Barnett Formula

Debate between Lord Peston and Lord Newby

Monday 3rd November 2014 Lords Chamber

[Lord Newby]

My Lords, as the noble Lord knows, a very significant review of funding in Wales was undertaken by Gerry Holtham, which suggested that Wales would be getting a fair degree of funding if it was approximately 114% of that in England or more—I believe that that is the right figure. I believe that, certainly this year and next year, that figure will be met.

[Lord Peston (Lab)]

My Lords, I thank my noble friend for his Question, with which I know for a fact that my noble friend Lord Barnett was in total agreement. I also thank the Minister for his kind remarks, because he might be forgiven for thinking that one of Lord Barnett’s missions in life was to make his life a total misery. Lord Barnett will be remembered for his formula, but those of us in this House will surely remember that he contributed to a vast number of other topics and therefore deserves to be remembered for all that as well. I think we all agree that he will be missed much more than, perhaps, some of us when our time comes.

[Lord Newby]

My Lords, I absolutely agree with the noble Lord that Lord Barnett was a formidable parliamentarian across a range of subjects.

Bank of England

Debate between Lord Peston and Lord Newby

Thursday 30th October 2014 Lords Chamber

[Lord Newby]

Quite, my Lords. The Financial Services Act gave the Bank of England new powers in this area. It is conducting an investigation to see what happened in that unfortunate case and what lessons can be learned for the future.

[Lord Peston (Lab)]

I congratulate my noble friend for raising this Question, but I am sorry to say that I disagree with him. Changing the name of the Bank of England would be economically very damaging to our country. Is the Minister aware that there is a lesson to be drawn from this? It is mainly that making constitutional changes on the hoof is not the right way to do this sort of thing. The next time he sees his right honourable friend the Prime Minister, will he tell him that the way to go on in this area is to think before you speak and not the other way round?

[Lord Newby]

My Lords, whatever one can say about the history of constitutional change in the UK, it has not been characterised by great speed. While there is now considerable urgency in dealing with consequential constitutional change in both Scotland and the rest of the United Kingdom, it will require a commitment by many people across all parties to bring that about—which in the past has been conspicuously lacking.

Tax: Aggressive Tax Avoidance

Debate between Lord Peston and Lord Newby

Wednesday 9th July 2014 Lords Chamber

[Lord Peston (Lab)]

My Lords, on behalf of my noble friend Lord Barnett, and at his request, I beg leave to ask the Question standing in his name on the Order Paper.

[Lord Newby (LD)]

My Lords, the Government have taken a wide range of actions to tackle all forms of tax avoidance. The general anti-abuse rule, which this Government introduced, specifically seeks to tackle abusive tax-avoidance schemes. HMRC has provided examples of the arrangements that will be captured under this rule in its very detailed published guidance. A further example of aggressive tax avoidance is detailed on the front page of today’s Times.

[Lord Peston]

My Lords, the reason that your Lordships are stuck with me and not my noble friend is that he is very ill indeed, and I know that all noble Lords will wish to send wishes that he recovers quickly.

[Lord Peston]

In particular so that he can occupy his usual place and ask some really difficult questions.

In so far as I understand this subject at all, is it not the case that aggressive tax avoidance leaves companies making enormous sums of money and millionaires paying lower rates of tax than those with average or around average incomes? Does this not bring the whole tax system in our country into disrepute? How urgently are the Government trying to deal with aggressive tax avoidance, with a view to punishing those who do it?

[Lord Newby]

My Lords, first of all I ask the noble Lord to pass on my good wishes and, I am sure, those of the whole House to his noble friend.

The Government take this issue extremely seriously. We have invested additionally in this area more than £1 billion over the spending review period, and taken on another 2,500 staff to work on it. The compliance yield that flowed from this work in the past year was £23.9 billion—the highest ever—and we have increased the number of people being prosecuted for tax crime to 2,600 in this Parliament, which has resulted in 2,700 years of jail sentences.

Economy: Interest Rates

Debate between Lord Peston and Lord Newby

Wednesday 18th June 2014 Lords Chamber

[Lord Newby]

My Lords, that is an important point. As I said in answer to the earlier question, any increase in interest rates is likely to be gradual and to reach a new equilibrium that is lower than it was in the past. It is worth saying that mortgage payments are at a historically low level in terms of proportion of income, and that rates would have to rise by 4% to get to the 2007 proportion of income. Nobody, I think, whether it is the Bank of England or independent experts, has suggested that interest rates are likely to rise by that much in the foreseeable future.

[Lord Peston (Lab)]

My Lords, to place this important Question in context, is it the Government’s view that there are two possible aims of economic policy: the first is that we should maintain as high a rate of real, sustainable growth as is feasible, and the second is that we should maintain a stable, low inflation rate? Bearing in mind that those two objectives are not always compatible, what is the Government’s view of what the policymakers ought to be doing at the moment?

Finance: Interest Rates

Debate between Lord Peston and Lord Newby

Tuesday 18th March 2014 Lords Chamber

[Lord Newby]

No, my Lords, I do not think it is. You cannot control both. One of the interesting things about the large depreciation in the pound is that it did not have the impact on the balance of payments that people expected. The rate of exchange is only one of many variables that determine how competitive and successful exports are. All the evidence is that it is not quite as important a determinant as used to be thought.

[Lord Peston (Lab)]

My Lords, as background to this Question, we should remember that when we were debating the 1998 Act the Minister went to great lengths to emphasise that the activities of the Monetary Policy Committee would be scrutinised not only by other place but also by this House. Certainly, when I was chairman of the Economic Affairs Committee—a committee I invented, as the Minister is well aware—we used to see the Governor of the Bank of England regularly. All that is background to a very simple question: when was the last time that the Governor of the Bank of England went to the Economic Affairs Committee and was scrutinised by it?

[Lord Newby]

My Lords, I am afraid that I do not read the papers of the Economic Affairs Committee as assiduously as I should, and I cannot quite remember. My recollection from reading them from time to time is that the governor still goes, although not as frequently as when the noble Lord set up the committee. The committee was established specifically to review the workings of the Monetary Policy Committee; it was not an Economic Affairs Committee—I had the honour of sitting on it with the noble Lord. Although the governor does not come to the committee as frequently as he used to, he still does come—but I shall write to the noble Lord to tell him when the last time was.

Economic Inequality

Debate between Lord Peston and Lord Newby

Monday 10th February 2014 Lords Chamber

[Lord Peston (Lab)]

My Lords, I must apologise to your Lordships for being an economist and for allowing some economics to get into an economics question. Is the Minister aware of the research evidence on these matters, which is that we need some inequality in our society in order to provide a proper incentive system? However, it is possible—and it is almost certainly the case in our country—that we have far too much inequality, which is a disincentive to economic growth. The Government do not seem to understand that, but when the Labour Government take over next year they will understand it and will deal with the matter.

[Lord Newby]

My Lords, that is no doubt why we inherited such rosy economic circumstances.

Bank of England: Monetary Policy Committee

Debate between Lord Peston and Lord Newby

Monday 14th October 2013 Lords Chamber

[Lord Newby]

As the noble Lord says, the governor is now looking at unemployment in terms of when interest rates might change, but there is no iron rule that the moment unemployment rates hit 7%, interest rates will go up. There are three potential arguments which would mitigate against that, of which by far the most important is if the outlook for inflation was higher. As to when we might reach 7%, in August when the Bank of England published its report suggesting this, it thought it would be in the third quarter of 2016. The good news is that since then the economy has grown more quickly, and the consensus is now settling around summer 2015.

[Lord Peston (Lab)]

My Lords, will the Minister cast his mind back to when your Lordships debated what is now the Bank of England Act? My noble friend Lord Barnett and I put down an amendment precisely to achieve the flexibility which is in this command paper. We were not told that the flexibility was already there, which is what the command paper says. We were told that we were idiots, and that the remit of the Monetary Policy Committee was to hit the inflation target—only after that could it look at anything else. The Government have produced a sleight of hand here. I favour it, let me add, but it is a sleight of hand.

Will the noble Lord consider the central question which arises in this context, bearing in mind that the two greatest liberal thinkers of the 20th century, Lord Beveridge and Maynard Keynes, both placed the attainment of full employment at the centre of government macroeconomic policy? Can the noble Lord tell us whether under the new regimen that we are now offered, there is any hope within my lifetime—younger Members may have something more to look forward to—that we shall at last get back to what those two great thinkers said: full employment is a must?

Economy: GDP Forecast

Debate between Lord Peston and Lord Newby

Monday 29th July 2013 Lords Chamber

[Lord Newby]

My Lords, it is worth reminding the House that in the financial year 2011-12 the net debt was £1,106 billion. On current plans, by 2017-18, when the percentage of GDP starts to fall, it will be £1,637 billion, so the noble Lord makes a valid point.

[Lord Peston]

My Lords, is the noble Lord aware that research evidence shows categorically that if you want to get the debt to GDP ratio down, the vital ingredient is to increase the rate of growth of GDP? That is the way to do it. Measures such as raising taxes or cutting the deficit by cutting large chunks of public expenditure simply do not work. Overall, the lesson we have to learn is that an austerity package is not required; a package concentrating on raising GDP is the correct policy.

[Lord Newby]

I am sure that the noble Lord will therefore have been very pleased to have seen the growth figures last week. I point out to the House that a key factor in growth is the level of interest that people have to pay and that, as a result of the Government’s decisive action in 2010, interest rates have fallen compared with the forecast, as a result of which we will, by 2015-16, have paid £31 billion less in interest payments than was expected in 2010-11.

G8: Eurozone and UK Growth

Debate between Lord Peston and Lord Newby

Tuesday 2nd July 2013 Lords Chamber

[Lord Newby]

I am extremely grateful to my noble friend for that suggestion, which I shall pass on to my ministerial colleagues in the Treasury.

[Lord Peston]

I know I do not have to tell the noble Lord not to count chickens, and I know I do not have to remind him that good news may be good news but let us wait for things actually to happen. However, to be serious about this subject, surely what is needed is for Britain to get back on to its long-term sustainable rate of growth and, better still, to raise that long-term sustainable rate of growth. Neither of those things can possibly happen for the next three years, despite what the noble Lord opposite said about supporting current policies. Would it not be a good thing if, instead of the individual countries of Europe all going their own separate ways, we at long last had, as was intended when we set up the Common Market, a joint European economic policy? I think that that would lead to major growth throughout this continent.

[Lord Newby]

My Lords, the Government support the efforts being made within the eurozone to develop closer economic co-ordination and they obviously also support some of the measures announced at the last EU summit, which will, to a limited extent, support the combating of youth unemployment.

Sterling: Exchange Rate

Debate between Lord Peston and Lord Newby

Tuesday 25th June 2013 Lords Chamber

[Lord Newby]

The UK exchange rate has fallen by about 20% since 2007. It was hoped that that would give a big stimulus to exports; it has given some, but not as much as we would have liked. On China, our trade to China over the past three years has increased by 76%. In April, for the first time, trade in goods to China reached £1 billion in a month. The access to China is proving rather better than the access to some other countries.

[Lord Peston]

I congratulate the noble Lord on his answer, which seems to me for once to be entirely right. The exchange rate did collapse but it had no noticeable effect on improving the balance of payments, as he said, because the supply side of our economy has not been able to respond. Apart from that—theoretically—we do not know whether it is the balance of payments that affects the exchange rate, the exchange rate that affects the balance of payments, or whether it is the two interacting. In other words, we do not know very much about this at all. A sensible Government will therefore concentrate on trying to improve the supply side of the economy and leave the exchange rate to go where it will.

Taxation: Income Tax

Debate between Lord Peston and Lord Newby

Monday 24th June 2013 Lords Chamber

[Lord Newby]

My Lords, I think that the noble Lord overestimates my drafting skills.

[Lord Peston]

My Lords, according to this bit of paper the original Question asked “what assessment” the Government have made. As far as I can see, they have made no assessment. Does the noble Lord remember, from whenever he learnt some economics, that economic theory does not tell us anything at all about the optimum rate of tax? This is because people with a greater preference for leisure will work less and pay less tax, if you cut the tax. That is why economics and economists are such a pain in the neck.

[Lord Newby]

My Lords, I could not possibly comment on that last point. I refer the noble Lord, and indeed all other noble Lords, to the extremely comprehensive assessment made by HMRC last year, entitled The Exchequer effect of the 50 per cent additional rate of income tax.

Economy: Fiscal Framework

Debate between Lord Peston and Lord Newby

Tuesday 4th June 2013 Lords Chamber

[Lord Newby]

My Lords, as the noble Lord said, we have a floating exchange rate. The Government do not set a target for the exchange rate; it responds to economic circumstances, including the decisions taken by the independent Bank of England.

[Lord Peston]

My Lords, given the economic mess that the Government’s policies have got the whole country into…

[Lord Peston]

Oh yes. I hope I do not have to remind the coalition how long it has been in power and it is about time it accepted some degree of responsibility. Some flexibility in the fiscal framework is called for, and the obvious flexibility is to extend the planning horizon—I advise the Government on this with no charge—to the whole length of the business cycle so that we could have some expansionary fiscal policies now, followed, in due course, by further fiscal adjustment. That is the way we ought to be going, and the sooner we have a Government that does it, the better.

[Lord Newby]

My Lords, the Government have pushed back the period during which we are going to eliminate the deficit. The rate at which we are doing it, at about 1% of GDP per annum, is exactly in line with IMF guidance to countries that find themselves in the position that we do.

Banking: Quantitative Easing

Debate between Lord Peston and Lord Newby

Wednesday 27th March 2013 Lords Chamber

[Lord Newby]

I can absolutely give that assurance.

[Lord Peston]

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

[Lord Newby]

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

Bank of England: Monetary Policy

Debate between Lord Peston and Lord Newby

Tuesday 19th March 2013 Lords Chamber

[Lord Newby]

My Lords, as I said in my original Answer, operational responsibility for monetary policy is a matter for the independent Monetary Policy Committee of the Bank of England, not for the Treasury.

[Lord Peston]

My Lords, bearing in mind that Section 19 of the Bank of England Act 1998 gives reserve powers to the Treasury to give directions to the Bank of England, am I right that those powers have never been used? I am pretty sure that I am right. Does it not follow that the failure—despite the fact that the Act says that this is the MPC’s objective—to hit the inflation target for three years without the slightest sign that it will be hit for the next two years, coupled with monetary easing, is down to the MPC?

[Lord Newby]

My Lords, inflation has been higher than the 2% target for a number of years. The MPC has taken the view that the target would be met in the medium term and that, because the principal reasons for inflation did not include excessive domestic demand and are therefore less capable of being moderated by increases in our own interest rates, it was wiser to “see through” the temporary increase in inflation above 2% but to work, as the MPC has, on the basis that, in the medium term, inflation would indeed come down to 2%.

Regional Development

Debate between Lord Peston and Lord Newby

Tuesday 12th March 2013 Lords Chamber

[Lord Newby]

My Lords, it is a very great disparity—and a disparity, as the noble Lord knows, of very long standing. The good news in terms of Wales is that in 2010 and 2011 GVA grew faster per head than in either England or Scotland, so there is a bit of progress. However, changing and reversing those regional disparities is going to be a long job and it will take a large number of measures to achieve it.

[Lord Peston]

My Lords, my noble friend asked the Minister a very good economics examination question, to which I am glad to see the Minister tried gallantly to find an answer. It is a very difficult question. Is he aware that most economists would argue in favour of the so-called convergence theory that free markets would lead to the right outcome and there would be convergence of the different regions? The only trouble with that marvellous theory, like so much economic theory, is that it is totally refuted by the facts. What the facts show—and this is a problem for any Government—is that once a region is ahead, it stays ahead. It is rather like the fact that very few teams win the Premier League, even though everybody could play marvellous football just by copying the best teams. Does that not mean that while the Government should intervene, particularly with infrastructure investment biased in favour of the relevant regions, they must proceed with the utmost caution in interfering with the way the markets are working?

[Lord Newby]

My Lords, as the noble Lord will be aware, we have had active regional policies to a greater or lesser extent in the United Kingdom since the 1960s. When I studied this at university, the figures were very much in my mind. The reason it is such a difficult issue to deal with is that, for example, in the north-east the proportion of people employed in the basic industries—mining, steel, shipbuilding and engineering—fell from something like 33% to well under 10% in a couple of decades. The challenge for government in trying to reduce regional disparities is how to put in place the kinds of long-term policies, such as infrastructure apprenticeships, that can begin to redress these wider economic forces. However, I do not think that government can reverse them, certainly not in the short term.

Bank of England

Debate between Lord Peston and Lord Newby

Tuesday 22nd January 2013 Lords Chamber

[Lord Peston]

My Lords, would the Minister care to reflect on the irony of what he and government spokesmen are generally saying? The Europhobes on the government Benches are terribly upset with the idea that Brussels wants to get, and is getting, too involved in the determination of our economic policy, but is not our economic policy being driven by a quite different group—namely the credit rating agencies, which have no democratic legitimacy whatever and whose operations would not bear the slightest scrutiny if ever we were able to examine them properly? Is it not about time that the Government put the needs of our economy first and not the needs of the credit rating agencies?

[Lord Newby]

My Lords, the Government do not put the needs of the credit rating agencies first. The Government are seeking to promote growth within a stable framework while reducing the deficit. We do not know what the credit rating agencies are going to do, but I can assure the noble Lord that people in the Treasury are not spending every night awake worrying about them. They are expending their efforts on promoting growth on the basis of a reducing budget deficit and a credible long-term macroeconomic policy.

Economy: Effect of US “Fiscal Cliff” Solution

Debate between Lord Peston and Lord Newby

Tuesday 8th January 2013 Lords Chamber

[Lord Newby]

My Lords, the noble Lord will recall that in the Pre-Budget Statement my right honourable friend the Chancellor announced another £5.5 billion of additional capital spending on roads, science infrastructure and schools, and that earlier in the autumn we passed an Act providing guarantees for £40 billion for infrastructure and another £10 billion for housing. The Government are making considerable efforts to increase the amount of infrastructure activity.

[Lord Peston]

My Lords, as a life-long opponent of the death penalty, I might make an exception for whoever—I hope it was not an economist—invented the expression “fiscal cliff”. Do the Government accept the analysis that if the US goes more deeply into recession it will have devastating adverse effects on the whole of the European economy and no policy envisaged by this Government would be any use whatever?

[Lord Newby]

I think the noble Lord slightly overstates it. The fiscal cliff—elegant or inelegant—has been avoided and the expectations and the forecast for the US are that it will see relatively modest, but substantive, growth in 2013. As the noble Lord will know, the latest employment figures in the US suggest that there has been a significant addition to the number of people employed. Therefore, the chances of the kind of meltdown in the US economy that he is worried about look extraordinarily remote.

Banking: Regulation

Debate between Lord Peston and Lord Newby

Monday 10th December 2012 Lords Chamber

[Lord Newby]

My Lords, one of the general problems that we are grappling with is that bankers seem to think that they live in a different world to the rest of us and that they should be able to avoid not just censure but charges if they have done something that is criminally wrong. That is why in the recent Financial Services Bill we introduced new provisions to deal with people who have manipulated the LIBOR rates so that, when the whole episode is fully looked into, if criminal action is necessary, it will for the first time be able to be taken against people who have cheated the system.

[Lord Peston]

My Lords, bearing in mind the global nature of the whole financial services sector, and certainly of the banking sector, in the Government’s opinion does any central bank or other financial regulator, acting on its own, have any chance of success? Must not the future basis of regulatory policy be one of international co-operation between the regulators and the central banks?

[Lord Newby]

Yes, my Lords, I completely agree. One of the things that the banking crisis has demonstrated is that the banks understand the international situation better than Governments understand it. One of the things that we have been trying to do, both through the EU and internationally, is to close that gap. No doubt the noble Lord has seen the article in the FT today by Paul Tucker from the Bank of England and Martin Gruenberg, the chair of the Federal Deposit Insurance Corporation in the States, which looks specifically at how you deal with resolving problems concerning the largest systemically important banks in the world.

Financial Services Bill

Debate between Lord Peston and Lord Newby

Monday 26th November 2012 Lords Chamber

[Lord Peston]

I am having great difficulty remembering what the rules are. If the Government meant that, why did they not say it? The subsection refers to “any goods or services”, not “any financial services” or “only financial services”. I assumed that it had a meaning, but the Minister is now telling me that it does not. Is he sure that he wants to give the answer that he is giving?

[Lord Newby]

My Lords, I am sure that the phrase has a meaning, and I like to think that it is the meaning that I just ascribed to it. I will look at it again, and if I find that I have misled the noble Lord and the House, I will write to him. As with so much of the Bill, this is an extremely technical section. However, I am assured and believe that it relates only to the financial services sector.

I referred to the comments of the noble Lord, Lord Borrie, about the importance of allowing the competition bodies to take the lead in certain cases. That in part answered the question of the noble Lord, Lord Barnett, about who was the main regulator. The main regulator is the body that is best capable of dealing with each issue. In some cases that will be the FCA, and in others, it will be the OFT or its successor. For the time being, the OFT and its successor and the FCA will have powers in this area. The logical thing is to let them exercise those powers in the way that will use their experience most effectively.

[Lord Peston]

The Minister does not seem to have answered my other main question. The title of the new section is,

“Advice about effect of regulating provision or practice”.

It refers to advice that the competition authority gives to the regulator; that is what the section is about. Am I right in my interpretation that the section is about the activities of the regulator in damaging competition, rather than about the activities of financial services providers? I sought clarification from the Minister on whether the words in the new section mean what clearly they say about advice from the competition authorities to the regulator. That is what it says.

[Lord Newby]

And, my Lords, that is what it means.

Financial Services Bill

Debate between Lord Peston and Lord Newby

Monday 12th November 2012 Lords Chamber

[Lord Newby]

My Lords, perhaps I may remind noble Lords that the rules of the House are that on Report, Members speak once on an amendment.

[Lord Peston]

We can speak for clarification and to ask questions. We cannot make substantive points.

Financial Services Bill

Debate between Lord Peston and Lord Newby

Wednesday 24th October 2012 Lords Chamber

[Lord Newby]

My Lords, I will start by giving the Government’s response to the first of these two amendments, and then come to the specific points that have been raised by a number of noble Lords.

As noble Lords have pointed out, Clause 74 provides in some detail how investigations should be conducted in order to deliver transparency and confidence, which, as I think everybody agrees, well conducted and appropriate inquiries should bring about. Amendment 192A seeks to add to these requirements by setting out that,

“the regulator must have regard to its regulatory principles”

in carrying out these inquiries, and to act proportionately, reasonably and fairly. I agree that high standards of conduct should apply as much to the conduct of an investigation as to the regulator’s normal regulatory work, but the noble Lord, Lord Hodgson, will probably not be totally surprised when I say that there are two reasons why the amendment is not necessary.

First, on proportionality, we do not believe that it is necessary to put this in the Bill again because the regulator already has to have regard to the regulatory principles in exercising its general functions, and the regulatory principles include proportionality, under proposed new Section 3B. Proportionality is already built in to the way that the regulator does everything so we do not think it is necessary here.

Secondly, as the noble Lord has set out, and we have set out before, public law already requires regulators to act reasonably, and the principles of natural justice require the regulator to deliver procedural fairness. The noble Lord talked about the problem of judicial review. I think everybody agrees that if you have to initiate a judicial review, this is an extremely expensive, long, drawn-out process, but if the noble Lord’s amendment was accepted, my understanding is—I may be wrong—that if the regulator were to be challenged it would be under a judicial review anyway, so the same problem would arise. The noble Lord, Lord Flight, said that this amendment was a question of belt and braces. We agree, but in legislation you do not need belt and braces—you need a good belt or good braces, and we think we have got that.

The other thing that is possibly slightly confusing is that the investigations we are talking about in this part of the Bill are investigations into regulatory failure rather than the conduct of firms. The noble Lord, Lord Peston, asked whether an investigation would come into the public domain. The real concern, which we have debated before, relates to the conduct of business of a company—has it been misbehaving?—which is different from the issue of regulatory failure, which is what Clause 74 deals with.

[Lord Peston]

The noble Lord did say that this will be an investigation into regulatory failure. Therefore, the investigator is investigating himself or herself. After all, who has failed? It is the regulator.

[Lord Newby]

My Lords, we come to the noble Lord’s point which concerns Clause 73(2)(b). The architecture is that the regulator will look at the failure of firms and regulatory failure. We have seen this with the work the FSA did on RBS. It produced a comprehensive report on what it saw as regulatory failure. Although there were arguments about what would or would not be published, in terms of whether the regulator did a good job and whether it is capable of doing so, the answer we would draw from that investigation is that it did do quite a good job. There will be many cases when it is appropriate for the regulator to look back at what has happened in the past—

[Lord Peston]

I am sorry to interrupt the noble Lord, but I am trying to get some sense of reality about this. It is the Treasury that considers that something needs to be done. Therefore, the Treasury must suspect something. Where, for example, does the Treasury get its information from, for it to feel that it has to issue this directive? What does the Treasury know that the regulator did not? Then it tells the regulator to look at something because it observes regulatory failure. The whole thing seems to be an intellectual mess. That is my point. It is not necessarily the point that was made by the noble Lord, Lord Hodgson. Like my noble friend Lord Davies, I am keen to have a powerful and effective regulatory system. I am also keen that we do not have a botch of a regulatory system. What we have said on the previous two Committee days on the Bill is that we think quite a few aspects of this are a botched job. Is that going too far in criticising? I do not think so.

[Lord Newby]

My Lords, the noble Lord asks a number of questions. First, why might the Treasury have a role and why is the regulator not doing it already? There may be a number of occasions when the Treasury first gets information from somebody and wants to tell the regulator. There are some occasions when the Treasury might want to prod the regulator into action. I have been critical of occasions when I felt the regulator has not moved as quickly as I would have liked in undertaking investigations. This part of the Bill enables the Treasury to give it a kick if it is needed. The other point, which is a valid point, is that if there is a really serious problem of regulatory failure, this is not the only way in which the Treasury can make sure that an investigation is undertaken. The Treasury can appoint any kind of investigator that it wants. This part of the Bill simply explains how the Treasury operates and the rules which apply if there is a lesser regulatory failure which probably happened some time in the past, where it seems appropriate for the regulator to have a look. I understand the noble Lord’s concerns, but he should not be as worried as he is.

I will respond to the second amendment in this group, which we have not debated at great length. It seeks to add to the grounds on which the regulator may decide to postpone or suspend an investigation if the investigation did not meet the principles by which the investigator must abide. Unlike with the previous amendment, where we agree with what the noble Lord seeks to achieve but do not think that he needs to have his belt and braces, we think that this amendment could have perverse and unexpected effects by enabling the regulator to stop an investigation for any reason it wanted. For example, it could realise that an investigation was going to be very time-consuming and burdensome, perhaps because of the level of detail involved. Under this proposal, it could end an investigation and argue that it was doing so because the investigation breached its principle on economic and efficient use of resource. For those reasons, we cannot support that amendment.

A number of noble Lords, including the noble Lords, Lord Hodgson and Lord Flight, expressed broader concerns about the FSA and the noble Lord, Lord Hodgson, quoted Lex in aid of that. The noble Viscount, Lord Trenchard, and the noble Lord, Lord Peston, said that the FCA should have regard to competitiveness. These are broader issues that go beyond the scope of the amendments, but on the concerns expressed by Lex, I can understand why people are at this stage worrying about whether the balance that the regulators strike between the interests of the firms and those of the consumers of their products is right. We are pretty confident that it will be. The noble Lord, Lord Davies, pointed out that it is important that the regulators are rigorous and balance the interests of the firms and those of their consumers. The way in which the Bill is structured should enable them to do that and we are confident that they have that very much in mind.

Competitiveness has been debated previously and we have already agreed that we will look at this issue, particularly the degree to which the PRA and FCA should have regard to the importance of economic growth. We have said that we will return with further amendments in this area on Report, when we will no doubt have an extremely interesting debate on them. For today, however, I hope that the noble Lord, Lord Hodgson, will decide not to press his amendments.

Infrastructure (Financial Assistance) Bill

Debate between Lord Peston and Lord Newby

Tuesday 23rd October 2012 Lords Chamber

[Lord Newby]

I hope that my speech will answer the noble Lord’s question adequately.

Firms will have access to the communications and transport networks that they need, wherever in the UK they happen to be, enabling Britain to compete on the world stage.

Our national infrastructure plan published last November sets out an ambitious but credible roadmap to deliver on that vision—a pipeline of upcoming investment worth £257 billion in crucial large-scale projects, of which more than two-thirds will typically be financed and delivered by the private sector.

A number of key infrastructure projects close to starting construction are being delayed because of the difficulties they face in securing the finance and investment required, and the housing market continues to suffer from an undersupply of homes to meet the UK’s demographic needs. Even under favourable credit conditions, raising the amount of private finance required to deliver these projects and to meet our overall infrastructure investment goals would be a challenge. However, the disruption caused by the instability of international financial markets and the adverse effect that this is having on long-term debt provision have not abated. Proactive, decisive action by the Government is therefore needed now. The Bill will allow us to take that action and will bring forward the investment needed.

The principal aim of the Bill is to make investment in major infrastructure and housing schemes possible. The Government have agreed in principle, subject to strict approvals criteria, to make financial support available to infrastructure projects using the strength and credibility of our balance sheet to support the investment that we need.

Through this Bill, guarantees provided by the Government will help to ensure that where projects are struggling to access private finance due to adverse credit conditions, these projects can now go ahead. It authorises the Treasury and, where appropriate, other Secretaries of State to incur expenditure necessary for providing financial assistance.

The Bill will allow the Government to support crucial investment in key areas of economic and public service infrastructure: utilities, such as energy and telecommunications; transport, such as railways and roads; infrastructure to provide public services, such as hospitals and schools; and housing development to deliver much-needed homes.

The Treasury estimates that up to £40 billion of investment in infrastructure and an additional £10 billion in housing investment could be accelerated under the guarantee schemes using the powers in the Bill. Importantly, we will put in place strict guidelines and eligibility criteria for the schemes to protect the taxpayer and ensure that the Exchequer does not take on unacceptable fiscal risks.

Any proposal that receives a guarantee from Infrastructure UK will as a minimum have satisfied the following requirements. It must be nationally and/or economically significant; financially credible; good value for money for the taxpayer; not solely dependent on a guarantee to proceed; and ready to start construction within 12 months. Any proposal that receives a housing guarantee from the Department for Communities and Local Government will, as a minimum, need to deliver an agreed number of new homes; undergo an investment appraisal and full due diligence and be subject to ongoing monitoring requirements; meet a risk capital contribution at the outset; and provide recourse to the secured housing assets.

Since the projects that we expect to back will be structured to minimise the potential losses to the Exchequer, there will be minimal impact on public sector net borrowing as a result. The exception is under the extreme circumstances that a guarantee is called upon or other forms of financial assistance are provided, but we expect such circumstances to be rare. Furthermore, the Government will levy a commercial charge. This will cover the services received by infrastructure providers and beneficiaries of the private rented sector housing guarantee. It will ensure that companies pay a fair price for the benefits that they receive, and that taxpayers receive a fair price for any risk being taken. It will also ensure that schemes do not fall foul of EU state aid rules.

The Bill raises a number of questions. The first and most fundamental is: will it work? Is there any evidence that the guarantee being offered will really facilitate the speeding up of infrastructure projects? There is already substantial evidence that it will. Infrastructure UK has received some 60 enquiries from projects that might qualify, and more are expected. There is also strong interest across the housing sector. Negotiations on these projects are ongoing so it would be inappropriate at this point to run down a list but, as an example of the kind of thing that is likely to benefit, we have indicated that the Crossrail rolling stock and depot services procurement meets the eligibility criteria.

A number of people have asked why the Bill is necessary at all. Can the Government not already do this kind of thing without explicit legislative cover? The Treasury and Secretaries of State already have common-law powers to make guarantees, make loans and give other financial assistance. In addition, some Secretaries of State have express statutory powers to support infrastructure. However, the Treasury does not have the authority to incur expenditure in relation to guarantees on the scale that I have outlined. Moreover, there is a longstanding convention—

[Lord Peston]

The noble Lord was kind enough when I asked him why we needed a Bill to point me to an answer given in the other place, which I have to tell him I found completely incomprehensible. I am still stuck. Will he say in terms that we need a Bill because of the scale of the operations? Is he willing to place on record that that is the point and it is the size of the operations which requires legislation? I find that very odd but at least I would like to hear him say it.

[Lord Newby]

It is partly the scale of the operations and the length of the guarantees, and also because the current rules have gaps in them, as I understand them, or there are certain parts of the whole infrastructure world, as it were, that are not covered by the existing rules. To finish my sentence, there is a longstanding convention known as “Baldwin cover”, dating back to 1932, that Governments should not rest significant and regular expenditure under common-law powers on the sole authority of general supply legislation. That is the noble Lord’s point. It is significant and regular guarantees, not expenditure, that could have a very long period of operation.

Questions have also been raised about what kinds of project can potentially be covered by this legislation. In particular, the Institution of Civil Engineers has asked about what constitutes a nationally significant project—a phrase that does not appear in the Bill but did appear in last year’s national infrastructure plan. I should make it clear that projects that could potentially benefit from this Bill are not limited to the nationally significant projects identified in the national infrastructure plan. In addition to the areas covered by the plan, we will be prepared, for example, to look at waste management and university projects that are economically viable and simply want for finance. As to the scale of project that can potentially benefit, again there is considerable flexibility. A project does not necessarily have to be valued at several hundred millions of pounds to be considered.

The Bill is one part of the Government’s overall approach to ensuring that the United Kingdom invests in the infrastructure that it needs for the future. I look forward to our debate today and I commend the Bill to the House. I beg to move.

Financial Services Bill

Debate between Lord Peston and Lord Newby

Monday 15th October 2012 Lords Chamber

[Lord Hodgson of Astley Abbotts]

My Lords, my Amendment 187CA in this group relates to another aspect of the operation of the Financial Services Compensation Scheme. The current wording by which the scheme operates gives it a lot of discretion in the way that the costs of the scheme are allocated. Section 213(5) of FiSMA states:

“In making any provision of the scheme … the Authority must take account of the desirability of ensuring that the amount of the levies imposed on a particular class of authorised persons reflects, so far as practicable, the amount of the claims made, or likely to be made, in respect of that class of person”.

There are two get-outs.

I make it clear that this is not about restricting the rights of consumers to obtain compensation. It is a critical and essential part of maintaining proper confidence in our financial system that there are proper and appropriate ways for people to claim and get compensation for mis-selling or other malfeasance. However, the amendment is about ensuring that the polluter pays. It has become more difficult in recent years to trace the allocations and levies made by the Financial Services Compensation Scheme to the particular class of persons and businesses to which they have been applied. Often, there appears to be a shifting of the pea around the plate, with a disproportionate share landing on those perhaps least able to complain. I hope that my noble friend will listen to the amendment with sympathy. The funding system must reflect the differences in risk and instability posed to the public and to the wider economy by firms and the financial products they offer.

I make it absolutely clear that my amendment does not enforce an unacceptable level of correlation. The words “as far as practicable” will remain, and will therefore provide the scheme with a degree of flexibility—a get-out, if you like. However, the additional words, “take account of the desirability of ensuring”, are too woolly. They lead to situations where people feel that the scheme is not operating fairly. Therefore, I would like to see those words replaced by the single word, “ensure”, as a means of ensuring that the Financial Services Compensation Scheme penalises the polluter and not the wider financial community.

[Lord Newby]

My Lords, Amendment 187AB, moved by the noble Baroness, Lady Hayter, would require the Government to notify other EU member states that the limits on compensation payments to charities in the event of a loss of their bank deposits should be reviewed. The noble Lord, Lord Peston, asked what on earth this had to do with the EU. I suspect that he, like me, had not heard of the deposit guarantee scheme directive, which is an extremely valuable piece of legislation. It means that across the EU there is a maximum harmonised limit of compensation per depositor in the case of banks or other financial institutions going bust. It makes sure that across the EU there is a common framework for paying out when organisations get into financial difficulties.

[Lord Peston]

The Minister said that that was a very good idea. I cannot imagine why it is such a good idea. What business is it of the European Union what the taxpayers of an individual country decide they will spend on compensating people who have lost money because of the misbehaviour of banks? Why is it a European issue? I do not want to pursue this because it is a European question that is broader than what the Bill is about. I merely made the rather tart remark that occasionally the overpaid officials in Brussels have to justify their overpaid existence by finding things to do. Otherwise, they might eventually be asked to retire—although I might say that then they get incredibly good compensation arrangements. I was just being my normal tart, nasty self.

Financial Services Bill

Debate between Lord Peston and Lord Newby

Monday 8th October 2012 Lords Chamber

[Lord Newby]

My Lords, I agree strongly with the motivation behind the amendments of the noble Lord, Lord Eatwell. The process for approving new entrants to the market should be streamlined to the maximum possible extent because it is clearly a flaw in the current financial services market that while in many sectors there is strong competition, in some, particularly banking, we wish to see significantly more competition. In terms of giving an impetus to the speedy processing of applications, we strongly support his view. However, I hope that I can persuade him that the Bill already makes it clear how the two regulatory bodies are going to deal with applications for firms that will be jointly regulated. In Clause 9, proposed new Sections 55E to 55G set out in detail who is to determine applications for authorisation, while new Sections 55U to 55Z1 set out the detail of the procedure which the regulators have to follow. We have already attempted to clarify who does what.

Those who are applying to become a dual-regulated firm are required to make a single application for authorisation to the PRA, and there will be a single administrative process. The PRA and the FCA will be under a duty to co-ordinate which will cover all of their functions, including those related to authorisations. They are under a duty to set out in their memorandum of understanding, in high level terms, how that co-ordination will be delivered. To deliver the duty to co-ordinate, the two authorities are required to put processes in place that will allow for efficient co-ordination. They also need to establish a process for authorisation and variation of permission, and to communicate that to firms. The FSA does this at present, and guidance is available on authorisation from its website. I do not think there is a need for an express requirement in legislation about exactly what the regulators should publish.

I shall move on to Amendment 149AC. We are aware that the ESAs are to assist in preparing equivalence decisions relating to supervisor regimes in third countries under relevant sectoral legislation, such as Article 33 of the ESMA regulation. Where EU law provides for the ESAs to have a role in determining equivalence of an overseas regulator, of course the regulators must comply with EU law and recognise that decision. However, we believe that it would be inappropriate to extend the role of the ESAs by requiring our regulators to have regard to any equivalence decisions they make in contexts that are not required by EU law. But, of course, the question is really one of whether the regulatory bodies are going to take account of the overseas regulators supervising those firms which are applying for passporting into the UK. When the FCA or the PRA is assessing a firm seeking to passport in to the UK from outside the EEA, the opinion of an overseas regulator that knows the firm, its operations and its management extremely well is quite likely to be helpful. The FCA and the PRA must also consider how the overseas regulator supervises the firm and take this into account, but in doing so, they may well wish to consider any view that the EU regulatory authorities may have about the overseas regulator.

I turn now to Amendment 150B, spoken to by my noble friend Lady Kramer. The Bill already provides that the regulators may exercise their powers of intervention, including the power to vary permission, at the request of an overseas regulator. In considering any such request, the regulators are required to have regard to whether they are required by EU law to assist the overseas regulator. The relations between the FCA and PRA and the European supervisory authorities, which are not technically regulators in the same way, are set out comprehensively in primary EU law. For example, Regulation 1093/2010/EU establishing the European Banking Authority runs to 82 articles and covers in detail matters such as the role of the EBA in settling disagreements between national competent authorities, the limited circumstances in which the EBA may direct the national competent authorities to take action, the status of the national competent authority when it attends the EBA and the sharing of information between EBA and the national competent authorities. There is considerable scope for our regulators to work with the European supervisory authorities established in EU law. So while I agree with the importance of the two sets of bodies working closely together, I do not think that this amendment is strictly necessary.

We now come to Amendment 151 tabled by the noble Lord, Lord McFall of Alcluith, which, sadly, takes us back to a discussion of the use of the English language. I say sadly because the debate about whether “may” or “must” should be used has exercised some of the finest brains in the Treasury to a greater extent than almost any other provision in the Bill. I found myself getting drawn into the debate and I became extremely enthusiastic about something that I was then persuaded was not of as much significance as I had originally thought.

Amendment 151 is one of the cases where we have looked very carefully at whether we should change “may” to “must”. We have come to the conclusion that to do so would impose a disproportionate and unnecessary burden on the regulator and, indirectly, on existing and potential authorised persons. The reason for this conclusion is that the amendment taken literally—and people do sometimes take these things extremely literally—would require the regulator to consider, when taking a decision on an application for permission or whether to vary or cancel a permission or to impose a requirement on a firm, each relationship which was “relevant” to the matter in hand. The amendment does not introduce any kind of materiality thresholds; all relevant relationships would have to be considered.

Even for a relatively simple provider such as a sole trader IFA, the range of relationships that are potentially relevant to the matter could be very significant. For a complex firm such as Barclays, the range of relevant relationships would be absolutely mind-boggling. Therefore, we think it is very important to retain the “may” to keep proportionality to the level of relationships that would have to be investigated.

[Lord Peston]

My Lords, am I right in thinking that the noble Lord is talking about the “may” on line 27 and that he is well aware that there is a “must” on line 33? I get a bit bored with mays and musts, although I have had my fair share of them. However, I cannot make any sense of them, and if I switched them around, the Bill would look to me just as sensible or not. Could he tell us why the “must” is there?

My other question relates to the point that my noble friend Lord Eatwell made on the importance of regulatory authorities abroad. Is the position at present symmetric? In their regulations and regulated activities elsewhere, do they have a series of mays and musts to take account of what our regulatory authorities say about our firms? In other words, is there any danger that people overseas will prevent our firms competing with their firms under regulations where we are following the quite correct line—which I totally support—that competition is generally to the good? Therefore, we are broadly saying that we must welcome overseas competition rather than reject it. How much danger are we in from the mercantilist views that we know dominate French policy-making and that of others?

[Lord Newby]

My Lords, I can deal with the first part of that intervention more quickly and easily than the second. The first “must” in subsection (2) is there because it is an EU legal requirement. If we are asked to do something, we have to do it; we do not have the option of not doing it. There is a good reason for a “must” there.

With regard to the noble Lord’s second point, I was speculating about the Romanian or Hungarian or Finnish languages as he was speaking and wondering whether there was the same absolute distinction between “may” and “must” in every case. I am not an expert in every bit of regulation in every member state. I realise that this is a major deficiency but I do not think that it pertains very strongly to the amendments before us today. For the second time, the noble Lord has raised a potential other amendment that is not on the Marshalled List. If he will excuse me, I will go back to concentrating on the ones that are.

Eurozone Crisis

Debate between Lord Peston and Lord Newby

Tuesday 17th January 2012 Lords Chamber

[Lord Peston]

My Lords—

[Lord Newby]

My Lords, if there is a collapse in the eurozone—

Banking: Government Shares

Debate between Lord Peston and Lord Newby

Monday 13th June 2011 Lords Chamber

[Lord Peston]

My Lords—

[Lord Newby]

My Lords—

[Noble Lords]

This side!

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Peston and Lord Newby

Monday 6th December 2010 Grand Committee

[Lord Peston]

My Lords, I speak to Amendment 32, which is in my name and that of my noble friend Lord Barnett. When I first saw subsection (3), I must say that I was appalled, in particular by the words “may not consider”. This body is supposed to be independent and, unless we are to get a new form of thought police brought in here, can presumably consider anything that it likes. That does not mean that it should be involved in a report on itself. However, to tell a group—at the moment, a group of three expert economists—that what it can think about is limited by an Act of Parliament is absolutely absurd. I draw the Committee’s attention to what “may not consider” means; that you cannot even think or talk about something and that it has nothing to do with you. This is incompatible with the group’s independence and professionalism. I wonder what serious, self-respecting economist would wish to work under those circumstances. I would not, under any circumstances, be willing to work and be told that. I can remember the sad old days in the Treasury when everybody was told that under no circumstances were we ever to discuss or use the word “devaluation”. It did not have any effect: we just did it privately or secretly, and so on. That was the worst example of this that I can remember.

I was appalled by this subsection and I thought that taking out “not” was the best way of dealing with it. However, the method proposed by the noble Lord, Lord Higgins, is better still: take out the whole subsection. It may well be that we could put in another clause of a more positive nature. It is perfectly obvious that the OBR’s job is to consider the whole issue in the context of government policy, because, as the Minister has emphasised—although I slightly disagree with his logic—the OBR is not a decision-making body, it is just a forecasting body. I do not entirely accept that distinction, as noble Lords are aware, but I can at least see the Minister’s position. I accept what my noble friend Lord Eatwell and others have said; that forecasting is the OBR’s main role. There should not be a clause in what will eventually be a statute telling the OBR what it may consider, unless the meaning of “consider” in the English language has changed. My general view is that the approach of the noble Lord, Lord Higgins, was much better than mine or that of the noble Lord, Lord Barnett. We should remove subsection (3).

[Lord Newby]

We had a long debate on this issue at our previous meeting and I am not going to rehearse all the arguments. I suggested, out of frustration, that we were spending too long on this form of words, which, in slightly more words, actually had the same purpose as Amendment 31. We did not spend any time looking at it, because we were considering the amendments in order. However, Amendment 31 is clear and achieves the purpose that we sought to achieve in our debate last time, which was that the OBR, in making its assessments, obviously should take account of government economic and other policies. Equally, in the context of the second part of the subsection, the OBR’s role should not be what the noble Lord, Lord Peston, thinks it would be. It should not be able to stray and look at anyone’s alternative policies—that way madness lies. The OBR must have a straightforward remit to look at what the Government are proposing and work on the assumptions that the Government are making in their policies.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Peston and Lord Newby

Wednesday 1st December 2010 Grand Committee

[Lord Peston]

My Lords, I am not in the least concerned about the precise drafting of amendments, because all our proceedings in Committee are exploratory. The central point is that the staff of the OBR should be simply the staff of the OBR—end of story. It needs to be made clear that they are not other staff. The purpose of the amendment is to say categorically that these staff are now the staff of the OBR. I take it for granted that they will be full-time rather than part-time staff. This has nothing to do with the chairman or others choosing the best people; it is to do with the status of the staff. That is all the amendment is about. They should be the staff of the OBR and therefore, unless the law is changed, they will not be the staff of the Treasury or of anywhere else. My noble friend Lord Barnett and I would like a simple answer from the Minister. Are the staff the staff of the OBR? That can be answered with a yes or no.

[Lord Newby]

My Lords, perhaps I may ask the noble Lord, Lord Peston, a quick question. Is he opposed to any staff going on secondment from the Treasury to the OBR?

[Lord Peston]

Yes, categorically. The Bill refers to them as the staff of the OBR. We can argue about language, but if somebody asks who my staff are, I say, “He works for me and so does he. They are on my budget and they are my staff”. Sorry, I should have said “she”. If someone said to me, “Actually, they are not, they are Treasury officials on secondment,” I would not regard that as a correct use of the words “my staff”. The Minister may agree with the noble Lord, Lord Turnbull, that the point made by my noble friend Lord Barnett and me does not matter, and may be perfectly happy for them to be on secondment, work part time and so on. If that is the position, I would like to know. My position is that an independent body appoints its own staff, and they are its staff.