Budget Statement
Lord Northbrook Excerpts(9 years, 4 months ago)
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Lord Northbrook (Con)
My Lords, there are many positives in the Budget Statement. On the economic front, there was confirmation that the UK economy grew by 3% last year and is forecast by the OBR to grow by 2.4% this, which is faster than America and Germany and twice as fast as France. The decision to become a founder member of the new Asian Infrastructure Investment Bank shows that the UK wishes to connect to the fastest-growing parts of the world.
On the jobs front, 2 million more people have obtained employment since 2010, and the OBR forecasts that almost 1 million more will be created over the next five years. The budget deficit is coming down and, while this is at a slower pace than had been hoped for, the IMF has importantly still given its approval to that delayed reduction. It is good news that the actual annual deficit figure has fallen from £153 billion in 2010 to a forecast £69 billion this year. More needs to be done but the trend is definitely in the right direction.
I turn to welfare savings. I applaud the plan to cut welfare benefits by £12 billion through the benefits cap, the limitation of tax credits, universal credit and housing benefit. I ask the noble Lord, Lord Davies of Oldham, if he supports these welfare cuts or the 48 rebels in the other place.
On the tax front, I welcome the decision to raise the personal allowance to £11,000 next year and to raise the higher rate threshold, though I had hoped that the 45% rate would have been cut to 40%. I also applaud the further corporation tax cuts from 2017-18, the increasing of the employment allowance and the setting of the permanent investment allowance at £200,000. The introduction of the inheritance tax allowance of £1 million is most welcome.
Due to the continuing high deficit, though, this had to be a tax-raising Budget, and the Red Book shows that £29 billion is planned to be raised over the next six years. The tax increases come first from restrictions to pension tax relief, which I understand is an easy target although it discourages people to save for old age and may make them more dependent on the state.
Then there is an 8% corporation tax surcharge on banks. This is easy politics, but surely the time is coming when the banks are being penalised enough. As the noble Lord, Lord McFall, said, the extension to the challenger banks seems unnecessary, as they can hardly be blamed for causing the banking crisis.
The speeding-up of the corporation tax payment dates for larger companies makes sense, but I ask the Minister why the extra take falls off dramatically from 2019-20. The reforms to dividend taxation, which I shall discuss later, level up more the differential between incorporated and unincorporated business. The abolition of non-dom status will not necessarily bring in a lot more extra revenue, as it may be negated by lower VAT and PAYE tax receipts. Insurance premium tax is also an easy target to increase.
I want to focus on two other areas covered by the Budget, turning first to the excellent document on the plan for productivity. The Minister’s hard work in producing this is acknowledged by the Chancellor in his Budget speech. This 82-page report contains an excellent analysis of what the Government wish to do to increase productivity. It shows how UK productivity has fallen behind that of leading advanced economies and it has a 15-point plan that,
“takes on the hard choices for lasting change”.
These are all very well set out. However, I should like to focus on some of the points where I feel that enhancements can be made and where I have some questions for the Minister.
Point 1 stresses a more competitive tax system, bringing business and investment to Britain. It rightly focuses on the proposed cuts in corporation tax and the raising of the personal tax thresholds. However, surely this would be even better had the Chancellor used the Budget to cut the top rate of income tax to 40% and cut the rate of capital gains tax. The tax rise on dividends taken out of a business contradicts this point and is making it harder for the founders of smaller companies to make a living. I ask the Minister for his views on the rationale for this dividend tax change.
Point 2 stresses the importance of rewards for savings and long-term investment. Great praise is due to the Chancellor for making permanent the £200,000 investment allowance. I also praise the significant increase in the ISA allowance and the new personal savings allowance. However, I do not see how the restriction of the pensions limit announced in the Budget squares up with this. Is this a case of short-term requirements overriding a long-term objective?
Point 3 focuses on a highly skilled workforce, with employers in the driving seat. Again, this includes very good points such as toughening up exam standards and targeting “coasting” schools. It is the apprenticeship levy which has had a mixed reaction. British Aerospace, one of the largest employers of apprentices in the UK—more than 1,000 trainees at any one time—took a very positive view. Also, the CBI said that it would work with the Government to make the best effect of this measure. Concerns seem to focus mainly on the lack of detail in the proposals concerning how the levy will be introduced and how effective it may be, given that the Government are providing no new funding for apprenticeships. Other concerns seem to revolve around the definition of larger companies. EEF, the manufacturers’ organisation, calculates that the cost of a four-year training programme for an apprentice employed by some of its highly technical members could run to £90,000. However, according to the Daily Telegraph, apparently BIS’s current budget allows for £2,567 to be spent on each of the 3 million apprentices whom the Government want trained by 2020. Terry Scuoler, the chief executive of EEF, said that manufacturers would be “sceptical” about the levy, adding:
“Until we see the detail it is not clear how this will help deliver the high quality apprenticeships we urgently need. Employers must be in the driving seat on this reform to ensure we get the right quality of apprenticeships and training. There will be no tolerance for recreating the failed skills bureaucracy of the past”.
Point 9 talks about planning freedoms and more houses to buy. History has proved with the sale of council houses that those bought have not always been able to be replaced. I ask the Minister how many of the 200,000 new homes are meant to be built as replacements by housing associations. According to figures from Shelter in March, in 13 London boroughs 26,000 social rented houses have been sold and only 2,900 have been replaced.
Point 15 discusses the northern powerhouse. I wish this project well; it will be an interesting experiment to see if the combination of devolved projects, new transport, an elected mayor for Greater Manchester, and working towards devolution deals for Sheffield, Liverpool, Leeds, West Yorkshire, partner authorities and local enterprise partnerships works. Early anecdotal evidence on LEPs appears to show a mixed start.
Overall, I commend the Chancellor for his Budget. The deficit is still too high and difficult decisions had to be taken on where to raise taxes and cut spending. With a difficult hand to play, he has done well.
Queen’s Speech
Lord Northbrook Excerpts(9 years, 5 months ago)
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Lord Northbrook (Con)
My Lords, the electorate spoke and trusted the Conservatives to carry on the rescue mission for the economy that was started in 2010 by the coalition. Then, we inherited an economy on its knees. We had emerged from the most severe recession in post-war history. We had a big structural deficit. Government debt was 60% of GDP and rising. It has been hard work over the past five years to restore the economy to a state that resembles health. I note today the recent OECD survey, which said that we will have the fastest-growing economy in the G7 this year.
The job is still work in progress, but there is much to cheer about. Recent economic news has included better than expected April budget deficit news, the construction business confidence survey and buoyant UK retail sales. Unemployment has been falling rapidly, and the growth in jobs is notable because they are focused in the private sector. Real disposable incomes are starting to rise again. Manufacturing industry is generally on an upward path. The Chancellor has been correct to reduce the deficit largely through expenditure reductions rather than taxation and has been wise not to adopt wholly Keynesian measures to resolve the dangerous situation we inherited.
So how are the Government planning to reduce the budget deficit in part 2 of the rescue plan? I welcome the full employment and welfare benefits Bill, with its aim to freeze working benefits, tax credits and child benefits from 2016-17 for two years. I also welcome the planned reduction in the benefit cap. I support the scrapping of the automatic entitlement to housing benefit for 18 to 21 year-olds. I await with interest the plans for the remaining welfare cuts, amounting to £12 billion in total.
In the area of business, I applaud the enterprise Bill, with its pledge to free entrepreneurs from burdensome regulation by cutting at least £10 billion-worth of red tape and to create a small business conciliation service, as many other noble Lords have mentioned, to address late payments to suppliers. Government promises to do away with pointless rules and bureaucracy are nothing new, but this latest deregulatory drive is the first that will require wholly independent regulators to contribute. Business groups have been supportive of the commitments. However, as the British Chambers of Commerce has pointed out, since many of the costly regulatory burdens originate in Europe, genuine cuts to red tape may rely as much on reforms to the EU as on anything a domestic Government can do.
I also welcome the trade union Bill, which makes it harder for strikes to be called. It is only fair to make the stipulation that 50% of union members have to turn out in a vote for strike action for the walkout to be legal. I also approve of the proposal that, for essential public services, a strike will also have to have the support of 40% of workers eligible to vote.
I approve of the plans in the enterprise Bill to pledge 3 million new apprenticeships. However, the plan to fund these by a new visa levy for those employing foreign labour has been queried by the EEF manufacturers group. According to the Financial Times, the EEF’s head of employment policy, Tim Thomas, said that the levy proposed seemed high. With regard to the proposed EU referendum, the director-general of the British Chambers of Commerce, John Longworth, said that the vote should take place,
“as soon as is practicable”,
to minimise uncertainty. Overall, I think that we will have a more business-friendly regime at BIS for the next five years.
On the subject of taxation, I note the plan in the national insurance contributions and finance Bill for a tax lock to ban rises in income tax rates, VAT rates or national insurance contributions for individuals, employees and employers, but I am just not sure whether that is a good thing for a Government to legislate on, to stop things happening. I like the proposal to exempt from income tax those working 30 hours or more on the minimum wage, which would incentivise work over welfare. I also welcome the plan to raise the income tax threshold to £12,500 a year. However, more should be done at the higher rate of the tax scale to reduce the rate to 40%, which after all is only what it was under much of the Labour Government, and to raise that threshold to £50,000.
While I am full of praise for how the Government cut corporation tax over the last period, this has not been matched by the cutting of personal taxes. I am a great believer in the Laffer curve theory, which says that within reason lower taxes bring in higher revenues; this was certainly the case a few years ago when I got a study done by the House of Lords Library which stated the beneficial effect when corporation tax was cut from 52% to 30%, as it was at that time.
On the theme of tax, I move on to tax simplification. My noble friend Lady Noakes made an excellent speech highlighting this a year ago, and it is still valid today. Her first point was that the Office of Tax Simplification has done a great job but its recommendations have not all been heeded, and more than 2,000 pages of complex tax legislation had been added by the end of the last Parliament. She stated that the Chancellor had used the principle of dynamic modelling to underpin his reductions in corporation tax the year before last, and this should be extended to income tax. The 2020 Tax Commission, which was sponsored by the TaxPayers’ Alliance and the Institute of Directors, echoed the conclusion of the work done by my noble friend Lord Forsyth of Drumlean’s Tax Reform Commission nine years ago. Its proposal, which is truly radical, was to abolish most taxes and replace them with a single rate of income tax of 30% and a total restraint on taxes as a percentage of national income of around one-third. It said that this would add over 9% to GDP over 15 years and the annual growth rate would be improved by 0.4%.
I make no apologies for bringing this topic up again for our new Minister, the noble Lord, Lord O’Neill of Gatley, whom I would like to warmly welcome and congratulate on his maiden speech. I am sure that he will keep up the high standards attained in recent years by my noble friends Lady Noakes, Lord Sassoon and Lord Deighton. If he is as clever with government legislation as he is with his acronyms, we are all going to be very fortunate. His appointment continues the Goldman Sachs involvement in this House. Could I ask him for his thoughts on these tax simplification views?
Overall, I welcome the humble Address measures with regard to business and economic affairs and wish them a fair passage through this House.
Budget Statement
Lord Northbrook Excerpts(9 years, 8 months ago)
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Lord Northbrook (Con)
My Lords, as speaker number 28 on the list, I shall try to avoid repeating figures mentioned by others.
I was surprised by how many speakers on the Benches opposite absolved the previous Labour Government of any responsibility for the huge budget deficit the coalition inherited. While I recognise that what happened in the USA was a major contributor to the financial crisis, the Labour Chancellor forsook the prudence of new Labour’s earlier years. As the noble Lord, Lord Rooker, stated, new Labour moved on—and Tony Blair is a classical example of that. UK debt was already high because of other reasons, including the Iraq war, and had we not as a coalition put the squeeze on public spending the markets could have panicked, interest rates could have gone through the roof and we could have been in a situation similar to Greece.
The first good economic news in the Budget was the OBR’s upgrading of growth forecasts for this year and the following two years. The Chancellor stated that business investment has grown four times higher than household consumption since 2010 and manufacturing output has increased more than four and a half times faster than it did in the entire decade before the crisis. Over the last year, the north grew faster than the south.
The job figures last week continued the tremendously good trend. When the Government set out on their strategy, the Opposition predicted more than 1 million jobs would be lost. Instead, more than 1.9 million new jobs have been created. Critics have said in the past that these are not real jobs, that they are all part-time and all in London. However, the Chancellor stated that 80% are full-time jobs, 80% are in skilled occupations and employment is growing fastest in the north-west. Of course, as many speakers have said, productivity is still a problem, although in the car industry and the retail sectors it has improved markedly. Overall, the job news is good. Low unemployment means lower rates of increase in welfare benefits. Table 4.27 of the OBR report shows downward revisions of, on average, £3.2 billion a year between 2015-16 and 2019-20.
On the budget deficit, it is a tremendous achievement to get annual borrowing down from £150 billion to £90 billion—£1 billion lower than forecast in the Autumn Statement—and the latest figures last Friday showed a £3 billion improvement over the previous year. This of course means that government gilt and interest charges compared to last December’s forecast for the next five years are now expected to be £35 billion lower due to the decline in inflation.
I turn now to government spending. Lower borrowing will continue only with a credible plan to control public spending and welfare. The Chancellor pointed out that the administrative costs of central government have fallen by 40%. This is highly commendable. However, welfare spending is still forecast to increase by nearly 10% over the next five years.
Other areas of annually managed expenditure which show eye-catching increases are central government debt interest, still increasing at more than 25%—a legacy of the previous Government’s mismanagement of the public finances—while local finance current expenditure is predicted to be up by more than 25%. As far as I am aware, no one else seems to have mentioned net public sector pensions, which are even worse at 10%. But they come up with an 18% increase because for some reason the employer’s contribution is netted off, although it seems to me that it is paid by you and me as taxpayers.
With regard to the overall spending picture, the Government should be congratulated on keeping departmental spending under control, but other expenditure does not appear to be in control. That is why total expenditure is planned to increase by 8% over the next five years.
I now move on to living standards, although most of this has been said by others. GDP per capita is up by 5%, and according to the living standards measure used by the ONS and the OECD, households are on average £900 better off than they were in 2010. Increasing the personal tax-free allowance has been a huge benefit to working people, and that is forecast to keep improving over the period. I also welcome the commitment to raise the higher rate threshold to £50,000, but I still believe that the top rate of tax should be brought down from 45% to 40%, which after all is only what it was under the last Labour Government. Lower taxes, within reason, bring in higher revenues.
I also welcome the Chancellor’s move to help savers with the four major steps which have been announced, but I support the view of the noble Lord, Lord McKenzie of Luton, that very careful surveillance is required and safeguards must be in place for those who choose to take out their lump sums and annuities. Secondly, allowing flexibility on ISA withdrawals within the tax year without losing the tax-free entitlement is a good idea. Thirdly, the Help to Buy ISA is ingenious and will help first-time buyers with their deposits, especially where houses are cheaper.
On corporation tax, which has been one of the highlights of the tax policies of the coalition over the past five years, the latest cut to 20% is especially welcome for smaller businesses, as are the national insurance exemptions for the under-21s and apprentices, along with the abolition of class 2 contributions for the self-employed. The business rates review is welcome, as is the replacement for the annual investment allowance. Can the Minister give us any more detail on what is expected on either the business rates review or the annual investment allowance?
In other business areas, the oil industry has been thrown a lifeline, and I welcome its £1.3 billion cut in taxes over the next five years. According to the Financial Times, the move has been welcomed by UK operators.
The diverted profits tax on multinationals is welcome, but several commentators are saying that it is being pushed through too quickly. The danger is that, however well intentioned it may be, the OECD review is coming out only later in the year. Might it not be better to wait for the results of that review rather than rushing this through and HMRC being subject to a flood of lawsuits? Companies might be able to challenge the legislation under European law or the UK’s treaty provisions, according to the law firm Pinsent Masons. Some £5 billion of tax is anticipated as long as the welter of new rules does not create more loopholes than it closes. The Government should be wished well in this area, but not too great haste is recommended.
Overall, I think that the Chancellor has done a good job, which I hope is appreciated by the electorate. Finally, I think that it would be very dangerous to hand the car keys back to the guys who crashed the car.
Stamp Duty Land Tax Bill
Lord Northbrook Excerpts(9 years, 9 months ago)
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Lord Northbrook (Con)
My Lords, first, I declare my property interests as per the register of interests. The Stamp Duty Land Tax Bill proposals set out in the Autumn Statement are broadly welcome. Stamp duty was an area that was ripe for reform to assist first-time buyers and all those purchasing at below average or, where relevant geographically, average prices. As has been said, the new rules give a useful saving in duty if the house that is being bought is less than £937,500 in cost. Also welcome is the axing of the so-called slab system and its replacement by a progressive income-tax style levy. According to the Financial Times Lucien Cook, residential director of estate agency Savills, said that buyers of average homes outside London would pay “much lower” levels of stamp duty. He said:
“In particular, first time buyers and second steppers will find it easier to raise the deposit needed to obtain mortgage finance, removing one of the major hurdles in the current market”.
Mortgage brokers said that reforms would stimulate sales around the current stamp duty thresholds in particular. As already stated by my noble friend Lord Newby, above the level of £937,500, the total rate of stamp duty will increase. At the higher end of the market, it will tend to tilt the balance towards foreign ownership even more. As one estate agent, David Adams of John Taylor, told me, a buyer from Hong Kong who pays income tax at only 15 per cent is unlikely to be deterred in his London purchase, whereas the UK buyer at, say, the £2 million price level may be put off from making a purchase due to the extra stamp duty.
Does it matter that there is more foreign ownership of our housing stock? If it means that there are fewer transactions by UK buyers, a problem can filter down to lower levels of the market. UK residents may prefer to improve their existing house rather than fork out extra stamp duty on a new one, thus creating a logjam in the market. While the changes will encourage first-time buyers, it remains to be seen how they will affect the housing market as a whole. If house prices continue to rise, which is a distinct possibility due to low interest rates, particularly in London and the south-east, it could put pressure as well on the private rental sector, since potential purchasers will continue to be priced out of the market.
The cost to the Exchequer of the change is estimated to be £4.1 billion over the next few years, but other measures in the Autumn Statement cancel it out. As Paul Johnson, IFS director, has also queried, why has the same slab structure not been applied to non-residential property?
By this Bill, the Chancellor sensibly hoped to put pressure on the Labour Party to abandon its plans for a mansion tax. The legislation increases the rate of duty markedly to 10 per cent for house prices above £925,000 and 12 per cent for the amount above £1.5 million. However, the Opposition seem determined to press on with their mansion tax policy, which has been criticised by many of their own side. The policy could mean people having to sell their properties to pay the tax, which is a particularly vindictive form of taxation, so we could end up with higher stamp duty and a mansion tax.
One further area that I feel the Government should tackle is where UK properties owned by foreign individuals remain underoccupied. There is a strong case in my view for operating a version of the Swiss taxation system whereby these owners can pay a lump sum based on a quintuple of the rent assessable on the property. Can the Minister pass on this idea to HM Treasury? While effectively a mansion tax is charged on property purchases by offshore companies, there should be some similar levy on domestic UK properties bought by non-domiciled individuals who leave their house empty for a huge portion of the year.
The Government should also consider more tapered taxation rules in other areas, such as capital gains tax where, as has often been suggested by my noble friend Lord Lee of Trafford, short-term gains should be taxed at a higher rate and long-term gains at a lower one. That could actually increase the yield on the tax, which has fallen considerably since it was increased to 28 per cent for individuals. Such a move could mean more transactions in the property market, where secondary residences are involved, and a higher tax yield to the Government.
Finally, might it not have been better, from a government revenue viewpoint, to insert more council tax bands? This year the Centre for Economics and Business Research published some research stating that adding three extra brackets for high-end properties would generate an extra £4.7 billion a year in tax revenue, rather than a predicted stamp duty revenue loss of £4.1 billion over six years. If the Government did this, and in future reduced stamp duty rates, there could be more transactions, thus increasing revenue and freeing up the market.
None of the above would solve the problem of housing supply, which is beyond the scope of this debate. Overall I welcome the Bill, and I hope that an increased volume of transactions will reduce the cost to the Exchequer. The reduction in duty is welcome in a key area of the housing market.
Budget Statement
Lord Northbrook Excerpts(10 years, 8 months ago)
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Lord Northbrook (Con)
My Lords, this is a very timely debate, coming after a generally very well received 2014 Budget. The economy continues to recover, with forecasts for GDP growth being revised upwards once again. The budget deficit is coming down. The unemployment rate is continuing to improve. According to the latest CBI survey, manufacturing continues to recover. Inflation forecasts remain low. The economic background continues to improve, although there is still a long way to go.
The Budget has focused, quite rightly in my view, on measures to help business, as well as giving important help to savers and taxpayers, mainly at the lower end of the tax scale. My speech will focus in more detail on the above. I will also focus on the excellent report by the Economic Affairs Committee on the draft Finance Bill, published a fortnight ago. I congratulate the noble Lord, Lord MacGregor of Pulham Market, and his group on choosing the topic of proposed tax changes to limited liability partnerships, and on their thoroughness on what seems a complicated area of tax law.
Looking at the economy, first, I will highlight the Office for Budget Responsibility’s forecast for GDP improvement. As the Chancellor said in his Budget speech, a year ago the forecast for 2014 GDP growth was 1.8%. It is now 2.7%. This is a good sign of recovery. The 2015 forecast has also been revised upwards. Borrowing is also showing a marked improvement. Britain borrowed a horrendous £157 billion the year before the coalition came to power. The OBR says that in 2014-15 this will fall to £95 billion and, although it has taken longer than expected and there is a long way to go, predicts that it will come down to £18 billion by 2017-18. According to the Red Book, interest payment savings on the debt over this Parliament are expected to amount to about £10 billion per year by 2015-16 as a result of the Government’s consolidation plans.
Unemployment figures also show an encouraging trend. According to the Office for National Statistics, employment is up by nearly half a million people for the year ending January 2014. According to the Budget speech, 1.3 million more people are in work compared to when the coalition came to power. According to the ONS, the claimant count has fallen by 24% in the past year—the largest annual fall since 1998, according to the Red Book. Youth unemployment fell by 58,000 during the past year, which is also a good sign. I also applaud the imposition of the welfare cap linked to inflation—now supported by the Opposition, I see—although I know that cyclical unemployment benefits are excluded.
The next area that is showing an encouraging recovery is manufacturing. Last Thursday’s CBI Industrial Trends Survey showed a 3% rise from February in manufacturers reporting above-normal order books, suggesting that the recovery remains on track, driven largely by domestic demand. Anna Leach, head of economic analysis at the CBI, said that overall the survey of 368 manufacturers showed demand rising and robust output growth. Encouraging news emerged yesterday on manufacturing pay deals. Pay settlement figures in manufacturing rose to 2.6% in the first quarter of this year compared to last year’s average of 2.4%, in the latest sign that the squeeze on living standards is easing.
Another economic indicator performing favourably is inflation. The OBR forecasts that it will fall below the 2% target in 2014 at 1.9 %, and will not exceed it at any time until 2018. This Tuesday’s latest figures confirmed the favourable trend.
Turning to the Budget measures themselves, I will focus first on the welcome measures to help business. As the Chancellor said in his speech, when the coalition came to power the corporation tax rate was 28%. Very shortly, corporation tax will be down to 21%. The corporation tax rate cut has been a great help to companies. The second major boost for business in the Budget, as many speakers have said, is the increase in the annual investment allowance from £250,000 to £500,000 until the end of 2015. This has been warmly welcomed by the manufacturing and agricultural sectors. The third major area of help is company energy costs. The Chancellor can be congratulated on producing a £7 billion energy package that will cap a green tax and shield companies from rising renewable energy subsidy costs. The major manufacturers’ trade body, the EEF, and the employers’ group, the CBI, have praised all of the above, as well as congratulating the Chancellor on his apprenticeship funding, changes to the R&D tax credit regime, the extra support for UKEF to boost exports, and the decision to make permanent the seed enterprise investment scheme, which is such a help in financing new start-ups.
Moving on to measures for savers, first, I warmly welcome the Chancellor’s proposals with regard to pensions from 2015, allowing investors free access to spend or invest their pot as they wish once they have reached the qualifying age. I remember occasions when this was nearly achieved in the past but the efforts fell at the last fence, so I am delighted to see the Chancellor finally acting to give pension savers their freedom. I also welcome the new pensioner bonds for those over 65, paying up to 4% if held for three years.
Next, I warmly welcome the Chancellor’s plans to extend the ISA limit to £15,000 and the merger of the cash and shares ISA. According to the Daily Telegraph, these tax-free accounts are now held by no fewer than 24 million people. Sensibly, in a separate move, the Treasury has allowed—encouraged by a campaign by the noble Lord, Lord Lee of Trafford, and me, as well as by several other noble Lords from all sides of the House—AIM stocks to be included in ISAs. I also welcome the abolition of the 10% rate of tax on savings for certain savers and basic rate taxpayers. The increase in the personal allowance to £10,500 is most welcome, too. The limited increase in the starting level for the higher-rate band is also welcome, but more needs to be done to uprate this at least in line with inflation.
I turn to the excellent Economic Affairs Committee report on the draft Finance Bill. The report, not referred to by other speakers, was only recently published on 11 March. I understand that it is too soon for us to have a government response to consider today. The committee’s sensible conclusion is that the measures proposed are so different from the original proposals consulted on last summer that more time is needed to settle that question and get the legislation right. It also recommends delaying the limited liability partnership salaried members’ provisions to 2015. Can the Minister enlighten us on whether HMT will take on board the proposals? Will he respond to the recommendation put by the committee in relation to mixed member partnerships—here, I declare an interest—namely, partnerships including limited liability partnerships with corporate members? The recommendation was that HMRC amend the provisions so that they are drafted more precisely and rely less on guidance. I ask the Minister to take notice of this seemingly arcane area of tax law, because implementation of the provisions could cause chaos.
The Government have been right to stick to their course on deficit reduction. I listened with interest to the view of the noble Lords, Lord Hollick and Lord Myners, that there should have been increased government spending early in the Parliament, but this would have been a dangerous course, as the markets could well have been upset by a perceived lack of financial discipline in government finances and the cost of servicing the debt could have soared. I prefer the views of the noble Lord, Lord Desai. Recovery is heading in the right direction. There is a still long way to go, but the coalition’s approach has been fully justified. Finally, I agree with the noble Lord, Lord Flight, that this House should have more input on the Finance Bill, particularly as large chunks of it are not considered by the other place, meaning that you have legislation which is not considered by either House.
Financial Services (Banking Reform) Bill
Lord Northbrook Excerpts(11 years, 4 months ago)
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Lord Northbrook
My Lords, it is a pleasure to follow the thoughtful speech of my noble friend Lord Sharkey, which emphasises the fact that whatever type of regulatory system you have for the banks will not necessarily effect an automatic culture change, and this could be a long process.
As the Minister said, the banking Bill will introduce a ring-fence around the deposits of people and small businesses to separate the high street from the dealing floor and protect taxpayers when things go wrong. It will make sure that the new Prudential Regulation Authority can hold banks to account for the way that they separate their retail and investment activities, giving it powers to enforce the full separation of individual banks. It will give depositors protected under the Financial Services Compensation Scheme preference if a bank enters insolvency. Finally, it gives the Government power to ensure that banks are more able to absorb losses.
I fear that I may be in a minority but, overall, I approve of the Bill. A lot of preparation has gone into it. The Government should be commended on taking careful note of the report of the Vickers Independent Commission on Banking as well as the findings of the Parliamentary Commission on Banking Standards—the PCBS—the members of which I praise for all their hard work. However, the Government—correctly, in my view—have not gone overboard in taking on all the suggestions, particularly of the latter report. In this debate the one thing that we seem to have ignored is the fact that banks have to remain competitive internationally. Until Glass-Steagall is reinstated in the US, we will not be on the same playing field as other international banks if we go down the route of total separation. We are right to stick with Basel III although, as other speakers have said, it could be quicker in coming to final solutions.
The banks themselves seemed to accept, although reluctantly, that the Bill represents a workable solution when they gave evidence to the Joint Committee on the Financial Services Bill. Stuart Gulliver, the chief executive of HSBC, said:
“It remains to be seen”—
whether the Government are right in their proposals—
“It is obviously a ‘done deal’. The Government wish to introduce this. It would not be our most preferred way of doing it. To my earlier point, there have been several examples in history of narrow ring-fenced institutions also failing. They are happening in Spain at this moment in time. That is what the UK wishes to do; therefore we will implement it”.
Then Bob Diamond, of sacred memory, said:
“We keep being asked if it was the right decision ... It certainly would not have been my first choice. It will add cost to banking and, therefore, it will increase the cost of borrowing, but we can live with it and we are going to implement it”.
Of course, he will not be able to carry out his wish due to falling on his sword over the LIBOR scandal, but his views were interesting nevertheless. Sir Mervyn King—now the noble Lord, Lord King—said:
“The Government created an outstanding commission of individuals and it would be unwise to go against their recommendations ... the banks have said that they are prepared to accept and implement this”.
In the other place, the Opposition focused on putting to the vote as amendments many of the parliamentary commission’s recommendations which the Government had rejected. I will examine these in a little more detail. The first item was the leverage ratio. Basically, as many speakers have said, the Opposition, like the PCBS, wish this ratio to be larger, at 4%, than the internationally proposed Basel Committee recommendation of 3%. In my view, the Government were right to resist this proposal which, as I said, would put our banks and building societies at a disadvantage compared with their international rivals.
The second amendment moved in Committee was to insert a new clause. Clause 3 would have introduced a licensing regime for all approved persons exercising control functions. Although this clause was defeated, the Minister, Greg Clark, said that the parliamentary commission’s final report on standards and culture would be,
“reflected in amendments to be made in the House of Lords”.—[Official Report, Commons, 8/7/13; col. 90.]
Can I ask the Minister what these amendments may be?
On Report in the other place, the Opposition focused on five separate areas. The first was ring-fencing and electrification. Chris Leslie proposed an amendment which called for sector-wide powers for full separation of banking as a backstop if ring-fencing did not work. The Government opposed this, correctly, while proposing amendments to strengthen the effectiveness of the ring-fence.
The next area discussed was the leverage ratio again, where the Opposition wanted to introduce into the Bill an overall leverage target for the UK’s financial system. The Minister again rightly resisted this, saying that we should not move on this except internationally via Basel III. Next, the Opposition wanted an amendment concerning individual accountability and a duty of care. I understand that amendments on these matters will be introduced here.
The Opposition also wanted a review of competition in the banking sector. The Minister replied that the OFT will bring forward its investigation into small and medium-sized banking as part of an ongoing programme to introduce competition in banking.
Finally, the Opposition moved a new clause stipulating that before the sale of any publicly owned banking assets, HM Treasury would be required to submit a timely report to Parliament. The report would set out how the sale would best serve the interests of the taxpayer; increase competition within the banking sector; restructure the banks concerned, especially with regard to the split between core and investment banking and the retention of some assets by HM Treasury; and set out the impact on regional banking networks. The Minister replied correctly that enough was being done already. There was the availability of £60 million in wholesale funding for community development finance institutions and up to 25% tax relief on investments made by individuals and companies into these CDFIs. More flexible rules for credit unions had been introduced alongside the £38 million made available to them.
I support the amendments to be proposed in this area according to the briefing received today from HM Treasury. These cover the creation of a senior persons regime to replace the approved persons regime as it applies to persons responsible for managing a firm and the key risks it faces. The PCBS has suggested a new criminal offence of reckless misconduct in the management of a bank. The briefing states:
“Further, the Commission recommends that the Government bring forward, after consultation with the regulators and no later than the end of 2013, proposals for additional provisions for civil recovery from individuals who have been found guilty of reckless mismanagement of a bank”.
As the noble Lord, Lord Brennan, has said, I am sure that the lawyers will have a field day on the very difficult definition of “reckless”. The briefing continues:
“There will be a need however to ensure that any planned criminal offence or change to the civil sanction regime is measured and workable”.
I also support the creation of a new payments system regulator and the introduction of a secondary objective to further support competition for the PRA.
The Government have also sensibly made clear that they will support some of the ICB’s key recommendations at a European level because they believe, correctly in my view, that in these areas the UK’s approach should be consistent with progress across Europe. These are higher capital requirements for large ring-fenced banks, beyond the Basel III minimum standards, through powers in the Capital Requirements Directive IV and capital requirements regulation. Also proposed is a bail-in tool as part of the European Commission’s proposed recovery and resolution directive as an essential resolution tool for banks that are “too big to fail”.
I also support the Government’s decision that a number of recommendations to improve competition in the banking sector both by the ICB and the PCBS are to be taken forward through non-legislative channels. In particular, I understand that following a request from the Treasury, the Financial Services Authority published a review of barriers to entry and expansion in UK banking. As a result, the regulators are introducing significant changes to make it easier for new banks to enter the market and grow. Perhaps I may ask the Minister what those are.
The British Bankers’ Association, in its briefing for Second Reading in this House, is generally in favour of the Bill. It says that secondary legislation, as many other speakers have said, will be critical in determining whether a ring-fenced bank can be organised in an orderly and effective manner and whether it will be capable of providing a suite of services to households and businesses consistent with the principles originally set out by the ICB. Notwithstanding the need to ensure that the ring-fence is suitably robust, there is also a need to ensure that banking services in support of business, such as simple hedging and trade finance, can be provided in a cost-effective manner. So far, four statutory instruments have been produced. At first sight these appear to address some of the concerns raised by the industry and others, for instance in terms of the ability of ring-fenced banks to provide hedging services and trade finance to their clients. There appear, however, to be significant gaps in the services that can be provided in support of SMEs’ financial needs, including their export and import finance requirements. These need to be explored as part of the consultation.
Clause 4 has been amended to include group restructuring powers for the regulatory authorities in the event that they consider the ring-fence to be ineffective in procedures relating to the exercise of the powers. While the objective of the group restructuring powers are understood, including the independence of decision-making criteria, it will be important to ensure that this is compatible with the statutory duty of directors under Section 172 of the Companies Act 2006. The structural reorganisation of a banking group to bring about ring-fencing is likely to involve relying on the banking business-transfer regime and the revised Part VII of the Financial Services and Markets Act for the transfer of tens of millions of accounts and contracts. Key to this is ensuring that the revised provisions are suitably scoped and the procedures involved compatible with an orderly transition to ring-fencing within an envisaged 2019 timescale.
Schedule provisions have been added to the Bill that look to help the operability of the ring-fencing transfer process. For instance, the amendments would make statutory provision for the PRA to review ring-fencing transfer schemes in order to provide regulatory consent to transfer plans. There are likely, however, to be some instances in which small drafting amendments will be justified in order to further facilitate the smooth transition towards the ring-fencing arrangements.
As the government consultation indicates, there are outstanding issues in respect of pension scheme liabilities and VAT grouping. It is disappointing that the regulations on these remain outstanding. It is pleasing to see that at least the intention to publish the regulations on pensions for consultation before parliamentary scrutiny has been completed.
In conclusion, I once again express my support for the Bill. Of course, all these measures do not come without significant cost to the banks. According to the Government’s impact assessment, ring-fencing and depositor preference are expected to impose transitional and ongoing costs on UK banks. The Government estimate the ongoing costs to be in the range of no less than between £2 billion and £5 billion per year, with one-off transitional cost of between of £1.5 billion and £2 billion. The individual customer and/or small business will have to bear these costs. However, I hope that the benefit will be increased financial stability. No one should underestimate how close the UK banking system came to collapse in 2008, and this can never be allowed to happen again.
Government Spending Review 2013
Lord Northbrook Excerpts(11 years, 4 months ago)
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Lord Northbrook
My Lords, after that global tour de force from my noble friend Lord Flight I am going to focus, rather more boringly, on the details of the 2013 spending review. Like my noble friend Lord Higgins, I do not underestimate the difficulties that the Government face in cutting the huge debt mountain that they inherited.
As part of the programme to cut the Budget deficit, the departmental cuts have been difficult but necessary. The deficit has now been cut by a third since the coalition came to power, which I also welcome, but with caveats I will come to later. As other noble friends have said, recent economic figures have been more encouraging, as has been the increase in the numbers employed in the private sector.
Current spending will reduce by £11.5 billion in 2015-16, allowing the coalition to increase capital spending plans by £3 billion a year from 2015-16 and by £18 billion over the next Parliament. The Conservative research department has estimated that the Government will invest,
“over £300 billion guaranteed to the end of this decade”.
I welcome my noble friend Lord Deighton’s expertise in this area, although having been to a recent seminar at the Royal Society the conclusion was, slightly depressingly, that all parties have to agree to this, like Crossrail, so that it is actually implemented. I will, however, argue later in my speech that further significant progress needs to be made in cutting annual managed expenditure so that total expenditure can fall.
The spending review ensures fairness for hard-working people by keeping council tax down for the next two years. This will mean nearly £100 off the average council tax bill over that period. NHS spending is being maintained. Efficiency savings are being reinvested in the front line. Part of the health and social care budgets will be merged, spending £3 billion on joined-up care. The tough new welfare cap, which applies from April 2015, is welcome. The new conditions that are being imposed on jobseekers and the seven-day wait before claiming are useful reforms.
The spending round also prioritises growth. There is a sensible increase in the transport capital budget to 2020, which will encourage road building. The BIS capital budget increase includes big investment in science and apprenticeship funding; and UKTI support for exports, as so clearly described by my noble friend Lord Risby, will be increased. Plans are being set out for the future to support £100 billion of private sector investment in the energy sector.
The IFS has published its usual forensic analysis of the spending review. I will focus first on the departmental spending figures. These show that there is a wide range of outcomes for different departments. There are no cuts overall in 2015-16 for international development, transport and health. Particularly with health, is there not a case for what I understand to be zero-based budgeting before the final figures are agreed?
The other extreme is a near 30% cut in the CLG communities budget. Overall, the IFS estimates that there is an average DEL cut of 2.1% in real terms across departments in 2015-16, on top of an 8.3% average cut between 2011 and 2014. However, capital spending has been increased while current spending has been cut, unlike in the 2010 spending review. Departmental priorities have been the same since 2010. Some departments are set to be cut by more than a third over five years. One issue confuses me, not being an economist. Can the Minister explain, if he agrees, why the IFS claims that public sector net investment is going to be broadly flat in the next four years when so many capital projects have been mentioned?
I now move on to annually managed expenditure, although I query the word “managed”. According to the IFS, this will increase by no less than 18% from 2013-14 to 2017-18. On the positive front, I welcome some major attempts to control this. The social rent uprating policy will save £1 billion by 2017-18. The seven-day waiting period for unemployment claims will save £765 million by the same date. I also welcome limits to public sector pay increases. Capping social security is a positive idea, but why do we have to wait until after the election to put these measures in place? If welfare spending has been allowed to rise undesirably, forcing an active decision could lead to better policy-making. Surely it is better to review all spending frequently, regardless of whether it is higher or lower than forecast, or at least to cap individual components. In addition, which areas exactly are being capped?
On the negative side, as my noble friends Lady Noakes and Lord Flight have already mentioned, public sector pensions will continue to be a huge burden on the state. They mentioned the figures. In a recent CPS publication in 2011, Michael Johnson stated that the shortfall between contributions and payments for public sector pensions was £8 billion. This figure, as my noble friend Lady Noakes mentioned, was fairly insignificant in 2005—about £200 million—but will rocket to £15.4 billion in 2016-17. Even that £15.4 billion figure is net, with the amount being paid by the employer—the state—deducted. The true figure, according to Michael Johnson, will have increased by £17.2 billion to £32.6 billion by 2016-17. My noble friend Lord Newby, I think, was asked during the passage of the Public Sector Pensions Bill what the government figure for this was and said he would look into it. As I understand it, we have not had any reply to that and I wonder whether we could have one from the Minister either today or in writing.
Mr Johnson believes that OBR figures do not take account of the DWP’s White Paper on the single-tier pension last January. This will add another £9 billion, due to some very technical but highly credible unforeseen changes in connection with NIC rebate circularity, single-tier pension transition costs and increased life expectancy. I will not burden the Committee with those details. Mr Johnson calculates the extra costs, within a decade, as being at least £41 billion, an increase of £1,600 a year for every household in the UK. Hence, if you strip out the benefit of transferring the Post Office pensions, where the Government have banked the assets of the scheme but, I understand, not the liabilities, the impact on actual public sector net borrowing position is such that the Chancellor, overall, is mid-way through a two-year suspension of deficit reduction.
The IFS concludes that further cuts are expected beyond 2016. Total spending is approximately frozen in real terms, but annual managed expenditure is increasing. In the absence of further policy action, this implies that there will have to be further departmental cuts. To avoid these would mean tax rises of £25 billion. If tax increases are not made and certain departmental spending continues to be protected—schools, the NHS and overseas development—other departmental spending would have to be cut by almost 15% over two years, which is 8% overall. I do not expect the Minister to give me a response as to which of the options will be taken, but these are daunting figures and choices.
Finally, I echo the comments of my noble friend Lady Noakes that on the supply side we need more tax reform and deregulation, and like my noble friend Lord Higgins, I do not underestimate the difficulties the Government face.
Economy: Growth
Lord Northbrook Excerpts(11 years, 9 months ago)
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Lord Northbrook
My Lords, I welcome this opportunity to discuss the UK economy and the Government’s role in promoting growth. Before I do so, I should like to extend a warm welcome to the noble Lord, Lord Deighton, in his new role as Commercial Secretary to the Treasury. His success as the chief executive of LOCOG in delivering the Olympic Games and the Paralympic Games last year deserves high praise. His previous eminent position at Goldman Sachs will also stand him in good stead not only in understanding the UK economy but also globally with his former firm’s contacts in, for instance, the US Government. His role is to lead on infrastructure and economic delivery, but I hope that he will also have time to assist our deliberations on the all-important banking Bill coming before your Lordships’ House later this year. His experience and background will be a vital influence on the success of that legislation. My noble friend Lord Sassoon has set him a high standard to follow, but I know that he will be more than equal to the task.
I move on to examine the state of the UK economy. Clearly, the latest GDP figures were disappointing. According to the FT, it was small and troublesome sectors, such as construction, and North Sea oil, which were particularly affected by maintenance problems, that had a big impact on the quarter. Excluding those, the economy actually grew by 0.7% over the last three months of 2012—a better performance but not a healthy one. However, it is encouraging that, according to the ONS, our volume of exports to non-EU countries has increased by around 35% since 2009, and I hope it will continue to be a source of strength.
There are some other, more encouraging signs according to the FT: broad money supply growth is picking up and mortgage rates have fallen as the Bank of England’s funding-for-lending scheme starts to help the flow of credit from banks to the real economy. The FTSE index of leading companies is at its highest level in four and a half years and there are signs of recovery in some major economies. The other bright spot is that people are continuing to find jobs. Half a million more people are in work compared with a year ago and these jobs, according to the ONS, have all been created in the private sector. I am not an economist but I find it difficult to reconcile the continuing poor GDP figures with the continuing good news on private sector job creation. I am not sure whether the diagnosis of the noble Lord, Lord Skidelsky, is correct.
Public sector net borrowing has also fallen from its 2009-10 peak of £159 billion to an OBR forecast of £108 billion for 2012-13. That is a major improvement but the one-off factor of the Royal Mail deficit transfer has helped the figures. However, unless growth picks up, I see that borrowing will decline much more slowly. Table 4.18 in the OBR December 2012 forecasts shows that it is not overall public sector current expenditure that is decreasing but the rate of increase in this expenditure. Therefore, if the economy does not grow, public sector net borrowing will not decrease significantly.
However, the Autumn Statement contained the most encouraging measures that the coalition has produced to encourage growth. The £5.5 billion capital package and support for long-term private investment in roads and science infrastructure is very welcome. The cancellation of the 3p rise in fuel duty was well received, especially by small businesses. The cut in corporation tax and the significant increase in investment allowance will be of great help to companies. The idea put forward by my noble friend Lord Heseltine of devolving a greater proportion of growth-related spending to local areas from 2015 has been welcomed by the CBI. However, I maintain my concern about whether the quality of the local enterprise partnerships, which have replaced the regional development agencies, are up to the task.
Measures to ensure that businesses—particularly smaller businesses—can access finance and support include plans to create a business bank, deploying £1 billion of additional capital. In addition, the Autumn Statement included funding to enable UK Export Finance to provide up to £1.5 billion of loans to finance small-firms exports. Both measures were particularly welcomed by the Federation of Small Businesses.
Looking at Labour’s reaction to the Autumn Statement from Ed Balls, and listening to the noble Lord, Lord Eatwell, I note their criticism, but I have yet to see a detailed Labour Party alternative plan to get us out of the mess that they created. Their general alternative seems to be to spend more. This is a dangerous path to pursue since it could well lead to our borrowing costs going up considerably.
I move on to the second part of the debate—the Government’s role in promoting growth. I am not of the belief that the Government should intervene to pick industrial winners. In a paper entitled Industrial Policy in Europe Since the Second World War, written last year, Geoffrey Owen of the LSE makes a tour through UK, French and German industrial policy since 1945. His conclusion is that, in the main, government intervention has not worked and that, instead, it would be far better to create the right economic conditions for the industry that I referred to a moment ago. UK government intervention failures included the de Havilland Comet, Concorde, the advanced gas-cooled reactor, British Leyland and ICL. British Aerospace and Rolls-Royce were the major successes. So, with some exceptions, these interventions were generally unsuccessful. Policy- makers tended to overrate the risks and costs of market failures and underestimate those associated with government failures. There is also a mistaken assumption that there were certain technologies that a country somehow needed to have, and that they were more likely to be achieved through centralised direction than through competitive markets. The cost to the taxpayer of ill-judged industrial policy was high.
I believe that it is more important for the Government to create the right business regime to encourage growth through simple and lower taxes, less but sensibly targeted regulation, speeding up the planning application regime—as my noble friend Lord Wolfson mentioned—better business education and encouraging bank lending.
We must not allow ourselves to become too pessimistic. I conclude by giving two examples of company bosses—at completely opposite ends of the spectrum in terms of size—who, despite their concerns, feel optimistic for 2013. Rob Law is a businessman who was turned down by “Dragons’ Den” but has still done well in the field of producing children’s suitcases. He summed up matters well in a recent interview in the Hargreaves Lansdown investment magazine, saying:
“I think the holy grail for government is to simplify the tax system. When you start out in business, unless you have an accountancy background, which most people don’t, it is hugely complicated. I think if you had a simpler tax system, you’d get a lot more multinationals coming here”.
Despite his concerns, his company has done well. He goes on to say:
“We’ve had a brilliant year”—
in 2012.
“We started production in the UK, grew our team to about 30 people and launched a couple of new products. We are now exporting to 97 countries”.
At the other end of the experience scale, Sir John Parker, chairman of Anglo American, has recently made some very optimistic comments. He has said:
“I think we mustn’t become too pessimistic. There are some reasons for optimism ... I think the fundamentals for UK companies are looking stronger than for many years. Non-financial companies have been generating significant cash surpluses over the last few years. Whilst profits have recovered, uncertainty has prompted companies to save rather than invest. But over the next few years I expect this uncertainty to fade, which should encourage companies to start investing again. I regard this as the key to a sustained economic recovery in the UK in the medium term”.
Financial Services Bill
Lord Northbrook Excerpts(12 years ago)
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Lord Flight
My Lords, Amendments 78A and 79A are supported by the Listing Authority Advisory Committee to the FSA, which is an external committee appointed by the FSA. The amendments have the objective of permitting the FCA going forward as the listing authority to have regard to the international character of capital markets and the desirability of maintaining the competitive position of the UK in international capital markets.
The advisory committee is concerned that without the amendment the FCA, when regulating, will not have the power to consider UK competitiveness in international capital markets and could in fact be challenged for doing so unless the issue is specifically covered. Under current legislation, the listing authority is separately set out in FiSMA, while most legislation under FiSMA is about the regulation of those conducting various forms of standard financial services businesses. The listing function is a very different role, though; it is about setting the rules for and regulating listed companies as the issuers of securities, both debt and equity, where issuers obviously have choices as to the markets in which they opt to access capital. Hong Kong in particular has become an even more important financial capital than London, which also faces great competition from New York.
At present, under Section 73 of FiSMA, the FSA is obliged to have regard to market competitiveness and the UK’s position in carrying out this function. These two amendments would leave the listings authority’s role and function substantially aligned with the rest of the FCA but would reflect the fact that this part of the FCA’s function is about regulating listed companies, not the financial services industry. It is different and should have competitiveness not as an objective but simply as a matter to which the FCA should have regard.
This may sound a slightly obscure point but the chairman of the Listing Authority Advisory Committee is concerned that unless this particular, slightly different responsibility of the FCA going forward is given at least the steer to have regard to international competitiveness, it will not be covered by the wider parts of the Bill requiring the FCA to have competitiveness as an objective. I hope that the Minister will be able to give comfort that the wider competitive objective covers the particular listing authority context of the FCA. If not, I hope the Government might consider this somewhat offbeat territory. I beg to move.
Lord Northbrook
I support my noble friend Lord Flight’s amendment. It is important that in this area the FCA should have regard to the international character of capital markets and the desirability of maintaining the competitive position of the United Kingdom.
Lord Sassoon
My Lords, Amendments 77A and 79A would reinstate an existing “have regard” that applies to the FSA in its capacity as UK listing authority as a “have regard” applying to the FCA’s listing work. This “have regard” is a requirement to take account of the international character of capital markets and of UK competitiveness. I can assure my noble friend that these amendments are not needed. As we discussed in Committee, the FCA and the PRA will be bound to have regard to the regulatory principle that any burden they impose should be proportionate to the benefits that flow from it. The proportionality principle will apply where a requirement would have an effect on UK competitiveness that would be a burden, and the same need to ensure that the burden was proportionate to the benefits would apply.
In addition, last week we debated and agreed to make an amendment to the Bill to add a new regulatory principle giving the regulators the duty to have regard to the desirability of sustainable UK economic growth. My noble friend was good enough to welcome that amendment, which I assure him will also encompass international competitiveness in the appropriate way in relation to listing as well as more generally. I think that that answers the direct question he posed to me. My noble friend refers to the London Stock Exchange and my understanding is that, although it was rightly concerned about the removal of the listing authority competitiveness “have regard”, it has welcomed the new regulatory principle. I hope therefore that my noble friend will agree to withdraw his amendment.
Financial Services Bill
Lord Northbrook Excerpts(12 years, 1 month ago)
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Lord Northbrook
My Lords, I rise to support my noble friend Lord Flight in his Amendment 190A. As far as I can see, Clause 62 currently contains no reference to consulting the financial services industry or, where appropriate, consumers in this area. I think that the clause should be amended to this effect as it is a useful and important potential extra area of consultation.
Lord Sharkey
My Lords, my noble friend Lord Flight seeks to amend Clause 62(6). The paragraph states that the MoU that we are discussing,
“need not make provision about co-ordination between the FCA and the PRA in relation to membership of, or relations with, the European Supervisory Authorities”.
However, subsection (1) of the same clause states:
“The Treasury, the Bank of England, the FCA and the PRA … must”—
I emphasise “must”—
“prepare … a memorandum describing how they intend to co-ordinate the exercise of their relevant functions so far as they relate to membership of, or relations with, the European Supervisory Authorities”,
and some others. On the face of it, these two paragraphs appear to directly contradict each other. I am sure that that is not actually the case, but I would be very grateful if my noble friend the Minister could explain why there is no contradiction here and perhaps also explain the purpose of subsection (6).