matters myself—can the Minister tell us whether any further action is intended with respect of the failure of the Presbyterian Mutual Society, and in particular the directors?

Banking: Quantitative Easing

Lord Newby Excerpts

Monday 10th October 2011 Lords Chamber

[Lord Sassoon]

My Lords, we have a portfolio of banks which the Government either wholly or partly own. The Question was about Lloyds and RBS, but we also, as the noble Lord well knows, own Northern Rock and Bradford and Bingley. It is within the mandate of UKFI, which was set down by the previous Government, of whom the noble Lord was a member, to have responsibility to seek over time to realise value from the banks. That is precisely what it is exploring in the context of Northern Rock. It is following the noble Lord’s policy.

[Lord Newby]

My Lords, given the downgrading by Moody's last week of the credit rating of a number of British banks, do the Government think that they will have to recapitalise RBS and Lloyds?

[Lord Sassoon]

My Lords, the downgrading by Moody's last week was long expected by the markets. It is largely a reflection of the fact that under the Vickers proposals—the independent commission's proposals—there will be a different relationship between the banks and the taxpayer: the taxpayer will not be on the hook for the banking system in the way that it was. As a result, as expected, Moody's changed the ratings on a number of banks. Equally, it made it clear that that was not a reflection on the well capitalised state of the UK banking system. The UK banks continue, as Moody's and others have said, to be in a more robust state to withstand shocks from the eurozone than banks on the continent of Europe.

Economy: Capital Expenditure

Lord Newby Excerpts

Tuesday 4th October 2011 Lords Chamber

[Lord Sassoon]

It will not surprise the noble Lord if I completely disagree with that. The state of the economy today is largely a result of the debt-fuelled boom with its unregulated banks that was allowed to go on for 10 years and more under the previous Government. We have inherited a dire situation and the first thing we have to do is to get the deficit under control. That we are doing but within that, as I have explained, one of things we are prioritising is infrastructure expenditure.

[Lord Newby]

My Lords, if we are to increase infrastructure expenditure it is clear that a lot of that funding is going to have to come from the private sector, as the noble Lord has already said. Given that, can he confirm reports in the press last week that the Treasury is actively considering new structures that would encourage pension funds and other institutional investors to invest a lot more in infrastructure in the UK than they have in recent decades?

[Lord Sassoon]

I am happy to assure my noble friend that we are thinking of every avenue to unlock flows of funds, whether they are from institutions in this country or abroad. I was in Canada two weeks ago, where some of the longest-term and largest investors in our infrastructure are based. We talk to investors all the time to see what more, if anything, they need from government to facilitate that flow of investment.

Sovereign Grant Bill

Lord Newby Excerpts

Monday 3rd October 2011 Lords Chamber

[Lord Newby]

My Lords, the briefing circulated in respect of the Bill said that debates in your Lordships’ House on the funding of the Royal Household tended to be brief. When I see the formidable array of experience on all matters royal on the Benches opposite me, I am tempted to be even briefer than I might otherwise have been.

The first question to be raised in any debate on royal finances going into the future is whether the level of funding proposed is broadly in the right ballpark. I suspect that if you told most people in the UK that they were paying, in effect, a penny a week to fund the Royal Household, they would think that they were getting exceptional value for money. It might be virtually the only area where people might almost voluntarily be prepared to pay marginally more. It is a remarkable achievement to run an institution such as the monarchy at a penny a week per head. The fact that the real cost of running the monarchy has fallen by more than 50 per cent over the past 20 years is another remarkable achievement that many other outposts of government would do exceptionally well to emulate. In terms of the quanta and whether the country will believe that the amount of money currently spent on the Royal Household is in the right area, I doubt whether there is more than a very small minority of people who would question that.

My next question is whether this extremely elegant way of funding the Royal Household into the future is likely to be sustainable in the longer term. Given the current incumbent of the monarchy and her heirs and successors, and the extent to which they have been taken to the heart of the nation in various forms, we are looking at an institution which, to the extent that one can predict anything, looks set fair for the next 60 years. Therefore, any long-term funding mechanism has to be capable of being sustained over the long term. The great advantage of the Crown Estate as a method of calculating the income of the Royal Household is that it is a very sustainable long-term operation, and it is easy to see why the Crown Estate will be around in 60 years. That choice of mechanism is very sensible.

The noble Baroness, Lady Royall, raised the question of what happens if the income from the Crown Estate changes beyond what was expected and there seems to be some suggestion that in certain circumstances it could rise significantly. The Bill seeks to deal with that by having a five-year review and a clawback if the sovereign reserve increases. One is tempted to think that the keeper of the Privy Purse will have up his sleeve a whole series of refurbishment and other measures that could be reeled out in any particular year if it looks as though significant increases occur in Crown Estate profits that had not been anticipated. Perhaps it is not too ungenerous to think that the monarchy should benefit from an increase in the profitability of the Crown Estate, because it has given up income from the Crown Estate for 250 years. However, the more serious point is that there could be circumstances in which, over a period of two, three or four years, the monarchy could receive a significantly greater income than was envisaged. This will not necessarily go into the sovereign reserve: therefore, the clawback powers will not necessarily obtain. There is nothing in the Bill to stop that. Are the Government content that, at a time when Crown Estate profits might rise exponentially, or at least very significantly, the Royal Household should have the ability to spend significantly more over a two or three-year period before any review takes place?

In another place, my colleague John Thurso asked why the Crown Estate was getting income from offshore renewable energy. It seems slightly odd that the income of the royal family should depend on the number of wind farms that will be constructed off the coast of Scotland. Might there be an opportunity at some future point to discuss this rather odd aspect of the income of the Crown Estate and whether, given that the income is likely to increase significantly, it might be possible to use it—as my noble friend in another place suggested—to support those communities nearest to the wind, as it were, or more generally to support renewable energy? That is a debate for another day. In the mean time, like the noble Baroness, I support the measure.

Independent Commission on Banking

Lord Newby Excerpts

Monday 12th September 2011 Lords Chamber

[Lord Newby]

My Lords, on these Benches we welcome the report and the Government’s response to it. We also welcome the degree of urgency with which the noble Lord, Lord Davies of Oldham, wishes the report to be implemented, not least because some of us had to put up with withering scorn from the Labour Benches during the previous Parliament when we suggested exactly the proposals that are now in this report.

The report says that while the full implementation of the proposals might take a number of years, there is much to be gained by moving quickly to set the framework in place so that the banks know what they are up against. The Minister has already mentioned that the Government will look at the extent to which the financial services Bill might be a vehicle for doing that. As we now have a Joint Select Committee on the Bill, of which I have the privilege to be a member under the chairmanship of Peter Lilley MP, would he accept that this offers Parliament a golden opportunity to take evidence quickly on the principal issues that the Vickers report raises and to move with some determination? I am sure that the vast bulk of rule-making that will be required to implement this series of proposals will not need primary legislation but will need FSA regulation or secondary regulation, and that the legislative framework in primary legislation should be relatively short and straightforward.

[Lord Sassoon]

I am very grateful to my noble friend. We will work as hard and as fast as we can now to take forward consideration of the detail. As I have stressed, we have accepted the recommendations of the report in principle, but there is a lot of potential devil in the detail and we need to do a full cost-benefit assessment. Indeed, we need to work through what would be appropriate to introduce into the financial services Bill and what would need a stand-alone Bill. I have no idea how the committee may want to proceed, but it now has the Vickers report in front of it and we will get on with sorting out all these issues as quickly as possible. However, we should not underestimate the amount of work for officials and the amount of consultation needed to get the detail right.

Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2011

Lord Newby Excerpts

Wednesday 7th September 2011 Grand Committee

[Lord De Mauley]

My Lords, the purpose of this order is to ensure that the regulation of the sale and rent-back market will operate as originally intended and deliver appropriate consumer protections. To set it in context, I hope that your Lordships will allow me to give a little background on the sale and rent-back market.

These schemes allow consumers to sell their property to a public or private sector organisation and then rent it back. This allows a consumer to stay in his or her own home and avoid the distress and expense of repossession. In 2008, the Office of Fair Trading published a study of the market. It found that it was not working well for consumers and recommended that the Treasury should introduce regulation by the Financial Services Authority. This was deemed necessary because the sale and rent-back market suffers from an imbalance in the relationship between those consumers considering taking up a sale and rent-back agreement and those selling the schemes.

Sale and rent-back agreements are extremely complex contracts. The OFT study showed that consumers entering into these agreements are often vulnerable people with low levels of financial understanding. They are often already in debt and believe that their financial situation is out of control. They are unlikely to seek independent financial advice, probably because they do not know where to go. Conversely, the sellers of sale and rent-back agreements are professional salespeople, who in some cases may also play on the emotional aspects of a sale and rent-back agreement—for example, the consumer’s attachment to the family home. This results in two significant impacts on the consumer. First, there is financial loss to the consumer through a distressed sale. Evidence suggests that most sale and rent-back providers pay between 70 per cent and 90 per cent of the market value of the property. Secondly, there is a lack of security over tenure for the consumer, who may believe that they cannot ever be evicted from their home, whereas in reality, many consumers suffer rising rents or, indeed, eviction.

Following the OFT study, an interim system of FSA regulation was introduced in July 2009. This was replaced by a full regime in June 2010. Today’s order amends the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 to make clear that any provider of a sale and rent-back agreement, unless they are closely related to the consumer, will be regarded as doing so by way of business and will therefore need to be FSA-regulated.

Currently, the FSA’s regulation captures only those firms that meet the strict “by way of business” test. That test is intended to include firms who carry out the specified activity as a business arrangement but exclude those who carry it out for other purposes, such as arrangements with immediate family members. However, some providers have misunderstood whether they are entering into a regulated activity, while others, dare I say it, have chosen to interpret the rules such that they are not acting by way of business and thereby have avoided FSA regulation

The order clarifies the position. Everyone who enters into a sale and rent-back agreement, unless they are closely related to the consumer, will be regarded as doing so by way of business and will therefore need to be FSA-regulated. About 80 per cent of sale and rent-back transactions are still taking place outside regulation, despite the intention of the original regime, so the sale and rent-back market continues to generate a high level of consumer concern. In the 12 months from April 2010 to March 2011, citizens advice bureaux received more than 1,000 inquiries about sale and rent-back providers. In March this year, a report by Which? highlighted cases where a number of firms were acting outside FSA regulation. In July this year, there was an investigation by Channel 4’s “Dispatches” into sale and rent-back providers. Citizens Advice, Shelter and Which? have all publicly supported the Government’s work to address this genuine gap in the regulatory architecture and make it clear to providers when they are acting by way of business.

The costs and benefits of the order were set out in the impact assessment. The order will ensure that FSA regulation of sale and rent-back agreements operates as originally intended, when the costs were expected to be incurred at the time of the original legislation. The benefits of the order will be felt by those individuals who sell and rent back in their houses through fairer sale prices and fairer tenancy agreements. The FSA’s regulation of the sale and rent-back market attempts to address those issues through, for example, pre-sales disclosure and rules on terms and conditions of tenancy agreements.

The option for a consumer to avoid repossession and have the choice to enter into a sale and rent-back arrangement, and remain in his home when it is financially viable to do so, is important, but it is equally important that appropriate consumer protection is in place. The order is scheduled for debate in another place next week.

I hope that I have reassured your Lordships that the order merely clarifies the intent of previous efforts to address issues in that market and that the Committee will therefore give its support.

[Lord Newby]

My Lords, in view of the statement by the Deputy Chairman at the start of our proceedings about about the photographer, I am now tempted to give a 45-minute speech just to make sure that I get my picture taken in action to prove that I do things in your Lordships’ House other than turn up. However, I probably will not.

I am extremely grateful to the Minister for his introduction to the order, because it filled out the information in the Explanatory Memorandum. The phrase “sale and rent-back” is new to me; I am used to the phrase “sale and lease-back”. My first question relates to that terminology: is there a difference in law between sale and rent-back and sale and lease-back? When I think of sale and lease-back, I have commercial activity in mind. I remember that Tesco was notoriously involved in sale and lease-back of properties via the Cayman Islands a few years ago. I wondered whether this regulation meant that commercial companies involved in those kinds of deals on commercial properties are now brought into the legislative net, or whether the phrase “sale and lease-back” is already recognised in law. If I decided that I wanted to buy a Tesco store and lease it back to them, would I be covered by something that already exists or would this newly apply to me?

My other questions relates to Article 6 about the sunset clause. Within a year, more or less, of this provision coming into force a report has to be produced on how effective it has been. Presumably, the intention is that between then and 2015, if the report suggests that it has been effective, a subsequent order will be made, which no doubt will cover lots of other things as well but would continue this provision. I cannot remember, from when the Financial Services and Markets Act was going through, how this sunset provisions worked. If, as I suspect, we would expect a successor order to this one to be introduced before 1 January 2015, how long would that last for? Is this a rolling series of orders that have to be renewed every five or 10 years? Subject to that, this seems to be a sensible additional component in the consumer protection framework.

[Lord Davies of Oldham]

My Lords, I am somewhat shocked that the noble Lord, Lord Newby, feared that our proceedings might be concluded before the photographer arrives; I have my customary one-hour speech on a statutory instrument, so there is no call for anxiety on that front.

I thank the Minister for both the clear way in which he presented the issues around the SI, and for the sympathetic way in which he addressed himself to those who may be involved in this exercise by being forced by financial circumstances to engage in this operation. As he rightly says, there is an obvious imbalance between the professional service of those who provide the resources and seek to strike the agreement and the householder who most often is already entering into these arrangements through fairly dire financial circumstances. As the Minister accurately said, they are unlikely to think of recourse to financial advice or even to be able to afford it anyway, even if they thought it was a good idea.

This is consumer protection legislation, after all, and we are at one with the Government in seeking to enhance it, particularly as it is derivative from the 2009 Act passed by the previous Labour Administration. However, I ask the Minister to address himself to several points. First, because the order follows reasonably quickly from its predecessor, it is suggested that there was no need for further consultation. On the whole, all such SIs of this kind, prepared by the Treasury and other government departments, should be subject to consultation beforehand. After all, the previous consultation took place against different terms from this order. I am therefore somewhat surprised that no consultation took place specifically on this order.

Secondly, will the Minister address himself to the important point that the noble Lord, Lord Newby, expressed? I am sure that the Committee will be grateful for the clarification—and, I hope, confirmation—that the Minister will be able to give about the nature of the rent position regarding the law and this order.

Public Expenditure: Deficit Reduction

Lord Newby Excerpts

Tuesday 6th September 2011 Lords Chamber

[Lord Sassoon]

I am not quite sure who should admit what they got wrong, but the former Chancellor, Alistair Darling, made a complete mea culpa when he said, “We got it totally wrong, raising national insurance and putting a tax on jobs”. He said that there was no credible economic policy at the last election, which is why Labour lost.

We have introduced a policy that is on track to get the economy growing. It is the underpinning of the economy by a clear fiscal plan on which we can build. The Chancellor and the Prime Minister are working very hard on the growth of the economy, which is founded on the stabilisation of the deficit that we inherited.

[Lord Newby]

My Lords—

[Lord Bilimoria]

My Lords—

--- Later in debate ---

[Lord Sassoon]

To generate growth the Government are, first—in answer to the charge on tax—lowering tax in critical areas, such as corporation tax, by increasing the tax allowances for those starting new businesses through, for example, the EIS scheme. We are insisting on a much cheaper and simpler planning system than the one which has been holding back business investment in this country for the past 50 years. We are also significantly increasing the number of apprenticeships—by 250,000 places compared to the previous Government’s plans over the spending review period. I could go on but we need time for other questions. We are working fundamentally on the growth agenda.

[Lord Newby]

My Lords, does the Minister agree that one of the keys to growth will be increased expenditure on infrastructure? It does not bring growth of itself but in the short term it brings many more jobs. When do the Government intend to bring forward the legislation to introduce the green investment bank, and when does the Minister expect that bank to make its first loans?

[Lord Sassoon]

I completely agree with my noble friend that capital and infrastructure expenditure is one of the keys to growth, which is why we were able in the spending review last year to increase the plans that we inherited—to increase, I say again, the spending plans that we inherited from the previous Government —by up to £2.3 billion a year. That is an additional £8.5 billion on capital expenditure in the review period. I therefore agree with my noble friend. As for the green investment bank, it is on course to start the first phase of operation in April 2012. Legislation will be brought forward as soon as the state aid approvals have been forthcoming from Brussels.

Living Standards

Lord Newby Excerpts

Monday 5th September 2011 Lords Chamber

[Lord Sassoon]

My Lords, I declare an interest as a former member of the advisory board of the Resolution Foundation, whose work I very much admire. The report talks about wages before the effects of tax and benefits. Indeed, the noble Baroness is right that about two-thirds of the effect which it identifies results from growing wage inequality. However, it is interesting that the report’s tables point out that, at one extreme, the wage inequality results in those within financial services on the 90th percentile of earnings earning 6.2 times the amount earned by somebody on the 10th percentile, whereas in manufacturing the differential is only 3.3 times and has hardly changed over the past decade. Therefore, we need to see a much better balanced economy; balanced growth is what we want to see. In the previous decade, manufacturing’s contribution to the economy halved and that of financial services increased very significantly. The starting point has to be a more balanced growth in the economy.

[Lord Newby]

My Lords, does the Minister agree that one of the findings of the report is that the increase in taxes, particularly national insurance contributions, among lower income wage earners was a contributory factor to the growing inequality? Does he therefore agree that the decision taken by the Government on the national insurance contribution threshold and the decision to increase the income tax threshold will go some way towards addressing the problem which the report mentions? Does he agree that the Government should proceed quickly to increase the income tax threshold in particular as quickly as possible?

[Lord Sassoon]

Indeed, I agree with the points that my noble friend makes. The Government are working on other initiatives to help address this problem, such as driving through the entire package of tax and welfare reforms, introducing the universal credit from 2013-14 and making it pay to work. It is a terrible state of affairs that everything earned by a lone parent who works part time for 10 hours a week is immediately taken off that person through changes to their tax and benefit. Therefore, the introduction of the universal credit and driving through our reforms to tax and welfare are critical to making inroads into this problem.

Finance (No. 3) Bill

Lord Newby Excerpts

Monday 18th July 2011 Lords Chamber

[Lord Newby]

My Lords, it is always a great pleasure to follow the noble Lord, Lord Myners, particularly when he has just misled the House with regard to my surname. I am afraid that the noble Baroness, Lady Noakes, will not speak to me for a month. It is also a great pleasure to hear him speak again so eloquently from the Dispatch Box.

These are clearly extremely nervous times for the economy. Growth is very low at best, business confidence is poor and inflation is relatively high and squeezing real incomes, so it is not surprising that we hear many voices, including that of the noble Lord, Lord Myners, calling on the Government in effect to throw caution to the winds, abandon their deficit reduction plan and stimulate the economy by some combination of tax cuts and greater public expenditure. It is very tempting, but with a couple of relatively minor exceptions to which I shall come later, I think that such a policy would be misguided. There are a number of reasons why growth is disappointing, but the Government’s fiscal policy changes are at most only one of many reasons. Imported inflation via commodity and food prices clearly is one, so is a nervousness by the banks and businesses to lend and invest, brought about in considerable measure by international events, particularly in Europe. How can the noble Lord, Lord Myners, even in a time-limited speech of a mere 15 minutes, not mention Europe once? It is as if the Labour Party is unable to see across the channel at what is happening there; namely, the largest financial and fiscal crisis that Europe has seen since the Second World War. Banks here are concerned about what is happening in Europe, members of the eurozone or no, because their direct liabilities are some £20 billion to bonds issued by the weaker, and potentially defaulting, eurozone countries, and their broader liabilities, via interlinked banks, are much greater. Therefore, they are extraordinarily worried about what is happening there and that is affecting what they are doing.

Businesses for which Europe is the single biggest export market are also not surprisingly nervous about what they see across the channel. At the same time, consumers who are faced with higher than expected inflation and very tightly constrained income rises are seeing their real income falling, so it is not surprising that there is a tendency on all sides for people to sit on their hands and not make that investment, take on that additional staff member or buy that new car or television.

In this situation, what should the Government do? In an era when credit-rating agencies appear to hold the fate of economies and Governments in their hands, it would surely be foolish to throw away the credibility that the Government currently enjoy by tearing up the deficit reduction plan. It would also be foolish in the light of the recent Office for Budget Responsibility report, which shows that the longer-term prospects for our fiscal position, given an aging population, are extremely challenging. The idea that if we can only deal with the current crisis, we will somehow reach a sunlit upland where funds would flow into the Treasury and all would be well, is belied by last week’s report. The truth is that we face a long-term challenge in raising the taxes we require to fund the public services that people want. Spending more now, as the Government plan to do, would make the task of dealing with that longer-term situation even worse. Indeed, although the noble Lord, Lord Myners, does not seem to acknowledge this, in the other place the Opposition seem to recognise, at least in part, that they had better be careful what they do. They had three opportunities to vote against the VAT increase, and three times they sat on their hands. Could it be that despite the rhetoric and all appearances to the contrary, Mr Balls knows the true cost of fiscal recklessness?

If growth comes in lower than the Government have predicted, as seems likely, I do hope that, as the Chancellor has indicated, there will not be further tightening of fiscal policy. A hair-shirt approach, beyond what we already have, would be unnecessary. However, if I am not advocating a plan B, then what do I think might be done to promote confidence and growth? I would like to make three specific suggestions to the Minister.

First, we currently have a national insurance holiday for staff taken on in new businesses. This should be extended to all micro-businesses. The number of new businesses being established is much less than the projections in the Government’s plans, and so it would be possible to extend that scheme, and give confidence to small businesses, within the existing planned expenditure envelope. Secondly, the Government should investigate the costs and benefits of reducing VAT on refurbishments, from the current level to 5 per cent. This is a long-standing policy on these Benches, but now, when we have simultaneously a housing crisis and a crisis in the construction industry, it requires further investigation. Finally—a King Charles’ head of mine—the Government should bring forward the point at which the green investment bank can borrow. In an emergency situation, accounting rules should not stand in the way to prevent that happening.

In the short time available I would like to make two comments on the very impressive report from the Select Committee. First, I am extremely concerned about the ongoing problem between HMRC and HMT on tax policy. The report says:

“There appears to be a severe, and worrying, disconnect between the perceptions of HMT and HMRC and those of their customers about how well the policy partnership between the two departments is working”.

We have real cause for concern. I find the arguments made by the Treasury officials completely unconvincing.

Finally, the report talks about enhancing the role of the committee in the scrutiny of tax legislation. With the new approach to tax legislation, under which you have a draft Finance Bill, there is plenty of scope for this committee of your Lordships’ House to undertake a serious piece of work, at that point, so that the committee does not have to do all its valuable work in such a short period, as it currently does. It could get started a lot earlier on, and I think its role would be enhanced, which would benefit the administration of our tax system.