Government: Convergence Programme

Lord Newby Excerpts

Thursday 12th May 2011 Lords Chamber

[Lord Newby]

My Lords, I very much welcome the fact that we are debating the two documents together not least because had we not been debating the document introduced by the noble Baroness, Lady O’Cathain, we would have been having the fourth general economic debate in your Lordships’ House in about five sitting weeks on what is happening to the UK economy. Although many of us like nothing better than to discuss the state of the economy, it is a bit like pulling a plant up on a weekly basis to see how the roots are doing. I do not think we would have served any useful purpose by it.

The more important relevance of debating the two documents together is the point that the Minister made in his introduction when he said the UK was not a bystander in the debate on fiscal stabilisation within the EU. The fact that we are not in the eurozone does not mean that we are somehow less affected than before by what happens more generally in the European economy. For example, it is very clear at the moment that when we are looking for additional investment for infrastructure, and into small or large businesses, the funds that might be available from banks based in London to support this investment are not being liberated by the banks, in part because they are worried about what is happening in the eurozone. They are worried that Greece may default, or that their holdings of Greek bonds may take a haircut, and therefore they are hanging back on making investments in the UK. So there is an absolutely direct link between the level of investment here and the stability of the rest of the EU. It is in our absolutely direct economic interest that stabilisation of those eurozone countries that have got into difficulty takes place swiftly. Many noble Lords wish that we were not part of the European financial stabilisation mechanism, but to the extent that our membership makes the stabilisation of those countries’ economies go forward more quickly, that is just straightforwardly in the national interest.

On the Europe 2020 programme, I completely agree with what the noble Baroness said about the Lisbon agenda. Before we were in coalition, that was the kind of thing that Liberal Democrat policy-makers used to do on wet Saturday afternoons. They would write down huge lists of aspirations which at the end of the afternoon made you feel great. But if you had been in government you would not have had the faintest clue how you would have brought them about. The extraordinary thing about the Lisbon agenda is that heads of government did the same; they signed up to this wonderful statement, which they had no means and not even the political intent to try to bring about. They felt very happy that Europe was going to take this leading role and then they sat back and let China, India and the rest of the world take the leading role.

Therefore, the fact that the flagship policies under Europe 2020 are in a way less ambitious is a good thing. However, they fall into two categories. One category includes policies or areas in which the EU itself can make an impact and there are other areas in which the EU can make very little direct impact. I am not an expert on the European platform against poverty, for example, but to the extent that you are taking direct action to deal with poverty, it will be done on a member state basis. The EU has no levers to pull on poverty other than having a framework for growth, which means that the economies of member states are doing better so it is easier for them to pull people out of poverty.

The key thing from Europe 2020 revolves around those actions that the EU itself can undertake. I welcome the fact that the Prime Minister has taken an initiative on this front, although I think whoever chose the title “Let’s Choose Growth” for the pamphlet needs their head examining. What else are you going to choose—stagnation? The two things that the Government and the Prime Minister were proposing, which I hope the Government will push really hard, because they are pragmatic and will make a big difference, are a series of measures to strengthen and deepen the single market. We are talking about pragmatic things that the EU can do—it is in its competence. Secondly, we should push very hard for the completion of the Doha round. I know that it has had a very long and tortuous history, but trade remains one of the main motors of growth and we need to keep pushing to see what progress can be made. Those are two very specific things. I hope the Minister can reassure me that the Government, having written their letter and pamphlet, will keep the pressure on to see whether we can get concrete movement.

I am more sceptical about the national reform programme, the Government’s programme and the whole process. I have in my mind the sight of 27 national reform programmes stacked on top of each other, sitting and accumulating dust. I do not know how that immense weight of material can be effectively analysed and peer reviewed. I am not sure how the peer review system works, but the document we are discussing says that the NRPs of all member states will be peer reviewed at the ECOFIN council in January. I do not know how you can effectively peer review anything at an ECOFIN council. If you are doing it beforehand, who are the peers and who are reviewing whom? Which named individuals from the UK are doing this review and do they do it for everybody or are we given half a dozen to peer review this year? When you have produced all the peer reviews, you presumably have a long document with thousands of detailed comments. What happens then? The more I think about the process, the more depressed I become because I wonder whether it actually achieves anything—particularly given that, for a number of member states, the noble aspirations of Europe 2020 and their bottlenecks to growth are so difficult to deal with that I cannot imagine this process being of any help at all.

Given what Ireland, Portugal and Greece are going through, does a document called the National Reform Programme with “bottlenecks” have any relevance? When I was attempting to brief myself on this debate, I made the mistake of typing into Google not “national reform programme” but “national recovery programme”. Amazingly, there are national recovery programmes: Ireland has one but it also has a national reform programme. In those circumstances, I wonder whether that has any great value.

I am very supportive of the Europe 2020 approach and of efforts by this Government and by the EU to deal with their own bottlenecks for growth. I hope very much that they can be pushed by the Government. I have a final question for the Minister. We in the UK, and in every member state, have bottlenecks identified by august bodies such as the IMF and the OECD. Does the EU itself have bottlenecks that it is attempting to address? What is the equivalent of the five bottlenecks that we are grappling with—if you can grapple with a bottleneck—that the Commission is dealing with and what milestones are the Commission having to account against as it seeks to promote what is, as I say, an admirable aim?

Public Expenditure: Reserve

Lord Newby Excerpts

Monday 9th May 2011 Lords Chamber

[Lord Newby]

My Lords, do not the comments of Standard & Poor in the US on the possible downgrading of American debt show the folly of building up too great a deficit, however tempting it might be to spend more money on things which we would all like to see?

[Lord Sassoon]

Yes, indeed. As ever, my noble friend Lord Newby gets it absolutely right. Fiscal discipline is absolutely the watchword of this Government. I should say that the Armed Forces will get all the expenditure that they need in relation to net additional costs of military operations in Libya and elsewhere, but that is the exception to the rule.

Fraud: Staffing Levels

Lord Newby Excerpts

Monday 9th May 2011 Lords Chamber

[Lord Sassoon]

My Lords, I will not be drawn into second-guessing decisions taken by the investigating authorities on any cases. However, I have heard absolutely no suggestion that the investigations in that case were in any way circumscribed by a lack of resource.

[Lord Newby]

My Lords, does the Minister accept that, while the additional £900 million that HMRC has to fight fraud is very welcome, the hollowing out of the HMRC regional structure means that many individuals and firms around the country now feel that there is no adequate, as it were, day-to-day supervision of their tax affairs, and that therefore they can get away with it? Will he take back to his colleagues at HMRC the fact that it is not just the people dealing with fraud who need to be reinforced, but that we need to have a continuing robust structure of local management of individuals’ and companies’ tax affairs if fraud is not to take place in the first place?

[Lord Sassoon]

I am grateful to my noble friend for bringing up that specific issue. Of course the question of local coverage is important. I will do as he suggests and take that back to my ministerial colleagues and to the management of HMRC.

EU: Financial Management

Lord Newby Excerpts

Wednesday 6th April 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am not responsible for some of the curious terminology which the EU uses, but I believe that financial regulation is the term it uses in this context. The relevant issue about which the Government are concerned is reducing the administrative burden on how expenditure is handled, particularly at member state level. We are worried about some specific questions: the proposal, for example, that loans might be used by the Commission to purchase EU buildings, which is something that the Government oppose; and the question of introducing a concept of tolerable risk of error within the accounting framework, which we oppose. I said before but I will say again that we want to push for much greater transparency in how assigned revenue is used. A host of issues come under that heading, but I cannot be responsible for the terminology.

[Lord Newby]

My Lords, the UK Government had support solely from the Netherlands and Sweden for the declaration submitted to the relevant meeting in February. What was the reaction of the other 24 member states at that meeting? What are the Government doing not just, as it were, to lobby the Commission but to persuade other member states that what seems a sensible series of reforms should get wider support?

[Lord Sassoon]

I am grateful to my noble friend, because he gives me an opportunity to refer to the joint letter in December, very much led by my right honourable friend the Prime Minister, to which Germany, France, Finland and the Netherlands were also signatories. That talks about the need progressively to tighten up on and limit the growth of payments into the EU budget in 2012-13 and makes important observations about the necessity for growth in the EU budget through the next financial perspective to be limited. That is a forward-looking set of proposals to which a significant number of member states are already committed.

EU: European Financial Stabilisation Mechanism

Lord Newby Excerpts

Thursday 31st March 2011 Lords Chamber

[Lord Sassoon]

No, my Lords. No apology is due. I have already tried to make it clear, but let me make it absolutely clear again. Consensus was reached on the process by which the ECOFIN qualified majority voting meeting would take place. That, as has also been made completely clear, is quite a separate matter from my right honourable friend the Chancellor making clear his position on the underlying policy matter. The two matters are distinct. The decision on the policy matter was for the then Chancellor, Mr Alistair Darling. He was the Chancellor at the time and he took the decision.

[Lord Newby]

In view of the stress tests on the Irish banks that were recently announced, will the Minister confirm that any further support that the Irish banks might need via European mechanism facilities that are already in place will not require any additional funding from the European financial stability mechanism?

[Lord Sassoon]

I am grateful to my noble friend Lord Newby for again bringing us back to important current matters. The results of the Irish banks’ stress tests, as I understand it, will be released by the Central Bank of Ireland at 4.30 this afternoon, so it would be inappropriate to comment on them. Of course, the Irish authorities have consulted Her Majesty’s Treasury, the Bank of England and the FSA about the impact of bank restructuring, and the Government expect that the forthcoming announcement will remain in line with the broad principles of the support package provided to Ireland. I would just add that the Government have made clear their commitment to ensure that the Northern Ireland banking sector continues fully to meet the needs of businesses and consumers in Northern Ireland.

Economy: Growth

Lord Newby Excerpts

Thursday 31st March 2011 Lords Chamber

[Lord Newby]

My Lords, I thank the noble Lord, Lord Hollick, for introducing this debate and I very much look forward to all the speeches, not least the maiden speeches. In my short time, I should like to say something about manufacturing. It seems to me that we have a unique opportunity to see growth in this sector. In a sense, the bankers have done manufacturing a favour in that banking no longer has the kudos, nor appears to many young people, I suspect, to be quite the wonderful career that it did.

There is no doubt that within and among young people there is a huge interest in this sector. I have done some work with the F1 in Schools and Greenpower charities, both of which set engineering tests for schools to enable children to get a taste of engineering and to promote engineering as a rewarding career. There is no doubt that the enthusiasm with which these programmes are taken up demonstrates a very large interest. Demand for engineering as a career is not a problem.

The issue is how we should put the structures in place to enable young people to take it up easily. I should like to commend two initiatives in the Budget. The first is the university technical colleges, which will promote vocational training. This area has been consistently underplayed. Many educationalists say that children should not specialise at an early age but my work with organisations such as the Prince’s Trust and SkillForce persuades me that for many children a vocational route is clearly what they want and is apparent at a relatively young age. Anyone who wants to see a case study should read the autobiography of Stuart Pearce, the under-21 England manager. He was hopeless academically but was a terrific electrician, which is what he did before he went into football. Many children know at a relatively early age that they do not want to study many academic subjects but that they are really interested in vocational subjects.

Secondly, this Government have increased the number of funded apprenticeships in the previous Budget and in this Budget by 125,000, which is very welcome. The challenge is on the private sector to take them up now that they are available. The manufacturing sector having been keen to ask the Government for additional support for apprenticeships, the ball now is in its court. I hope that the Government will press it hard to make sure that these apprenticeships are taken up.

Another issue promoted in the Budget which the sole voice of the noble Lord, Lord Bhattacharyya, has reminded us about over the years in your Lordships’ House is the value of promoting high-value manufacturing via partnerships between the industry and universities. The decision to promote and to support high-value manufacturing, technology and innovation centres—surely that is the least elegant phrase among all the acronyms that the Government have come up with—is extremely welcome. The first, in Sheffield, on its own will generate 400 jobs and will enable the specialist engineering sector in that area, which Boeing and others have supported, to flourish further.

More generally, I have considerable sympathy with the proposals of the noble Lord, Lord Hollick, for investment. We support road pricing and I would support the proposal which I am sure the noble Lord, Lord Skidelsky, will be speaking on: a national investment bank. The Treasury will argue against many desirable things. That should not be a reason for our not doing them. The noble Lord, Lord Hollick, said that at this point we should be bold and that timidity will not do. We need to tell the Treasury that, as well as everybody else.

Economy: Government Policies

Lord Newby Excerpts

Thursday 24th March 2011 Lords Chamber

[Lord Newby]

My Lords, I congratulate the noble Lord, Lord Lawson, on getting such a timely debate on the Budget and economic policy—we normally debate these issues weeks after the event, so it is a pleasant change to be able to do it contemporaneously—and, like him, I look forward to hearing the maiden speeches in today’s debate.

The big political and economic question is whether there should have been a plan B at this point: should the Government have changed their broad macroeconomic policy? It seems to me that the only circumstances in which such a change would have been justified would have been if there had been a major change in the outturn or the outlook for the British economy. The OBR report published yesterday makes it clear that although there has been a short-term downward revision in growth, and therefore a slight rise in borrowing in the short term, its assessment is that, over the medium term, the Government’s plans are broadly in line to meet the targets set for the lifetime of the Parliament. Therefore, in my view, if the Government changed course, they would simple lose all credibility in economic policy-making.

Many commentators are asking, “Can’t we just ease the pain? Can’t we just spend a bit more?”, as if it would be costless. There has been a lot of argument about whether, if the Government had taken a soft approach last summer, there would have been major problems with the credibility of sterling and the cost of government borrowing. The Opposition have said, “We are not like Greece, therefore the fact that Greece has to spend 12.5 per cent on borrowing is irrelevant”. No, we are not like Greece, but we are not miles away from Spain’s current position. It currently has to pay 5 per cent on government borrowing compared with our 3.5 per cent. That is a big difference. If this Government, or any Government, were seen not to be taking their fiscal responsibilities seriously, you could bet your bottom dollar that those rates would zoom up. That cannot be in the long-term interests of the British economy.

I am looking forward to hearing the noble Lord, Lord Eatwell, explain the Opposition’s view on how they would meet their commitments under the Fiscal Responsibility Act. So far, we have heard not one word from the Opposition about how they would approach the circumstances in which we now find ourselves.

Before turning to the growth agenda, the main subject of today’s debate, I should like to say something about two issues. The first is tax avoidance. Broadly speaking, the Government’s measures here are extremely welcome, from the big-ticket items down to the reduction in low-value consignment relief on VAT, a subject that we debated in your Lordships' House a couple of weeks ago. Less welcome, however, is the rather supine approach to non-doms. The Government’s approach—basically to kick the issue into the long grass, as the predecessor Government did—is poor. A stronger approach should have been taken.

I should also like to probe slightly the Government’s intention regarding high-value housing. We know that many people avoid paying stamp duty on their houses by putting them into an offshore trust. There is a rather ambiguous sentence in the Budget speech about making sure that people with high-value housing pay their fair share. Can the Minister say whether the Government intend to do something about the stamp duty loophole; and if they do not, will they give the issue further consideration?

As for growth, much will depend on the extent to which people in the private sector, particularly the manufacturing sector, feel confident about the environment in which they seek to do business. The mood among manufacturers—and I have just come from a conference of small businesses in the manufacturing sector—is much more buoyant than one might think from reading most of the commentary. The Budget contains a range of provisions—on, for example, the planning rules, business rate relief and the business angels plan—that will help the sector. I am particularly pleased to see the additional support for apprenticeships which will cover 40,000 unemployed young people, and the 100,000 work experience placements that the Government have announced, with highly credible large companies taking the lead in making them available.

There are two issues on which I can give only two cheers. The first is the green investment bank. It has taken a long time to get the bank up and running, but I welcome the fact that it now is, and that it will have £3 billion available for lending to this sector. It is a pity, however, that it will not be able to borrow for the lifetime of this Parliament. I know all about the accounting rules but, frankly, there are times when you have to bite the bullet and decide what really matters. I would not have thought it beyond the wit of the Treasury to explain in its various documents the extent to which the liabilities of the green investment bank are separate from other government liabilities, and therefore to make it perfectly clear that a green investment bank that is able to borrow is not incompatible with reducing the overall budget deficit.

Enterprise zones are the second issue on which I can give only two cheers. Ever since they were introduced their track record has been mixed. One can only hope the fact that the zone boundaries will be determined by the LEPs—and therefore likely to cover the parts of the region with very good growth prospects, given the location—will make them more cost-effective than they have been in the past.

The key constraint facing many businesses remains their ability to borrow. The banks claim that there is no demand. I know that many manufacturers can get working capital from the banks for neither love nor money, so I just hope that the Government will keep the banks’ feet to the fire on the commitments that they have made but have yet to deliver on.

Finally, the challenge now is for the Government to implement this raft of measures and to keep listening to manufacturers in particular about further things to be done. The noble Lord, Lord Sugar, will be surprised to learn that the Secretary of State for Business, Innovation and Skills agrees with him to the extent that he understands that the Government cannot themselves generate growth, they can only create a climate in which entrepreneurs are encouraged to flourish. In my view, the Budget contains many positive steps in this direction, but there is much more to be done.

Tax Credits Up-rating Regulations 2011

Lord Newby Excerpts

Wednesday 23rd March 2011 Grand Committee

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

My Lords, I shall also speak to the draft Guardian’s Allowance Up-rating Order 2011, and the draft Guardian’s Allowance (Northern Ireland) Up-rating Order 2011. In my view, the regulations and orders are compatible with the European Convention on Human Rights.

The Government inherited an exceptional fiscal challenge. It is important to sketch out the background to these important statutory instruments and to put them into proper context. The state is borrowing one pound in every four that it spends, and just paying the interest on the nation’s debt costs £43 billion—around £120 million a day. The unprecedented scale of the deficit has meant that the Government had to make tough choices in the June 2010 Budget and in the spending review about how taxpayers’ money is allocated.

We believe that fairness starts by taking the right decisions to tackle the deficit so that future generations are not burdened with unsustainable debts, meaning higher taxes and diminished public services. Tackling the deficit in a fair and responsible way means that those that can contribute do and those who are less able to do so are supported. Analysis shows that after combining the impact of tax, tax credit and benefit and public service spending changes announced by this Government, the top 20 per cent of households will make the greatest contribution towards reducing the deficit as a percentage of their income and benefits in kind from public services. That is a statement that was true after the Budget and spending round as of last year, which encompassed the measures we are talking about, but of course it remains true and confirmed in the numbers that came out with the Budget today.

The regulations and orders before the Committee put into effect a number of reforms to tax credits, announced in the June 2010 Budget and the spending review. These changes will ensure that we tackle the deficit in a way that is fair and ensures that tax credits are targeted at those who need them most. Tax credit elements which were previously uprated by the retail prices index will be uprated this year by the consumer prices index, apart from the basic and 30-hour elements of working tax credit, which will be frozen. The rate of guardian’s allowance will also be uprated by CPI. However, significant above-indexation increases to the child tax credit will help those households with children.

Under the current system, tax credits are available to families earning up to £58,000. If households have an increase in income up to £25,000 in a year, they can earn up to £83,000 and still benefit from tax credits. This means that people in the top income decile are eligible, which is unjustifiable within the current economic climate. Reforms to tax credits included within these regulations and orders mean that support for higher income households will be reduced by increasing the rate at which tax credits are withdrawn, while reducing the threshold at which tax credits are paid. Households will also no longer experience an increase in household income of up to £25,000 without their tax credit eligibility changing. Under the current system, around nine out of 10 families with children are eligible for tax credits. Once the tax credit changes have been introduced in April this year, seven out of 10 families will still be eligible for tax credits.

Spending on tax credits has increased from £18 billion in 2003-04 to an estimated £30 billion in 2010-11. The system of tax credits under the previous Government was not only unsustainable in fiscal terms; it was also unrealistic in terms of meeting its stated policy objectives. From 2004, progress on relative poverty stalled. However, the previous Government continued to pump money into the tax credit system. They spent more than £150 billion on tax credits since 2003.

Although a large proportion of tax credit spending was directed at children, the Institute for Fiscal Studies has estimated that meeting the 2020 child poverty target would require an extra £19 billion of welfare transfers. The previous Government had a static view of poverty, believing that it could be reduced, or even eradicated, by directing money at it. The way that child poverty is currently measured means that, perversely, reducing the income tax paid by millions of lower earners, or providing additional support to low-income pensioners, could push up the poverty line. This would increase the number of children calculated as being in poverty. We want to take a long-term, strategic view to tackling poverty, which is about more than just welfare transfers. This is not about moving families and children above an arbitrary line—where one day they are in poverty and the next they are not—but is about transforming their life chances.

The Prime Minister asked Frank Field and Graham Allen to undertake reviews on poverty and life chances. Findings from both reviews have fed into the child poverty strategy, which will be published shortly. While awaiting the conclusions of these reviews, the Government have used some of the savings from withdrawing child benefit from families with a higher rate taxpayer to fund significant above-indexation increases in the child tax credit over the next two years. This means that the child tax credit will increase by £255 in 2011, benefiting 2.4 million of the poorest families. This increase is better targeted at low-income families and will ensure that the spending review will have no measurable impact on child poverty in the next two years.

As well as targeting financial support at low-income households, the spending review introduced a new fairness premium, which will fundamentally change the prospects of the poorest children by offering real opportunities to raise them out of poverty for the long term. The fairness premium is worth over £7.2 billion over the spending review period and will include a £2.5 billion premium to support the educational development of the poorest pupils. It also protects cash funding for Sure Start to support the poorest in early years and at every stage of their education.

Despite the last Government’s spending on tax credits, working-age poverty actually increased under Labour, as there are now more working-age adults in poverty than there were in 1997. The current welfare state too often traps people in dependency. Almost 2 million children are living in workless households. The spending review announced radical plans to reform the welfare state. The new universal credit, which will be introduced over two Parliaments, will replace the current complex system of means-tested working-age benefits with a single, streamlined payment. The universal credit, which will cut through the complexity of the existing benefits system, will ensure that work pays.

In that context, I commend these regulations and orders to the Committee.

[Lord Newby]

My Lords, in the context of the overall fiscal position in which we find ourselves, it is not surprising that we are having to make some pretty unpalatable changes to some tax credits. As the Minister has said, expenditure on tax credits rose in cash terms by two-thirds over the seven years from 2003. In the current environment, that is simply unsustainable.

Although there are some aspects of the changes that we find quite difficult—for example, reducing the proportion of reclaimable childcare is not something that we would have done willingly—other elements are long overdue. It is crazy that people earning £50,000 or £60,000 or even £70,000 have been able to claim an element of child tax credit. Of course, the concept that parents find themselves in financial stress when they have young children is not new; it is dealt with at great length in Malthus’s great essay on population, where he talks about how poverty comes to young families at the point when they have children. However, that was talking about an era in which most people were poor for the whole of their lives. That simply does not exist today. A circumstance in which nine out of 10 families were eligible for tax credit does not really have any sense. Even with the changes, some seven families out of 10 will continue to get tax credits. That certainly encompasses all those who could even vaguely be said to be in need.

The situation we now find ourselves in at this end of the income scale was exemplified to me by a colleague in another place yesterday, who was telling me that she had had a letter from a constituent grumbling that the changes to tax credits and child benefit meant that she and her family would no longer be able to have their second foreign holiday that year, and asking what the MP was going to do about it. I suspect she got a fairly shirty response, but many people at upper income levels have been regarding tax credits and child benefit as not necessary for the ordinary running of the family but for luxuries, so to see that curtailed in the overall scheme is very welcome.

Slightly down the track comes the really welcome introduction of the universal credit. Just as, at the top end, people are getting some benefits who, frankly, do not need them for the good functioning of their families, at the bottom end there are still huge disincentives around work and huge anger among people who are trying to make a living and do the right thing.

At the recent Lib Dem conference in Sheffield I went to get my papers from a kiosk in the shopping centre in the centre of Sheffield, and the young woman behind the kiosk asked rather aggressively what I was doing there. I said very timorously that I was at the Lib Dem conference. She said she was a Labour voter. I was prepared for a tirade about how flinty hearted we were and I got a tirade, but the tirade I got related to the fact that because she was a single mum with two young children she could only work part-time and earn only £6,000 a year and her sister, who was 28 and had never done a day’s work in her life, was getting more from the state. At this point her colleague in the kiosk joined in. They were so intent on telling me about this injustice in the system that everybody else who was trying just to buy a paper had to come up in a very shamefaced way so as not to interrupt this flow of invective, which was being directed at politicians generally. I was able to tell her that the universal benefit was on its way and thereafter life would look somewhat fairer from her perspective.

I have two questions for the Minister around these proposals today. The first relates to what he said about Sure Start. There has been an awful lot of noise about Sure Start. He said that the Government are protecting the cash funding for Sure Start. I know that every Liberal Democrat council is able to maintain Sure Start and I know some councils cannot. Can the Minister tell me why, if the Government are protecting the cash funding for Sure Start, some councils might be choosing to cut it?

Secondly, the whole area of child poverty is to be the subject, I believe, of a child poverty strategy document due for publication shortly. Under the terms of the Child Poverty Act it is due to be produced by the end of March. It is now almost the end of March and I would like the Minister’s assurance that that document will, indeed, be winging its way to us over the next few days.

Inflation

Lord Newby Excerpts

Thursday 17th March 2011 Lords Chamber

[Lord Sassoon]

My Lords, first, I am grateful for the congratulations, however backhanded, offered by the noble Lord, Lord Barnett, and I will bank them. We are discussing the letter from my right honourable friend the Chancellor to the governor. In that letter, as I attempted to explain in my first Answer, he does not express any view about interest rates because, as the noble Lord well knows, the setting of interest rates is an independent matter for the Monetary Policy Committee of the Bank of England. I am sorry if I have to be boring about this, but there seems to be some misunderstanding. It is absolutely not for the Chancellor to express any view on this matter. What he does, as the noble Lord recognises, is to express confidence in the governor and the MPC structure and to support their independence.

[Lord Newby]

My Lords, the Chancellor’s letter, which is suitably bland and opaque, contains an intriguing suggestion. It says that the Government are committed to reducing the drivers of inflation, including,

“demand for energy and supply constraints in food markets”.

Can the Minister say what the Government are doing on those two matters?

[Lord Sassoon]

My Lords, I am grateful to my noble friend for recognising that the Chancellor’s letter was indeed couched in suitable terms. What my right honourable friend said on these points related specifically to commodity markets with our G20 partners—this is a particular focus of the G20 presidency, now with the French—to make sure that we have some global understanding of the drivers and an analysis of what might follow from that.

Financial Crime: Legislation

Lord Newby Excerpts

Thursday 17th March 2011 Lords Chamber

[Lord Newby]

My Lords, I, too, thank my noble friend Lady Williams for initiating this debate. In my brief remarks today I would like to cover the three issues of bribery, the tax gap in the UK and the tax gap in the developed world.

As my noble friend said in her introductory remarks, our bribery is someone else’s corruption. Although a number of noble Lords have talked about BAE in the context of Saudi Arabia, arguably even more damaging were the bribes paid, in connection with selling aircraft, to the ANC in South Africa to fund an election campaign. That has changed the political culture in South Africa to such an extent that bribery is now endemic and by all accounts getting worse. A British company was the catalyst for starting that process.

I share the view of my noble colleagues that the sooner the Bribery Act comes into force the better. I was heartened by press reports earlier this week that we might now get the guidance very quickly. It is not a completely straightforward issue, of course, although morally it appears to be. I have some sympathy with the noble Lord, Lord Hodgson of Astley Abbotts, on the issue of British exporting companies who will lose business as a result. There should be no doubt that there will be a tangible cost and a loss of business to British businesses if they abide by the Act. Although I would like to share the view of my noble friend Lord Marks, that this would just be a short-term cost, in some circumstances it will be a long-term cost. By putting the Bribery Act on the statute book we have accepted that there will be a cost, whether or not we recognised that at the time.

I have less sympathy with the concern mentioned by the noble Baroness, Lady Wheatcroft, in respect of mining companies and others listed in the UK but with no substantive operations here. Mining companies have been responsible for some of the worst abuses of corporate behaviour. It seems to me that, if they want the benefits of a London stock market listing, they should be prepared to take on the full responsibilities that that implies. I hope that the Minister can give me an assurance that there will not, in effect, be an opt-out for extractive industries with a listing here but with no operations here.

On the UK tax gap, the noble Lord, Lord McFall, pointed out that we are talking about an amount of as much as £50 billion, which covers all forms of taxation. Interestingly, the major components of that are VAT and the personal taxes—not corporate taxes, although there is a significant corporate tax loss as well. I am pleased that the Government are putting an additional £900 million into dealing with certain aspects of this, particularly tax evasion and offshore tax evasion and organised crime.

However, the cuts to HMRC, although justified in part because of the increased use of IT, have, in my view, hollowed out the organisation to such an extent that very often it cannot deal with the day-to-day tax affairs of taxpayers. That makes it easier for people, advertently or inadvertently, to pay less tax than they are due. Staffing needs to be looked at again. My suggestion, which I hope will go with the grain of the coalition thinking, is that we should incentivise the department by setting it a target for certain aspects of tax raising. If it exceeds the target, it should be allowed to keep a significant proportion of that excess to reinvest in staff—not in staff bonuses—so that there are more people the following year to devote to the task. There is no doubt that the cost of additional staff in the area of tax collection would be more than repaid.

Finally, on the international tax gap—which has barely been discussed today—the OECD recognises that poor countries are likely to lose more money through tax dodging than they receive in aid. Therefore, the more that they can collect tax themselves, the less dependent on aid they will be in the long term. Christian Aid and other development charities have described tax as the

“route out of aid dependency”.

I think we need to spend more time looking at how we can support that route. Christian Aid’s two specific proposals, which I support, are the extension of the multilateral and automatic exchange of tax information between jurisdictions and country-by-country reporting by companies, which has been mentioned by several noble Lords. On the latter, I believe that the Chancellor has said that he supports the extension of the Dodd-Frank provisions, which require the extractive industries to provide country-by-country reporting, and he has proposed that at EU and G20 level along with France and Germany. I would be grateful if the Minister will confirm that is the case and that the Government will keep the pressure on there.

The issues that we are debating today are typically seen by many of our colleagues as extremely technical, which some of them are, but of secondary importance, which they are certainly not. As today’s debate has demonstrated, these issues lie at the heart of economic development and governance. We need to keep the pressure on, to drive up standards and drive down corruption and tax evasion.