(10 years, 7 months ago)
Grand CommitteeMy Lords, when I looked at the amendments that the noble Lord had put down and saw this one, I had a wonderful fantasy that what we were seeing here was Labour adopting the stance of being in favour of tax abuse through the use of NICs. I was already beginning to draft the leaflet that would pin this new policy on the Labour Party. Sadly, having listened to what the noble Lord said, I realised that that was not what he was saying at all.
No doubt the Minister will respond to attacks on the GAAR. I listened very carefully to the speech of the noble Lord, Lord Davies, but did not hear any explanation of why, if the GAAR exists and includes provisions in relation to tax abuse generally, NICs should not be included in it. I understand that the noble Lord does not like the GAAR and does not think that it is effective—but, given that we have it, I am not sure why we should not include national insurance in it.
My Lords, I am grateful to the noble Lord for introducing this debate, because it has given me the opportunity to make a suggestion to him about what we might replace the term GAAR with. I wonder whether he would be happy if instead of calling it GAAR, we called it GREAT, as in Great Britain: the general rule to eliminate the avoidance of tax. If we had done that, we might have satisfied the noble Lord, and summed up our emotion when we think of the new provision.
The noble Lord’s basic argument is that we are not doing enough. As a veteran of debates on GAAR over the past decade, I recollect that noble Lords in the previous Government—perhaps even the noble Lord, Lord Davies—explained to me why the GAAR was totally impossible, completely unworkable and the Government would not countenance it. Indeed, they did not; they did not do anything in this area. The fact that the noble Lord finds this inadequate is slightly sad, given their failure to act in this area.
The noble Lord raised a number of points of failure, as it were, but one of them was in respect of the agreement with Switzerland. The agreement with Switzerland has not brought in as much as was expected, but the Exchequer has received almost £800 million via that agreement. That is £800 million that we would not have had, £800 million that the previous Government showed no inclination to pursue. That is only one of a large number of measures that we have taken to ensure that people and companies who are avoiding or evading tax do not get away with it. In terms of personal taxation, the Lichtenstein disclosure facility has yielded a lot more than was ever envisaged and, along with the Swiss agreement, is part of driving down the ability of those with large resources to avoid tax.
The new automatic information sharing agreements, which have followed the FATCA legislation in the United States, are revolutionising the ability of HMRC to gain information about the tax affairs and bank holdings of British nationals, whether those are held in the Channel Islands or some Caribbean tax havens. Along with the Swiss and Lichtenstein démarche, that will make a big difference to our ability to get the money to which the Government are entitled. On companies, as the noble Lord knows, the work being done in the OECD, particularly on base-erosion and profit-shifting, is aimed to deal with the particularly egregious examples of large multinationals paying very little tax indeed.
As for domestic action, GAAR is only one plank in our overall strategy. HMRC published Levelling the Tax Playing Field alongside Budget 2013 to provide an update on the strategy and to set out the full range of measures being taken in this area. Some people have argued that because GAAR is tightly focused, it will not hit many of the targets and almost gives a green light to other forms of tax avoidance, but if you look at the whole raft of measures that we have taken in Budgets and Finance Bills—most recently, some announcements in the Autumn Statement—it becomes apparent that we have taken measures to protect several billion pounds of Exchequer revenue which might otherwise not have been agreed.
We have, for example, taken firm action to clamp down on stamp duty land tax avoidance, introducing the new annual tax on enveloped dwellings, and continue to close loopholes as quickly as possible after they emerge. In the summer, we publish a consultation entitled Raising the Stakes on tax avoidance, seeking views on proposals for a new set of obligations for promoters of high-risk tax avoidance schemes.
HMRC does an excellent job defeating tax avoidance schemes in court and making sure that people know that many of the schemes simply do not work, but we know that there is much more to do. That is why the consultation also encouraged users of avoidance schemes to settle their tax affairs after similar cases have been lost in court or tribunal. The GAAR is an important step to increase the pressure on the tax avoidance industry, but it is only one step, and we continue to take further action and devote more resources to the fight against tax avoidance in all its forms.
With those reassurances, I hope that the noble Lord will feel that he does not need to press the point.
My Lords, the noble Lord has proposed that Clauses 13 and 14 should not stand part of the Bill. The clauses relate to tax avoidance and the abuse of limited liability partnerships. The Minister will be aware that there is concern among professional organisations, particularly the Law Society—not in relation to the Bill itself, but about what will happen in relation to the regulations that will be brought forward. Noble Lords will have received a briefing from the Law Society, because limited liability partnerships were introduced some time ago for professional partnerships, not primarily for tax purposes but to limit the liability of what were previously general partnerships to actions for negligence. That was the major driver for the creation of limited liability partnerships. Most significant law firms and firms of accountants now operate as limited liability partnerships, so there is clearly concern among them that the definitions of employees and partners should be clear.
I received representations from the Law Society this morning, but the basic thesis is that the consultation exercise to determine how a limited liability partner should be properly treated as a partner, or how they should be treated as an employee, was based on the wrong assumptions. The consultation went out on certain assumptions and the proposals on the implementation of the regulations, which I have not seen, change that basis. Therefore, the consultation itself is ineffective.
I appreciate that this does not go to Clauses 13 and 14 of the Bill, because they simply provide for the regulations to be brought in. However, between now and Third Reading the Government ought to respond, saying either that the Law Society in its representations is wrong, and why, or alternatively explain how they propose to deal with what I suspect the Law Society is asking for, which is further consultation before the regulations are brought in. I do not know which of the two is correct and I have not had time to form my own opinion on that. This is an important issue because the limited liability partnerships are important structural mechanisms for professional partnerships. We clearly need to get this right before we change the law in this respect.
My Lords, I am grateful to both noble Lords for their contributions to the debate. I apologise to the noble Lord, Lord Davies, for the fact that he has only just received the letter. As he pointed out and knows very well, it has been a somewhat unusual week in terms of my ordered conduct of business and the letter was sitting on my desk for rather longer than it should have been. It is only fair to point out that this is no failure on the part of officials to respond in a timely manner; it is my failure. I am sorry that the noble Lord has only just got the letter.
Two points have been raised. The second was raised by the noble Lord, Lord Razzall, with regard to consultation. He asked whether the legislation had gone beyond the proposals set out in the consultation document. The Government believe that it does not go further than originally proposed or go beyond the original policy intention. In fact, as a result of the consideration of the consultation responses, the Government dropped the first of the original two conditions which were broadly in line with the employment status tests, which would have meant that even senior partners in major professional firms might have been reclassified as employees. The second condition, which contains ownership or economic interest or risk tests, has been slightly broadened because of this change, but it is still a narrower measure than if both conditions had been implemented as originally proposed. The Government also made clear in Budget 2013 and in the consultation document that the proposals will apply to higher-paid staff in the professional services sector and the lower paid if they are LLP members who receive a largely fixed reward and carry little economic risk or interest.
As regards the status of the secondary legislation and the issue of retrospectivity, the noble Lord referred to two sets of secondary legislation. The first, in Clause 13, had already been published in draft and the second, in Clause 14, was, I believe, enclosed with the letter to the noble Lord and has been put in the Library.
This legislation introduces half of a series of provisions that relate to income tax and national insurance. Slightly unusually, we are legislating for the national insurance part first because we happen to have this Bill before us. The relevant identical provisions relating to income tax will be in the Finance Bill, which will be introduced later in the year and will become the Finance Act 2014. The intention is that the provisions in respect of income tax and national insurance will not apply retrospectively but will apply from April 2014. That is made absolutely clear and set out in the secondary legislation.
I am told that the use of the earlier date in the primary legislation follows precedent in respect of other pieces of legislation and does not mean that the Government will introduce this measure going back a decade or, indeed, going back at all. There are technical arguments for putting that earlier date in the legislation, but the secondary legislation, as I said, makes it absolutely clear that the provisions will come into force from this coming April. Therefore, there is no question of an undue degree of retrospection. I hope that the letter which I sent to the noble Baroness, Lady Thomas of Winchester, set that out clearly and, I hope, satisfies the committee and the noble Lord.
(10 years, 7 months ago)
Lords ChamberMy Lords, I should start by saying, for the record, that this is the first time in my 17 years in your Lordships’ House in a Second Reading debate that two-thirds of the speeches have been delivered by Liberal Democrats. It goes without saying that we on these Benches support the Bill very strongly. The Bill ought to be put into the context of the package of measures that the coalition Government have introduced to support the so-called SMEs in recent years, which were very much supported by the Liberal Democrat members of the coalition—and often, dare I say it, provoked by them.
I will briefly list them. We have corporation tax down from 28% to 23% and heading for 20% by 2015. We have the proposed creation of the new business bank and the various lending schemes designed to assist SMEs. We have the establishment of the regional growth fund and the increase in capital allowances, very much sponsored by my friend in another place, the Member of Parliament for Burnley. We have the “one in, two out” policy on deregulation, and, of course, the small business rate relief, spread over two and a half years.
We very much welcome the creation of the employment allowance system, allowing a grant of £2,000 a year to employers in relation to their employees’ class 1 NICs, and the Government’s confirmation that HMRC will engage with the representative bodies of businesses and others to ensure that the system works as simply as possible, so as to minimise its impact. I think the Minister reported the Treasury calculation that up to 1.25 million businesses will benefit from the scheme, with around 450,000 being taken out of paying employer’s NICs altogether. That is about one-third of all employers. It is clearly a significant figure. The other issue here that we very much welcome from these Benches is the effect of including charities. It is calculated that up to 35,000 charities with employees will benefit, reducing their tax burden, it is calculated, by around £45 million in total.
At this time of night, far be it from me to comment on Labour’s alternative policy, which undoubtedly the noble Lord, Lord Davies, will touch on, but I do not think that there is any disagreement across the Floor of your Lordships’ House that something must be done to help SMEs. The Labour proposals of which I am aware would freeze business rates for two years from 2015. It is calculated that this would save small businesses an average of £450 over two years. Of course, the employment allowance scheme created by this Bill would see those businesses save £4,000 over the same period.
From these Benches, we also very much welcome the inclusion of NICs in the so-called GAAR—the general anti-avoidance rule. They were originally excluded. I am particularly conscious of the effect that this will have on offshore employment payroll companies, preventing them doing what they have so often done to allow employers to avoid paying NICs. We also welcome the fact that the Bill removes the presumption that limited liability partnership members are to be treated as self-employed, which can be used as a tax loophole. It is important that these changes will only target those NIC arrangements that are regarded as abusive. As the Minister indicated, as with all other measures under the GAAR, the NIC arrangements will be subject to the double-reasonableness test, which will consider whether the arrangements used by a company can be reasonably regarded as a reasonable course of action.
The Minister indicated the overall welcome for these proposals from a number of representative bodies. The Federation of Small Businesses stated:
“The NICs Employment Allowance is a measure our members have warmly welcomed. It will have a positive impact on small firms and the economy when it comes into force next spring. Our members have said they’ll spend the savings on their business, either through investing in the business, increasing wages or taking on staff”.
The CBI director-general said:
“The surprise £2,000 National Insurance rebate in the Budget will give smaller firms the confidence to take on extra staff. Extending the General Anti Avoidance Rule is sensible. No one can condone abusive avoidance schemes which serve no commercial purpose other than the minimisation of tax—even if they are legal”.
Finally, the chief executive of the Small Charities Coalition said:
“For a lot of the smallest charities, having one paid member of staff is a big step forward … having this allowance now helps them to do that, so it is a very positive thing”.
It just remains to be seen whether this proposal has the effect desired by the Government of helping create new jobs.
(10 years, 8 months ago)
Lords ChamberMy Lords, this matter has been looked into. The Financial Conduct Authority, which takes responsibility in this area from next April, has already proposed limiting continuous payment authorities to two payments and reducing rollovers to two. It has the power to constrain them further than that if that is still seen to be an issue. That is one of the things that the FCA will look at as part of its assessment of the total cap of the cost of payday loans, which it is currently considering.
My Lords, I will follow the previous two speakers but extend the question a little more widely. What steps do the Government propose to take to ensure that payday loan operators cannot simply move their headquarters overseas and operate outside the restrictions that are going to be brought in?
My Lords, under the e-commerce directive, which was introduced during the lifetime of the last Government, payday loan operators are able to relocate. However, a majority of EU member states already have some kind of cap on the cost of payday loans, even if not necessarily as comprehensive a cap as we have, and there is an ongoing debate in those member states that do not yet have a cap about implementing one. There are already a majority of EU member states to which it would almost certainly be uneconomic or pointless for payday loan lenders to switch their bases of operation.
(10 years, 8 months ago)
Lords ChamberMy Lords, like all noble Lords I very much welcome this debate introduced by the most reverend Primate and indeed look forward to the contribution of the noble Lord, Lord Carrington, with whom I last had an involvement when canvassing for the noble Lord, Lord Liddle, now not in his place, in the famous by-election in Fulham in the early 1980s. I am sure they look forward to renewing their rivalry over the Benches.
As the various reports from the most reverend Primate have indicated, it is clear that 2008 was the culmination of a series of problems within the banking industry. The 2008 crisis exposed problems not just with the regulatory regime but also, as he said, with the culture of the industry. Banks had become unable to manage risk properly, had lost sight of their responsibilities to customers and were seriously over-leveraged. In addition, they had not guarded against other long-term problems in the economy, particularly the housing bubble.
The result is a significant loss of confidence and trust among the public in the banking industry and huge harm being caused to the UK economy. As somebody memorably said, recently we moved from a culture of inky-fingered bankers to a culture of sticky-fingered bankers.
It is interesting that those banks which received bailout money from the taxpayer are often those which have the highest level of customer dissatisfaction. A recent survey by Which? found an overall customer satisfaction rate with RBS of only 50%—and that was before the recent allegations against it—and that Lloyds had a satisfaction rating of 56%. The highest-rated bank, First Direct, had a rating of 85% satisfaction in services provided. A recent YouGov survey asked people which three aspects of British banking, from a list of eight,
“have damaged your view of the UK banking industry the most”,
and found that the top two concerns were excessive bonuses and the LIBOR scandal. Notwithstanding this, the financial rewards handed to the City’s highest paid bankers rose by a third last year, with more than 2,700 of them paid more than €1 million in 2012.
The Government have addressed these issues in a number of ways. The first is through the banking reform Bill, which will ring-fence the retail banking services of banks away from the high-risk trading that they may also conduct and to which the most reverend Primate referred—he would go further and ban that entirely, but that is not what the legislation says. In addition, in response to a recommendation by the commission, the Government have amended the Bill to allow regulators completely to separate the retail aspects of a particular bank from the rest of the business where that bank seeks to breach or get around the ring-fence. This is known in the jargon as electrification of the ring-fence.
On the regulatory system, the Government have sought to learn the lessons of the financial crisis. They have listened to the banking commission in setting up a new regulatory system via the Financial Services Act 2012. I shall not bore noble Lords with the detail of this, but there are three separate bodies aimed at fixing the regulatory problems: the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority. The Act also creates clear channels of communication and decision-making in the event of another financial crisis. This is because—and I think that we are all agreed on it—in 2008 there was concern that the powers available to regulators, the Bank of England and the Treasury were not clearly defined, making it hard for any one body to react quickly to events. In addition, the Act ensures that the Treasury is ultimately to act as the “point” in event of a financial crisis and can ensure that others act.
As the most reverend Primate has indicated, trust is the most fundamental issue, which cannot be dealt with by legislation. I make no apology for relying on a lot of the evidence that was given to the commission. The commission indicated:
“The loss of trust in banking has been enormously damaging; there is now a massive opportunity to reform banking standards to strengthen the value of banking in the future and to reinforce the UK’s dominant position within the global financial services industry”.
It further stated:
“It is essential that the risks posed by having a large financial centre do not mean that taxpayers or the wider economy are held to ransom. That is why it is right for the UK to take measures … which not only protect the UK’s position as a global financial sector, but also protect the UK public and economy from the associated risks”.
We have to remember that the overwhelming majority of people working in banks undoubtedly wish to serve their customers well and are as angry as the wider public about the activities of a minority of their colleagues.
The report elsewhere states:
“The mis-selling of IRHP and PPI demonstrate what can happen when banks exploit information asymmetries between them and their customers. However, providing too much small print to customers, effectively drowning them with information, may be as detrimental as not providing enough information to them”.
Peter Vicary-Smith gave the following example to the commission:
“To open an HSBC packaged account, the consumer is expected to read 165 pages of information. No one is going to do that. As long as banks ... provide so much gobbledegook that the real things you need to know are hidden, we will continue to have these problems”.
Many people said that it had been more than 25 years since Tom Wolfe had used the term “master of the universe” to describe a New York bond trader, but that it had never been more apt as a description of bankers than in the past decade. I have often relied in comment on this subject on the wise words of the noble Lord, Lord Turner, who is not in his place. He told the commission that:
“One of the most dismal features of the banking industry to emerge from our evidence was the striking limitation on the sense of personal responsibility and accountability of the leaders within the industry for the widespread failings and abuses over which they presided. Ignorance was offered as the main excuse. It was not always accidental. Those who should have been exercising supervisory or leadership roles benefited from an accountability firewall between themselves and individual misconduct, and demonstrated poor, perhaps deliberately poor, understanding of the front line. Senior executives were aware that they would not be punished for what they could not see and promptly donned the blindfolds. Where they could not claim ignorance, they fell back on the claim that everyone was party to a decision, so that no individual could be held squarely to blame—the Murder on the Orient Express defence. It is imperative that in future senior executives in banks have an incentive to know what is happening on their watch—not an incentive to remain ignorant in case the regulator comes calling”.
I agree with the noble Lord.
(10 years, 8 months ago)
Lords ChamberI thank my noble friend for those incisive observations. He is absolutely right to say that the deficit was reduced in a measured fashion, which is part of the reason why the economy has been able to recover so quickly. He is also absolutely right that there is still a structural deficit, so we cannot simply allow for the natural recovery through the economic cycle to take care of our borrowing problem; we must continue to drive savings through the system. On the fall in consumer savings, again, my noble friend is absolutely right that it is a sign of a healthy economy to have a strong savings rate. On consumer behaviour, it is not surprising that, after a few years of belt-tightening, there has been a desire to begin spending again.
On the overall economy, as I mentioned, the recovery in business investment is the single most important change in the recovery of the economy over the next year. We anticipate that the recovery in consumer demand will give business the confidence it needs to increase its level of investment, which is what should sustain the recovery.
On infrastructure, my noble friend is correct. Essentially, there are two ways to finance it: directly from taxpayers or indirectly through the private sector and into the utilities, which then recover the investment through consumers paying. Of course, that is governed by independent regulators, who set the prices in those industries. It is absolutely part of our national infrastructure plan continually to assess the balance between the interests of the investing institutions and consumers’ affordability over the longer term.
My Lords, notwithstanding the verbal fisticuffs in another place, I am sure that no one in your Lordships’ House thinks that the Autumn Statement does not contain a lot of good news. Perhaps I could ask the Minister one or two, or three or four questions.
I assume that the Minister will agree that our two parties going into coalition government in 2010 was essential to restore the economy to the point where we could have the Autumn Statement today, and that, without that coalition being formed, that would not have happened. Touching on the coalition, I am well aware, as are all noble Lords, that coalitions mean trade-offs. One of them is the married tax allowance. It is obviously above the Minister’s pay grade to say whether it is time to change it, but if the object is to save marriages, would it not have been better to spend the money on organisations that help them, rather than to introduce that to satisfy the Tory right-wing?
Has there been any progress on the tax fairness proposals that David Cameron announced at the G8, with negotiations on international co-operation? The Minister touched on tax avoidance. How much have tax evasion and aggressive avoidance been affected? How much is currently raised annually from the Government’s measures? Does he agree that, although the plan announced yesterday indicates that only 1% of our GDP will be spent on infrastructure—much less than our colleagues—there is an opportunity to increase that as the economy recovers?
Finally, on a cheekier point to which I think I know the answer, bearing in mind that, as the Minister rightly says, more jobs have been created here in this country than before, have he or his colleagues had an apology from the Labour Party for saying that this would not work?
On the effectiveness of the coalition partnership, I launched the national infrastructure plan yesterday with my right honourable friend Danny Alexander, and I can say that the harmony in the Treasury could not be stronger. My noble friend is correct to say that the marriage tax allowance question is way beyond my pay grade. On the G8, I can confirm that the initiatives outlined by the Prime Minister, where we have taken global leadership to address issues of tax information exchange and publicising beneficial ownership, continued to be followed through very effectively, with us setting an example.
On the national infrastructure plan, it is clear to me that infrastructure is a very important driver of growth, and the bigger proportion of public spending we can devote to it, the healthier the long-term outcome. The measure, therefore, that my honourable friend the Chancellor of the Exchequer has put in place to keep the proportion of capital expenditure to national income at a constant level is absolutely to be welcomed as a protection in that respect.
(11 years, 3 months ago)
Lords ChamberMy Lords, first, from these Benches I congratulate the noble Baroness, Lady Lane-Fox of Soho, on her brilliant maiden speech. Like other noble Lords, I look forward very much to her contributions to the deliberations of this House and her contribution to driving growth in the economy, which she touched on so ably in her remarks.
There has been much criticism of the gracious Speech, particularly from those on the Benches opposite, who suggest that it is slight and insubstantial. I do not share that view. The criticism suggests that the role of government is to legislate. I do not believe that that is right; the role of government is to govern. Do we really believe that the 30 or so crime Bills in 13 years of Labour Government caused the recent drop in crime rates? I certainly do not. I come from the school which believes that we have too much legislation, and I have often thought that occasionally a one-line Queen’s Speech saying, “My Government propose no legislation this year”, would be appropriate. Whether your Lordships agree that the primary role of government is to govern, all must agree that the Government now face two major challenges, both of which have been touched on by other noble Lords: what to do about the economy and what to do about Europe.
On the economy, there is common ground that economic growth will not be forthcoming without a correction in aggregate demand. Unlike in the 1930s when Keynes was a lone voice against the austerity measures of the Bank of England, there is also now common ground that an economic slump is not self-correcting, that there are limits to monetary policy alone in dealing with a deficiency in aggregate demand, and that fiscal policy plays a significant role in stimulating demand. But then policy advocates part company. On the one hand, Keynes is prayed in aid, particularly on the Benches opposite, to dignify any proposal to spend more money and oppose cuts, while on the other hand, the right wing—not represented quite so strongly here—sees its authority in Hayek rather than Keynes to justify supply-side arguments—namely, that we need more deregulation, to scrap employment legislation, and that growth will come from the private sector always filling the space left by a retreating state. I have always leant towards the Keynesian side of the argument, but I have to accept that the UK crisis since 2008 is different from that in the 1930s.
In the 1930s, we did not see the difficulties in the banking sector that we have had since 2008. Indeed, in his classic work, Keynes hardly mentioned the problems of the banking sector. If we take banking assets relative to GDP, the UK has the biggest banking sector of any major industrial country. The banking crisis and the measures taken to avoid future crises have, as my noble friend Lady Kramer said, seriously impeded credit flows, particularly to SMEs and to individuals. As the Minister indicated, the Green Investment Bank and the business bank represent an attempt to start to deal with this problem. However, progressing from millions to billions being available for investment through those two institutions will not be easy.
To understand the other difference with the 1930s, I need to be a bit technical. In the 1930s, Keynes assumed that private sector multipliers of two to three times for every £1 of public sector spending would apply. However, the Office for Budget Responsibility now estimates that there is an income multiplier of only 0.4 for tax cuts and revenue spending and a multiplier of one for capital projects. Tax cuts, or an increase in current spending as advocated by certain members of the Opposition, would have significantly less effect on the creation of demand and carry a much greater risk of damage to our credibility in world markets and our ability to finance the deficit. When the coalition Government were formed in 2010, it was clear that the UK would lose the confidence of our creditors without a credible plan for deficit reduction. However, the issue for the Government now is whether the balance of risks has changed. In May 2012, the IMF said that the risk of losing confidence as a result of a more relaxed fiscal policy, particularly the financing of more capital investment by borrowing, may have diminished relative to the risk of deterioration of public finances through lack of growth. I believe that there is now a case for a significant increase in public investment where there are impediments to growth, particularly capital spending on housing and infrastructure spending on the so-called “shovel-ready” projects.
On Europe, the noble Lords, Lord Lawson and Lord Lamont, as well as television star Michael Portillo, have now weighed in on the side of the “come out” camp. I am slightly reluctant to intrude on Tory grief over this issue but will make three points against them. First, the noble Lord, Lord Lawson, disagrees with the common assumption that leaving Europe would cost 3 million jobs. Indeed, he said that the Deputy Prime Minister was talking “poppycock” in using that argument and knew nothing about economics. As Alistair Darling said in the Times last week, although any assessment is theoretical, even if only 1.5 million jobs would be lost, that is a lot of jobs. Secondly, the main thesis of the noble Lord, Lord Lawson, was that our presence in Europe distracts our industry from competing in the growth markets of Asia, India and South America. However, it does not seem to stop the Germans in those markets—and they do not want to come out of Europe. The third argument against those advocating coming out seems to be the potential loss of international investment. The motor car industry is a classic example of an industry that has seen major overseas investment, primarily because of our presence in the European Union. The motor vehicle industry is a huge success story—last year, for the first time ever since the creation of the motor car, we exported more motor cars from the UK than we imported. Why should Tata, the Japanese and the Americans locate a new plant in the United Kingdom if we are outside the European Union? It is a highly risky strategy to assume that the European Union would allow us free trade in motor vehicles if we were outside it.
I have a suspicion that the arguments to come out, certainly from members of the Tory party in another place, have much more to do with fears of UKIP than economics. However, those Members of another place who are in fear of UKIP are in danger of misreading why people have been voting for UKIP.
I am most grateful to the noble Lord, who obviously feels very strongly about this and feels that he has very strong arguments. But if they are so strong, why is the Liberal party in the coalition preventing the Government committing themselves to having a referendum, so that we can have this debate and people can decide, given that the Liberals campaigned for an in/out vote during the general election campaign?
I am grateful to the noble Lord, Lord Forsyth, for his intervention. As in so much of life, the question is timing. We are not in favour of having a referendum now. We might well have been in favour of having a referendum in 2010. Bearing in mind the policy of the Prime Minister to renegotiate our arrangement with the European Union, it seems sensible to have that referendum once that renegotiation has been completed.
Going back to my argument, I do not believe that people are voting UKIP because they want to come out of Europe. That is demonstrated by the detailed research that the noble Lord, Lord Ashcroft, has done. I commend his polling information to all noble Lords. It is very informative. People are voting UKIP because of a desire to go back to a perceived past world of Englishness, with no foreigners, with grammar schools and smoking in pubs, and where people knew their place.
John Major spotted this trend 20 years ago when he glorified a world of,
“long shadows on county grounds, warm beer, invincible green suburbs, dog lovers … old maids bicycling to Holy Communion through the morning mist”.
Unfortunately for his point, John Major quoted Orwell out of context. In criticising the past, Orwell had also talked about:
“The clatter of clogs in Lancashire mill towns, the to-and-fro of the lorries on the Great North Road, the queues outside the Labour Exchanges”.
I fear that this is the world to which UKIP wishes us to return. When I think of UKIP, I also think of 80 year-old Wyn Florey, on my ward committee, who said to me in the 1980s, “Don’t let them tell you about the ‘good old days’; they weren’t”. On the same point, my Tory colleagues might be better persuaded by William Whitelaw, who said in 1972:
“I do not intend to prejudge the past”.
I hope that, in deciding about Europe, Tory colleagues are not seduced by UKIP, and follow the Whitelaw advice. I hope and pray that they will not sacrifice the interests of our children and grandchildren to a misplaced nostalgia.
I am not sure whether my noble friend, who started his local government career on the same day as I did, although it did not last nearly so long, was saying “shame” because it has gone on for so long or because it is coming to an end. However, it is too late at night for us to indulge in our familiar repartee.
It is customary at this stage of the debate to say that it has been wide-ranging, and indeed it has been. However, all the subjects covered today—business, the economy, transport, and, dare I say, standing immediately behind the noble Lord, Lord Forsyth, even the European Union—are matters that are crucial to local government. Indeed, good local government is crucial to the success of each of them. Long gone are the days when business and local government viewed each other from a distance with mutual suspicion and distrust, at a time when the only contact that most businesses had with their local council was with its regulatory services, and not always very positive contact at that.
Local growth is now top of the agenda for pretty well all local authorities of all sizes throughout the country, and it can be achieved only with a positive and dynamic partnership between the business community and the local authority. When that happens, it is a powerful driver for growth in the local economy. The roles of local enterprise partnerships are crucial to that, although I have to say that I think they are rather a mixed bag and it may be time to review the effectiveness of some of them.
A good transport infrastructure, both locally and nationally, is vital to the local economy everywhere. I say to my noble friend Lord Glasgow that I have waited nearly all my adult life for Crossrail in London. Now, at last, it is happening. So, in respect of HS2, I say to him to hang in there because I am sure that it will happen and that it will reach Glasgow one day.
On Europe, I tread carefully. It is calculated in the European Union generally that something like 70% of EU regulation has to be implemented by local or regional government as appropriate. That is crucial to local government. The say that local government should have in the preparation of that regulation and in getting rid of unnecessary regulation is extremely important and very often overlooked. I am conscious that the Minister who will reply to this debate was, like me, for many years a member of the EU Committee of the Regions, the voice of regional and local government in the European Union. Indeed, I recall that our third speaker today, the noble Lord, Lord Empey, joined me in the first term of the Committee of the Regions.
Turning now to the gracious Speech, I am quite sure that if local government had been asked what it wanted to hear in the Queen’s Speech, it would generally have echoed the words of my noble friend Lord Razzall earlier in this debate. The words it would most have wanted to hear are, “My Government propose no legislation”. The world would really have changed if that had been accompanied by a commitment from the Secretary of State and some of his Ministers to a prolonged period of silence on matters that should properly be the sole concern of local authorities and their electors in a true spirit of localism. But that is fantasy world and it will not happen. The Government will continue to legislate and regulate because that is what they do, and some Ministers inevitably will continue to make unnecessary and often ill-informed comments on matters that should not be their concern, although I exempt from that totally our Minister in this House, who has long since known better than to do so.
My noble friend Lord Shipley has already referred to a number of the Bills of significance to local government. Next week, we will debate two Bills of considerable significance—the Local Audit and Accountability Bill, and the Care Bill, which is not a subject for today’s debate but which has great significance to local government and, particularly, to its residents. We will have ample opportunity to consider them both in detail in the weeks to come, so I will save my comments on both of them until then.
However, of even greater significance to local government will be the spending review to be announced next month. The past three years have been a period of unprecedented challenge and opportunity for local government. The challenge has been implementing 33% budget cuts in only two years. The fact that they were front-loaded in the four-year review was a very unwelcome and unexpected surprise. Some Ministers, although never the noble Baroness who will reply shortly, have sometimes given the impression that that was easy—that all that was needed was to get rid of a few chief executives, cut the pay of the rest, share a few services and the job would be done. At the other extreme, local government representatives gave the impression that the world was going to collapse. Both of these, of course, were considerable exaggerations.
On the whole, local government has managed these major budget cuts very well. However, they have been just that—cuts—and the threat of more cuts in the next spending round is an even greater challenge. They will not be achieved just by reducing back-office costs and a few more salami slices. They will need real transformation in the delivery of local services and the expectations of local residents of what they should receive from their local authorities—a real behavioural change. Behavioural change and transforming services and the way in which they are delivered takes time and needs a climate that encourages creativity and innovation. That is very difficult to achieve when all jobs are under threat and the future is far from clear. It needs good, strong local leadership.
That is the challenge, and it is a big one—but what of the opportunities? Despite the rhetoric of some Ministers to which I have already referred, this Government have made some welcome changes to reverse the trend towards more and more centralisation which has gone on throughout my time in local government. It is not enough and is not fast enough for my liking but it is nevertheless real movement which has sometimes been overshadowed by some of the other measures and some of the other comments.
In his opening address the Minister referred to city deals. These provide real opportunities for the cities concerned and involve real power being devolved to them, together with the requirement, quite rightly, for those cities to take much greater responsibility. So far the two rounds of city deals have been confined to cities. I hope that the Minister can reassure us when she responds that the next round will be targeted largely at rural areas. No doubt it will have a different title but one hopes that it will have the same intentions and the same effect. However, we still need to move faster. We need more devolution of that power and responsibility.
My noble friend Lord Shipley also referred to whole-place community budgeting. I echo what he said. I would also add something that is even more exciting and interesting—namely neighbourhood community budgets as distinct from whole-place community budgets. As my noble friend said, huge savings have been suggested by the implementation of community budgets. Whether those estimates are accurate we will know only if and when we do it. However, even if they are only half-accurate they will achieve huge savings. Even more importantly, that will be done not by reducing services but by targeting those services more effectively on the people who are receiving them and worrying less about who or which organisation is delivering them.
Two Sessions ago we spent a long time on what is now the Localism Act, but that legislation will not implement itself. It gives local authorities the opportunity to do things differently, to innovate and, above all, to devolve power and responsibility to their own local communities. Local government faces a period of continuing challenge but also of great opportunity. My plea to Ministers is to trust local government and to let it get on with it. My plea to my colleagues in local government is to stop moaning and demanding more from central government. Rise to the challenge and make the most of the opportunities.
(12 years, 3 months ago)
Lords ChamberMy Lords, I am sure that the students of politics in your Lordships’ House, of which there are many, will entirely understand why the noble Baroness thinks that this is all the fault of the Government and blames the whole thing on government policy. However, we ought first to put into perspective what has happened to government expenditure during the period of the coalition. In real terms, expenditure has hardly been reduced at all.
If we take the official Treasury numbers, stripping out inflation and showing real spending indicates a reduction last year of just £8 billion. In real terms, that is a cut of a pretty modest 1.1%. The figure is also flattered by comparison with Labour’s spending in the election year, when it increased by £31 billion, making the high-water mark unusually high. Therefore, the real level of government spending today, against that in 2008-09, represents an increase of £23 billion, which is a 3.4% rise. I hardly think that the policy of economic cuts that the noble Baroness indicated is responsible for austerity. However, we know that austerity is particularly unpopular. We have to look only at what happened in elections in Greece, France and North Rhine-Westphalia to realise why the noble Baroness is on that particular bandwagon.
The Liberal Democrats on these Benches are of course part of the coalition but we retain our independence—
The noble Lord, Lord King, does not want me to go too far so I will rein that back. As noble Lords will be aware, we have not necessarily been uncritical of a number of government policies and plans. However, on these Benches we stand four-square behind the coalition on the necessity of bringing the deficit down. Now is not the time to spook financial markets. We have to look only at what is happening in the eurozone, particularly Greece, Spain and Portugal, to realise the incalculable cost to our economy if we were to lose market confidence. Look at our current borrowing rates. I think we are now selling our gilt-edged securities at a lower level than we have in modern economic history. That is a huge benefit to our public expenditure and we need to retain the confidence of the markets.
Taking the noble Baroness’s point about there being nothing in the gracious Speech about growth—
I wonder whether the noble Lord thinks that the confidence of the markets is rather more important than the confidence of the electorate. It seems to me that throughout Europe the confidence of the electorate is being severely tested by the politics of austerity.
One of the advantages of the Fixed-term Parliaments Act is that it will take three years to discover the answer to the noble Baroness’s question. As regards the provisions about growth—it is a common criticism of the gracious Speech—I say to the noble Baroness, Lady Royall, that you do not legislate for growth; you create an economic climate in which growth can occur.
I have every confidence that the coalition Government’s policy is rather like the swan: above the water it is serenely swimming forward to reassure markets, while under the water it is paddling like mad in an effort to promote growth and hoping that the markets do not notice. There are a number of growth initiatives of which I know that my party is proud; for example, the creation of the green investment bank, the regional growth fund and the pension infrastructure platform to invest in UK infrastructure. Of course, there are more subtle ways in which the Secretary of State for BIS has been trying to encourage growth. It is significant that today, for the first time since 1976, we can announce a trade surplus in the sale of motor vehicles. As a betting person—who is usually successful—I suspect that we will have some good news on Ellesmere Port. All sorts of initiatives are happening.
If we are to go for growth, the role of the banks is critical. The immediate problem, which is a statement of the obvious, is that the banking system is being required to do three things simultaneously. The banks are being asked to maintain and increase lending to the SME sector. At the same time, over the next two or three years, they will have to provide billions of pounds to refinance the borrowing of major companies that fall. They are also being asked to increase their capital base to meet the regulatory requirements. Even Solomon would struggle to meet those simultaneous requirements, which is one of the reasons why we have the problems that we do.
Everyone says that there is not enough lending to the SME sector, which is undoubtedly correct. The noble Lord, Lord Sugar, came to your Lordships’ House and told us that any SME company which wanted a loan could always get one, and if it could not its financial plan was wrong. What world does he live in? The jury is clearly out on Project Merlin. The FSB says that a significant percentage of loans requested by the SME sector are not being granted. If we take the anecdotal evidence of the way in which some banks are behaving, we should look at what Barclays and NatWest did to Clinton Cards. They sold a £35 million loan book to American Greetings, which was the major supplier to Clintons. Immediately, American Greetings foreclosed on the loan and at least 8,500 employees are in danger of losing their jobs. Is that the way in which responsible banking should operate?
As regulation of banking returns to the Bank of England, the Bank must emphasise that effective regulation is crucial. First, the current system makes it difficult for new entrants either to compete with major retail banks or to introduce innovative new models, such as community banking on the American model. I suspect that my noble friend Lady Kramer will refer to that. Secondly, we need to think seriously about how the economy can rebalance as growth returns, away from financial services. The Vickers report looked at how we regulate banking in the context of risk to the taxpayer but the next task for future regulators is how to ensure that, as the economy recovers, the financial sector does not retain its bias in the British economy.
(13 years, 7 months ago)
Lords ChamberMy Lords, the noble Lord, Lord McFall of Alcluith, ranges over some big questions there. To start with the remuneration issues, the introduction of the new FSA code of disclosure from 1 January will contribute to making shareholders better informed. My right honourable friend the Chancellor has taken note of Sir David Walker’s suggestion that there needs to be further international agreement in this area so the Chancellor has written to his EU counterparts to see what can be done to further drive forward aspects of disclosure. There is certainly a lot of activity going on there. As to some of the bigger questions about “too big to fail” and bond-holders and so on, I look forward to the light that the Independent Commission on Banking will doubtless shed on these important issues and I note that the chairman of the commission is scheduled to be making a speech in the next few days on this topic.
My Lords, I am sure the Minister is aware that, in hostile takeovers, the result is often determined by hedge funds which have simply acquired or borrowed stock short-term in order to make a short-term profit, irrespective of other interests. Is this an issue that the Government are prepared to discuss with the financial services industry?
My Lords, the takeover panel operating independently keeps that issue and all other issues related to the good working of the takeover market under regular review. The department of business consultation, A Long-term Focus on Corporate Britain, which is currently calling for evidence, will be interested to hear what people have to say on that very topic.