Monetary Policy Committee

Lord Newby Excerpts

Wednesday 6th July 2011 Lords Chamber

[Lord Newby]

My Lords—

[Lord Maples]

My Lords—

[Lord Strathclyde]

My Lords, we have time for both noble Lords. We can have the noble Lord, Lord Newby, and then the noble Lord, Lord Maples.

[Lord Newby]

My Lords, does the noble Lord agree that at a time when real incomes are falling, if the Bank of England Monetary Policy Committee were to raise interest rates now the principal effect would simply be to reduce growth and increase unemployment?

[Lord Sassoon]

Yes, I completely agree with my noble friend.

Banking: Lloyds and RBS Shares

Lord Newby Excerpts

Thursday 30th June 2011 Lords Chamber

[Lord Sassoon]

My Lords, I do not know what constitutes language that is not permissible in this House but I do not accept one iota of that analysis. The reason why we have an enormous monetary stimulus through the interest rates—last night, 10 years were at 3.33 per cent—is precisely because we are sticking to the plan to reduce the deficit. Otherwise nothing else would be possible in terms of growth for the economy. Indeed, one of the potential downsides of handing shares out free is that it would have a negative effect on the public finances, which is one of the issues that must be considered.

[Lord Newby]

Would the Minister accept that technology has moved on since 1979 and whatever might have been in the papers at the time in terms of doing something then is wholly irrelevant to the costs of doing something today? Can he see the strength of the argument that once the Treasury has its money back, best value for the British people might best be served by giving them some cash in their pockets to decide for themselves the best way of spending the upside of the privatisation of the banks?

[Lord Sassoon]

Of course I agree with my noble friend that IT has progressed significantly over the past couple of decades, but that does not mean to say that it would be easy to create an IT database of the sort that would be required for this operation. While that is one of the issues to be considered, there are other questions—of distribution, of the impact on the banks’ own funding, of share overhangs and so on. All of these things would have to be looked at.

Greece: Default Contingency

Lord Newby Excerpts

Monday 20th June 2011 Lords Chamber

[Lord Sassoon]

I agree with the noble Lord, Lord Davies of Stamford, that if the UK continued with the excessive deficit policies of the previous Government, we would be in a terrible mess in this country. Whether you are in or out of the euro makes no difference, and the UK would be experiencing considerable problems if we had not gripped the deficit. I agree with the implication of his analysis on that point. On the second question about sustainable financing, that is precisely where the IMF starts its assessment of debt sustainability. The critical first plank of sustainability for Greek debt hinges on Greece sticking to its agreed fiscal consolidation path. All else flows from that. As for the Greeks or anyone else leaving the euro, that is a hypothetical question and not one that we should spend any time on.

[Lord Newby]

Does the Minister agree that it is critical not just for Greece but for the UK economy that there is not a disorderly Greek default? In that circumstance, does he agree that the least worst option in what is a difficult situation is to agree an orderly re-profiling of Greek debt? If so, will the Government support moves by the eurozone Finance Ministers to bring about such a re-profiling?

[Lord Sassoon]

I certainly agree with my noble friend that the last thing anyone wants is disorder, whether default or anything else. As I made clear, the next steps are, first, a question for the eurozone itself. We are not directly involved in the eurozone discussions. To address my noble friend’s point, the statement from the euro group today reads:

“Ministers agreed that the required additional funding will be financed through both official and private sources and welcome the pursuit of voluntary private sector involvement in the form of informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme, while avoiding a selective default for Greece”.

As I said, that is a matter for the eurozone Ministers, but I think that they are addressing the issue in the way that my noble friend suggests.

Banking: Government Shares

Lord Newby Excerpts

Monday 13th June 2011 Lords Chamber

[Lord Peston]

My Lords—

[Lord Newby]

My Lords—

[Noble Lords]

This side!

[Baroness Anelay of St Johns]

My Lords, it is a courtesy. The Question was posed from the Labour Benches. It might be helpful to hear from a different Bench, just for the moment.

[Lord Newby]

My Lords, given that all UK citizens have, to a greater or lesser extent, had to bear some of the costs of the Government bailing out the banks, can the Minister confirm that the Treasury is giving serious consideration to the distribution of the state-owned shares in RBS and Lloyds Banking Group to the UK population as a whole?

[Lord Sassoon]

My Lords, I can confirm to my noble friend that UK Financial Investments will be considering retail participation in the distribution of the shares. That does not, of course, necessarily mean quite what he said, which is some form of distribution but, yes, mass participation in some form is very much to be considered. Value for money is also one of the considerations that UKFI is required to take into account.

Taxation: Healthcare Insurance

Lord Newby Excerpts

Thursday 9th June 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am happy to confirm the position, which is quite clear and obviously will not change. As I say, we are not looking at this, but I never say no to ideas that would save considerable sums of money, however remote the possibility that the scheme would work. However, individual choice is the issue around private medical insurance. There is no plan to alter the role of private medical insurance in healthcare provision and there is no loss of entitlement to NHS care for those who take out private medical insurance.

[Lord Newby]

My Lords, leaving aside the financial implications of the Question asked by the noble Lord, Lord Flight, does the Minister agree that to move in that direction at this time would send completely the wrong signals? At a time when we should be supporting and strengthening the NHS, if the Government were in effect to encourage people who could afford it to have nothing to do with it, that would take us in exactly the wrong direction.

[Lord Sassoon]

I am grateful to my noble friend for allowing me to say again that we have absolutely no plans to introduce any such change to the benefit-in-kind rules or to the way in which private healthcare interrelates with the NHS.

Oil Prices

Lord Newby Excerpts

Wednesday 8th June 2011 Lords Chamber

[Lord Sassoon]

My Lords, of course we would not wish to see inflation at the 4.5 per cent it is now. As has been explained, this is very largely driven by global factors with regard to commodity prices. We are not only keeping to our tight fiscal policy, which underpins the ability of the Bank of England to stick to its mandate, but giving help to the most vulnerable—whether that is the Budget announcement that gave a £630 increase in cash in personal allowances for the under-65s, whether it is in the arrangements that we made to cut fuel duty effectively by 6p per litre from what the plans of the previous Government had been, or whether it is increasing the state pension by 4.6 per cent. What the Government must do, and are doing, is to protect the most vulnerable in our society.

[Lord Newby]

My Lords, with the Chinese economy, the Indian economy and many other economies still growing strongly, is it not likely that the price of oil and other fossil fuels will remain high for the foreseeable future? In those circumstances, does the Minister agree that the Government’s carbon reduction strategy assumes an even greater importance? In that context, can he tell us when the Government plan to bring forward the Bill formally establishing the green investment bank?

[Lord Sassoon]

My Lords, we will bring forward the Bill in due course when it is in good shape. I take my noble friend's point about commodity prices. It reinforces the fact that we need to ensure that all energy users get advice to use energy efficiently in order to reduce their household bills. That is part of where we are targeting government help.

Taxation of Equitable Life (Payments) Order 2011

Lord Newby Excerpts

Tuesday 7th June 2011 Grand Committee

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, to set this order in context, it may be helpful if I provided a little background on the development of the Equitable Life payment scheme. The Government have pledged to implement the Parliamentary and Health Service Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policyholders for their relative loss as a consequence of regulatory failure. We have made considerable progress towards fulfilling that pledge.

We introduced the Equitable Life (Payments) Bill in July 2010, giving HM Treasury authority to incur expenditure when making these payments. We published Sir John Chadwick’s advice on the financial losses sustained by Equitable Life policyholders, invited representations on this advice, and carefully considered them in our deliberations in advance of the spending review. Following that consideration, and refinements to the calculations of Sir John’s actuaries, we quantified the relative loss at £4.1 billion, based on a full acceptance of the Parliamentary Ombudsman’s findings of maladministration. In determining the level of payments through the scheme, it was important, as the Parliamentary Ombudsman herself acknowledged, to take into account the impact on the public purse. Therefore, at the spending review we announced that approximately £1.5 billion would be paid out through the payment scheme.

It is also important to note that even in the context of a very tight spending review, we still found a way to cover all the losses of the with-profits or trapped annuitants. This is possible because we will be paying their losses through annual payments that reflect the structure of their policies. These policyholders were particularly vulnerable to their losses because they were unable to move their funds elsewhere or mitigate the impact of their losses through employment. They are also generally the oldest policyholders.

We also established the Independent Commission on Equitable Life Payments, chaired by Brian Pomeroy, to advise on the distribution of the remaining funding among other policyholders. The commission reported in January, and its recommendations formed the basis of the Equitable Life payment scheme design document that was published on 16 May. The document sets out the detail of how the scheme will work, including who will receive payments, how they will be calculated, and how they will be made. In that document, we set out our intention to make first payments through the scheme by the end of this month, and we are on track to meet this target.

Noble Lords may be pleased to hear that that this brings me to the order itself. When we introduced the Equitable Life (Payments) Bill last year, we took a power to provide for authorised payments made by the scheme to be free of tax, and to enable them to be disregarded for the purposes of assessing eligibility for certain means-tested state-funded support. At the spending review, the Financial Secretary to the Treasury announced that the payments would be tax free. There are strong reasons for this, which were raised in the representations following the publication of Sir John’s advice. One key issue is simplicity. It would be an extremely difficult task to decide the appropriate tax treatment of a payment that represents loss suffered on an investment over the past 10 years, during which many policyholders’ circumstances may have changed. It would also be very challenging to explain any such treatment and associated reporting requirements to those in receipt of payments. This approach would also be extremely time-consuming. In light of our commitment to bringing the Equitable Life issue to a conclusion as quickly as possible, it is just not tenable.

Secondly, we have taken serious consideration of fairness. Of a total loss of £4.1 billion, £1.5 billion will be made available to the scheme, based on our careful assessment of what funding would strike a fair balance between fairness to policyholders and fairness to the taxpayer. Adding a tax liability to payments on top of this discount would disrupt this balance.

Let me take the Committee through the order. Articles 2 to 4 provide for authorised payments to be disregarded for the purposes of capital gains tax, corporation tax and income tax. All direct payments from the scheme to identified payees, as set out in the Equitable Life Payments Scheme design document, are authorised payments under the scheme. Where Equitable Life has only one set of data and no records of the individual members of a group pension scheme, the scheme will use the trustee of the group pension scheme as a paying agent. Onward payments from these trustees to their pension scheme members are also authorised payments.

Article 5 provides for inheritance tax. It ensures that a person’s right to, or interest in, an authorised payment will be disregarded in calculating the value of that person’s estate on death for the purposes of inheritance tax; and that such rights or interests are similarly disregarded in calculating the value of relevant property subject to a 10-year anniversary charge for inheritance tax, where an authorised payment is made on or after such anniversary. This means that no estate will have to be reopened in order for inheritance tax to be charged on payments received after death. But payments received before death will not be ring-fenced to give them ongoing relief from inheritance tax. Such ring-fencing is not practicable.

Article 6 provides that in calculating investment income for the purposes of entitlement to tax credits an authorised payment shall be disregarded. Section 9 of the scheme design document that we published last month sets out in detail how the tax relief set out in the order will work in relation to the scheme.

I hope that all present will support the making of this order today. Following today’s debate, the order is scheduled for debate in the other place tomorrow. This should ensure that the order is made before the end of the month, giving certainty and reassurance to those who will receive the first payments. The order reflects the Government’s principles of fairness, transparency and simplicity in our response to the Equitable Life saga, and I beg to move.

[Lord Newby]

My Lords, I thank the Minister for that clear description of the background and of the order. The whole Equitable Life saga is one of the least-savoury examples of public policymaking in recent years, and it was a great relief that the Government were able to grasp the nettle and reach a settlement so quickly last year. Therefore speed, which was so lacking for so long, needs now to be of the essence in getting payments made. The Minister explained that the payments will be exempt of tax because to have made them liable to tax could have been time consuming. One can think of other cases in which the payment of compensation has taken years because of the time-consuming procedures that were put in place. The pneumoconiosis saga among the miners is a classic example of necessary detailed calculations and assessment taking years, during which time inevitably a significant number of those eligible for the payments died. Given that we are talking here about pensioners, time is of the essence.

I have one question for the Minister. Once the order is passed, the Government hope to begin making payments by the end of this month. Do they have any assessment of how long it is likely to take for the whole process to be completed? That is of huge importance to the individual policyholders. It is great knowing that you are going to get some compensation, but you need certainty. It would therefore be very good if the Government could give some certainty in the timetable so that even those who will not receive payment in the first tranche will have some broad idea of when they will receive it.

EU: Financial and Monetary Co-ordination

Lord Newby Excerpts

Monday 6th June 2011 Lords Chamber

[Lord Sassoon]

My Lords, we have had a number of opportunities in recent weeks and months, and I am sure that we will again. We have to get the EU budget under control. The rules of accountability and audit need considerable improvement. The Government are actively working on the case. Drawing a connection between that and the regulatory architecture of the financial institutions is somewhat tenuous. We are cleaning up the whole mess left behind on financial regulation, which starts at home. That is why, very shortly, the Government will publish a next round of consultation and a draft Bill to show how we are putting in place a proper system of financial regulation for the UK.

[Lord Newby]

My Lords—

[Lord Eatwell]

My Lords—

Banking: Savings Accounts

Lord Newby Excerpts

Monday 23rd May 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am grateful to my noble friend for raising this important area of savings. We should remind ourselves that a total of 23 million people hold ISA accounts, and of those 15.5 million hold cash ISAs, so this very important part of the savings market is held by some 40 per cent of households. My noble friend’s Question prompted me to speak to the British Bankers’ Association today and I can confirm that the association is working on its own recommendations following on from those made last year by the Office of Fair Trading after it had looked at this area. For example, from early 2012, additional information about the interest rates being offered will be shown on all statements. Further, in line with the recommendation made by the OFT, the association’s members are working to significantly shorten or halve the time it takes to switch accounts. But the structure of interest rates being offered, which is increasingly transparent on the websites that are now available, is a matter of commercial competition. I would recommend all savers to take advantage of the tools that are out there in order to shop around.

[Lord Newby]

My Lords, in view of the success of the tax-free index-linked bond issue recently offered by National Savings & Investments, what plans do the Government have to keep this very popular product on the market in the future?

[Lord Sassoon]

I am grateful to my noble friend for drawing attention to the fact that the 48th series of fixed-interest and index-linked savings certificates was launched on 12 May. It is our intention to keep this series on sale for a sustained period. Of course, there is only a certain amount of availability within the targets we set for NS&I, but I am pleased that we are able to fill a gap in the savings market by putting particularly index-linked savings certificates on sale again. They are proving to be popular, but I am advised that there is still a supply of them available. Noble Lords who would like to invest in them do not need to rush out of the Chamber at this moment.

EU: Budget

Lord Newby Excerpts

Monday 16th May 2011 Lords Chamber

[Lord Sassoon]

My Lords, there are various ways of peeling that onion, but there is indeed a maximum limit of 1.3 per cent, or thereabouts, of European GNI, and a sub-limit in the current financial perspective of about 1 per cent of European GNI. However, those numbers leave considerable latitude for headroom, and the regrettable fact is that that permits the annual budget to go up, if we do not restrain it, by more than inflation year-on-year. Regrettably, there is not enough constraint on total expenditure and it can rise if we are not vigilantly on the case, as this Government are.

[Lord Newby]

My Lords—

[Lord Campbell of Alloway]

My Lords—

[Lord Newby]

My Lords, does the Minister agree that in promoting growth across the EU, even more important than the EU budget is the completion of the single market? What are the Government doing to promote the completion of the single market, particularly in services?