Health: Private Medical Insurance

Lord Sassoon Excerpts

Monday 15th November 2010 Lords Chamber

[Lord Walton of Detchant]

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 a policyholder with AXA PPP.

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

My Lords, private medical insurers are entitled to offer policies on a variety of terms and offering different levels of benefit. The Financial Services Authority’s Insurance Conduct of Business Sourcebook does not prevent insurers restricting choice of healthcare provider. However, it does require that the insurer provides information on any such restrictions. Provided that policyholders are covered as they expect in the event of a claim, this is to the benefit of consumers as cost control serves to keep premiums at an affordable level.

[Lord Walton of Detchant]

I thank the Minister for that reply. Is he aware that the Office of Fair Trading is receiving a large number of complaints from individuals who believed that they had fully comprehensive healthcare insurance with organisations such as BUPA and PPP but are now finding in many instances that their recovery is only partial, that they are restricted in the choice of consultant to whom they may be referred, despite their GP’s advice, and also that they are not allowed to go to certain hospitals? Is this not contrary to the policy that should be carried out, and is the Minister aware that last week my noble friend Lord Crisp said that private healthcare insurance was becoming a lottery, and that the Financial Services Authority should examine the matter in the light of these complaints?

--- Later in debate ---

[Lord Sassoon]

My Lords, private medical insurance policies are held by some 6 million people. I am grateful to the noble Lord, who is a very distinguished member of the profession, for drawing attention to this matter because it is clearly important for those 6 million people and for the country as a whole that this is a well functioning market. However, that market is the business of the policyholders, the insurance companies and the doctors. The FSA’s role is to make sure that essentially policyholders are sold policies on terms that are fully disclosed to them and that those terms are upheld. In June this year, the FSA carried out a review of the conduct of business rules and found no evidence of risk of consumer detriment in the PMI market which could be addressed by changing its regulatory approach. However, I am sure that the FSA, like the OFT, hears complaints coming in.

[Baroness Oppenheim-Barnes]

My Lords, is my noble friend aware that quite often medical insurance companies require a direct debit payment and that it is only after the direct debit payment has been made that they inform the person that certain things which they thought were going to continue to be covered no longer are?

[Lord Sassoon]

My Lords, I do not pretend to be an expert on the precise ways in which medical insurers carry out every aspect of their business, but clearly, as I said, it is critical that people understand what policies they are buying and that the policy terms are met. That is the critical interest of the Financial Services Authority in this matter.

[Baroness Farrington of Ribbleton]

My Lords, would the Minister care to comment on the complaints from National Health Service consultants that, when there is a failure by the private healthcare system, patients are put into the National Health Service in front of other people? Would he also care to comment on my view that there is no comprehensive healthcare policy through private insurance and that everyone in the country is dependent on the NHS?

[Lord Sassoon]

My Lords, I am happy to confirm the really critical point, which is that the National Health Service is available to the population as a whole and that this is therefore an area in which the nation has access to the best-quality healthcare. If, on top of that, people wish to invest their money in private healthcare policies, it is important that those policies work effectively. However, as the noble Baroness points out, it is critical that the health service is there for everyone. As she raises the question of complaints, it is worth pointing out that the complaints that are relevant to this Question are those that go to the Financial Services Authority or the Financial Ombudsman Service. The latest figures that I have are for 2008. There were 514 complaints to the Financial Ombudsman Service in that year, of which 170 were upheld, and that represents one complaint upheld for every 8,000 people treated under private medical insurance.

[Lord Newby]

My Lords, the Minister says that the FSA is content that the system is working well. However, does he accept that many people who feel that they have been let down by their policies do not share that view? As the noble Lord, Lord Crisp, pointed out last week, this problem seems to be more general than just one or two people not reading their instructions properly. Could the Minister possibly go back to the FSA and ask it to look at this problem again in the light of the concerns that have been raised about it in recent months?

[Lord Sassoon]

I thank my noble friend for raising that point. Of course I am happy to convey to the FSA the points that have been raised this afternoon.

[Lord Eatwell]

My Lords, the noble Lord has taken a remarkably complacent view in his answers about the position of policyholders. Surely the FSA’s responsibility to ensure that financial institutions treat their customers fairly requires that this matter be investigated and that better information be given to policyholders about the limitations of their cover.

[Lord Sassoon]

My Lords, I think I have responded to the noble Lord’s points in the answers that I have given to a number of questions.

[Lord Crickhowell]

My Lords, I declare a similar interest to that of the noble Lord, Lord Walton. Is not the trouble the fact that the terms, which many of the 6 million knew they had, understood they had and have had over many years, are often changed so that people can no longer go to the doctors and hospitals recommended by their GPs, but have to go to ones nominated by the company? People cannot deal with that situation because, when they took out the policy, they had the cover that they required. In many cases, they no longer are offered the cover they thought they had and had reason to expect that they had.

[Lord Sassoon]

My Lords, as I have said, it is absolutely the focus of the FSA and the conduct of business rules that people who buy private medical insurance, just as they buy household or any other insurance, are properly sold and have explained to them the terms of the policy and that the terms of the policy are carried through. Normally, these are annual policies and the terms of policies in this area, just as in other areas of insurance that no doubt we all buy, change from year to year.

Budget Responsibility and National Audit Bill [HL]

Lord Sassoon Excerpts

Monday 15th November 2010 Lords Chamber

Tabled By

[Lord Sassoon]

That it be an instruction to the Grand Committee to which the Budget Responsibility and National Audit Bill [HL] has been committed that they consider the Bill 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 not moved.

Housing: Mortgages

Lord Sassoon Excerpts

Wednesday 10th November 2010 Lords Chamber

[Lord Naseby]

To ask Her Majesty’s Government, in the light of the Financial Services Authority’s new affordability rules, what is their assessment of the current housing mortgage market in terms of the availability and price of mortgages.

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

My Lords, the Financial Services Authority is engaged in a review of mortgage regulation, the Mortgage Market Review. The Responsible Lending consultation paper published in July, which looked at proposals on assessing affordability, forms one part of this ongoing consultation. The Government will continue to work with the Financial Services Authority, mortgage lenders, intermediaries and consumer groups to ensure a mortgage market that is sustainable for all participants.

[Lord Naseby]

Is my noble friend aware that mortgage lending is at a 10-year low? The main reason seems to be that, on the one hand, the lenders—that is, the building societies and the banks—are saying that they require a 25 per cent deposit and that they have to waive certain supplementary income, while, on the other hand, the FSA is saying that it has not prescribed a 25 per cent deposit but is imposing tough new proposals. Will my noble friend bring together these two parties so that couples who want to buy a modest house of, say, up to £200,000 in value, but who cannot possibly find £50,000—which is the 25 per cent requirement—are asked to put forward a 10 to 15 per cent deposit?

[Lord Sassoon]

My Lords, the level of new gross lending in the mortgage market is above levels seen throughout the 1990s, but, inevitably in this part of the economic cycle, it is low, as my noble friend said. Although loan-to-value thresholds are taken into account by the FSA for prudential purposes, they are not hard limits. The FSA says in its recent consultation paper that no case has been made for LTV caps on consumer protection grounds, and the FSA is not proposing to impose a maximum LTV cap. I note from just scanning mortgage products available on the internet this morning that there is still a range—admittedly a reduced range—of products with 80 per cent and 90 per cent LTV available.

[Lord McFall of Alcluith]

My Lords, will the Government keep in mind that the affordability criteria are important given that in the past three years more than 40 per cent of mortgages have been approved without proof of income? Will they accept that further checks and balances are needed in the mortgage market to protect consumers from mis-selling, and also to prevent another reckless housing boom?

[Lord Sassoon]

My Lords, I certainly agree with the noble Lord that questions of affordability should be addressed, which is why the FSA is carrying out the consultation. The consultation is due to close shortly and forms an important part of the FSA’s ongoing work to ensure a sustainable mortgage market for the medium term.

[Lord Oakeshott of Seagrove Bay]

My Lords, I am sure that I misheard the Minister, but he seemed to imply that it was inevitable that mortgage lending is so low at this stage of the cycle. There is nothing inevitable about it. The fact is that the banks are not lending as they should and they are demanding 30 per cent and 40 per cent deposits from people with good prospects. What does the Minister think is a fair deposit for a bank to ask a creditworthy borrower to put down to get a fair and affordable interest rate? The banks are not doing it at the moment.

[Lord Sassoon]

My Lords, it is certainly not for government to make judgments about the right terms on which mortgages should be advanced by individual banks. There is a rebalancing going on from an excessive household leverage which built up in the past decade. There is also a necessity for the banks to price all their products, including mortgage products, at an appropriate margin, because it was quite clear that they were extending a whole range of credit products, including mortgages, at submarket rates before the crisis. The Government’s interest is to make sure that we have a sustainable balance, which means that people, including first-time buyers, can get mortgages on appropriate terms, but also that it is sustainable and does not lead to another bubble. We are following very keenly the work of the FSA in this regard.

[Baroness Hollis of Heigham]

My Lords, as the noble Lord, Lord Naseby, said, many prospective owner-occupiers are unable to afford a deposit and will therefore linger for a decade or more in the private rented sector, therefore increasing the demand and rents in that sector. The Government’s policy is to cut housing benefit to reduce private sector rents, but that cannot and will not happen. Instead, will it not increase the misery for thousands of people?

[Lord Sassoon]

My Lords, I do not accept the premise that there will be a raft of people somehow prevented from getting on the mortgage ladder for a decade. I have no idea what the basis is for that rather broad and sweeping assumption. The Government are ensuring that we keep interest rates low and that the banks can access the funds they need to underpin a good flow of mortgage lending, as well as other lending, particularly to SMEs. It is for the FSA in that context to ensure that the affordability criteria are appropriate. In particular, we have extended the support for mortgage interest by a further year to January 2012.

EU: Membership

Lord Sassoon Excerpts

Monday 8th November 2010 Lords Chamber

[Lord Pearson of Rannoch]

To ask Her Majesty’s Government what is their latest estimate of the net cost to the United Kingdom of membership of the European Union.

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

My Lords, the UK's net payment to the European Union budget is projected to increase from £3.8 billion in 2009-10 to £8.6 billion in 2014-15. The main reasons are the increase in the size of the budget and the disapplication of the abatement to non-agricultural spending in the new member states. Both were signed up by the previous Government for 2007-13. We are very concerned about those growing contributions, and we are working hard to moderate them.

[Lord Pearson of Rannoch]

My Lords, I am grateful to the noble Lord for his reply, which does not accord with the Treasury's spending review in October, which reveals that the net cash we are sending down the drain in Brussels this year is £8.3 billion, or £23 million a day, or the salaries of 750 nurses every day. Will the noble Lord confirm the other ruinous costs of our EU membership, which the Taxpayers’ Alliance has given as more than £100 billion a year? Also, what conceivable benefit do the British people get out of our EU membership? Do not the Government yet understand that we would create—

[Lord Pearson of Rannoch]

This is my second question. Do not the Government yet understand that we would create a great many jobs and be very much better off out of it?

[Lord Sassoon]

Now that the noble Lord has given up the strains of office of leading a party, we should allow him to be a bit more expansive—this afternoon, at least.

Of course, if we look at the wider benefits of EU membership, we can see that the UK gets much more out of it than it puts in, including in better access for British companies, whatever their size, to EU markets, cheaper prices and greater choice on our high street, more foreign investment, and a stronger voice for the EU in co-operation with countries such as India and China. The benefit of free trade with the EU alone has been estimated to boost GDP by more than 2 per cent—which, for the UK, would equate to benefits of about £25 billion to £30 billion each year.

[Earl Cathcart]

My Lords, as individuals, I do not believe that any of your Lordships would continue paying good money to the bank which looked after their money, their savings, and perhaps their mortgage, pensions, life policies and investments if the auditors refused to sign off the accounts because of fraud, theft, mismanagement and embezzlement, yet Britain continues to pay good money to Europe, although the auditors have refused to sign off on the accounts for 14 years for those same four reasons. Why do the Government not pay our great contributions to the EU into a bank account in London, draw down on that to make a payment to the British people as necessary and then pay only the net amount to Brussels if and when the auditors are happy to sign off the accounts? That might concentrate a few minds.

[Lord Sassoon]

I am grateful to my noble friend for that suggestion. Certainly I thoroughly endorse anything that concentrates minds in Brussels on the need for good housekeeping. I am not sure that his specific arrangement would quite meet our treaty obligations, but I shall bear it in mind.

[Lord Clinton-Davis]

My Lords, if we were to withdraw from the European Union, would not the costs be infinitely larger than the noble Lord, Lord Pearson, suggests?

[Lord Sassoon]

My Lords, I agree with the noble Lord and, as I have already explained, the huge benefit from our membership of the EU significantly outweighs the budgetary contribution that we make.

[Lord Stoddart of Swindon]

My Lords, is the Minister aware that we run a consistent trade deficit with the EU of about £40 billion a year? Could he say in relation to our net contribution, given the extra £450 million agreed by the Prime Minister at the recent quarterly meeting—or perhaps the £900 million which we will have to pay if the European Parliament has its way—how much we will then be paying?

[Lord Sassoon]

My Lords, in answer to the first part of the noble Lord’s question, 40 per cent of the UK’s trade goes to Europe, so it is a critical trading partner. On the potential increase of our budget contribution for next year, I should say that it was only thanks to the work of my right honourable friend the Prime Minister that the budget was put on to the agenda of the Council of Ministers and, thanks to the work he did with a number of other member states, the ridiculous proposal of a 6 per cent increase has been thrown out of court. The Council instead discussed the 2.9 per cent increase which we believed to be the absolute upper limit of what should be acceptable for next year.

[Lord Dykes]

My Lords, further to the Minister’s answer when he was referring to the enormous benefits in all sectors, would he agree that even the City earnings from being the largest euro currency trading centre in the whole world are enormous in comparison with the budget contribution we have to make? There are many other examples.

In view of the low quality of the characteristic questions of the noble Lord, Lord Pearson, should he not return to being leader of UKIP, the only party in Britain that wants us to leave, after 37 years of membership of the EU? If he were right, Richard Branson and many other businessmen would be wrong.

[Lord Sassoon]

My Lords, I suppose there was a question in there for me somewhere. I certainly agree with my noble friend that the City of London over a number of decades has indeed become the principal financial centre for the European Union. It is important that business across the European Union understands what benefit it gets out of the financing that goes through the City of London.

[Baroness Symons of Vernham Dean]

My Lords, the Minister said a moment or two ago that the only reason that the 2.9 per cent had been adhered to was because of the Prime Minister’s intervention. Indeed, the Prime Minister claimed he was “building an alliance” to “insist on the 2.9%”. Can the Minister explain therefore why it was that before the Prime Minister’s intervention 20 countries supported the 2.9 per cent cap, and after the Prime Minister’s intervention only 13 did?

--- Later in debate ---

[Lord Sassoon]

My Lords, the question of next year’s budget was not even on the Council’s agenda for the latest meeting. Therefore, getting 13 Heads of State to sign a letter on 29 October was critical to getting a sensible result out of the Council. Meanwhile, as I said in repeating the Statement by my honourable friend the Financial Secretary, Labour MEPs in the European Parliament were voting on an amendment to increase the budget next year.

Budget Responsibility and National Audit Bill [HL]

Lord Sassoon Excerpts

Monday 8th November 2010 Lords Chamber

Moved By

[Lord Sassoon]

That the Bill be now read a second time.

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

My Lords, the Budget Responsibility and National Audit Bill makes provision to enhance the transparency and accountability of the public finances. The Bill has two main subjects: first, it establishes the Office for Budget Responsibility on a statutory basis as part of broader reforms to the UK’s fiscal framework; secondly, it modernises the corporate governance of the National Audit Office. I will speak to each subject in turn.

Fiscal discipline is perhaps the single greatest priority for this Government. We are all aware of the current fiscal climate and the situation that we are in. To address that situation, the Government are taking action on a number of fronts. In June, the Chancellor announced the Government’s intention to eliminate the structural current deficit in this Parliament and to put debt on a sustainable downward path. We set this out through our new fiscal mandate. Last month, the spending review comprehensively set out the spending reductions that will deliver this mandate. The plans are tough, but they are fair and deliverable. Now, through the Bill, the Government are strengthening the framework of the UK’s fiscal institutions.

The greatest single step forward is the establishment of the independent Office for Budget Responsibility, which will make independent assessments of the public finances and the economy. Up until the new Government’s first Budget, the responsibility for producing the official forecasts had rested with the Chancellor. The key judgments were made by Ministers, but the possible incentive to forecast optimistically, whether on lower borrowing or higher growth, led to scepticism over the credibility of the forecasts. Budget forecasts over the past decade consistently underestimated borrowing, compared to both its actual level and to what other independent forecasters expected at the time. The coalition Government intend to take a different approach.

We have removed the responsibility for forecasting from Ministers and given it to independent experts. The independence of the OBR’s judgments will ensure that policy is made on an unbiased view of future prospects. The establishment of the OBR is a reform that has been welcomed by both the IMF and the OECD. In its recent Article IV report on the UK, the IMF has said that the OBR is,

“a welcome step toward strengthening the budget process”.

The OECD has said that the OBR is an important initiative in improving public confidence. The UK is now one of the few advanced economies in which an independent fiscal institution produces the official forecast. It is worth emphasising this point because it influences many aspects of the legislation.

As I have explained, the establishment of the independent OBR will completely overhaul how the Budget is put together—indeed, it already has. The OBR was set up on an interim basis immediately after the coalition was formed. Led by Sir Alan Budd, in only a few weeks the OBR produced an independent assessment of the economy and public finances both ahead of and as part of the emergency Budget in June. It also scrutinised the Government’s assessments of the cost and yield of budget policy decisions and confirmed that we are on course to meet our fiscal mandate. Great strides were also made in transparency. More information was published than ever before—a fact noted by both the Treasury Committee and the IFS.

The final task of the interim Office for Budget Responsibility was to provide advice on how the permanent, statutory OBR should be established. I am happy to report to the House that the Bill is designed in line with the detailed recommendations made by Sir Alan Budd in his letter to the Chancellor. We are now moving to permanent arrangements and a new Budget Responsibility Committee is in place, to which Robert Chote, Stephen Nickell and Graham Parker have been appointed. Their appointments were subject to the confirmation of the Treasury Committee. The resources made available to the OBR have been increased. There has been a transfer of technical forecasting capacity from the Treasury to the OBR and a transparent, multi-year funding settlement has been agreed for the spending review period. Robert Chote has also announced a new location for the OBR’s offices, outside of the Treasury building.

I turn to the specific provisions of Part 1. The Bill will repeal the previous Government’s fiscal framework, including the Fiscal Responsibility Act 2010, and replace it with reformed and streamlined provisions. Clause 1 requires that the Treasury must produce a charter for budget responsibility, which will set out the Government’s objectives for fiscal policy, particularly the fiscal mandate. Clause 2 requires the Treasury to produce a budget on an annual basis. Clause 4 sets out the main duty of the OBR to examine and report on the sustainability of the public finances.

The Bill also makes explicit provision that the OBR has complete discretion over how it carries out its statutory duties. This is a broad remit and is not limited to forecasting. However, at a minimum the OBR will be required: to produce economic and fiscal forecasts at least twice a year; to make an assessment on the likelihood of the Government meeting their fiscal mandate alongside those forecasts; to publish a sustainability report at least once a year; and to publish a report on the accuracy of its forecasts at least once a year.

Clause 5 lays down a set of principles that will guide how the OBR goes about fulfilling its remit. The OBR must perform its duty objectively, transparently, impartially and on the basis of government policy. These principles protect independence and ensure a clear separation between analysis and policy-making. Analysis is rightly the domain of the OBR, but policy-making is the responsibility of publicly elected Ministers. The charter for budget responsibility will set out further details on the OBR’s remit and a draft will be made available to the House.

The establishment of the OBR takes executive responsibilities for producing economic and fiscal forecasts out of the hands of Ministers and entrusts them to an independent body. The OBR will report directly to Parliament on the public finances and the members of the Budget Responsibility Committee will be available for select committee scrutiny. The OBR’s forecasts and analysis will be laid directly before the House. On funding, there will be separate reporting of the OBR’s expenditure in the estimates that the Treasury presents to Parliament. In addition, the OBR will be able to submit an additional memorandum alongside that of the Treasury. Written Questions will be passed to the OBR to respond to. All these measures will enhance the ability of Parliament and the public to hold the Government to account for their fiscal policy. In terms of institutional status, the Bill establishes the OBR as an executive non-departmental public body. This status gives the OBR its own legal identity. Conferring Crown status allows appropriately skilled civil servants to move easily to and from the OBR.

The OBR’s executive responsibilities are to be undertaken by the three-person Budget Responsibility Committee. Its members will be appointed by the Chancellor, but the Bill provides the Treasury Select Committee with a veto over their appointment and dismissal. The Chancellor has said that he is giving the committee this veto to ensure that there is no doubt that the individuals leading the OBR are independent and have the support and approval of the committee. A chairman will lead the BRC and run the office. All staff will report to the chair, who will control the hiring and firing of the staff. In addition, there will be at least two non-executive members to provide support and constructive challenge.

For the BRC and its staff to produce the best possible forecasts and analysis, they will need access to the necessary resources and information. Clause 9 gives the OBR a statutory right of access to all government information that it may reasonably require. To facilitate close working, memorandums of understanding will set a framework for the working relationship between the OBR and other government departments. The provisions of Part 1 deliver the coalition’s aims of increasing transparency and enhancing accountability for the public finances; the same aims apply to the scrutiny of public expenditure, which is the subject of Part 2 of the Bill, to which I now turn.

Part 2 of the Bill modernises the governance of the National Audit Office. The NAO is best placed to assess the Government’s use of public funds, especially in the current climate. Effective independent oversight of spending is critical when public resources are under such pressure. The provisions of the Bill strengthen the resilience and integrity of the body. Noble Lords will be aware that very similar provisions were included in the previous Government’s Constitutional Reform and Governance Bill but that there was no time for the House to consider these provisions at the end of the Parliament, so they were lost at that time. This Bill represents the earliest possible opportunity in the new Session to bring them before the House.

The provisions in Part 2 implement recommendations made by the Public Accounts Commission following its review of the NAO’s corporate governance arrangements. Clause 11 confirms that the office of the Comptroller and Auditor-General will continue. The C&AG will be an independent officer of the other place who will be limited to a single term of 10 years. Clause 20 provides for the establishment of the new National Audit Office as a corporate body. Of course, the NAO already exists, but Clause 20 incorporates it formally for the first time as a body corporate. The new NAO’s functions include: providing resources for the C&AG’s work; advising him on that work; and approving certain services. The NAO will be able to support and challenge constructively the C&AG’s decisions, but it may not prevent him from carrying out his statutory responsibilities. The NAO will have a majority of non-executives and be led by a non-executive chair. The C&AG will be the chief executive but will not be an NAO employee.

I emphasise that those provisions do not compromise the discretion of the C&AG in forming audit judgments and in carrying out value-for-money studies. When the provisions were discussed in the other place during the passage of the Constitutional Reform and Governance Bill, both the then chairs of the Public Accounts Commission and of the Committee of Public Accounts supported them. Schedules 2 and 3 set out details on the new NAO and the relationship between the new NAO and the C&AG. Schedule 6 provides a framework power to enable the National Assembly for Wales to legislate for the governance arrangements of the Wales Audit Office.

The provisions in the Bill are a key part of the Government’s fiscal reforms. They will provide a strong institutional framework for the future and help secure the sustainability of the public finances. I beg to move.

--- Later in debate ---

[Lord Sassoon]

My Lords, I thank noble Lords for their contributions to a stimulating and interesting debate on both parts of the Bill, although noble Lords focused more on Part 1 than Part 2. The debate has focused on the role of institutions and the part that they can play in ensuring transparency and accountability in the public finances. This is clearly a matter of much importance at the current time. At the beginning of the debate I explained the Government’s broader plans to reform the fiscal framework, and the establishment of the Office for Budget Responsibility is the most substantial aspect of this reform. For the first time, we are introducing independent and impartial scrutiny into the official forecast.

I should start by welcoming the confirmation by the noble Lord, Lord Eatwell, that the Opposition welcome the creation of the OBR, which was confirmed by the noble Lord, Lord Tunnicliffe, just now. The only substantial note among those who have spoken this afternoon questioning the purpose of change has come from the noble Lord, Lord Barnett. However, I think that the reason for change was very clearly set out in different ways both by my noble friend Lord Newby, who quoted from ministerial memoirs from the former Government, and by the noble Lord, Lord Turnbull, who made it quite clear—he referred to wishful thinking in the past—why, in his words, this is an idea whose time has come. I completely agree with that. I should as a rider say that I was not in what I said questioning in any way the work of Treasury officials. I would like to think that the noble Lord, Lord Barnett, recognises that. What I was questioning was precisely the way in which forecasts were put together—whether it was by way of wishful thinking or whether it was something more sinister in the past. That is precisely why I think that the overwhelming majority of speakers this afternoon have confirmed that the OBR’s time has indeed come.

I shall come back to the point about independence.

[Lord Barnett]

The Chancellor, in his comprehensive spending review speech, referred to the previous forecasts as dishonest.

--- Later in debate ---

[Lord Sassoon]

I think that the noble Lord was also quoting remarks that I made in my opening speech this afternoon. I have tried to make it clear that I am not in any way questioning the very fine work of Treasury officials, but questioning the overlay that was put on the forecasts whether as a result of wishful thinking or for whatever other reason.

[Lord Myners]

My recollection of the words that the noble Lord, Lord Barnett, used was “official forecasts”. So I think it is quite clear that the Chancellor of the Exchequer had in mind forecasts by the officials. Is the Minister aware of any case in which an official objected to an economic forecast that the Government presented to Parliament on the basis that it was incorrect? I certainly participated in discussions on economic performance and I saw no examples of officials objecting to the work which came from Mr David Ramsden and other members of the Treasury responsible for economic forecasting under interrogation by Ministers. Will the Minister make it clear that the use of the term “official forecasts” was not a criticism of officials? If it was a criticism, on what basis was it made, given that there were no objections?

[Lord Sassoon]

My Lords, I have made it completely clear that there is no question of my making any criticism of officials. I am making criticisms of the previous structure in which Ministers were able—whether from wishful thinking or, as I say, from more sinister motives—to decide on the forecasts. That is why we need an independent body. I am conscious of the game that is played here—that I have to sit down after about 18 or 20 minutes. I will do my best to answer as many of the points as I can but if noble Lords want to interject, of course I will listen to them but I may not get through as much as I otherwise would and will have to write to noble Lords afterwards.

In answer to the question from my noble friend Lord Higgins and others about the desirability of having a draft of the charter for the House to see—absolutely, that is what I intend should happen. We are working to that end. Related to that in terms of what happens next, the OBR will publish forecasts before the end of the month which will bring its forecasts up to date to reflect the decisions announced in the comprehensive spending review.

As we think that this is the challenge that has been set, the Bill absolutely takes away the responsibility for determining the forecast from Ministers and gives it to independent experts. It needs to be a new independent body, rather than a case of just asking one of the fine existing forecasting houses. At the critical times of the year when the forecasts need to be produced, particularly at the time of the Budget, it is essential—as has been explained in different ways by the noble Lords, Lord Turnbull and Lord Burns—to have a close relationship. We need to have an independent body of the sort that we have designed, rather than just taking consensus forecasts after the event. I think that the House would be rightly outraged if we did not at the time of the Budget immediately have forecasts available.

Ministers will retain the responsibility for making policy and for the OBR to shine a light on the state of the public finances resulting from those policy decisions. I can therefore confirm that it is the intention that the OBR should remain outside politics and should not, for example, be asked to cost alternative policies, wherever they come from, including from opposition parties.

We have heard a wide range of questions about the design of the OBR. On independence, without dwelling on it, I do not think that the comparisons in any way with the NAO are right. These bodies have very different objectives and come from very different starting points. In answer to other points, the fact that they are put in the Bill together is a result of the fact that the NAO provisions are sufficiently important that we should bring them forward at the earliest possible date. As noble Lords will understand, legislative time is hard to come by. So, in terms of the trade-off between two Bills and finding a slot to bring forward important provisions of the NAO, we have taken the decision to put the two sets of provisions in the same Bill. However, that does not mean to imply in any way that we believe that there is a comparison to be made between the provisions for the two very different bodies.

I take to heart the words of the noble Lord, Lord Burns, who said that complete separation would not be appropriate and pointed to the quality of the people as being particularly critical to the way in which independence works. The OBR’s independence will be judged on the quality of its analysis and on the ongoing scrutiny by the public and by Parliament. Our provisions have been informed by the NAO report published on 22 June which examined the forecast prepared by the interim Office for Budget Responsibility for the emergency Budget. It set out a number of indicators of independence which have informed the design of the Bill. These are set out in Clause 5(1), which talks about “complete discretion”; Clause 6(2), which talks about independence and the method of analysis; Clause 9, which talks about the “right of access” and assistance to “Government information”; and paragraph 8 of Schedule 1, which talks about staff being appointed by the OBR. The latter point was made a number of times. There are other matters not strictly in the Bill—“physical location”, for example, which has already been addressed by the OBR, and questions of funding, which can be raised directly with the Treasury Select Committee.

It was asked whether it could be argued that the OBR is independent when it is clearly working for the Government in its remit. I would describe the words “complete discretion” as the critical key here, and refer to the Bill preventing the Treasury from specifying the methods of the OBR’s analysis.

There was then a question about why the word “independence” did not appear in the Bill. Not only does the term “complete discretion” encapsulate what is intended by independence in this case but the same wording is used to empower the Comptroller and Auditor-General and the NAO, and nobody questions their independence.

[Lord Eatwell]

My Lords, before the noble Lord leaves the issue of independence, I wonder whether he can help me. Clause 5(2) states very clearly:

“The Office must perform that duty objectively, transparently and impartially”.

Everyone must applaud that wording. But then Clause 6(1) states clearly:

“The Charter for Budget Responsibility may include guidance to the Office about how it should perform its duty under section 4, including (in particular) guidance about … what subsections (2) and (3) of section 5 entail”.

So, is there to be guidance about what impartiality entails?

[Lord Sassoon]

My Lords, rather than discuss the primacy of the wording in Clause 5(2) in the abstract, it will be easier to return to these matters when we see the draft wording. I can, however, assure the noble Lord that the words in Clause 5(2), to which he rightly draws attention, are the keystone here.

[A noble Lord]

They are paramount.

[Lord Sassoon]

Indeed. While the Bill makes it clear that the charter may include guidance to the OBR on how it should perform its main duty, the charter must not make provision about the methods the OBR should use. That is absolutely clear and I am glad that we agree on it. Nevertheless, to provide the OBR with guidance on how it should fulfil its duties is not, in the Government’s judgment, inappropriate. While the OBR will need to act consistently with any guidance in the charter, any such guidance will have been approved by another House, so it will be wholly transparent.

The noble Lord, Lord Burns, asked how far the remit can be stretched by the guidance. It can relate only to the functions conferred by the Bill, so it cannot add to or in any way distort the remit and it has to be exercised consistently with the Bill. It cannot compromise, for example, the basic principles set out in Clause 5(2), but it can explain how they are to be applied. I do not think that the guidance should in any way lead to mission creep.

Questions were also asked about resources and whether the chair of the OBR should report each year on whether he has sufficient resources. There will be transparency of reporting through the Treasury Estimates and accounts. The non-executives will be expected to inform Parliament of any concerns they have over the independence of the OBR and its resources, and the OBR will present its annual report and accounts to Parliament through the Treasury. There will be ample opportunity, through direct contact with the Treasury Select Committee, to air any concerns on resources.

In answer to a question from the noble Lord, Lord Myners, I can give him an absolute assurance that the OBR will have full autonomy over its work programme, and within its statutory duties it will not be required to secure the Treasury’s approval of its work. On another dimension of independence raised by the noble Lord, Lord Myners, and my noble friend Lord Higgins, regarding whether the minutes will be published, that will be a matter for the OBR but I am sure that it is listening carefully to this debate.

Questions then followed about the accuracy of the forecasts and peer review. The crucial point about these sorts of forecast is that they will be wholly transparent. Each time the forecasts are published, the outcome will be clear. It will then be for all experts, economists and commentators, both Houses of Parliament and its committees to scrutinise the information. However, the Bill allows the OBR to establish expert committees if it so wishes to help it with analyses or for any other purpose.

The noble Lord, Lord Barnett, asked about meetings between the OBR and Treasury Ministers. This is something on which the OBR has been reflecting, and it has decided that in order to ensure that communications with the Treasury are transparent, the OBR will aim to publish a log of contact twice a year, each autumn and at the time of the Budget. This will begin with the autumn forecast on 29 November. I know that the noble Lord has tabled a Question for Written Answer on that point.

A number of questions were put to me about the functions of the non-executive directors. When I first saw the Bill there was a distinction between professional and non-professional. I hope noble Lords will agree that expert and non-expert improves the drafting a little, but I take the point that, equally, the words executive and non-executive could be used. For the moment I will say that the legislation follows what is common in other legislation establishing statutory bodies, including Natural England, Ofgem, the Office of the Rail Regulator, the Office of Fair Trading and the UK Statistics Authority. I will reflect on the points made about the non-executives, but the critical point is that it will be for the first meeting of the board to decide exactly what the remit should be. I think it was the noble Lord, Lord Burns—I hope I will be forgiven if it was not him—who described the remit and his description encapsulated it rather well.

Questions were asked about the relationship with the Bank. It is expected that the OBR will have a good relationship with the Bank and there will be a regular exchange of views. But it is critical that there should be no collusion between them in any sense in producing their forecasts. They should be completely independent.

Points were raised by my noble friends Lady Noakes and Lady Browning about the relationship with other government departments. Indeed, the MoUs will cover departments other than the Treasury.

[Lord Higgins]

Are we to understand that there will be two sets of forecasts? In that case, which will prevail?

[Lord Sassoon]

My Lords, at the moment separate forecasts are made by the Treasury and the Bank of England in the course of their inflation reporting. That situation will continue.

There were detailed questions about freedom of information, on which I will write to my noble friend Lady Browning. I can assure her that freedom of information legislation applies.

There will be no changes to the debt management arrangements. I agree with the noble Lord, Lord Myners, that the Debt Management Office does a fine job.

I want to spend one minute talking about the National Audit Office, because—

[Lord Barnett]

Before the Minister does that, he said that the Freedom of Information Act applies. The Chancellor referred to the audit done by the OBR on his comprehensive spending review. Will we see that?

[Lord Sassoon]

I have already said that the next forecast will be produced by the OBR before the end of this month. Clearly, that will include forecasts based on all decisions taken by the Government, including the comprehensive spending review. We have approximately three weeks to wait for that.

I want to spend one minute on the points made about the National Audit Office. The critical point is that credit is due to the Public Accounts Commission for its work that led to the Bill brought forward by the previous Government and on which we have built. In answer to the points made by my noble friend Lady Browning, the provisions enshrine the independence of the Comptroller and Auditor-General. A similar point was also made by the noble Lord, Lord Touhig, to whom I am grateful for his welcome of the provisions relating to Wales. I will respond in writing to his detailed point that the period should be five years rather than two years or what was proposed by the Public Accounts Commission. I am grateful to noble Lords for confirming our direction of travel on the National Audit Office provisions.

I conclude by thanking all noble Lords who have attended and spoken in this debate—

[Lord Myners]

Before the Minister concludes, would he like to have a second try at answering the question asked by the noble Lord, Lord Eatwell, about the terms of Clause 6(1)(b), which require the Treasury to give guidance on the meanings of the words “objectively, transparently and impartially”? Why would the Treasury need to give guidance on such matters? Surely it should be for the courts to determine that in any situation in which those words were subject to debate or criticism.

[Lord Sassoon]

My Lords, I am conscious of the time and of the conventions of this House. I have explained at some length—but clearly not with sufficient clarity for the noble Lord, Lord Myners—that guidance will be given. That does not override in any way or compromise the three critical tests set out in Clause 5. I do not for one minute think that it should be necessary to get into questions of interpretation in the courts or anywhere else.

[Lord Eatwell]

At the end of my speech I made a formal offer of co-operation on behalf of the Official Opposition. I would be grateful if the Minister would respond to that offer.

[Lord Sassoon]

My Lords, in my next sentence I was about to say that I will of course respond to the challenge from the noble Lord, Lord Eatwell, which was repeated by the noble Lord, Lord Tunnicliffe. I am sorry to disappoint the noble Lord, Lord Eatwell, if he thought that I was building up to a grand conclusion where I would propose to withdraw the clauses in Part 1.

We have had an interesting debate. I will reflect on a number of points and I have endeavoured to answer as many as possible. Nevertheless, the tone of the debate from the majority of speakers this afternoon confirms to me that we are absolutely on the right track, generally, and that we should press ahead. There has already been considerable scrutiny of and discussion about the OBR over the past few months. I look forward to the continued scrutiny by noble Lords as the Bill wends its way through subsequent stages, and I ask the House to give the Bill a Second Reading.

Bill read a second time and committed to a Grand Committee.

House adjourned at 5.51 pm.

Private Finance Projects (EAC Report)

Lord Sassoon Excerpts

Wednesday 3rd November 2010 Lords Chamber

[Lord Sassoon]

My Lords, I thank the then members of the Economic Affairs Committee for preparing such a thorough report on the use of private finance to deliver public projects. I extend my gratitude to all those noble Lords, whose contributions to today’s debate I have found invaluable. I spend a lot of my time here answering for things that are not in my direct area of policy responsibility, but I am pleased that on this occasion there were not 50 Members of this House talking about such areas, many of which I know little about, but half a dozen valuable contributions on something on which I know a little. I was a director of Partnerships UK between 1992 and 1996. It is also a pleasure and a daunting challenge to follow one of the world’s great experts on PFI—the noble Lord, Lord Tunnicliffe—and to have this debate kicked off by my noble friend Lord Vallance of Tummel, with whom I worked in a small capacity a number of years back when he was taking one of our biggest pieces of national infrastructure, British Telecom, into the private sector.

At the outset, I should stress that it is clear that public/private partnerships will continue to play an important role in underpinning our country’s future infrastructure. The noble Lord, Lord Lipsey, reminded us how much has been done. A number of times we have been reminded that this effort has gone through several Administrations, which have now been led by the three main parties in this country. We share a commitment to learning the lessons and making such projects better but also to continuing with them, which is what the committee’s report suggests. The report highlights where private finance has brought valuable disciplines to infrastructure planning and implementation.

Many of the questions and comments today have reminded me that there are quite a number of challenges to improve the model going forward. I will do my best to answer a number of those questions now, but I will write on points that I fail to pick up or where, on reflection, I could have given a fuller answer.

I turn first to some of the balance sheet questions—I ask noble Lords to forgive me if I do not refer to them by name each time on points that they have raised—which were brought up by my noble friend Lord MacGregor of Pulham Market and the noble Lord, Lord Tunnicliffe. We are constrained here because we are bound by European accounting requirements that set the framework for how each project is recorded in the national accounts. However, I recognise that these requirements can make it difficult to get a clear picture of the public sector’s commitments, which is something that we must remedy. It is the Government’s policy to ensure that future liabilities are made obvious to the public and that complex financial instruments, such as PFI, should not hide the true cost of investments that the Government have made. Such practices are completely out of step with our strong transparency agenda but also risk the endorsement of projects that do not represent good value to the taxpayer.

For that reason, we have already taken action to bring greater transparency to PPPs. It has been a long time coming, but I can confidently say that next year we will publish, for the first time, whole of government accounts, which will be prepared according to international accounting standards. This will ensure that the vast majority of PFI transactions will appear on balance sheet. In future, we will also publish details of all new government contracts valued at more than £25,000, including PPP agreements. This will enable members of the public to assess the ongoing costs of long-term commitments, and will complement the existing reporting of PFI commitments disclosed on the Treasury’s website.

A second area of concern to us and to speakers in this debate has been funding for local government and government departments. There were questions around ring-fencing, bias and so on. Ring-fencing, in particular, meant that government departments and local authorities could use PFI as a means to increase their budgets, with potential for diverting funds away from more beneficial areas—those which offered greater value for money. In answer to the question asked by the noble Lord, Lord Tunnicliffe, I stress that, in this regard as well as in other dimensions, the Government absolutely want to do whatever they can to remove any bias over alternative ways of public procurement, including over public versus private financing. We have already taken action to address the particular problem of ring-fencing by removing the existing ring-fence and transferring financial responsibility for the grants back to the relevant government department. This will place all procurement options on a level playing field and ensure that merit rather than increased budgets determine which projects should go ahead.

That leads me on to the impact of PFPs on departments. In answer to my noble friend Lord MacGregor’s concern, we will continue to monitor all PFI contracts and information on the flow of payments under those contracts. Of course it is the case that, following the spending review, the budgets for departments will be constrained. Our initial analysis, which we did in conjunction with the spending review, suggests that this should not cause any department a significant problem. However, we will continue to monitor the level of commitments that are being made.

Some speakers have stressed the need for a national infrastructure bank, while others have questioned it and I think that my noble friend Lord Newby offered some mixed messages. My noble friend reminded us of the strong private sector appetite for investment in infrastructure and drew particular attention to sovereign wealth funds. Certainly, my discussions with sovereign wealth funds—both here and on a recent trip to the Gulf—and my discussions with long-term investors, insurance companies and others suggest that there is a strong, latent demand. I can assure my noble friend that we are taking new steps across government to make sure that we co-ordinate our contacts with sovereign wealth funds and with a range of the largest actual or prospective inward investors into the UK. His point is well taken. He challenged me to say whether this has translated into action yet. Of course, it is early days, but we are certainly starting with the co-ordination so that we can understand what investors want and channel their appetite—in so far as it is in the Government’s gift to do that—appropriately. When I was in the Gulf, I had a couple of discussions with Islamic finance specialist houses, particularly in Kuwait, so I am well aware of their possible involvement in this area.

Against that background, we have to be careful—the noble Lord, Lord Lipsey, drew attention to this—that Government-backed loans, if and when they are necessary, which is still open to question, do not increase the incentives for the private sector to deliver value for money by transferring risk away from the private provider to the public sector. We must ensure that there is no crowding out of private investors by the Government reducing competition and stepping in where there is not a market failure. For that reason, it is our policy for the Government to make loans only where they do not risk undermining the wider market, or where such loan or construction of a particular financial instrument helps to address a specific market failure. In that spirit, we will look to target the green investment bank—which will initially have £1 billion of government capital and the possibility of proceeds from government asset sales but will not have a mega balance sheet—on helping to relieve particularly challenging areas of risk on projects, particularly at the front end or where new technology is involved. We will come forward with the design of the green investment bank by spring 2011.

I turn briefly to the question of project failures and guarantees, which was raised several times. It is important to note that PPP, including PFI, critically allows us to transfer substantially more risks to our partners than conventional procurement. As has been said, we should not shy away from taking on challenging and complex projects. However, I absolutely take the point made by the noble Lord, Lord Tunnicliffe, that we need appropriate expertise in government when we come to such projects. At the moment, there is nothing on the scale and complexity of Metronet in the pipeline, but when we contemplate such projects, yes, we absolutely need the expertise. That is why it was absolutely right of the previous Government to centralise the expertise in Infrastructure UK as an infrastructure financing unit within the Treasury, especially given the particular circumstances of the past couple of years. My right honourable friend the Chancellor confirmed at the time of the Budget that Infrastructure UK remains central to how we take our efforts forward. That is the best answer that I can give to the question about expertise, which we recognise.

My noble friend Lord Newby picked up on a point in the national infrastructure plan about risk transfer and the possibility of reducing costs. I point him to one area discussed in the report, which is whether we can expand the use of the regulated asset-based model as a way of attributing risk in a different way and bringing down the cost of capital. That is very much work in hand.

On the question of preferred bidders, PPPs are now sufficiently complex contracts that they have to be procured under the so-called competitive dialogue procedure. This prohibits any discussion of the scope or cost of the contract with the preferred bidder and was designed to stop the so-called deal creep that has been seen in the past. The Treasury will publish a review of the competitive dialogue procedure—that addresses part of the point made by the noble Lord—later this month.

The committee's report also highlighted the value that private sector expertise and due diligence bring to PPP. In that context, one specific point that was drawn to our attention was bid costs. That issue has arisen again, particularly in the re-review of projects that we conducted following the election and ahead of the spending review. Although government policy remains that bid costs should not be paid unless in exceptional circumstances, the Treasury review of competitive dialogue—which, as I said, is scheduled for publication in November—will set out details of our review of policy in that area.

To wrap up, I emphasise that public/private partnerships, including PFI, will continue to make a valuable and important contribution to our future infrastructure needs. There are more than 670 signed PFI contracts, and the spending review confirmed further new projects, including three maintenance projects and the Nottingham tram extension. However, I think that we all agree that PPP should be used only where it offers real value for money. In pursuit of that objective, we have taken steps, as I have described, to improve how we assess those partnerships. We have removed the financial incentives that unfairly encouraged the use of PFI over other delivery structures. I mentioned the steps that we have taken to drive forward transparency. We have set out the broader challenges facing our infrastructure in the first national infrastructure plan, to which my noble friend Lord Newby drew attention.

In conclusion, the Government absolutely acknowledge the points raised in the Economic Affairs Committee report about both the benefits that private finance projects bring and the drawbacks of the current system. We will continue to look at options to improve the way PPPs perform, building on the work that we are already taking forward. In the current climate, there is a particular need to get the best possible deal for the taxpayer, and we are completely committed to that. I welcome the conclusion of the committee's report. I thank my noble friend Lord Vallance of Tummel and the other members of the committee for it. I absolutely take on board the valuable suggestion of the noble Lord, Lord Tunnicliffe, that it should be used as source material for training people in government.

Finance: Fiscal and Monetary Policy

Lord Sassoon Excerpts

Tuesday 2nd November 2010 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government how the Chancellor of the Exchequer is co-ordinating fiscal and monetary policy.

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

My Lords, the Monetary Policy Committee of the Bank of England takes into account the path for fiscal policy in judging the outlook for growth and inflation, and hence in its monetary policy decisions. As provided for in the Bank of England Act 1998, a Treasury representative attends, and may speak at, the monthly MPC meetings. The non-voting representative plays a key role in ensuring appropriate co-ordination of fiscal and monetary policy, including by briefing the MPC on the Budget.

[Lord Barnett]

I thank the Minister very much for that Answer. Did he notice a recent speech by Dr Posen, a new member of the Monetary Policy Committee who presumably was appointed by the new Government, in which he said that we should not get too excited about the welcoming figures on growth that we saw last week—which of course did not come from the present Government’s responsibilities? I would never seek to accuse the noble Lord of getting overexcited about anything, but perhaps I could refer to a Written Answer he gave me on the question of the non-voting senior Treasury official who attends the Monetary Policy Committee. He said that he,

“plays a key role in liaison between the Treasury and the Bank to ensure appropriate co-ordination of fiscal and monetary policy”.—[Official Report, 27/9/10; col. WA 493.]

It would be interesting to know what the Government mean by “appropriate”. Would that include telling the Bank that the Treasury wanted to see something done to help growth, for example by increasing capital investment, which is desperately needed and would also help considerably with unemployment?

[Lord Sassoon]

My Lords, first, since the noble Lord, Lord Barnett, draws attention to the fact that we did have a strong third quarter of growth at 0.8 per cent, we should celebrate the fact that we have had a third consecutive quarter of growth. The recovery will no doubt be choppy, and I am sure that at certain points what happens will suddenly become our responsibility, not theirs. That aside, the responsibility of the Treasury official who attends the Monetary Policy Committee is essentially to bring to the attention of committee members matters of which they ought to be aware in coming to their independent conclusions on monetary policy judgments. That includes briefing them, for example, on the judgments that have been made in the Treasury’s Budget so that they can factor them into account in their deliberations.

[Lord Forsyth of Drumlean]

My Lords, has my noble friend seen the reports today on the mid-term elections in America, which state that President Obama's deficit reduction council is set to recommend that the best way to reduce the deficit is to cut the burden of taxation on the private sector in order to create wealth?

[Lord Sassoon]

My Lords, in the judgments that my right honourable friend the Chancellor of the Exchequer made about how to achieve the huge and very necessary consolidation of the fiscal position here, by the end of the consolidation period, 77 per cent of the burden will have been taken by expenditure cuts and only 23 per cent by taxation, because it is precisely by not raising taxes and choking off growth that we will get the economy growing again in a balanced way. I am grateful to my noble friend for bringing our attention to that matter.

[Lord Peston]

My Lords, the Minister rightly reminded us of the legislation under which the Monetary Policy Committee operates, which obliges it to hit an inflation target. There is also a “subject to” clause that has troubled all of us for years. Will the Minister interpret for us the Government’s present view of “subject to”? In particular, where do the Government stand on the restoration of full employment as an aim in our economy and as an achievement?

[Lord Sassoon]

My Lords, the Chancellor writes a very clear mandate letter to the Governor of the Bank of England for the Monetary Policy Committee to hit a target of 2 per cent for the 12-month rise in the CPI. Of course, that is the same target that was set under the previous Government. It is up to the governor and the MPC to interpret the Act in the appropriate way. As far as concerns employment, we must think about the OBR forecast which says that on the Government's policies laid out in the Budget, unemployment will fall and employment will rise in every period considered by the forecast.

[Lord Hamilton of Epsom]

Does my noble friend accept that, if we are to see a revival in the economy, it is going to come from the private sector and from low interest rates, and that those interest rates would be very much higher if this Government were not addressing the appalling structural deficit that we inherited from the previous Government?

[Lord Sassoon]

I completely agree and am grateful to my noble friend for drawing our attention to that. Indeed, only 10 days ago, after the spending review, Standard and Poor’s, one of the leading rating agencies, moved our rating from negative to stable. It is that confidence that keeps interest rates low and enables businesses to invest.

[Lord Soley]

First, I thank the Minister for what I think was the first open acknowledgement, and the clearest indication yet, that the last three quarters’ growth has been down to the previous Government, not this Government. Secondly, going back to his first Answer, how much importance do the Government attach to the growth of the economy? After all, on many occasions over the past 200 years national debt in the United Kingdom has been far higher than it is now, and it has always been primarily growth that has got us out of it. Therefore, should we not put growth at the very top of the agenda and should not the Government start saying that?

[Lord Sassoon]

My Lords, first, I made no admission. I do not think that we have time today to apportion credit and blame but I merely note that I look forward to seeing when the party opposite decides that something relating to the economy is its fault. As to the size of the debt, as a Government we inherited the largest peacetime deficit in our history—indeed, the largest deficit in Europe—and there are all sorts of measures of this. We have needed to engage in an £81 billion consolidation of the fiscal situation in order to retain, as we have done, the confidence of the market to enable growth policies to be underpinned.

Banking: Bonuses

Lord Sassoon Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Myners]

To ask Her Majesty’s Government what action they intend to take to discourage the payment of excessive bonuses to senior executives in United Kingdom banks.

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

My Lords, the Government have taken action to tackle unacceptable bonuses in the banking sector. The Financial Services Authority is updating the remuneration code, which will ensure that bonuses are deferred and aligned with the underlying risks, and significant portions of any bonus will be paid in shares or other securities. Employees in this industry will no longer receive all their bonuses in cash while leaving their shareholders, and potentially the taxpayer, exposed to the long-term consequences of the risks they take.

[Lord Myners]

My Lords, the Minister said that the Government have taken action to deal with unacceptable bonuses. Can we therefore conclude that, as far as this Government are concerned, all future bonuses declared are deemed to be acceptable?

--- Later in debate ---

[Lord Sassoon]

My Lords, what I said was that we have indeed taken action, including, among other things, requesting the Financial Services Authority to take certain factors into account in its consultation on the remuneration code. We have said that we will look at—and we are looking at—the costs and benefits of a financial activities tax, consistent with, among other things, not driving banks abroad. The banking sector remains an extremely important part of this country’s economy.

[Baroness Williams of Crosby]

Does the Minister agree that, while undoubtedly a commendable degree of restraint has been shown by small businesses in the past year, the position of FTSE 100 company executives is very different, with, we now learn, a 55 per cent increase in bonuses last year? Will he consider, first, adopting the proposals in the Walker report on the buying out of bonuses, which is an increasing and troubling practice? Secondly, does he agree that we should consider taxing share-based bonuses, even if they are delayed for a couple of years, to be paid at the same rates that the rest of us are obliged to do?

[Lord Sassoon]

My Lords, the Walker report, which was commissioned by the previous Government and reported in November 2009, made a number of important recommendations, some of which have already been incorporated by the Financial Reporting Council in its governance code. Sir David Walker made other recommendations on disclosure which remain to be considered. As for taxation, I have already said that we are considering the costs and benefits of a financial activities tax in relation to banks and remuneration. We are doing that by working with our international partners to make sure that, if we produce proposals along those lines, they are consistent with international practice and with keeping the banks operating in this country.

[Lord Dubs]

Even if the bankers say that they will leave the country if they are taxed more heavily, will the Minister assure us that that outcome might be a good thing rather than a bad one?

[Lord Sassoon]

My Lords, lots of people threaten to do all sorts of things when they are in the middle of a negotiation. Whatever we continue to do to tackle unacceptable bonus structures in banks, we want to ensure that, among other things, they are incentivised to align their remuneration structures with the reduction of risks that bankers entail, and that we continue to have an important banking sector in this country.

[Lord Hamilton of Epsom]

My Lords, does my noble friend accept that one reason why there is so little finance for people to buy houses, and for small businesses, is that during the financial crisis many of the foreign banks took their money back to where they came from? They are not returning to London because they regard it as highly taxed, they regard certain members of the Government as extremely hostile to bankers, and they are worried about the degree of regulation. We must get these people back—contrary to what the noble Lord, Lord Dubs, said—because otherwise we will not have enough finance in this country to get the economy moving again.

[Lord Sassoon]

I certainly agree with my noble friend that we need a vibrant banking market to underpin the economy’s recovery. The action that the Government have taken to make sure that interest rates remain low is absolutely critical. We welcome the first steps taken recently by the British Bankers’ Association task force, which made a range of proposals that go to the heart of tackling the need for a continued flow of credit to British business.

[Lord Barnett]

My Lords, would not the straight answer to the Question on the Order Paper have been to say that the Government do not have any plans whatever to deal with future bonuses?

[Lord Sassoon]

My Lords, I have said that we have already taken action and are continuing to consider other possible actions in this area.

[Lord Eatwell]

My Lords, I was intrigued by the Minister’s identification of remuneration with risk taking. Are not bonuses usually paid to bankers for taking risks with other people’s money?

[Lord Sassoon]

My Lords, that is precisely why we want to make sure that there is a better alignment between the way that remuneration is paid and the mitigation of risk that should be there. It is precisely to get a better alignment with the risks that are incurred that we are supporting the measures that are being taken globally—limiting the amount of bonus taken up front in cash and deferring a significant proportion of bonuses in line with the proposals of the G20.

[Lord Brooke of Sutton Mandeville]

My Lords, can my noble friend remind me which Administration were in power when this problem developed?

[Lord Sassoon]

My noble friend is completely right that this problem arose under the watch of the last Administration, who implemented a one-off bonus tax that is now widely regarded to have been a failure—so we have to take the time to find a better way of dealing with this in the medium term.

[Lord Brooke of Alverthorpe]

In considering other possible action, as he mentioned, will the Minister have a look at the Private Member’s Bill which was promoted by my colleague the noble Lord, Lord Gavron, last year to try to get all companies, including banks, to put on the front page of their annual accounts the proportion of the highest paid compared with the lowest paid? A good deal of cross-party support was given to that and, while the Minister was not in the House at the time, would he go back and have a look at it again?

[Lord Sassoon]

My Lords, I am always up for looking at good ideas; this sounds a bit extreme, but disclosure of remuneration for bankers is indeed unfinished business.

Terrorist Asset-Freezing etc. Bill [HL]

Lord Sassoon Excerpts

Monday 1st November 2010 Lords Chamber

Moved by

[Lord Sassoon]

2: Clause 23, page 11, line 28, leave out “or Guernsey“ and insert “, Guernsey or the Isle of Man”

[Lord Sassoon]

My Lords, I hope that this will be a little briefer. In Committee, I tabled, and this House accepted, a minor amendment to remove any doubt that disclosure of information obtained under Part 1 of the Bill to the law officers of Jersey or Guernsey is permitted. I said at the time that the ability to share this information is essential to the maintenance of an effective asset-freezing regime. The Government have tabled a further amendment to Clause 23 to make it clear that the disclosure of information obtained under Part 1 of the Bill can also be to the law officer of the Isle of Man. This is a minor amendment, which is intended to ensure that Clause 23 achieves its original intention. I hope that your Lordships will support me in making this technical amendment to the Bill.

Amendment 2 agreed.

A privilege amendment was made.

Bill passed and sent to the Commons.

Comprehensive Spending Review

Lord Sassoon Excerpts

Monday 1st November 2010 Lords Chamber

Moved By

[Lord Sassoon]

That this House takes note of the Spending Review 2010.

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

My Lords, in another place, my right honourable friend the Chancellor of the Exchequer set out the conclusions of the Government’s spending review. This represents a clear plan to tackle the nation’s deficit and demonstrates the Government’s commitment to investment in growth, in jobs and in the future of the British economy. It is a plan that has at all times been guided by three core principles: growth, fairness and reform. These are the right priorities for making some of the most difficult decisions that any modern Government have had to make. We should never forget the financial position that we inherited when we came to office. Our country was borrowing £1 for every £4 that we spent. We had the largest budget deficit in our peacetime history and interest payments on our debts will total £43 billion for this year, or £120 million a day.

We need to take control of our country’s finances and put them back on a sustainable path because, if we lose that control, our priorities will be determined no longer by the needs of our people but by the demands of our debtors. This loss of control would threaten higher interest rates, rising inflation and more cuts in the future. Indeed, failing to restore credibility to our finances is the most fundamental threat to the recovery, to our jobs and to the growth of our economy. Therefore, I dispute the claim, which some have made, that there is a choice between fiscal discipline and supporting growth. That could not be further from the truth. The choice is between a sound platform to support growth and a lack of control that would undermine it.

In June’s emergency Budget, the Government therefore set out the road map to recovery. The independent Office for Budget Responsibility looked at these plans and forecast the economy growing and unemployment falling in every year. It has also assessed that we are on course to eliminate the structural current deficit and see debt falling by the end of this Parliament, one year ahead of our mandate. The emergency Budget set out the Government’s credible plan to balance the books, while the spending review has shown how we will deliver on it and find £81 billion of savings by 2014-15.

The Chancellor’s Statement set out the levels of departmental budgets for the next four years. I will not repeat every decision here. Instead, I want to focus on our priorities: growth, fairness and reform. They have guided our every choice. We are a pro-growth Government who have focused our capital resources on key infrastructure projects in transport and green energy. We are a Government with fairness at our heart and we are a reforming Government who leave no stone unturned in the search for waste, while devolving power and funding away from Whitehall. I shall address each of these principles in turn, starting with growth.

Before I do, among all the contributions to today’s debate I will be particularly keen to hear what principles the party opposite would apply to spending reductions and what specific measures it would propose. I will also be listening with particular attention to the maiden speeches of the noble Baronesses, Lady Nye and Lady Healy of Primrose Hill, and to that of my noble friend Lord Allan of Hallam.

On growth, I have already said how our plan as a whole will deliver macroeconomic stability, which is crucial to restoring growth and giving businesses the confidence to invest. However, we are not standing on the wayside waiting for growth to happen. We have prioritised spending on the areas that will deliver the best returns to growth. Over the spending review, capital spending will be higher than that planned by the previous Government. With investment in transport capital across the country, more cash will be spent over the next four years than the past four. We will maintain, in cash terms, resource spending on science. A new green investment bank will lead the way to the economy of the future. Last week, we also published our Local Growth White Paper, which included a £1.4 billion regional growth fund, focusing our resources on the areas that need them most. These actions, and many others, form a major part of our strategy to secure and support sustainable economic growth.

Our second priority is fairness. Fairness means that, across the entire deficit reduction plan, those with the broadest shoulders will bear the greatest burden. It means that, even in tough times, we focus our resources on extending the ladder of opportunity. It means that we look carefully at whether we are doing right by those who receive welfare, as well as by those working families whose taxes pay for it. These are our aims and we have met them in full. We have published distributional analysis that clearly demonstrates that those on the highest incomes will contribute more towards the consolidation. This is not just in cash terms but also as a proportion of their income and consumption of public services combined.

Our progressive approach also places responsibility on the banks to make their fair contribution. We will continue pressing banks to do more and bring forward reforms that improve our financial system. That is why we have introduced the bank levy. Because banks need to follow the spirit, not just the letter, of the law, we have engaged in a concerted effort to get our banks to sign up to the code of practice on taxation by the end of November.

We must ensure that everyone pays their fair share. That has been the motive behind agreeing a new £900 million package for HMRC. This investment will fund a clampdown on criminal behaviour, bringing in £7 billion each year by the end of the Parliament. There is no place for tax cheats in our society and there is no place for people who cheat the benefit system.

That brings me to welfare, with a budget that accounts for nearly £1 in every £3 that we spend. It is certainly right that the Government should help those who need it most. However, in many cases, the current approach has trapped people in a system where it simply does not pay to work. These are people who have been dumped on benefits by the previous Administration and then left there, indefinitely, with no prospects for improving their position. That is not fair on them and it is certainly not fair on the taxpayer. The case for reform is clear; the real question is how we can strike the balance.

Our approach has been this: we are moving to a universal credit system over the course of two Parliaments to do away with the complexity of the current system, ensuring that work always pays. We will introduce a new work programme to provide personalised support to those who need the greatest help back into employment, with private and third sector providers paid on the basis of the additional benefit savings that they secure. We will fund significant increases to the child tax credit to ensure that this spending review has no measurable impact on child poverty over the next two years.

Through the welfare reforms in the spending review, we will find £7 billion net savings on top of those identified at the Budget. Some £2.5 billion comes from removing child benefit from households with a higher-rate taxpayer. This is the most progressive welfare measure in the spending review, but we are making other reforms, too. For instance, we will cap household welfare payments at the average earnings for working households. This has to be right. The welfare system should provide an effective safety net, but it should not pay some workless families far more than the amount that most working families earn. Our reforms mark a historic shift from state dependency to independence.

Throughout this review, we have been clear on one thing: our decisions need to be fair and, in being so, to improve the chances of the poorest and most disadvantaged in our society. Fairness is about opportunity—a chance for a better life, especially for the next generation. Therefore, we have chosen to invest in our children. We have introduced a new pledge for 15 hours’ childcare for disadvantaged two year-olds. Cash spending on Sure Start services will be maintained, with a renewed focus on life chances. Although it has meant a greater challenge for other departments, the schools budget will not just match but outstrip inflation in each of the next four years. When you factor in reduced pressures from pay restraint and back-office savings, that amounts to a very significant boost for the classroom. A new £2.5 billion pupil premium will target additional resources on those with the most to gain, because fairness runs through the very heart of this spending review.

I now move on to our third principle: reform. It manifests itself in three separate ways. The first is by bearing down on back-office costs. Each main government department has found at least 33 per cent in administrative savings. We have announced our plans to share services, cut down on waste and abolish unnecessary quangos.

Secondly, we will oversee a massive devolution of power from the centre. Apart from in schools and public health, we will end the ring-fencing of all government grants to local authorities from April next year. We will reduce the number of separate core revenue grants to councils from 90 to fewer than 10. Our new tax increment financing borrowing powers will allow councils to fund key projects and, last week, we announced that we are considering options to enable local authorities to retain locally raised business rates. This puts more power into the hands of local government—the people who know best what is needed in their own towns, villages and cities.

Finally, reform means recognising where the old ways of doing things were not working, so we will overhaul the failed system of social housing. The terms for existing tenants, and their rent levels, will remain unchanged, but some new tenants will be offered intermediate rents nearer to market levels. Together with capital investment, that will enable a more flexible and responsive model, enabling the Government to deliver up to 150,000 new and affordable homes over the next four years.

There will be reform, too, in the justice system. We have a prison population that has been steadily rising out of control. This is not right, let alone affordable. The guilty must be punished, but rehabilitation should not be ignored. In fact, it should be the priority.

I conclude by saying that the coalition Government faced the worst economic inheritance in modern history. The debts that we were bestowed threatened every job and every public service in the country. Our response has seen us make some tough choices on spending, but we have protected health, schools and investment in growth. We have cut welfare and waste, pulled the country back from the brink of bankruptcy and put it on a more stable footing. Ours is the right plan and it is a plan that will help to build the more dynamic, prosperous and sustainable economy that this country deserves.