Budget Responsibility and National Audit Bill [HL]

Lord Sassoon Excerpts

Monday 10th January 2011 Lords Chamber

Moved by

[Lord Sassoon]

That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 3, Schedule 1, Clauses 4 to 20, Schedule 2, Clauses 21 and 22, Schedule 3, Clauses 23 to 26, Schedules 4 and 5, Clause 27, Schedule 6, Clauses 28 to 31.

Motion agreed.

Loans to Ireland Bill

Lord Sassoon Excerpts

Tuesday 21st December 2010 Lords Chamber

Moved by

[Lord Sassoon]

That the Bill be read a second time.

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

My Lords, it is the Government’s intention to ask for authority to make a bilateral loan to Ireland as part of the multinational assistance programme for that country. This is the right action to take, given our country’s close economic, financial and political connections to Ireland. By passing this Bill today, the UK will be ready, come the new year, to meet its commitments to one of our closest international partners.

The legislation before the House today is narrow in scope but it is still enabling legislation. It will sit alongside the actual loan agreement, which will set out the details of what we offer Ireland. I intend to address the substance of both the legislation and the loan agreement. Before that, however, I would like to remind the House of how Ireland ended up in its current predicament.

Over this year, it became increasingly clear that the situation in the Irish economy was unsustainable. Irish banks had become almost wholly reliant on central bank funding to maintain their operations. At the same time, Ireland’s market interest rates rose to record levels and its sovereign debt markets have now effectively closed, with little prospect of reopening.

This situation cannot go on. So, on the weekend of 20 November, Ireland’s Prime Minister, Brian Cowen, made a formal request for international financial assistance. The United Kingdom, alongside the IMF, the EU, the euro area and other member states, made an agreement in principle to take part in an assistance package to Ireland. At the end of November, Ireland agreed with the IMF and the EU a three-year financial assistance package worth €85 billion. The money will be used as follows: from that total, €35 billion will be used to support Ireland’s banking sector, with €10 billion going towards immediate bank recapitalisation. The remaining €50 billion will be used for sovereign debt support.

In terms of contributions to the cost of the package, Ireland itself will provide €17.5 billion towards the total. The remaining €67.5 billion will be split, with one-third coming from the IMF, one-third from the European financial stability mechanism and one-third from the euro area facility and bilateral loans from the UK, Sweden and Denmark.

This is a significant package that will help Ireland deal with its problems and restore stability to its economy. It will help it recapitalise its banks and set up a contingency reserve for future problems. It will also help the Irish authorities cover the shortfall in their budget, which was presented to the Irish Parliament earlier this month.

I understand that some noble Lords may have concerns about the size and the timing of the loan. Indeed, some may be asking why we are extending a loan to Ireland in the first instance. We are doing this because it is overwhelmingly in our national interest that we have a strong Irish economy and a stable banking system. This is not just about the Irish economy and Irish jobs; it is about the British economy and British jobs.

A loan does not add to our deficit; any increase in borrowing is matched by the commitment of Ireland to repay it with interest. Ireland is the fifth-largest market for British exporters, and accounts for 5 per cent of our total exports. Ireland is also the only country with which we share a land border, and in Northern Ireland our economies have particularly close ties.

Just as our two economies are linked, our business and banking sectors are also interconnected. More Irish companies are listed in London than companies from any other foreign country. In Northern Ireland, two of the four largest high-street banks are Irish-owned, accounting for almost a quarter of personal accounts. Our own banking sector has a considerable exposure to Ireland.

I should stress, however, that the UK’s banks are sufficiently well capitalised to more than manage the impact from the situation in Ireland. But one thing is clear: it is undoubtedly in Britain’s national interest that we have a growing Irish economy and a stable Irish banking system. That is the purpose of this Bill.

The Bill has two substantive clauses. Clause 1 sets out the parameters under which the Treasury may make payments under UK loans to Ireland. The total international assistance package, including our contribution, is denominated in euros. However, our bilateral loan will be made in sterling. Subsection (3) includes a cap on the total size of our bilateral loan of £3.25 billion. This will be the total size of our bilateral loan to Ireland, and the period over which these loans may be paid out will end on 8 December 2015, five years after the Bill was first published.

I would like to make it clear that there is no expectation that we will have to make further loans to Ireland in the future. This is reflected in subsection (4), which is intended to prevent an increase in the size of the loan unless an order is made by statutory instrument. But because the loan is denominated in sterling, a mechanism is needed to accommodate potential changes in the exchange rate in the period between the publication of the Bill and the signing of the loan agreement. Therefore, the Bill allows the Treasury, under subsections (4) to (7), to make an order once the Bill is in force to increase the limit, as long as this is done solely to take account of exchange rate fluctuations between now and 30 days after Royal Assent without further parliamentary procedure. Let me be clear: any increase in any other circumstances or for any other reason would require approval in another place. This is something that I and my right honourable friend the Chancellor of the Exchequer do not envisage happening. We also expect full repayment to be made over the term of the loan.

We want the process to be as open and transparent as possible. Clause 2 therefore creates a requirement for the Treasury to prepare and lay before Parliament a report every six months on any payments made by the Treasury by way of a loan to Ireland, the original term of each loan, any sums received by the Treasury by way of interest or repayment of such loans, the amounts outstanding, and the remaining terms of any outstanding loans.

I would like to update the House on the main terms of the bilateral loan, which we have agreed in principle with the Irish authorities and have made available in the Library of the House. The loan will be drawn in eight tranches, each with a seven-and-a-half-year term. This is in line with the terms for both the European and IMF loans. The first tranche of our loan will be available to be disbursed in September 2011 and the interest rate charged on each tranche of the loan will be fixed specifically for that tranche. This will be set by adding a fixed margin of 2.25 percentage points to the appropriate market-determined interest rate, the sterling seven-and-a-half-year swap rate, at the time of disbursement. For example, at present, the estimated interest rate on the first tranche of the UK loan would be the sterling seven-a-and-a-half-year swap rate in September 2011 plus 2.25 percentage points. That margin was set to give an estimated interest rate of 5.9 per cent for the first tranche of the loan.

The rate on our bilateral loan is slightly higher than the estimated rate of 5.7 per cent for the first tranche of IMF and EFSM funds, but it is also slightly lower than the estimated 6.1 per cent rate the EFSF will charge on its first tranche of lending. This reflects the different costs of funding and is a measure of the international confidence in the UK’s public finances. We will charge interest every six months and there will be a repayment of principal at the end of the seven-and-a-half-year term of each tranche. As with the IMF, there will also be a commitment fee for making this loan. We will charge half a percentage point on the total amounts that may be drawn down under the loan agreement for the forthcoming 12-month period. If the loan is drawn the fee will be waived, effectively replaced with the interest charged on the loan.

There are two conditions on the loan set out in the terms, to which I would like to draw the attention of the House. The first condition is that the IMF as well as the EU must be satisfied that Ireland is complying with the agreed restructuring plan. This is a very important safeguard. The second crucial condition is that there are to be no amendments to the restructuring plan that could have a material adverse financial impact on the UK operations of Anglo Irish Bank, Allied Irish Banks and Bank of Ireland. Given the scale of their operation in the UK, this is vital.

The official advice from the Treasury is that this loan represents value for money for the British taxpayer while being in line with the terms offered by both the IMF and the euro area. A summary of the key terms of the agreement and a final written agreement will be forthcoming shortly.

One thing is clear: Ireland is a friend, and a friend in need. Because of the steps we have taken, our economy is currently in a far stronger position than Ireland’s; that is why we are able to offer such reasonable and sensible terms for our bilateral loan to Ireland.

I should like to talk briefly about a related matter which I know is of interest to this House: the proposed permanent stability mechanism for euro area economies. Both my right honourable friends the Prime Minister and the Chancellor of the Exchequer have been very clear that when it comes to putting in place a permanent mechanism, the UK should not be part of it. The time has come for the euro area to put in place its own mechanism for dealing with the imbalances. It needs to be part of a comprehensive solution that sees countries addressing more decisively their own problems, including in their banking systems. As my right honourable friend the Prime Minister said yesterday, it is clear from the recent Council conclusions that the mechanism will be for:

“Member states whose currency is in the euro”.

Britain therefore will not be part of it.

Since our coalition Government came into office, we have taken action to put our own house in order. We are now in a strong position that enables us to help Ireland, our closest neighbour, in its hour of need. As I have said, this is clearly in our national interest. A strong Ireland—indeed, a strong Europe—is vital to the success of the British economy. Today’s Bill will help to ensure this. I beg to move.

Loans to Ireland Bill

Lord Sassoon Excerpts

Tuesday 21st December 2010 Lords Chamber

[Lord Sassoon]

My Lords, it has been an interesting debate and I am grateful for the contributions. The noble Lord, Lord Davies, referred to the range of contributions made by noble Lords but I think that there has been some polarisation: on one pole, a noble Lord stands in rather lonely isolation, whereas most of the rest of the speakers have been closer to a dramatically different pole.

[Lord Pearson of Rannoch]

The Minister is very generous, but is he aware that the majority of the British people now wish to leave the European Union?

[Lord Sassoon]

My Lords, I was talking about where Members of the House stood on the Bill, which is where I ought to concentrate if the noble Lord will permit me.

I began to feel grateful to the noble Lord, Lord Davies of Oldham, when he started his response to the debate; I thought that he was going to relieve me of some of my responsibilities. However, his comments then turned in a different direction. He went into an analysis of the UK’s economic challenges—an essay that I do not quite share with him—and then he asked some questions. I shall attempt to respond to his questions and to those of other noble Lords.

The starting point, clearly, is that over the past two years Ireland has faced a series of extraordinarily difficult economic and financial challenges which have resulted in the country having debts of more than 90 per cent of its national income, high unemployment and low levels of growth—and the Irish economy, of course, remains on the brink.

The noble Lord, Lord McFall of Alcluith, reminded us of the centrality of the Irish banking situation to the Irish crisis and how the Irish banks became increasingly reliant on central bank funding. In his analysis, the noble Lord, Lord Pearson of Rannoch, referred to trading but made no mention of the interconnectedness of our two banking systems, which is central to the Irish problem and to why it is so important to the UK that we should contribute to finding a solution.

In contrast to Britain’s situation, Ireland’s credit rating remains under threat and its economy continues to struggle. The package we are discussing today is designed to contribute towards Ireland’s solution to its problem. It starts by contributing to the recapitalisation of Ireland’s banks; sets up a contingency reserve to deal with any future problems; and covers the current shortfall in the Irish budget. My noble friend Lord Tugendhat quite rightly questioned whether Ireland will grow sufficiently out of its problems. However, I remind noble Lords that the IMF has been central to the construction of the package and, from its wide experience of similar situations, it understands the importance of growth in an economy such as Ireland’s. I recommend to noble Lords the IMF’s interesting, well written and cogent analysis of the reasons for Ireland getting into this situation, and the logic for the construction of the package which is central to putting the Irish economy back on its feet.

The Bill gives the Treasury the statutory authority to deliver the UK’s bilateral contribution to the package. In this way, the UK will be ready in the new year to help one of our closest international partners in its hour of need. I was particularly grateful to the noble Lord, Lord Bew, and to my noble friends Lord Cope of Berkeley and Lord Tugendhat for pointing out the good will that has been created in Ireland by our response. We are doing this because it is in the economic interests of the UK to do so; nevertheless, it is good that we are doing it for a close friend. The noble Lord, Lord Bew, succinctly put the matter into its Irish historical context. I very much take his point that we need to think about how we build on the good will that has now been created. That point was indirectly touched on by the noble Lord, Lord McFall. It sits somewhat at odds with the stance taken by the noble Lord, Lord Liddle, who painted a picture that I do not recognise. He tried to paint us into an “our problems, their problems” situation. I thought that my noble friend Lord Tugendhat, who has deep and distinguished European experience and contributions to draw on, painted a much more nuanced and balanced picture. Of course, we are at the centre of the European debate. We are engaged with our European partners, not least for the reason that my noble friend gave: that we are one of the largest economies in Europe. Whether it is leading the way on bank stress tests and getting Europe to follow where the UK started on short-term stabilisation, or looking at the other end of the range of issues that needs now to be considered—for example, questions about structural reform programmes, the Europe 2020 vision and the lessons of this crisis—the UK is absolutely at the centre of the discussions.

[Lord Liddle]

What plan have the British Government and the Prime Minister put forward for the eurozone? Why does the Prime Minister keep saying that it is for the eurozone to sort out its problems, while knowing that so much of the growth that is being forecast, which is absolutely essential to British interests and his own prospects of re-election, requires there to be robust export growth to the eurozone?

[Lord Sassoon]

These are all factors that mean that we need, with the EU 27, to make sure that the structural reforms are driven through and that we get the benefits of completing the single market project and so on. However, my noble friend Lord Tugendhat again got it exactly right—I would not agree with every nuance of his analysis, but he got the essential point right—in saying that just because we are very positively engaged at the centre of all those other issues does not mean that there are not critical differences, because we are not part of the eurozone and this Government will not take us into it. It is therefore for the eurozone to sort out its own permanent mechanism for dealing with any other issues that arise out of membership of the euro. That is the fundamental difference between the UK’s position and that of other of our partners in Europe. I genuinely fail to see why the noble Lord, Lord Liddle, seeks to paint the position in such stark colours. The fact is that we are in a different position from that of a number of the largest trading partners in Europe, which needs to be reflected in the permanent arrangements that will be put in place. My noble friend Lord Tugendhat explained that in much more masterly terms than I will ever be able to do.

Some questions were asked about the economic and market analysis of the situation, not only of how we got here but how we go forward. I listened with interest to the exchange between the noble Lord, Lord Davies of Stamford, and my noble friend Lord Lamont of Lerwick. The rather succinct and pithy remarks of my noble friend better encapsulated the situation in which Europe finds itself and in which it is clear that the fact of the euro cannot be ignored. That takes us back to why the eurozone needs to think about the consequences and the lessons of this crisis for a permanent mechanism.

In answer to the specific question of the noble Lord, Lord Davies of Stamford, I restate that the loan to Ireland does not add to our deficit. It increases the borrowing on one side of the UK’s balance sheet, but we have an asset in terms of the money that will be owed to us by Ireland. There will be an increment to the fiscal position by the net interest margin, estimated at current interest rates to be some £440 million. That is the only element that should go through the current balance.

One or two comments were made on the process of the Bill. I am grateful to my noble friends Lord Cope of Berkeley and Lord Tugendhat for their endorsement and recognition of the fast-track approach that we have taken. It is necessary that we give confidence to our European partners and the IMF in putting this package together that the UK is ready at the earliest time to deliver on our commitments. I accept my noble friend Lord Cope’s analysis of the constitutional position in another place.

[Lord Davies of Stamford]

Perhaps may I press the Minister a little more on what he said about this Irish loan not adding to the fiscal deficit. I understand that he is saying that it does not add to the fiscal deficit because he is setting off one financial asset against a financial liability. Will he confirm, however, that it will add to the public sector borrowing requirement? Some £2.5 billion will have to be borrowed on the financial markets and be accounted for as part of the public sector borrowing requirement which otherwise would not.

[Lord Sassoon]

Indeed, my Lords, the money advanced to Ireland needs to be funded, but it is precisely because we have stabilised the fiscal position and secured the UK’s AAA credit rating that this matter is not a cause for particular concern.

I have already said why the Government believe that it is right that we should not be part of a permanent bailout mechanism—indeed, this is recognised in the recent Council conclusions. My noble friend Lord Newby asked about the process for adopting the treaty amendment that will be necessary. Parliament must of course give its approval to any treaty change that is agreed by member states, and ratification in the UK will be subject to the terms of the EU Bill that we are bringing forward. A treaty change will be subject to primary legislation. Since there is no question of transfer of competences in this case, the question of a referendum does not arise.

[Lord Pearson of Rannoch]

I do not know whether the Minister will come to some of my questions later, but this might be a convenient point to remind him that the amendment in fact gives the Prime Minister the opportunity to fulfil his promise that, if there were to be any treaty changes, he would use them to repatriate powers, particularly social and labour policy. Why does he not do that?

[Lord Sassoon]

The position is as I have explained it. There is no question of change of competencies in this case and therefore no referendum is required, but it will be the subject of primary legislation. This is not the time, if the noble Lord will permit me to say so, to start talking about other things that may or not may not be done in our relationship with Europe. We are talking about the Loans to Ireland Bill and its consequences and the position is completely clear. If the noble Lord would like me to give way, it will only eat into the time to answer his questions and other points that noble Lords have made. I am grateful to him.

I will come to his points immediately. The noble Lord, Lord Pearson, questioned the legality of this operation. The first thing that I hope we are completely clear about is that the bilateral loan is being made under domestic UK legislation. That is why we are here today. Provided that your Lordships see fit to give this Bill a clean passage, the question of the legality of this loan will not arise.

If the noble Lord was also, as I suspect he was, harking back to the question of the so-called no-bailout provision in Article 122(2) and the creation of the €60 billion fund, that was agreed by the previous Government. We said at the time that we did not approve of the use of this provision, which was originally intended for natural disasters, to create this mechanism. But it was, and we are where we are. The critical thing is that the current coalition Government have a clear commitment that when in 2013 the new mechanism is put in place this will fall away and not be used again. The question of illegality does not arise. It may be regrettable, but the position is legal.

[Lord Pearson of Rannoch]

My Lords, the noble Lord is being a little unfair to the previous Government. Surely, the decision was taken under Article 122(2) which is by qualified majority vote. That is the very reason the Eurocrats chose the clause that allows mutual support in the event of natural disasters to pass this Act. Through our membership of the European Union and the terms of the treaties that we have signed, there was nothing that the previous Government could do about it. I asked the Minister whether he agreed with the French Finance Minister who said that the whole bailout process is illegal.

[Lord Sassoon]

The noble Lord is possibly putting a spin on Madame Lagarde’s words that she would not entirely accept. If he wished to correspond with her I am sure she would explain her position. All I can do is explain the Government's position. I was not trying to be unfair to the previous Government but merely stating the facts of the situation as to when the €60 billion bailout fund was agreed. Yes, I accept that if the UK had opposed it, it would have been a matter dealt with under qualified majority voting.

I will spend one minute responding to points made by the noble Lord, Lord Davies of Oldham. I am grateful to him for being clear about the Official Opposition’s support for the Bill. He asked about the amount of the loan and why, if we could devote this amount of money to Ireland, we could not devote it to other causes. He quoted one possible use of funds. As I explained, the loan to Ireland does not affect the fiscal position. We are able to make it without in any way affecting the fiscal position. If it did affect it, we might need to look for other savings, but we are in a position that that is fortunately not required.

The noble Lord mentioned the global dimension. We have talked a lot about the need for the UK to be at the heart of the European debate on this. I completely agree that the global dimension is an important one. We have heard about the importance of global growth and we will continue to engage with the G20 and the other international forums which will reinforce the ongoing drive to make sure that we learn all the lessons on fiscal and financial stability.

It has been an interesting debate and it is understandable, given the size of the proposed package, that the importance of what we are discussing to Ireland, to our economy and to the wider European context has been fully debated. The financial crisis has shown just how closely linked the economies of Europe and the world have become. In times of prosperity we reap the rewards but in times of hardship, one nation's problems can quickly extend beyond its own borders. That is why we must act now and early to restore stability to Ireland’s economy. That is why we must be prepared and have been prepared to take the necessary steps including through the Bill. It is good for the recovery and good for growth and I ask the House to give the Bill a Second Reading.

[Lord Pearson of Rannoch]

Before the noble Lord sits down, there was one other important question that I asked him and I have asked it also in a Question for Written Answer. Have the Government made any estimation of the cost of Ireland going back to the punt, and if not will they do so?

[Lord Sassoon]

No and no.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.

Individual Savings Accounts

Lord Sassoon Excerpts

Monday 20th December 2010 Lords Chamber

[Lord Lee of Trafford]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as owning an ISA and a number of shares in AIM-quoted companies.

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

My Lords, individual savings accounts are the Government’s main non-pensions savings incentive and are held by 20 million adults. The Government believe that ISAs should be mainstream savings products and therefore do not intend to allow shares on the Alternative Investment Market, which can be riskier and less liquid, to be qualifying investments for ISAs. Companies listed on AIM may already benefit from other incentive schemes, such as the enterprise investment scheme and venture capital trusts.

[Lord Lee of Trafford]

My Lords, I thank my noble friend for his Answer but I find it very thin and disappointing. The arguments for allowing AIM shares to be eligible for ISAs are, frankly, overwhelming. They are supported by the Stock Exchange and the Quoted Companies Alliance. Eligibility would widen the shareholder base, improve liquidity and facilitate fundraising. It would also be tax neutral from the Treasury’s point of view. What is the logic in allowing AIM shares to be eligible for SIPPs but not for ISAs? I thought that the policy of this coalition Government was to encourage personal choice and indeed investment in our smaller growing companies.

[Lord Sassoon]

My Lords, I am sorry to disappoint my noble friend, who has been assiduous over the months in asking questions about AIM shares and ISAs. Within the range of products available, there are distinct differences between the aims of ISAs and those of other savings channels. When the ISA was introduced in 1999—and it has been an enormously successful investment channel—it was intended to be a mainstream product with easy access and liquidity. A line therefore has to be drawn between the sort of investments that are thought suitable to qualify and those that are not. AIM shares were kept out in 1999 and I believe that it is still appropriate, taking into account principally the nature of the product and the ease of access to liquidity investment, that they should be. SIPPs, which are a more sophisticated, tailored pension product with a different time horizon—for example, they do not require 30-day withdrawal—can rightly benefit from having a much wider range of investments held within them.

[Lord Barnett]

My Lords, I declare an interest as chairman of an AIM-listed company that may not benefit from the method that the noble Lord, Lord Lee, recommends. I recognise that the response that the Minister has given is based on the best possible advice available to him, but I am not sure that he is right in the general sense. Would he be prepared to go back to his advisers and ask them at least to reconsider his answer, as the noble Lord, Lord Lee, makes a reasonable case?

--- Later in debate ---

[Lord Sassoon]

I am sorry to shut the door on this one, but the Government have considered this issue since we came into office, just as no doubt the previous Government had plenty of advice since they introduced ISAs in 1999. We have looked at it again and I am sorry to say to both the noble Lord, Lord Barnett, and my noble friend Lord Lee that I cannot hold out any other prospect. The AIM market continues to thrive. At the moment, almost 1,200 companies are quoted on it, 974 of which are UK companies, and the market is quoted at £67.6 billion, so it continues to be in good health in what I recognise are challenging investment conditions.

[Lord Carlile of Berriew]

My Lords, I, too, declare an interest as a director of an AIM-listed company. What tests are not applied to AIM-listed companies that are applied to full exchange-listed companies? Does the Minister accept that the boards of AIM-listed companies feel that they are subject—indeed, they are subject—to the same accounting rigour as FTSE-listed companies and that it is therefore now completely illogical to maintain this distinction?

[Lord Sassoon]

My Lords, without wishing at all to cast aspersions on the quality of AIM companies, it is nevertheless the fact that you can come to the AIM market without a trading record and with no minimum number of shares in public hands. Also, the UK Listing Authority does not usually vet the prospectus of AIM-listed companies and there is no minimum capitalisation requirement. Therefore, there are different requirements and obligations on AIM companies from those that apply to listed companies.

[Lord Davies of Oldham]

My Lords, will the Minister recognise that, with his reply, he has disappointed a wide range of opinion in the House, including— to complete the position—Her Majesty’s Official Opposition? He will know that earlier this year we were looking positively towards this issue. We would have thought that the present Government would adopt something more than just a straightforward negative stance on a situation where it is quite clear that, with SIPPs being able to invest in these companies, there is a good case that ISA investors should be able to as well.

[Lord Sassoon]

I did not want to be controversial in the week running up to the holidays. I pointed out that ISAs were introduced by the last Government and that they have been a successful channel for savings. I gently point out, however, that the last Government had from 1999 to May 2010 if they had wanted to make AIM shares eligible for ISAs, but they chose—rightly, I think—not to do so. We have not taken a decade to mull over this, but we have thought about it carefully in the last few months.

Loans to Ireland Bill

Lord Sassoon Excerpts

Thursday 16th December 2010 Lords Chamber

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

My Lords, with the leave of the House I will make a Business Statement about the Loans to Ireland Bill, which had its First Reading last night and was printed this morning.

On 22 November, my right honourable friend the Chancellor of the Exchequer announced that the United Kingdom, alongside the International Monetary Fund and the European Union—the eurozone and other member states—will participate in the international financial assistance package for Ireland. The United Kingdom has agreed in principle to make a bilateral loan to Ireland of approximately £3.25 billion, as it is in our national interest that the Irish economy and banking system are stable. The Government have therefore introduced a short Bill, designed to provide the necessary authority for HM Treasury to advance these funds to Ireland.

The intention is to fast-track the Bill. It is important for the Government, the IMF and the other lenders to be sure that the legislation will be passed so that they can assess the adequacy of the whole international support package. The IMF board is meeting to discuss the package today. Noble Lords will appreciate that insuring against further financial market instability is also imperative in the current environment. The Bill was introduced in another place on 9 December. In line with recommendations on fast-track legislation made by the Constitution Committee of this House, the Explanatory Notes to the Bill contain a full explanation of the case for fast-tracking and address the key questions set by the committee. In particular, the Explanatory Notes set out that the Bill contains a sunset provision, so that the authority to lend to Ireland and the power to increase the cap lapse after 8 December 2015—five years after the date of introduction in another place.

At the completion of stages in another place yesterday, the Bill was certified as a money Bill by Mr Speaker because its sole purpose is to authorise financial expenditure. The usual channels have agreed that the Second Reading of the Bill will be taken next Tuesday, 21 December, before Committee stage of the Public Bodies Bill resumes, and that remaining stages will be taken formally immediately after Second Reading, as is usual practice for money Bills. This will allow the Bill to receive Royal Assent before both Houses rise for the Christmas break. A list of speakers for Second Reading of the Bill next Tuesday is already open in the Government Whips’ Office. This approach has the agreement of the usual channels and I hope that the whole House will support it.

EU: Financial Assistance

Lord Sassoon Excerpts

Wednesday 15th December 2010 Lords Chamber

[Lord Willoughby de Broke]

To ask Her Majesty’s Government whether the United Kingdom’s participation in the European Union stability mechanism, and the proposed loan to the Republic of Ireland, are in breach of the “no bailout” clauses enshrined in the Maastricht treaty.

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

My Lords, Article 125 of the treaty, on the so-called “no bailout” clause, states that a member state,

“shall not be liable for or assume the commitments”,

of another member state. Article 125 does not preclude member states from providing loans to one another. The European financial stability mechanism was established under Article 122.2, which allows the Union to lend to a member state that is in difficulties or,

“seriously threatened with severe difficulties … or exceptional occurrences beyond its control”.

[Lord Willoughby de Broke]

My Lords, I am grateful to the Minister for that slightly evasive Answer. The phrase about matters “beyond its control” simply cannot be the answer to the difficulties encountered by Greece, Ireland or other potential bailout candidates. Beyond that, could the Minister say whether it is right, when British taxpayers are facing cuts in services and higher taxes, that £7,000 million should be poured into the eurozone black hole in their name?

[Lord Sassoon]

My Lords, I did not intend to be evasive but to give a factually correct Answer in respect of Articles 125 and 122. I was not asked whether we thought it was proper to use Article 122 in this way. As to whether it is proper to extend loans, to answer a question that the noble Lord did ask, we have decided, in the exceptional case of Ireland, which is our fifth largest trading partner, that it is in the interests of the UK economy to extend a bilateral loan to it. That does not mean that we will participate in any other permanent arrangements that may be put in place for the eurozone.

[Lord Lawson of Blaby]

Can my noble friend confirm that, as our right honourable friend the Chancellor of the Exchequer told the Economic Affairs Committee of this House very recently, it is Her Majesty's Government’s firm commitment to withdraw from the European Union’s financial stability mechanism at the earliest opportunity—obviously while wishing the European Union every possible economic success?

[Lord Sassoon]

I am grateful to my noble friend, because his question enables me to say that Article 122.2, under which the financial stability mechanism was set up, was originally intended to provide support for member states following natural disasters. It was European Finance Ministers, before my right honourable friend the Chancellor took office, who decided in May to apply that article to deal with the eurozone crisis at that time. It is absolutely the position that my right honourable friend who is now the Chancellor opposed the use of the article at that time and in that way. It is the Government’s position that this is a temporary solution and should absolutely not be the permanent way of doing things.

[Lord Eatwell]

My Lords, will the noble Lord confirm that the Government will themselves have to borrow the money to provide the loan to Ireland? Will he also acknowledge that the National Audit Office has now determined that any interest paid on such borrowing should be included in current expenditure? Will he therefore tell us how much this interest payment will increase the deficit, and whether any other expenditure cuts are to be made to pay for it?

[Lord Sassoon]

My Lords, first, there will be no hypothecated borrowing by the Government to back up—as far as I am aware—the loan to Ireland. Of course, the loan to Ireland—as and when it is drawn down—is subject to approval in legislation if and when it comes to your Lordships’ House. We might return to it over the next few days. The loan has to be approved by Parliament. It is then drawn down. Of course funds have to come from somewhere, but there is no intention to back that up with a specific loan.

It will not be for the Government to determine the accounting, but the intention is that the bilateral loan will carry an interest rate that is 2.29 per cent higher than the sterling seven and a half year swap rate that applies at the time. On this week’s figures, that would be an interest rate of 5.9 per cent, which would be considerably in excess of the UK Government’s borrowing rate. My understanding—as I say, it is not the Treasury’s decision—is that the net interest margin, which would of course be a gain because the receipts from Ireland would exceed the costs to the Exchequer, would indeed be a positive contribution on the fiscal balance.

[Lord Taverne]

My Lords, is it not inevitable that to make the rescue operations effective, and at the same time to avoid a treaty amendment, the stability mechanism will increasingly become an intergovernmental eurozone mechanism? What plans do the Government have to avoid the United Kingdom being increasingly bypassed in key decisions in the European Union?

[Lord Sassoon]

My Lords, I do not think there is any question of us being bypassed on key decisions in the European Union, as our participation in recent debates about Ireland and the wider crisis have demonstrated. It will be up to Europe to decide how the permanent arrangements are put in place. The October European Council resolved that there should be a crisis resolution mechanism, and there has been a verbal commitment that the UK will not be asked to be part of it.

[Lord Kinnock]

My Lords—

Budget Responsibility and National Audit Bill [HL]

Lord Sassoon Excerpts

Thursday 9th December 2010 Grand Committee

[Lord Eatwell]

I support Amendment 41A proposed by my noble friend Lord Touhig, albeit on a slightly different basis. Given that this appointment will now be for only one term of tenure, it is important that we attract people of the highest quality to the post. If they felt that their future career prospects were endangered, it is likely that we would not have the very best field from which to choose. Therefore, when someone comes to the end of their tenure, it is appropriate for them to receive advice from an established committee whose procedures and standards are well known and in the public domain, and whose approbation or approval of a particular post is seen as having undergone a strict assessment as to the impact on the integrity of the post and the individual. If we are to get the best applicants for this sort of job, we must give some certainty about the nature of their future careers. The involvement of an established body with agreed procedures and standards would help to provide that.

Interestingly enough, if my noble friend’s Amendment 41A were accepted, his Amendment 42 would be less important. The committee would have given its approval of the post and that would receive general acceptance. Therefore, the longer time period might not be so necessary. However, I defer to my noble friend, who has much more experience in these matters than I do. The Government should look carefully at Amendment 41A, which would improve both the Bill and the performance in this particular post.

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

My Lords, I apologise to the Committee for my failure to be here on time. I should like to place on record my gratitude to the police officer outside—I should probably not name him, but I will write to the commissioner—who let me vault the double line of barriers, even though that caused lots of other people in the square, whose intentions in getting to this building were probably not as well meaning as mine, to try to follow me. I place on record my gratitude to the Metropolitan Police officer who exercised some judgment in letting me through. I am sorry that I did not get here at the beginning.

I am grateful to the noble Lord, Lord Touhig, for raising this question again because it is important that we get right the balance. We must protect the matters of propriety around this office and balance that with what the noble Lord, Lord Eatwell, said about attracting the best candidates to the office.

The fact that this amendment is named Amendment 41A rather than Amendment 41 points out the difficulty with naming a particular body, which could come and go over the years. I believe that it is appropriate to leave it to the specification of the Public Accounts Commission, which can decide on the appropriate body to make the decision at the time. I see the point that the noble Lord, Lord Touhig, is making about the desirability of certainty. Of course, it would be open to the Public Accounts Commission to specify at the time of the appointment—obviously not of the current Comptroller and Auditor-General but of future C&AGs—which relevant body would apply. Specifying a body now that could change over the years would provide a degree of unnecessary inflexibility and the law would have to be changed if the body specified ceased to exist. Critically, we have the protection that the appointment is in the hands of the Public Accounts Commission. The certainty point is something that could be taken into account at the time of the appointment.

[Lord Eatwell]

The amendment reads,

“such person as may be so specified”.

From that, it is not clear to me that the person is to be determined by the Public Accounts Committee, which does not seem to follow the way that the Bill is drafted. I take the noble Lord’s point about succession, although usually when bodies succeed each other their responsibilities are passed on in a reasonably coherent way. This wording does not quite seem to achieve what the noble Lord believes it to achieve, but I shall leave him to consider that. I am not trying to make a difficult point; it is just that the drafting does not seem to be quite right.

[Lord Sassoon]

That is the intention behind the drafting but I shall see whether, on reflection, it achieves that. I think that we can accommodate the degree of certainty, albeit that, even in the period of appointment of a C&AG, the relevant advisory committee could change.

I turn to the question of abiding by the committee’s decisions. I hear what the noble Lord, Lord Touhig, says about this being different from ministerial appointments or other Senior Civil Service appointments, where similar conditions apply. However, as we have seen in recent years, there is, as there should be, a considerable focus on current and former Comptroller and Auditors-General. It is inconceivable that similar pressures to those that apply to Ministers and officials would not apply very directly in this case. Therefore, just as, so far as I am aware, it is not written into other Bills, I do not believe that there is a need to write into this Bill the necessity to abide by decisions. If it were thought appropriate to draw attention to this point, I believe it would be more applicable to the terms of appointment rather than the Bill.

On Amendment 42, I certainly agree with the noble Lord, Lord Eatwell, that we must make sure that we get the best field of candidates. If the matters that are the subject of Amendment 41A are addressed properly, which I believe in the total construct they are, then I believe that a period of two rather than five years strikes the right balance when considering the terms of the appointment. Again, it is difficult to say what the appropriate read-across should be, but two years is the period during which former Ministers go through clearance procedures, and this is a tighter requirement, as it should be.

In addition, there are potential difficulties concerning the legal enforcement of such a restriction. The issue here is whether, by specifying five years or some other relatively high number, we would risk infringing age discrimination legislation by making the appointment process exclude those who were getting closer to—I do not know what the term should be—perhaps our best years. Therefore, there are real concerns and there is clearly no easy answer to the question of what the right number might be, but the legal advice that the Government have received is that, as one pushed that number up—and five years would certainly lead to the legal advice being uncertain—there would be a significant risk that the restriction would be thought to be an infringement of age discrimination legislation. Therefore, subject to making it absolutely clear that Clause 15 works as intended—I think that it does, but I will look again—I believe that we have struck a proportionate balance which ensures that we get the best candidates for the job but does not in any way leave open a suggestion of impropriety afterwards.

[Lord Touhig]

I am grateful to my noble friend and to the Minister for their responses. I take the point that my noble friend Lord Eatwell made: if Amendment 41A were accepted, the necessity for Amendment 42 would perhaps not be as great. I also take his point—it was one reason that prompted me to draft this amendment—that the Bill simply says that,

“the person must consult such person as may be … specified”.

I hope the Minister will go back and look further at that, because there is some merit in specifying who will actually look at these matters; indeed, in 2008 the Public Accounts Commission recommended that it should be the Advisory Committee on Business Appointments. The advisory committee was formerly chaired by the noble and learned Lord, Lord Mayhew, and is presently chaired by the noble Lord, Lord Lang of Monkton, so it has a distinguished chairman and a distinguished membership. The committee’s website says:

“The Advisory Committee on Business Appointments is an independent body which provides advice to the Prime Minister, the Foreign Secretary, or other Ministers if requested, on applications from the most senior Crown servants who wish to take up outside appointments within 2 years of leaving Crown service”.

I rather think that it will not be abolished in a hurry, because we will always need such a body to give advice to Prime Ministers and to others on these matters.

I am certainly encouraged that the Minister says that he will perhaps go back and further reflect on this. He mentioned his concern that Amendment 42 might have an impact on age discrimination. As someone who celebrated his 63rd birthday on Sunday—I am still flattered, as a new Member of your Lordships’ House, when colleagues come up to me and ask, “Are you settling in, young man?”—I take the Minister’s point as a fair one. Having said that, I await the Minister’s further reflection and coming back to us, and I beg leave to withdraw the amendment.

Bankruptcy

Lord Sassoon Excerpts

Tuesday 7th December 2010 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what is their definition of “bankruptcy”, as the term was used by Lord Sassoon on 1 November (HL Deb, col. 1552).

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

My Lords, public sector net borrowing in 2009-10 was £156 billion or 11.1 per cent of GDP—the highest level in UK post-war history. The Government were borrowing £1 for every £4 they spent. That was the brink of bankruptcy.

[Lord Barnett]

My Lords, I should declare a professional interest; perhaps I should also declare that I have had free tuition in economics from my noble friend Professor Lord Peston.

Despite the Minister’s Answer, does he not agree that on any definition this country never has been, and is not, anywhere near bankrupt? The plain fact is—and the ONS confirms this—that the net asset position of this country at the end of last year, just before the noble Lord took office, was £6.7 trillion. On top of that, there is no problem in paying debts, because the average length of debt repayment is 14.2 years. We recently lost the services of a distinguished noble Lord in this House. I would not like to see another one go so soon from the Prime Minister’s service. Will the Minister withdraw the word “bankrupt” and apologise to the House for using it?

[Lord Sassoon]

My Lords, I know that the noble Lord, Lord Barnett, is a man who likes precision, so I thought that I would do a little research and see how he has used the term “bankrupt” in this and another place. The first time that the noble Lord used that word in another place was very interesting. It was on 8 April 1965 in the Budget debate. The then Member for Heywood and Royton was defending the then Labour Government’s cuts to our Armed Forces east of Suez. He asked:

“Have we discussed this with our Commonwealth friends in the area and told them … that … it would not help them or us if we bankrupted ourselves by having a force in the area of a size which we could not afford?”.—[Official Report, Commons 8/4/1965; col. 737.]

That was in 1965 when public sector net borrowing was 1.6 per cent of GDP. On that basis, does the noble Lord think that I was a little moderate in my language when I talked about the brink of bankruptcy?

[Lord Peston]

My Lords, as the Minister does not, under any circumstances, believe in answering questions put to him, can I ask him whether he has looked at the latest report of the Office for Budget Responsibility, whose forecasts for the next five years—which is how long this Government are insisting that they are going to stay—state that the balance of payments will be in deficit for every one of those five years? That means that our net assets will decline overseas by the amount we have to borrow to finance that deficit. What a nerve the Minister has to talk about bankruptcy in connection with the previous Government, when the balance of payments forecasts show that if anyone is making us head for bankruptcy—although I do not actually believe that we are—it is the present Government?

[Lord Sassoon]

My Lords, when the Government came into office, we had been put on negative credit watch by one of the main rating agencies, unprecedented for the UK, and were paying interest of £120 million a day. The first or second largest holder of bonds in the world had talked of the UK as a “must to avoid” and described the UK’s gilts as,

“resting on a bed of nitroglycerine”.

The Government have restored confidence in our public finances by setting out a clear plan to restore the budget to balance and that is what enables us to borrow what we need to borrow on the international markets on reasonable terms.

[Lord Naseby]

Has my noble friend had a chance to read the statement from the shadow Chancellor in which he said that the problem for the Labour Party was that it had built up a reputation for 13 years of overspending and debt? Is that not near-bankruptcy?

[Lord Sassoon]

I completely agree with my noble friend. That is indeed it. I was looking at the Oxford English Dictionary this morning and I saw that one definition of “bankrupt” is,

“one who has brought himself into debt by reckless expenditure or riotous living”.

I would not presume to accuse the previous Government of riotous living.

[Lord Davies of Oldham]

My Lords, the successive attempts by the noble Lord to define bankruptcy have looked quite pathetic.

[Lord Davies of Oldham]

Well, his latest definition would indicate that every mortgage holder in Britain was bankrupt because they have substantial debts. The issue is whether these debts can be managed. He must draw a distinction between the situation of Ireland at the present time, or of Greece in recent times, and that of the United Kingdom, where, as has been indicated, our debt repayment is over a 14-year period.

[Lord Sassoon]

My Lords, leaving aside the fact that the mortgage payers of this country would be somewhat upset to be thought of as having brought it upon themselves by reckless expenditure, the point is, as the IMF succinctly put it in its report of 27 September 2010:

“The consolidation plan and implementation of early measures to tackle the deficit—one of the highest in the world in 2010—greatly reduces the risk of a costly loss of confidence in fiscal sustainability and will help rebalance the economy”.

That was what the IMF had to say.

[Baroness Seccombe]

My Lords, does my noble friend agree that, if we had not taken action so quickly, we would have been a further £100 billion in debt by 2015?

[Lord Sassoon]

Indeed. I am grateful to my noble friend and I think that points out how close to bankruptcy we were.

Banking: Liability.

Lord Sassoon Excerpts

Tuesday 7th December 2010 Lords Chamber

[Lord Haskel]

To ask Her Majesty’s Government whether the report published on 2 December by the Financial Services Authority regarding the Royal Bank of Scotland finalises the matter of liability.

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

My Lords, on 2 December the Financial Services Authority closed a supervisory investigation into the Royal Bank of Scotland group. The review confirmed that RBS had made a series of bad decisions in the years leading up to the financial crisis, but concluded that enforcement action was not warranted.

[Lord Haskel]

I thank the Minister for that reply. Is he aware that this report fails to respond to the widespread concerns expressed by many people, some of them on his own Benches, that the report deals with the letter, but not the spirit, of the law? Will he tell us how the restructured FSA under the remit of the Bank of England will function more appropriately and take this into account?

[Lord Sassoon]

My Lords, we do not know what the report says because we have not seen it. We cannot say what the report deals with, but it is clear that it concludes that enforcement action is not warranted in this case. The FSA cannot publish the content of the RBS review because information gathered from the bank during the course of the review contains confidential material. The report remains confidential under the Financial Services and Markets Act 2000. I am grateful to the noble Lord for drawing attention to the fact that we are embarked on a process completely to redraw the financial regulatory architecture. I expect that under the new architecture, the new prudential regulatory authority will be able to exercise powers under the tools we give it to minimise the risk of another case like RBS coming up in future.

[Baroness Oppenheim-Barnes]

My Lords, would my noble friend agree with the view that has been expressed by some people from time to time that the FSA and the Royal Bank of Scotland are covering for each other?

[Lord Sassoon]

My Lords, I would not say in any way that the FSA and the Royal Bank of Scotland are covering up for each other. The FSA has conducted a lengthy report. It is clearly unfortunate that under the Financial Services and Markets Act, it is not possible at the moment to make the report public. On the other hand, when enforcement action is taken, it is usually made public and, indeed, in May this year, the FSA announced the conclusion of an enforcement investigation into one of the executive directors of RBS.

[Lord Gilbert]

My Lords, no small part of the public fury over the Royal Bank of Scotland affair related to the pension arrangements for Sir Fred Goodwin. Were they not the responsibility of the remuneration committee of the Royal Bank of Scotland? Should those names not be made public? Is it not the case that one of the people on that remuneration committee was a senior officer of Goldman Sachs, the same firm that helped the Greek Government fiddle their statistics and behaved disgracefully over the Wells letter? Will the Minister ask his colleagues to investigate whether that firm should continue to advise successive Governments and about its suitability to be an adviser to Her Majesty’s Government?

[Lord Sassoon]

My Lords, I cannot comment on the pension arrangements. I believe they took place before the previous election, and I am no position to comment on the pension arrangements for former directors of RBS. As regards the other matters, if there are any complaints about any regulated firm, I am sure the FSA will be, as it always is, open to looking into any complaints that are made.

[Lord Newby]

My Lords, does the Minister agree with the FSA and the report that RBS under Sir Fred Goodwin was properly governed? If he does, will he explain what he thinks a failure of corporate governance might look like?

[Lord Sassoon]

My Lords, I have not conducted an investigation into RBS. The FSA has, and it published a summary note on 2 December. It is clearly regrettable that we do not see the full report, but I should point out that the really important consequences of this are the change in the regulatory landscape that was brought to our attention by the noble Lord, Lord Haskel, and the fact that the Independent Commission on Banking is looking at the structure of banking in this country, so there are important ongoing inquiries that the RBS saga bears on.

[Lord Myners]

My Lords, it stretches credulity that the FSA could conclude that there was no sign of governance failure in the Royal Bank of Scotland. From my perspective as a Minister, there was a lamentable failure of leadership, proper inquiry and proper governance in the Royal Bank of Scotland. Does the Minister agree that the FSA should publish its own report on the lessons to be learnt from the collapse of the Royal Bank of Scotland and that it should seriously consider whether it should no longer use accounting firms to conduct Section 166 inquiries of the sort carried out here?

[Lord Sassoon]

My Lords, I am sure that the FSA will take note of the noble Lord’s suggestions about how it goes about its business. But I can only, as he does, read the conclusion of a report by the FSA that follows an investigation that began in May 2009 and out of which has come one enforcement case.

[Baroness Williams of Crosby]

My Lords, does the Minister agree that this might be a case for a WikiLeak? Will he also assure the House that, in looking at the proposals that are emerging with regard to the regulation of banking, a heavy emphasis will be put on transparency and openness in future?

[Lord Sassoon]

My Lords, I am happy to confirm that in everything the Government do, we put a major store on openness and transparency. Indeed, we will bear that in mind in our approach to financial regulation in future.

[Lord Davies of Oldham]

My Lords, does the Minister not recognise the great anxiety about this situation? He says that “we”—I presume that he therefore speaks on behalf of the Government—have no knowledge of the report either. This is a totally unsatisfactory situation when lessons need to be learnt about such an important development. Will he not therefore look at the extent to which Her Majesty’s Government can emphasise to the FSA the desirability of making more public the position it has taken up?

[Lord Sassoon]

My Lords, that is what we are doing, but we are acting within the constraints of the Financial Services and Markets Act, which was brought in by the previous Government in 2000.

Savings Accounts and Health in Pregnancy Grant Bill

Lord Sassoon Excerpts

Tuesday 7th December 2010 Lords Chamber

Moved By

[Lord Sassoon]

That this Bill be read a second time.

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

My Lords, the Savings Accounts and Health in Pregnancy Grant Bill does three things: it ends eligibility for child trust funds for children born from January 2011 onwards; it repeals the Saving Gateway Accounts Act 2009, following the Government’s decision not to introduce the saving gateway scheme; and it abolishes the health in pregnancy grant, again from January 2011. I will come on to the detail of these measures, but let me begin by explaining their purpose, and the purpose of this Bill.

As noble Lords will be aware, Britain is facing an extraordinary fiscal challenge. Last year, we had the largest peacetime deficit in our history, and we were borrowing one pound in every four that we spent. That challenge required the Government to take quick and decisive action to respond, and we have done so. In May, we set out over £6 billion of savings that we would make in this financial year, including £320 million from the child trust fund. At the Budget we then set out a clear plan to tackle the deficit over the coming years, and at the spending review we set out how we would put that plan into action. As my right honourable friend the Chancellor of the Exchequer said in the Statement that I repeated in your Lordships’ House last Monday, that plan is working; it has taken Britain out of the financial danger zone. The forecasts made by the Office for Budget Responsibility last week show the economy growing in each of the next six years, and growing faster this year than had been expected in June. Employment is also forecast to grow in every year of this Parliament, with total employment expected to rise from 29 million to 30.1 million.

As my right honourable friend the Chancellor said last week, the decisive plan that the Government have set out is working and we will not abandon it.

[Baroness Armstrong of Hill Top]

My Lords, has the Minister seen the report from the Fawcett Society which identifies how discriminatory the Budget and the spending review have been against women and women with children? As this Bill is all about that issue, what is the Minister’s response to the Fawcett Society report?

[Lord Sassoon]

As I understand it, the Fawcett Society is currently involved in judicial review proceedings in relation to this matter. I am sure that we will come on later, as we should, to talk about the specific impact of the Bill. However, I am not sure that now is the right time to talk about the wider impacts. A Question has been tabled for answer next week about the wider impact of the Government’s measures. We should stick to the effect of the current measures, which I will come on to.

As I say, the Bill is an important part of the Government’s consolidation plan. Together, the ending of eligibility for child trust funds, the decision not to introduce the saving gateway and the abolition of the health in pregnancy grant will save £370 million this year and around £800 million in each year in future. While I realise that some noble Lords will find these changes disappointing, I believe that they are necessary and are the right savings to make. The child trust fund, for example, would have cost over half a billion pounds this year. That money would have been locked up for up to 18 years instead of supporting people now, and that is a luxury that we simply cannot afford.

As noble Lords will know, we therefore announced in May that government payments to child trust funds would be reduced and then stopped altogether. In July, we made regulations to reduce payments at birth and to stop payments at age seven altogether. Those regulations will also end the additional payments that are made to disabled children from 2011-12 onwards, although we will recycle the money that would have been spent on those payments to provide additional respite breaks.

Clause 1 now completes the process by ending eligibility for child trust funds for all children born from January 2011 onwards, meaning that the remaining government payments will stop altogether. However, we remain committed to encouraging saving for children within our limited resources. At Second Reading in another place, my right honourable friend the Financial Secretary announced that the Government will introduce a new tax-free account for saving for children, likely to be known as a junior ISA. We are now working closely with stakeholders to design these accounts but we have already set out that they will allow parents to invest in either cash or stocks and shares for their children, with the money locked up for the child until they reach adulthood. These accounts will offer parents a clear and simple way to save for their children, tax-free, but to do so while saving the half a billion pounds a year that continuing with child trust funds would have cost us.

That would have been unaffordable. We also believe that it would have been unaffordable to introduce the saving gateway, which is dealt with in Clause 2. That would have been a cash savings scheme for people on lower incomes, based on the idea of matching a government contribution for each pound saved. The scheme was due to be introduced in July 2010.

There was some evidence from the pilots for the saving gateway that matching was a popular and easily understood incentive to save, but the Bill Committee in the other place also heard from Carl Emmerson of the Institute for Fiscal Studies that,

“there was not any really strong evidence from the saving gateway that it led to more overall saving from lower-income households”.

When we looked at this ahead of the Budget, it was clear that the summer of 2010, just as we were starting to tackle the deficit, would have been exactly the wrong time to bring in a new scheme that would have cost £300 million over the next five years. We also had concerns that the previous Government had failed to sign up enough account providers to operate the scheme effectively. The RBS Group and Lloyds Banking Group had said they would offer the accounts, but none of the other big high street banks was planning to do so, nor was a single building society. The Post Office had agreed to offer the accounts only if it received a subsidy from the Government to cover its costs.

For these reasons, we announced at the Budget that the saving gateway would not be introduced. We therefore stopped the Saving Gateway Accounts Act 2009 coming into force, and this Bill repeals it altogether. As we have no plans to introduce the scheme, it is right to remove the legislation from the statute book.

Finally, Clause 3 would abolish the health in pregnancy grant, which is a one-off cash payment of £190 to pregnant women. The previous Government said that it was being introduced in recognition of the importance of a healthy diet during pregnancy. However, there is no requirement for the grant to be spent on better health and well-being; women can spend the money on whatever they want. The grant is not paid until the mother has reached the 25th week of pregnancy, but the evidence shows that, to quote the National Childbirth Trust,

“if dietary intervention is to have an impact on birth weight and outcomes for the baby in later life, it should be started as early as possible”.

The grant is unfocused. It is also untargeted: it is paid to all pregnant women regardless of their income.

This Government recognise the importance of maternal health, but it should be supported through focused and targeted policies such as the Healthy Start scheme. This scheme is effectively focused on supporting health and well-being because it pays support in the form of vouchers rather than cash. It is targeted at pregnant women and children living in low-income households. We will therefore continue the Healthy Start scheme, but the health in pregnancy grant will be abolished for all women who reach the 25th week of pregnancy from January 2011. That will save us £40 million this year and £150 million each year thereafter.

The savings that we are making from the child trust fund, the saving gateway and the health in pregnancy grant allow us to focus our limited resources on our priorities. We are delivering on our commitment that health spending will increase in real terms in each year of this Parliament. We are prioritising fairness and social mobility, including by transforming the prospects of the poorest children through the schools pupil premium, which will be worth £2.5 billion by 2014-15. We have ensured that the spending review will have no measurable impact on child poverty in the next two years.

At the same time, we are tackling Britain’s unprecedented deficit. As I said earlier, we have a clear plan to do that. It involves difficult choices such as those included in this Bill. It was clear from the brief debate last Monday that some noble Lords have strong feelings on these issues, so I look forward to a full debate on them today.

I restate that I believe that these are the right choices. We cannot afford the luxury of spending half a billion pounds a year on the child trust fund for 18 years when the money is not available; we could not have afforded to introduce a new scheme such as the saving gateway; and we cannot afford to keep spending £150 million per year on the untargeted, unfocused health in pregnancy grant.

The savings that we have made through these policies will amount to £370 million this year and around £800 million each year from then on. That means £800 million less in other spending cuts, in tax rises or in even higher borrowing. This Bill puts those choices into action. I beg to move.

--- Later in debate ---

[Lord Sassoon]

My Lords, we have had an interesting debate. I am grateful to all noble Lords who have contributed to it. We have covered a range of topics. I shall start with one or two of the wider points raised and then move on to some of the important questions of detail in the Bill.

I start where I started in opening this debate; that is, by saying that this action is necessary. We have had to make some tough choices. I am grateful to my noble friend Lady Noakes for pointing that out and to my noble friend Lord Newby who pointed out that the Opposition had come forward with no alternative policies for cutting the deficit. I had rather hoped from the build-up from the noble Baroness, Lady Hughes of Stretford, that we would get some ideas, but there was nothing. We then had a very long build-up and an economic essay on the story of the previous Government seen from one perspective—that of the noble Lord, Lord McKenzie of Luton. Even though he and I would disagree about the path that got us to the present predicament, he seemed to acknowledge the need for dealing with the economic situation. I hoped that we would get some alternative ideas, but sadly not. Of the other speeches that touched on this point, the speech of the noble Earl, Lord Listowel, put the context of this Bill in a sensitive and well considered way. I did not get any of that from the Opposition Benches. We need to acknowledge that the deficit has to be reduced and that that requires difficult choices.

I stress again that in the overall process of deficit reduction we are, as a Government, prioritising groups that need the most support. Disadvantaged children will benefit from our pupil premium and in the spending review we made sure that there will be no measurable impact on child poverty in the next two years. At the other end of income and wealth distribution, we are making sure that everybody makes a fair contribution. Those on the highest incomes will contribute more towards the entire fiscal consolidation. We are making sure that we get more tax revenue in. We are providing additional resources to combat tax avoidance to raise an estimated additional £7 billion of revenue annually by 2014. Of course, we have also introduced a bank levy that will generate £2.5 billion a year. We are making sure that we raise revenue from every source and that the pain is shared equitably.

Before I turn to some specific points on the Bill, I should say something about the question of the money Bill status of this Bill. I was somewhat surprised not by the relatively measured terms in which the noble Lord, Lord McKenzie, talked about this, but by one or two of his colleagues who surprised me very much, particularly former Ministers both here and in another place. They probably know the processes for money Bills: they would certainly know them better than I do. First of all, it is a certification of the Speaker that cannot be challenged. Even if football managers are getting into the habit of questioning the judgments of referees, which is not entirely a desirable thing, there are limits. I am not sure that it is appropriate for noble Lords to challenge the judgment of Mr Speaker. He is under a statutory duty to certify a Bill as a money Bill if in his view it falls within Section 1 of the Parliament Act 1911. In answer to these extraordinary suggestions that he might have been given advice or been leant on—I do not know what the suggestion is—by the Government, he takes advice from the Clerks in another place and not from the Government. The Government do not offer him any advice.

In respect of mischievous suggestions that somehow the process was different on this Bill from previous money Bills, all of the previous money Bills were certified at the end of their Commons stages. Certification cannot happen until the Bill has completed all of its stages in another place.

[Baroness Hollis of Heigham]

To go back to the process on the money Bill, chapter 33 of Erskine May does not refer to the Clerks but says that the Speaker should call on the advice of at least two chairmen from the panel of committee chairmen in the House of Commons, and that on their advice also he should respond. There is no reference to the Clerks in Erskine May. Was that procedure followed in this case?

[Lord Sassoon]

I can give noble Lords my understanding of what the procedure is, but I certainly cannot and would not presume in any way to go into what process Mr Speaker went through. That is a matter entirely for Mr Speaker and not a matter for us in this House to question.

[Lord Elystan-Morgan]

I speak with all the neutrality that one can from these Benches. Is not the situation that there is a very substantial grey area? Section 1 of the 1911 Act gives many possibilities so that, if a rigid application of that provision had been applied since 1911, hundreds of Bills could have been called money Bills that were not called money Bills. There is a very substantial area of dispute, which will remain unless and until there is some curtailment of that discretion vested in those who advise the Speaker of the House of Commons.

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[Lord Sassoon]

My Lords, I do not think that we should stray into a constitutional debate this afternoon. The point that I wanted to make was that this Bill was certified by Mr Speaker and that it was not a certification that we should be challenging. As far as I am aware, the Bill was dealt with in another place exactly as other money Bills have been, and the suggestion that there has been some improper behaviour by the Government on this matter, or that somehow there was something different—

[Lord Reid of Cardowan]

I do not think that anyone is suggesting that there has been improper conduct. We did not stray into this territory—the Minister led us there by describing in some detail the process. If he is now saying that he does not know what the process was, will he indicate to us whether his original statement was accurate or an assumption on his part?

[Lord Sassoon]

My Lords, as I said before, I have given a description of the process and indicated that there was no question that the Government in any way behaved in some out of the ordinary way with this Bill, as has been hinted at. I really think that—

[Lord Griffiths of Burry Port]

As it was probably my suggestion that has led to this response, I should like to speak just for a moment. I was given very clear advice from those who prepared a briefing paper, which many of us read—I heard it being quoted all round the House—that it was done at the request of the Government. I am not hinting that improper stuff has happened; I was merely asking whether that was true.

[Lord Sassoon]

My Lords, I am grateful to the noble Lord. He is right to say that some of these points were raised by him, which is why I thought it was right to address them. This is an important point. I can confirm what he asked me to confirm, but I think that I should move on to address some of the many other points that were made on this money Bill.

The point that attracted the most interventions—and it is an important point—was on junior ISAs for looked-after children. That point was raised at the opening of the debate by the noble Baroness, Lady Thornton, who reminded us that proposals were raised in another place in that area, and a number of my noble friends and the noble Earl have touched on the point. I start by reiterating what my honourable friend the Financial Secretary said in another place—that we would need to think about this carefully and that we will think about it carefully. He has had conversations and we need to recognise the limitation of resources that are available. There is certainly no unallocated funding in the Department for Education budget that could be used for it, but we are considering the issue. My honourable friend is going to work with the Minister for Children. He made it clear that if we wanted to do something in this area, it would be possible to do it outside the scope of this Bill—a point which I think was touched on by the noble Baroness, Lady Howe of Idlicote. It does not require the Bill to be in place. I think that the noble Lord, Lord Griffiths, also touched on that point.

I assure my noble friend Lady Browning that I do indeed talk to my colleagues. I was talking to the Financial Secretary only this morning and I shall relay these messages back in. Yes, the Treasury is a siloed place. My proposal that Ministers in the Treasury should all sit in an open-plan office has not yet found favour but my noble friend encourages me onward in that objective. The noble Earl also made a practical suggestion on whether an additional meeting involving noble Lords would be helpful. As I have said, my honourable friend the Financial Secretary is having meetings. I am not sure which additional meetings would be helpful but I certainly accept his offer.

[The Earl of Listowel]

If it might help the Minister, it might be particularly useful to meet the Minister to discuss this with his honourable friend and with Mr Tim Loughton early in the new year. That might be welcomed by your Lordships—as I look around the House, perhaps not—but that was certainly the sort of thing that I had in mind.

[Lord Sassoon]

I will relay the message back and discuss it with the Financial Secretary. There were also questions on the capacity of local authorities. My noble friend Lady Ritchie of Brompton gave the most considered view from a local authority perspective, as she should. She talked about local authorities being under pressure. Certainly, I did not hear her say that it would be impossible for local authorities to find funding in these areas, but of course they have to make difficult choices—ones which, going forward, will not be constrained by so much ring-fencing in their budgets, as has been recognised.

[Lord McKenzie of Luton]

If it is the Government’s proposition that local authorities should pick up the obligation to support junior ISAs for looked-after children, given that the Government have signed up to the principle that they would keep local authorities whole for new burdens, will the Minister give a commitment that if that is the way that it goes, the Government will provide that extra funding?

[Lord Sassoon]

My Lords, I cannot promise today that all looked-after children will have a junior ISA opened for them and I certainly cannot provide any assurance about government funding. I have said that my honourable friend is looking into all this and, if and when there are proposals, the Government will indeed come forward with them.

I turn to some other important points on child trust funds and their effects on savings. A number of points were made by the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie of Luton. Have child trust funds had a positive effect on savings? There is currently no robust evidence about whether the child trust fund has increased savings for children. While some parents are using child trust funds, not all are. I have it that 22 per cent of child trust funds received contributions in 2009-10, marginally down on the 24 per cent in the previous year. In any case, we do not yet know whether any of that saving is additional or would have happened anyway. For lower-income families, only 12 per cent of CTF accounts received contributions. I take my noble friend Lord Newby’s points to heart about the untargeted and, certainly, the unproven nature of the effect of child trust funds.

Several noble Lords, including the noble Baroness, Lady Thornton, and the noble Lord, Lord McKenzie, raised the question of the gap before the introduction of junior ISAs. I must go back to the need for us to move quickly to tackle the budget deficit. I realise that this will leave a gap before the junior ISAs are available. However, we are working hard with the industry and other stakeholders to make sure that the gap is as short as possible. We intend to publish draft secondary legislation, setting out full details of the new accounts, in the spring and for them to be up and running in the second half of 2011. We will ensure that eligibility for the new account is backdated to ensure that no child born after the end of the CTF will miss out on the chance of having one of these accounts.

Concerns were raised by the noble Baroness, Lady Hollis of Heigham, and others about the suitability of junior ISAs for children from families on lower incomes, and whether they would benefit only the rich. I certainly do not believe that this will be the case. These accounts are not just about offering people a tax-free option for children’s savings; they will also offer a clear and simple way of saving for children and of ensuring that the money is locked up until the child reaches adulthood. This will prove attractive to many families on lower incomes. Of course, saving issues are difficult for us all, particularly those on lower incomes, but I remind the noble Baroness and the noble Baroness, Lady Drake, that already more than 12 million people with incomes below £20,000 have an ISA. It is penetrating lower-income groups.

I am grateful to the noble Lord, Lord McKenzie of Luton, for drawing attention to the annual financial health check. That was also welcomed by the noble Baroness, Lady Drake. There are questions about advice turning into action but we should start somewhere. I am grateful to noble Lords for drawing attention to that important initiative.

On the question of the Bill’s equality impacts, an initial assessment of these was published on 15 September, when the Bill was introduced. Although we do not say that there are no impacts, the impact assessment shows that those that have been identified are proportionate, given the need to reduce the UK’s budget deficit.

I should say a little about the health in pregnancy grant, which the noble Lord, Lord Northbourne, raised first. I assure him that we have another scheme, the Healthy Start scheme, which targets and supports pregnant women on lower incomes, providing vouchers for fruit, vegetables and milk from the 10th week of pregnancy. This very much goes to the heart of the point that my noble friend Lady Browning made from an expert perspective. It did not look as though the health in pregnancy grant was achieving its original target of reducing the incidence of low birth weights. The Healthy Start scheme is much better targeted towards that.

[Baroness Hollis of Heigham]

Does the Minister agree that the Healthy Start scheme gives something like £3 a week for, at best, around 30 weeks, which is a smaller sum than is being lost?

--- Later in debate ---

[Lord Sassoon]

My Lords, it comes back to where we need the scarce resources available to be targeted. In answer to the questions that were raised about the underlying purpose of the pregnancy grant—namely, to deal with the problem of underweight children and nutrition—the Healthy Start scheme is far better targeted to that end.

I am conscious of the time. In my final minute I come back to the wider point of the Bill. Without the changes that we are making, we would have had to spend more than £3 billion in the four years of the spending review period on the child trust fund, the saving gateway and the health in pregnancy grant. That would simply have been unaffordable. The Opposition have not come up with any ideas of how we could have made alternative cuts.

[Lord McKenzie of Luton]

My Lords, if the noble Lord is tempting me, I have a whole string of things that I could raise, but does he think that we might do without the £2 billion to £3 billion that we are spending on an unnecessary, unproven and top-down reorganisation of the NHS?

[Lord Sassoon]

My Lords, out of this Bill we are saving £3 billion of spending which we believe could be better targeted. We therefore believe that that is actually concentrating our scarce resources on disadvantaged children and child poverty—that is where the resources should go—as well as enhancing growth in our economy through spending on infrastructure, low-carbon investments and science.

I realise that the measures in the Bill are disappointing to some noble Lords. I believe that they are necessary. Notwithstanding the fact that this is a money Bill, we have had a good debate. Some follow-up points in one important area have been made from all sides of the House. I believe that the Bill is necessary and I ask the House to give it a Second Reading.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.