Comprehensive Spending Review

Lord Sassoon Excerpts

Monday 1st November 2010 Lords Chamber

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

My Lords, today we have had an important debate on the Government’s spending review and I thank everyone for their contributions. I add my congratulations on the three notable maiden speeches. The hour is late and I will pick up on only a few of the points raised today. I have listened carefully and I will write in response to many of the detailed points.

Two weeks ago my right honourable friend the Chancellor of the Exchequer stood in another place and set out a clear plan to deal with our debts and to put the nation’s finances back on a sustainable path. When we came to power we inherited an economy that was in turmoil, with no clear strategy for recovery, no ideas for reform and not a single penny of savings having been identified. That was at a time when we were borrowing £1 for every £4 we were spending. I do not know who runs the household budget for the party opposite, but it is not sustainable. We were, and are still, running the highest deficit in our peacetime history, the highest in Europe and the highest in the G20. We can wrap this up in all sorts of statistics and economic theory, but the simple fact is that Britain was not living within her means and the world knew it. That is why last year the IMF warned that we needed to accelerate the deficit reduction, and the World Bank, the OECD, and the Governor of the Bank of England all agreed. So in May we announced immediate reductions to in-year spending, avoiding the sovereign debt crisis that was engulfing the eurozone; in June we set out our emergency Budget, returning credibility to the nation’s finances; and this October we have had the spending review, bringing years of irresponsible borrowing to an end. We have had to tackle the deficit and it has been unavoidable, but the decisions behind the reduction in the deficit have not been unavoidable.

We have made choices and we have chosen to spend our money on the areas that matter most to Britain: the education of our children, the healthcare of our people, and the infrastructure that sustains a prosperous economy. As I mentioned at the start of today’s debate, underpinning all our decisions have been three guiding principles. The first of those principles is the need to support growth, and I am struck by the contrast today between the optimism—

[Lord Foulkes of Cumnock]

We have sat through nearly eight hours of debate to which a large number of Members have contributed. Would it not be courteous to this House if the Minister actually replied to the debate instead of repeating the speech he gave earlier?

[Lord Sassoon]

I am struck by the contrast of the optimism that we have heard today from businessmen in this House and those who are not businessmen but have clearly been talking to business people on the one hand, and the pessimism on the other hand of the academic economists and others who, even though we have had three quarters of strong growth, want to see disaster coming round every corner. I do not make any judgment about who is responsible for the growth, but I think we can agree that we have had three quarters of strong growth. Yes, the recovery will be choppy, but we have heard from my noble friend Lord Bates just how business in the north-east of England is looking forward and generating jobs for the future. We have heard similarly from my noble friend Lord Plumb about how agriculture will play its part. My noble friend Lord Allan of Hallam has explained how the use of data and technology will assist the recovery. These are the pointers that show us how the economy is going to generate sustained growth. The noble Lord, Lord Eatwell, keeps saying that nobody knows. It is the businessmen of this country who write letters to the papers, urging us on with the deficit reduction we are set on, who know how the recovery is going to be sustained for the future.

While I do not agree with the doubts of noble Lords opposite about the overall judgments made by the Government, I do agree with some of the noble Lords opposite in a lot of what they said—the noble Lords, Lord Myners and Lord Haskel, for example, on the need for better infrastructure. That is precisely why we added nearly £9 billion of expenditure on infrastructure in this spending review. I agree with them on the need for investment in innovation, which is why we are investing £220 million in innovation centres and why we are investing £1 billion in the critical new technology of carbon capture and storage. Similarly, my noble friend Lord Newby identified science and apprenticeships as critical to growth. That is why we are protecting science spending in cash terms and why we are significantly gearing up on the number of apprenticeships compared with the plans of the previous Government.

Overall on growth, I was particularly struck by the contributions of my noble friends Lord Lamont of Lerwick and Lord Stewartby. They remind us that Conservative Governments have been here before, that Conservative Governments have taken us out of recession and rebalanced the economy, and we will do it again. For example, in the early 1990s, the public sector was reduced not by 490,000 but by 690,000 employees. At the same time, in the 1992 to 1996-7 period, the private sector generated 1.7 million jobs. I have every expectation—Members opposite may not—that the private sector again will rise to the challenge.

The second principle that I set out at the beginning is that our choices should be fair. We have heard some powerful speeches today, particularly from the noble Baronesses, Lady Hollis of Heigham and Lady Campbell of Surbiton, reminding us just how difficult it is to reshape the welfare system in the radical way that we intend at a time of considerable retrenchment in the public finances. I shall take away the points that they and others have made. In particular, I note carefully the concerns of the noble Baroness, Lady Campbell, about the mobility component of disability living allowance.

The spending review focuses support on those who need it most. It shifts the focus from welfare payments to services that improve social mobility in the longer term and to work incentives. The Government have sought to protect the most vulnerable. Working-age women, for example, tend to benefit disproportionately from health spending, which we have protected, and older women also benefit from additional resources for social care.

The universal credit will clarify and increase work incentives. Work will pay and will be seen to pay, but we must not rush the universal credit. As the noble Baroness said, it will take us two Parliaments to do that, because it is a difficult project and we must get it right.

We have also heard a lot on how young people will progress from care to university—points were made in different ways by the noble Earl, Lord Listowel, and the noble Baroness, Lady Nye. The Government are concerned to make sure that young people from the most disadvantaged homes get every opportunity. We are encouraging social mobility through maintaining Sure Start and extending early-years care. From 2012-13, we will introduce for all disadvantaged two year-olds substantial school premiums. The Government are also protecting the ability of those on lower incomes to go into higher education, including through a scholarship fund of £150 million by 2014-15.

[Baroness Farrington of Ribbleton]

My Lords, will the Minister care to fill in a little gap concerning the 16 to 19 year-olds?

[Lord Sassoon]

As I have said, we are coming forward with a £150 million fund that, by 2014, will enable those on lower incomes in that 16-to-19 age group to transfer into higher education.

[Lord Knight of Weymouth]

I have no wish to delay the House, but the Minister cannot be allowed to get away with that. The noble Baroness’s question was about 16-to-19 year-olds in schools, but he gave an answer about access to higher education, which is the next phase. The concerns expressed during this debate by the noble Baroness, Lady Nye, were about the abolition of the education maintenance allowance. What is his response?

[Lord Sassoon]

My Lords, one of the responses is that if we give children who would not otherwise have the opportunity to go to the best universities the ability to look forward to a fund that will enable them to do so, that is one way in which we will help disadvantaged children, right through the chain, from the start, through higher education and beyond. In that context, the £2.5 billion pupil premium will be another critical component.

[Baroness Farrington of Ribbleton]

Will the pupil premium be taken from funding for those young people aged 16 to 19 in schools?

[Lord Sassoon]

The pupil premium will be used to ensure that those schools that have a particular proportion of disadvantaged children will get a premium to ensure that there is an appropriate rebalancing.

[Lord Knight of Weymouth]

My Lords—

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[Baroness Anelay of St Johns]

I do not need to protect my Minister. My Minister is here to protect the economy of this country.

[Lord Sassoon]

My Lords, I have got all night. I am very grateful to my noble friend. It is late, and we will have an opportunity to come back to these matters again. Specific funding for 16 to 19 year-old learning will be announced in the statement of priorities for the Department for Education later this year, so we will have opportunities to come back to that.

I move on briefly to one or two further points on reforms to our public services. We will leave no stone unturned in our search for waste, while we devolve power and funding away from Whitehall. I was very struck by the contributions by my noble friends Lady Browning and Lord Newby, who reminded us just how much more we can get from Government by better procurement and cutting waste. It is in those ways that we will be able to target expenditure going forward on those who need it—whether that is for 16 to 19 year-old education or those with disabilities. We have to remember at all times that the attack on waste continues to be a high priority.

Rightly, concerns have been expressed about the transitional effects of the job losses from the public sector. The Government are also very concerned about easing the transition, which is why we have announced the initiative such as the £1.4 billion regional growth fund.

I conclude today’s debate by saying that the decisions that we have taken have restored credibility to our public finances and stability to our economy. When we came to power, this coalition Government did face the worse economic inheritance in modern history. We have had to make tough choices—

[Baroness Royall of Blaisdon]

My Lords, the House will forgive me for delaying the Minister once more, but I thought that the noble Lord, Lord Shipley, and others raised incredibly important issues to do with local government funding in the forthcoming year. Would the Minister care to reflect or answer those questions?

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[Lord Sassoon]

A lot of points were raised today, and I said at the outset that I cannot address them properly today. On local government, one critical issue is that we have removed almost 5,000 targets. Of course local government will live within lower spending settlements, as the great majority of central government departments have to do, but we are balancing that by lifting a huge burden of ring-fencing of their decision making, which will enable them, within what is of course a lower settlement, to have much more power to decide where the money goes, without the heavy hand of Whitehall bureaucracy on them.

We are investing in growth, in schools and in the health of our people. We have cut welfare, we are cutting waste, we have made sure that everyone pays their fair share—

[Lord Myners]

My Lords, the Minister is getting close to the point where he will not answer any further questions. He quite correctly said that there are some issues that he will have to go away and reflect on and reply to in writing. However, there was one contribution from the government Benches that was targeted specifically at the Minister, which alleged incompetence and lassitude on the part of the Minister, and those were the comments from the noble Lord, Lord James. They were very specific and I think the House deserves a response on the issue that the noble Lord raised. Clearly, the noble Lord has access to the solution that, with one leap, will take all the Government’s problems of financing to a better place. The Minister has clearly been remarkably bad at responding to the noble Lord and we look forward to the Minister’s explanation now.

[Lord Sassoon]

I am very grateful to the noble Lord, Lord Myners. He had great trouble keeping a straight face. I have to say that I took extremely seriously my noble friend Lord James of Blackheath’s suggestions that there were people who could help us out with our financial difficulty. The noble Lord, Lord Myners, thinks it is all a joke. I have been in detailed discussions over the past number of weeks with the noble Lord, Lord James of Blackheath, and of course we take seriously anyone who wants to invest in our economy. I know many people believe that there will be great opportunities in our infrastructure programme to invest in rebuilding our networks to underpin growth.

[Baroness Farrington of Ribbleton]

On a minor point of information, were any of the Minister’s Liberal Democrat noble friends present at any of these meetings?

[Lord Sassoon]

My Lords, if we start getting into who was present at which meetings at this hour of the night, we will never get home. I do not start counting off who is a member of which party in coalition Government meetings. That seems to be an obsession of the opposition party.

I will conclude briefly. It has been a very difficult and challenging spending round but we have made sure, as far as we possibly can, that everyone pays their fair share. We have taken the country back from what was—I am happy to say it—the brink of bankruptcy.

[Noble Lords]

Oh!

[Lord Sassoon]

My Lords, our plan will help drive growth in this country. Our plan will create the jobs of the future and it will build the more dynamic, more prosperous and more sustainable economy that Britain deserves. I beg to move.

Motion agreed.

House adjourned at 11.43 pm.

Taxation: Deficit Reduction

Lord Sassoon Excerpts

Thursday 28th October 2010 Lords Chamber

[Lord Lea of Crondall]

To ask Her Majesty’s Government how far they expect increased income tax and corporation tax revenues to contribute to the reduction of the deficit.

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

My Lords, the Office for Budget Responsibility’s Budget forecast shows that income tax receipts are forecast to be 10.2 per cent of GDP in this fiscal year and 11 per cent of GDP in 2015-16. The OBR has forecast corporation tax receipts to be 2.9 per cent of GDP this fiscal year and 3.2 per cent of GDP in 2015-16.

[Lord Lea of Crondall]

My Lords, I thank the Minister for that reply but I hope that I may translate his figures into actual cash. Will he confirm that the Red Book, which fully anticipated the cuts announced last week, states that, as compared with the Labour Government’s plans, there will be a reduction in income tax and corporation tax revenue each year until 2014, when the cost will be £5 billion, and that is on top of another £5 billion as a result of lower national insurance contributions from employers? That adds up over the period to no less than £40 billion. Will he also confirm that that £40 billion is additional to the direct Exchequer cost of extra unemployment payouts, forecast by the Office for Budget Responsibility to be higher in every year through to and including 2014, as compared with the Labour Government’s plans?

[Lord Sassoon]

My Lords, as compared with the Labour Government’s plans, an awful lot of things have changed. The first is that we have a credible deficit reduction plan. We have yet to hear the Opposition’s plans on that. There will be a reduction in public spending of £81 billion by 2014-15, but, critically, we need growth, and so 77 per cent of the deficit reduction plan will come out of a reduction in spending. We absolutely want to keep the pain of increased taxation to a minimum. That is why it is absolutely critical and right that our taxation plans aim for lower revenue than do the Opposition, because that is what is required to get growth in the economy going.

[Lord Forsyth of Drumlean]

My Lords, will my noble friend confirm—as I think the noble Lord, Lord Myners, did before the election—that the actual revenue from increasing the top marginal rate of tax to 50 per cent is very much less than was anticipated? Is that the case? Will he also confirm that the lesson of the 1980s, and of the experience of other countries around the world, is that if you want the rich to pay more in taxes, you do that by cutting rates, not increasing them?

[Lord Sassoon]

I am very grateful to my noble friend. I completely agree with his sentiments. This is not a Government who believe in medium and long-term high marginal rates of taxation. We have to incentivise the private sector to go out and generate wealth in order to deal, among other things, with the rebalancing of the economy which is now so necessary.

[Lord Howarth of Newport]

My Lords, does the noble Lord really expect us to believe that engineering a wholesale reduction in demand in the economy is the way to prepare for growth? Will the noble Lord be candid and say whether he considers that the Government are more politically vulnerable on account of their failure to provide growth, or of their failure to provide fairness?

[Lord Sassoon]

My Lords, I will cite the latest figure this week for quarterly growth in the economy. The naysayers said that growth in the last quarter would be 0.4 per cent, but it was 0.8 per cent, coming on top of 1.2 per cent in the previous quarter. With more than 300,000 new private sector jobs created in the second quarter, that is the way in which we will deal with the economic situation.

[Lord Newby]

My Lords, I am sure that the whole House will welcome the announcement this week of an agreement between the UK and Switzerland to tax adequately for the first time bank accounts held in Switzerland by UK citizens. Will the Government press for these accounts to be taxed at 50 per cent, equivalent to what these people would be paying on their income if they were living here and their accounts were here?

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[Lord Sassoon]

I am grateful to my noble friend for drawing attention to the fact that the Government have made a very significant breakthrough in combining the need to get proper tax receipts for bank accounts held in Switzerland with the Swiss Government's understandable concern about banking secrecy. We will have to wait and see what the final details are, but it is a major breakthrough.

[Lord McKenzie of Luton]

My Lords, will the Minister update us on the issue of anti-avoidance provisions, and in particular general anti-avoidance provisions? The June Budget book says that the Government will engage informally with interested parties. Does not engaging informally display a certain lack of seriousness? Will the noble Lord share with us who these interested parties might be? Are they the big law firms, the big accountancy firms, the non-dom community or the international banks?

[Lord Sassoon]

We are consulting widely in the way that is described and we will come forward with proposals in due course. In the mean time, we have allocated an additional £900 million of expenditure to HMRC over the spending review period, which is expected to result in annual revenue increments of £7 billion by the end of that review period. We are taking action very quickly in this area—much more so than did the previous Government.

[Lord Tebbit]

My Lords, will my noble friend choose his words a little more carefully at times? Is it not a fact that in every year through the period of this public expenditure survey, public expenditure will increase and not reduce?

[Lord Sassoon]

My Lords, I will try to be very careful with my wording and simply agree absolutely with what my noble friend has said.

[Lord Davies of Oldham]

My Lords, the Minister is responsible for the efficiency of his department and he will know the calamitous position that Her Majesty's Revenue and Customs was in earlier this year with regard to the settlement of our fellow citizens’ taxation matters. How does the Government's proposed determination to tackle tax evasion and avoidance square with a determination to cut 13,000 posts in HMRC over the next few years?

[Lord Sassoon]

My Lords, I have already explained to the House that we are targeting considerable extra resources where it matters in order to get in extra revenue. That is critical. The noble Lord talks about the calamitous position, but where did the calamitous position arise from? This is the result of an exercise to bring forward and modernise the reconciliation systems in our income tax system, which has been sorely needed for quite a few years.

[Baroness Farrington of Ribbleton]

My Lords, will the Minister comment on the fact that the latest growth figures are based primarily on the previous Government's policies rather than those of the current Government? Will he also comment on the widespread concern that the figures that the Government give for growth—for example, the per pupil figures in the education budget—are at times slightly deceptive? The Government take no account of the increase in pupil numbers, and therefore the amount being spent per pupil is actually being cut in real terms.

[Lord Sassoon]

In answer to the first question, no. In answer to the second question, the independent Office for Budget Responsibility will be presenting its updated assessment of the numbers post the spending review on 29 November.

EU: Economic Governance

Lord Sassoon Excerpts

Wednesday 27th October 2010 Lords Chamber

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

My Lords, with the leave of the House, I shall now repeat in the form of a Statement the Answer given by my honourable friend the Financial Secretary to the Treasury to an Urgent Question asked in another place earlier today. The Statement is as follows:

“Mr Speaker, I am very grateful for the opportunity to update the House on the conclusion of the Task Force on Strengthening Economic Governance of the European Union and to report on the UK’s position on the task force and, in particular, to restate that the UK is exempt from the current and future sanctions regime.

Heads of State and Government commissioned the President of the European Council, Herman Van Rompuy, to produce a report on EU economic governance and report back to the October European Council. Van Rompuy chaired a task force meeting consisting of EU finance ministers. The Chancellor represented the UK on the task force. The report has been agreed by the task force. The European Council is expected to endorse the report tomorrow.

Copies of the report, along with the Chancellor’s submission to the task force, have been placed in the Library of the House this morning. It concludes that the EU should take steps to reinforce fiscal discipline and that the euro area in particular must face tougher surveillance of its fiscal policies, with sanctions for non-compliance with the pact where appropriate.

The report also recommends measures to improve EU level co-ordination of macroeconomic policies. This will ensure that any harmful macroeconomic imbalances between member states can be identified and corrective action taken. Finally, the report also notes that there should be a permanent crisis resolution mechanism for the euro area. The UK supports the conclusions of this report. A strong and stable euro area is firmly in the UK’s own economic interests, given the high level of UK exports to these countries and our close economic ties.

In the years before the crisis, fiscal discipline was absent—and not just in the eurozone. High levels of debt have exacerbated the problems some member states faced during the economic downturn. The task force recommends that there should be a greater focus on member states’ public debt levels in future and the Government agree with this approach. I am pleased to note that the report explicitly states that sanctions cannot be applied to the UK under the stability and growth pact. Domestic fiscal frameworks play a crucial role in ensuring that member states act responsibly.

EU surveillance is useful but, as the House knows, national Parliaments and national institutions must hold Governments to account for their economic and budgetary policies. Let us be absolutely clear: yes, we want to see a strong and stable eurozone. That is in our interests just as much as in the interests of our neighbours. The UK has led the way on economic governance. Multi-year budgets and independent statistics and forecasting have already been introduced. We have a clear fiscal mandate to eliminate our structural deficit. We are leading the eurozone, and our high standards have already received international endorsement.

We will look at any proposals to help the eurozone overcome its problems, but, as the Prime Minister has just said, we will not agree to any changes to the EU treaties that move more powers from this country to the EU. The UK’s exemption from the sanctions proposals will be explicit; there will be no shift of sovereignty from Westminster to Brussels. The report makes this clear. It agrees that,

‘strengthened enforcement measures need to be implemented for all EU Member States, except the UK as a consequence of Protocol 15 of the Treaty’.

While we are looking at problems in the EU, we have serious concerns about the proposed size of the 2011 EU budget. I was shocked to see, on the day of the spending review, the vast majority of Labour MEPs voting against a freeze in the EU budget. When countries across Europe are taking tough decisions to put their public finances in order it would be wrong—unjust, even—to have a 6 per cent rise in next year’s EU budget, as has been suggested. We cannot accept that; we will fight this hard. We are protecting Britain’s interests in the EU, doing what is right for our country and our people, and the Prime Minister will be updating the House next week”.

My Lords, that concludes the Statement.

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[Lord Sassoon]

My Lords, I am grateful for the agreement of the noble Lord, Lord Eatwell, that the UK has a very strong interest in seeing a strong and secure eurozone. I will certainly draw to the attention of my honourable friend the Financial Secretary his interpretation of what happened in the European Parliament last week.

I think that the question that the noble Lord asked about our input to the strengthening of the co-ordination of macroeconomic affairs in Europe is best illustrated by the considerable input that my right honourable friend the Chancellor of the Exchequer gave to the task force’s deliberation. Among the input that the Chancellor of the Exchequer gave, he called for greater transparency and independence of the national institutions that are involved in the national budget-making process. He made it clear that national budgets should first go through national parliamentary processes before they go to Europe, so that, in the case of the UK, the UK Budget remains first a matter for Parliament before it is reported to Europe. Thirdly, he called for stronger macroeconomic surveillance in Europe. He called for a reinforcement of the stability and growth pact. He called for debt aspects of the stability and growth pact to be given more emphasis and he made some comments on governance arrangements. The UK contribution to the ongoing discussion of these important matters has been very considerable and we are completely content with the output that has come from the task force proposal.

There is absolutely nothing in the task force report that would require treaty changes. There are other matters that are being informally canvassed by certain member states and others, including the idea of a permanent crisis resolution mechanism or suspension of voting rights. There are all sorts of ideas that would require treaty changes but these have not yet been put on the table. If they are put on the table, we will deal with them at that time.

[Lord Ryder of Wensum]

My Lords, what precisely are the sanctions for non-compliance referred to by my noble friend?

[Lord Sassoon]

My Lords, the critical point is that the sanctions that apply apply only to the eurozone members. They do not apply to the UK, which has a specific carve-out and will continue to have a carve-out, as now reconfirmed. There are no sanctions that apply to the UK.

[Lord Harrison]

My Lords, I inform the Minister that Sub-Committee A of your Lordships’ European Union Select Committee, which I have the pleasure of chairing, is currently undertaking an examination of proposed EU economic governance in the light of the Van Rompuy report and the earlier Commission statement. We hope to report in the first quarter of next year. Will the Minister elaborate on the United Kingdom’s position on treaty change? I listened carefully to what he said, which was that he would not entertain any such change where the Government believed that the United Kingdom’s independence was compromised in any way. If a treaty change were proposed that would strengthen the eurozone—a common ideal across the House—would the Government entertain it?

[Lord Sassoon]

My Lords, if anybody proposes a treaty change that has not yet been proposed, it will be considered on its merits. To be completely clear, any proposed treaty change that has any suggestion of transferring powers from the UK to Europe will be subject to a referendum. If something is proposed, we will look at it on its merits and respond accordingly.

[Lord Newby]

My Lords, does the Minister find it strange that the UK is in the unique position of being able to impose fines on everybody else within the EU in co-operation with other EU member states and yet, however fiscally ill disciplined a future UK Government might be, the EU cannot impose sanctions against us? Are there any effective pressures under this set of proposals that, in future, the EU will be able to bring to bear against a British Government who were behaving profligately?

[Lord Sassoon]

My Lords, I welcome the question from my noble friend. It enables me to restate that it is perfectly right and proper that the UK should be subject, as it is, to the financial disciplines of the stability system in the EU. This means that we are required to exercise fiscal discipline. Indeed, the July council expressed itself satisfied. It said that the new UK Government’s proposals for deficit reduction were adequate to meet our responsibilities. It is quite right that we should go that far but, equally, we are not members of the eurozone. The system of sanctions that applies in the eurozone escalates to fines, as my noble friend said. The sanctions can start by requiring interest-bearing deposits, then non-interest-bearing deposits and finally fines. It is completely appropriate that those should apply to the eurozone and not to the UK.

[Lord Tomlinson]

My Lords, the noble Lord said clearly on two occasions that treaty changes are not on the table and that we will consider them with an open mind if they are. However, will he accept that treaty changes, if they are proposed, will reopen the whole of the Lisbon treaty box and require parliamentary ratification? Will he also be a little more robust in telling us that he can see no circumstances at present in which Her Majesty’s Government will consider treaty changes?

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[Lord Sassoon]

My Lords, it is likely that proposed treaty changes will be discussed at the meeting of heads of state at the European Council tomorrow. My right honourable friend the Prime Minister will be there. If treaty changes come forward, the coalition agreement is clear. We will look at any other proposals if they do not transfer powers from London to Brussels. That is the position.

[Lord Williamson of Horton]

Since the Statement refers not only to governance but, briefly, to the budget, and since media and other comment on the budget also refers frequently to the risk to the United Kingdom rebate, will the Minister confirm that there is no possibility of a change to the UK rebate, except with the agreement of the United Kingdom Government, because it is subject to unanimity?

[Lord Sassoon]

Indeed, my Lords, that is the position. It is worth reminding ourselves that since my noble friend Lady Thatcher won that rebate at Fontainebleau it has saved Britain £88 billion. That is what tough negotiations in Europe achieved. The previous Government agreed to significant changes to those arrangements, which mean that the abatement has come down very significantly. However, my right honourable friend the Chancellor said after the ECOFIN meeting on 8 September that we will make it clear from the start that:

“We are not going to give way on the rebate. No doubt others will want to put it into the mix but they’ll be wasting their time. People better know that at the beginning of the process or they are certainly going to discover it at the end”.

Noble Lords can see that my right honourable friend the Chancellor will be in the robust tradition set for us by my noble friend Lady Thatcher on these matters.

[Lord Marlesford]

My Lords—

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[Lord Richard]

My Lords, did I hear the Minister saying that the Government would consider changes to the treaty that did not involve a transfer of sovereignty from this country to the EU? Did he say that? If he did, what are the implications of that for the Prime Minister’s commitment that there would be a referendum on the Lisbon treaty if there were any changes to it? There is a distinction between any changes to the treaty and changes that transfer sovereignty from Britain to the EU. Which is it?

[Lord Sassoon]

My Lords, there will be a referendum on all proposed treaty changes that would transfer competence to Brussels. In terms of whether we look at treaty changes, if any treaty changes come forward and are proposed at the council tomorrow or at any other time, the UK Government will of course look at them and consider whether they propose to move competences. Depending on which category they fall into, we will act accordingly.

[Lord Marlesford]

Does Britain have the power to veto any increase in the EU budget?

[Lord Sassoon]

My Lords, as I understand it, the financial framework and perspective have to be agreed unanimously. Discussions are starting on the framework that will cover the years 2014 to 2021.

[Lord Liddle]

Will the Minister confirm that tomorrow at the European Council the leaders of France and Germany are going to propose treaty changes on the debt crisis resolution mechanism? Is it not slightly odd that the British Government are going to that meeting without having a view on those proposals?

[Lord Sassoon]

My Lords, I sometimes struggle to speak for all the policy matters covered by Her Majesty’s Treasury, which are wide enough. I absolutely cannot speak for what the leaders of France and Germany are going to say when they come to the council tomorrow. I am sure that the Government will be prepared to answer any proposals that come forward. We will hear more about this after the meeting on Monday.

[Lord Stoddart of Swindon]

My Lords, would not any proposals coming from France, Germany or anywhere else for a treaty change require to be passed by unanimity? If so, can we have an assurance that the Government will not agree to any such change? If they do—to take up the point made by the noble Lord, Lord Richard—can we have an absolute assurance that there will be a referendum?

[Lord Sassoon]

My Lords, I do not think that I can add anything to my earlier answers on this matter. I have tried to make the position as clear as possible. We will treat any proposed treaty changes on their merits and depending on whether they suggest any changes in competences between the UK and Brussels.

[Lord Stoddart of Swindon]

Does that require unanimity?

[Lord Sassoon]

Yes.

[Lord Grenfell]

Does the increase proposed in the European Union budget violate the current financial framework or is it within the limits that were set?

[Lord Sassoon]

At the moment, the proposals floating around sit within the various statutory limits for Europe. However, just because those statutory limits are set at some theoretical level, that does not mean that it is at all appropriate in the view of the Government for people to go around suggesting 6 per cent increases in the budget next year or anything remotely like it. At a time when the UK and many other members of the EU are tightening their belts appropriately, the EU budget should do the same.

[Lord Hannay of Chiswick]

Does the Minister agree that there are perfectly respectable arguments against treaty change at this stage that do not need to delve into the intricacies of Britain’s relationship with the European Union? Given that what is being sought is greater stability in the eurozone, which is in our interest, respectable arguments against treaty change—such as that the ratification by countries quite different from ourselves might be problematic and might lead to a loss of confidence in the euro as a result—ought to be deployable by any member state.

[Lord Sassoon]

My Lords, the task force has come forward with some significant proposals for strengthening the framework within the eurozone. I echo the noble Lord’s sentiments in respect of the task force proposals, but those proposals, which would be a significant step forward, do not themselves require any treaty changes. There may be other suggestions, such as the idea of a permanent crisis resolution framework, which may require treaty change. The UK Government absolutely support the euro area’s desire to take positive action to overcome its problems through the creation of an appropriate framework. If that has treaty consequences, we will look at it in that spirit.

[Lord Tomlinson]

My Lords, the Minister did a bit of a soft-shoe shuffle in replying to the question asked by the noble Lord, Lord Marlesford. He talked about the next financial perspective, whereas I am sure that the noble Lord was arguing about next year’s budget. In the interests of clarity, will the Minister tell us how Her Majesty’s Government voted in council in relation to the budget for the year 2011? Did they show financial discipline or did they vote in favour of it?

[Lord Sassoon]

My Lords, forgive me, but I cannot recite how we voted on each matter at each council meeting. However, I will write to the noble Lord in answer to that question.

Public Expenditure: Value for Money

Lord Sassoon Excerpts

Tuesday 26th October 2010 Lords Chamber

[Lord Haskel]

To ask Her Majesty’s Government how they assess value for money when allocating public expenditure.

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

My Lords, value for money is a key consideration when allocating public expenditure. The spending review has prioritised growth and fairness, underpinned by radical reform of public services. Departments were asked to prioritise spend against tough value-for-money criteria set out in the spending framework and the economic value of all capital projects was considered. In addition, public ideas were sought on how to make savings and deliver more for less.

[Lord Haskel]

My Lords, I thank the Minister for that rather narrow accountant’s view of value for money. What prompted this Question was when the Prime Minister said recently that there was more to life than money. He said it in the context of the extra value that we get from sport, the arts and having a roof over our heads.

[Lord Haskel]

The question is coming. The Prime Minister said it in the context of the extra value that we get from sport, the arts and social capital. My question is: will the Minister say how these non-monetary values are taken into account when assessing value for money?

[Lord Sassoon]

My Lords, questions about value for money are asked in the context of a wide range of other factors that are all set out in the Government’s Green Book, which is a 100-page document that has been used for 20 years or so. It has become a model of its kind around the world, and sets out value for money in the context of the complete range of factors that have to be considered.

[Lord Newby]

My Lords, does the Minister agree that the effectiveness of public expenditure would be greatly enhanced by the abolition of the 4,000-plus central government targets over local government that was announced by the Chancellor last week? Will the Minister look at adopting a similar approach to other parts of the public sector, including the police and NHS, so that front-line staff can spend most of their time serving the public rather than completing unnecessary bureaucratic paperwork?

[Lord Sassoon]

I completely agree with my noble friend that the overlay of unnecessary, wasteful targetry that the last Government imposed absolutely detracted from the fundamental consideration of value for money. To emphasise the point, it was not just over 4,000 but 4,700 targets that were swept away from local authorities, enabling them to get on better and do what really matters for citizens.

[Lord Jones of Birmingham]

Could the Minister please explain where the value for money exists in public expenditure when we constantly untie our overseas aid? Japan, America, Germany and France do not. This is a time when we could have a win-win of increasing the overseas aid budget and helping nations that need our wealth while creating jobs at home and tax from profits at home, rather than doing what we are doing, which is to give taxpayers’ money without any custodianship and keeping no control, therefore creating jobs in Japan, France and America.

[Lord Sassoon]

My Lords, the first thing to re-emphasise is that we have maintained overseas aid expenditure to meet our commitment of 0.7 per cent of GNI from 2013, but in that context we must make sure that the money is well spent. A new independent commission on aid impact will assess all ODA spending, and DfID in particular will protect all UK aid from corruption by assessing risks and using safeguards to prevent the misuse of funds.

[Lord Barnett]

My Lords, in the spending review, the Chancellor agreed to maintain the spending on the Barnett formula, thus rejecting the serious recommendations of a powerful Select Committee of your Lordships' House, chaired by my noble friend Lord Richard, a former Leader of the House, and including a former Chancellor in the noble Lord, Lord Lawson, and two former Secretaries of State for Scotland in the noble Lords, Lord Forsyth of Drumlean and Lord Lang. He rejected all that, and surely it could not have been on the grounds of value for money. Would the noble Lord care to tell us what the grounds were?

[Lord Sassoon]

I thank the noble Lord, Lord Barnett, for reminding us of the importance of continued consideration of the pros and cons of his formula. We are talking about value for money and he asks whether it was not on the basis of value for money that we rejected these recommendations, but I think that we had better stick to value for money for this afternoon.

[Lord Forsyth of Drumlean]

My Lords, on the subject of value for money, can the Minister tell us what his or the Treasury’s estimate is of the difference in value for money obtained when an individual spends a pound according to their own judgment and when that pound is spent by Government when it has been taken from them in taxation?

[Lord Sassoon]

My Lords, the assessment cannot be done exactly in that way—but when it comes to procuring large public projects and it costs more to cancel the project than it does to complete it, that is not the sort of behaviour that most people would indulge in when spending their own money. I absolutely take my noble friend’s point that there is far too much waste in procurement in government expenditure, inherited from the previous Government, and that is not the sort of thing that any of us would do when managing our own budgets.

[Lord Touhig]

The Government announced £1.1 billion-worth of savings in discretionary spending, including savings in consultancy contracts. Between May and 13 August, the Government signed 50 new contracts costing £10 billion with consultants. The National Audit Office has said that this is not value for money. Indeed, it said that the Government,

“lacks the information, skills and strategies to manage”,

these contracts. What is the Government’s response to the National Audit Office?

[Lord Sassoon]

My Lords, shortly after coming into office we cancelled £6 billion of in-year expenditure. That is the sort of rigorous approach that we will take, not only to inherited expenditure but to the management of all new contracts.

[Lord Eatwell]

My Lords, is the Minister’s commitment to value for money and fairness not truly incredible when the Government are cheerfully imposing larger penalties on families with children than they are on the banks?

[Lord Sassoon]

My Lords, we have introduced a fairness premium worth over £7.2 billion to support the poorest children in this spending review, and I think that that speaks for itself.

Housing: Shared Ownership

Lord Sassoon Excerpts

Monday 25th October 2010 Lords Chamber

[Baroness Gardner of Parkes]

To ask Her Majesty’s Government what they expect to be the effect of the limitations on shared ownership for first-time buyers as set out in the Financial Services Authority’s policy statement A Specialist Sourcebook for Building Societies, published in March 2010, stating that a maximum of 15 per cent of a building society’s whole mortgage book will be available for non-prime owner-occupied mortgages.

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

My Lords, the regulation of building societies is a matter for the Financial Services Authority, which is an independent body. I have, however, raised this question with the FSA and I understand that it has written to my noble friend, explaining how it uses its Specialist Sourcebook for Building Societies.

[Baroness Gardner of Parkes]

I thank my noble friend for that Answer, but is he aware that the 15 per cent limit also covers buy-to-let, commercial and social landlords and equity release schemes, so an awful lot is crammed into it? The problem seems to have arisen because the FSA says that this is guidance but building societies have said at a recent meeting of 14 major and minor societies that individual supervisors from the FSA have insisted that this was an absolute maximum and that there was no question of discretion. Will my noble friend clarify that this is just guidance?

[Lord Sassoon]

Well, my Lords, the FSA, and what my noble friend has reported it as saying, must stand for themselves. I cannot directly answer for the FSA. However, my clear understanding is that the source book offers guidance on the way that the FSA undertakes its regulation and does not consist of formal rules. Indeed, for those societies with advanced risk management systems, there is not even an indicative limit on the level of shared ownership in which they can engage. As I understand it, building societies can lend within their statutory limits. They can undertake any lending up to their statutory limits provided they have appropriate controls in place.

[Lord Forsyth of Drumlean]

My Lords, given that the sub-prime crisis in the United States was caused in the first place by government interference requiring lenders to lend money in an unsafe way, should we not be very wary about interfering in the lending decisions of building societies or others, however important the social issues are?

[Lord Sassoon]

My Lords, the Government want to have a sustainable mortgage market in this country, and that requires a balance in maintaining a flow of mortgages so that people can get on to the housing ladder. In that regard, the actions which the Government have taken to ensure that market interest rates are kept low are paramount. On the other hand, we want to ensure that mortgage providers lend responsibly. That is why the Financial Services Authority is conducting a mortgage market review and why in July it issued a responsible lending paper for consultation.

[The Countess of Mar]

My Lords, to whom is the Financial Services Authority responsible if it is not answerable to Ministers?

[Lord Sassoon]

The Financial Services Authority is, indeed, appointed by Ministers and has a high degree of reporting to all its stakeholders, including Parliament. The Government do not believe that the model of tripartite regulation which we inherited from the previous Government is at all appropriate. Therefore, the FSA will go under the legislation which we will be bringing forward and we will have a completely new system of accountability for financial services regulation which we think is more appropriate.

[Lord Newby]

My Lords, does the Minister agree that the large number of different affordable housing schemes offered by the Homes and Communities Agency are confusing to lenders, developers and, ultimately, to the buyers they are supposed to be helping? Will the Government undertake to rationalise the schemes that the HCA currently offers?

[Lord Sassoon]

My Lords, I am wary of straying too far from financial regulation into housing policy areas but I will ask my ministerial colleagues in the Department for Communities and Local Government to write to my noble friend on that point.

[Lord Eatwell]

My Lords, is the Minister aware that in the source book referred to by the noble Baroness, Lady Gardner, there is a clear premise that building societies—mutuals—are significantly less risky than banks because, as the source book itself says, of their,

“lower exposure to wholesale funding and complex financial instruments”.?

If they are less risky, is it not time to reduce the punitive levy on building societies for the Financial Services Compensation Scheme—a levy which is reducing the funds available for lending to house buyers?

[Lord Sassoon]

One of the beauties of the current system and our future system of financial regulation is that decisions about the relative riskiness of different classes of financial assets are emphatically not for government but for the financial regulator, which in due course will be the Bank of England. So while I can ask the Financial Services Authority to write to the noble Lord, I am certainly not going to second-guess its judgments.

[Lord McFall of Alcluith]

My Lords, are not all the building societies that became plcs now bust and out of business, and is there not a case for looking at mutualisation with responsibility? Surely the Government should be encouraging the FSA to go along those lines so that we have good mutual organisations, which have existed in the past, lending responsibly.

[Lord Sassoon]

My Lords, it is important that we have diversity and a variety of providers of financial services. In that context, building societies of course have an important role to play—particularly in the area of shared-ownership mortgages, which is the subject of the Question. Many building societies continue to offer products in this area, and I welcome that.

[Baroness Gardner of Parkes]

Will the Minister confirm that, in spite of what my noble friend Lord Forsyth said, there is a self-limiting situation, in that someone applying for shared ownership can have the mortgage for their percentage of ownership tailored exactly to an amount that they can be sure of paying?

[Lord Sassoon]

My Lords, questions about what people can afford to pay are essentially for the mortgage provider to judge in the context of its commercial decisions, made within the responsible lending guidelines set down by the FSA.

[Lord Christopher]

My Lords, can the Minister offer a view on why equity release schemes should be regarded as sub-prime mortgages? I should have thought that such arrangements were highly desirable, given the age distribution that we face.

[Lord Sassoon]

My Lords, I regret that I am not going to be drawn into making judgments which are for the financial regulators to make.

Terrorist Asset-Freezing etc. Bill [HL]

Lord Sassoon Excerpts

Monday 25th October 2010 Lords Chamber

[Lord Mackay of Clashfern]

My Lords, I am prompted to rise by the noble Lord, Lord Judd. The principle to which he refers is displaced only by a conviction. Therefore, the amendment does not particularly invoke that principle. I would be interested to hear the basis on which the noble and learned Lord, Lord Lloyd, thinks that a person should be charged with an offence under this provision. Of course, I understand the point made from the opposition Front Bench. It may be sufficient if there are assets in the jurisdiction, even if the person who owns or controls the assets is not himself or herself in the jurisdiction. Having listened carefully to my noble and learned friend Lord Lloyd of Berwick, I am left with the question of the basis on which, or the extent to which, one must know what has happened in order to charge someone with an offence under these provisions.

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

My Lords, if noble Lords will permit me, I will speak to this entire group of amendments, although there has not been any significant discussion on some of them. It is perhaps worth summarising what these amendments would do. They would limit final designations to those charged with a terrorist offence of a description within Clause 2(2). They would require any final designation to cease if the charges are dropped or the person is acquitted and require the Treasury to apply to the court to make an interim designation.

Amendments 1 and 3 relate to the Treasury’s power to make a final designation. They require the Treasury to make final designations against only those people who have been charged with a criminal offence falling within the description of terrorist activity in Clause 2(2) for the purposes of the Bill.

Amendments 4, 5 and 6 require a final designation automatically to expire when a person charged is acquitted or charges are dropped before the ordinary one-year expiry. This goes to the heart of what this regime is intended to be about. Although I echo the words of the noble Lord, Lord Bach, in recognising the contribution of the noble and learned Lord, Lord Lloyd of Berwick, and the great wisdom he brings to this, I think he does not go to the complete heart of the rationale of UNSCR 1373, which is indeed preventive. It requires states to take steps to prevent terrorist acts. I should quote further from the resolution. Its paragraph 1(c) states that one of the means of achieving this requires states to:

“Freeze without delay funds and other financial assets or economic resources of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts”.

The rationale of paragraph 1(c) is to prevent funds, financial assets and other economic resources being used or diverted for terrorist purposes, and the Government absolutely believe that it would not accord with the preventive rationale of the UN resolution if a final designation could be made only in respect of those charged or convicted of terrorism-related offences.

If that were the threshold, the Treasury would not be able to freeze the assets of those in respect of whom there was evidence that was insufficient to bring such a charge, but sufficient to give rise to a reasonable belief on the Treasury’s part that the person represented a terrorist risk—for example, where an interim designation has been made in respect of a person on the basis of a reasonable suspicion and insufficient evidence has come to light during the 30-day period of that interim freeze that would allow charges to be brought, but the Treasury has nevertheless come to a reasonable belief that the person is or has been involved in terrorism and considers it necessary for public protection that the final designation be made. If the Treasury were not able to make a final designation in those circumstances, that would give rise to a risk of terrorism that the requirements of the UN resolution are meant to prevent.

I remind the House that in making these designations, it is necessary that the dual test is met. The other half of the test, which has not been mentioned this afternoon, is a public protection leg. It is the Government’s continued firm belief that a reasonable belief threshold for a final designation would allow the Government to implement effectively the requirements of the resolution.

[Lord Lloyd of Berwick]

Does the noble Lord accept that reasonable belief goes beyond what Resolution 1373 requires? That is the critical question. It is also the question, which, as I have explained, has been decided by the Supreme Court.

[Lord Sassoon]

My Lords, the interpretation of UNSCR 1373 can be construed partly on a recommendation of the resolution itself and partly on the interpretation which the Financial Action Task Force has made. It is clear from its guidance that asset freezes should not be limited only to cases where people have been charged or convicted. If we were to accept this amendment, which the Government do not intend to do, it would certainly put the UK outside what is considered by all leading countries through the FATF guidance to be best practice in implementing Resolution 1373. What we are proposing is consistent with the approach taken by other authorities, such as in Canada and New Zealand, of which the noble and learned Lord, Lord Brown, approved in the case of Ahmed.

I agree with the interpretation of the noble Lord, Lord Bach, of the situation. Asset freezing is implemented against individuals and groups in the UK and overseas. At the moment, 22 entities and 14 individuals overseas are the subject of asset freezing. Nothing in Clause 1 limits this. Asset freezing certainly is not limited to people in the UK. People anywhere in the world can be designated, but the prohibitions apply only within UK jurisdictions; that is, to assets that are either held in the UK or by UK persons such as banks overseas. I hope that that clarifies the question of territorial scope.

[Lord Lloyd of Berwick]

Is the Minister saying, in effect, that Clause 1 has extra-territorial effect? If so, what is his authority for saying that in the light of the fact that the Bill makes specific provision for extra-territorial effect for offences under Clause 11 but no such provision in relation to Clause 1?

[Lord Sassoon]

Under Clause 1, people anywhere in the world can be designated. To repeat myself again, the prohibitions, on the other hand, apply only within UK jurisdictions; that is, to assets either held in the UK or held by UK persons such as banks overseas. That is about as clear as I can be on the Government’s understanding of the scope of Clause 1. The people overseas who are subject to asset freezes are operating in environments where it is not possible to charge or to convict them clearly of terrorist offences, but where it is necessary in order to disrupt their actual or potential—

[Lord Carlile of Berriew]

Perhaps I may tempt the Minister into a more direct answer to the question posed by the noble and learned Lord, Lord Lloyd. Surely what he is saying amounts to no; it does not have extra-territorial effect. A clear answer to that effect might be helpful for future purposes.

[Lord Sassoon]

Not being a lawyer, I was trying to give a clear statement of what effect Clause 1 has in relation to the underlying reality of where it bites. As to whether this does or does not mean that it has extra-territorial effect, I will leave that to lawyers to sort out. However, I am now given advice which says that Clause 33 sets out the extra-territorial application of the offences. Perhaps that will help on this point.

[Lord Davies of Stamford]

I thank the noble Lord for giving way. He may not be a lawyer, but he is a Minister. He has come before this House to present a Government Bill and therefore must be deemed to understand what the purposes of the Government were when they drafted and brought forward this legislation. I have listened with great interest to the debate with no intention of taking part, but it is clear to me that the Minister is not willing to tell the House whether Clause 1 has extra-territorial effect. The question should be capable of a simple yes or no answer. The Government must know where they are on that whole idea before they come before the House with a Bill.

[Lord Sassoon]

My Lords, I am trying to get to the substance of what we are seeking to achieve here, which is that if the people are abroad—that is, extra-territorial—but their assets are here, those assets can be made subject to an asset-freezing order. Indeed, if the people or the entities are UK persons, the asset freeze can also bite on them. I hope that that clarifies what we are trying to achieve.

[Lord Davies of Stamford]

We all know what “territorial” means. It means persons who are in this country or visiting this country, or corporate persons such as banks that are resident in this country but have assets abroad. That is territorial jurisdiction. What we want to know is whether Clause 1 has extra-territorial jurisdiction attached to it. In other words, is the power capable of being exercised in relation to persons and assets that are not connected with the United Kingdom?

[Lord Sassoon]

My Lords, let me try to say it again. Clause 1 bites on assets that are here—that is, territorial assets—but also enables the Government to freeze the assets of people who are not here, which would be extra-territorial.

[Lord Davies of Stamford]

So, to be clear, the clause can bite on persons or assets that are not connected with the United Kingdom.

[Lord Sassoon]

No, my Lords, that is not strictly what I said. Clause 1 can bite on assets that are here that might be under the control of people who are not in the UK. Equally, it may bite on people who are within the jurisdiction of the UK on assets that they might hold elsewhere. I am sorry if that is not clear.

[Noble Lords]

Order.

[Lord Davies of Stamford]

Does Clause 1 have extra-territorial jurisdiction encapsulated within it, or does it not have extra-territorial jurisdiction encapsulated within it?

[Lord Sassoon]

I am trying to reduce this to what Clause 1 actually does. I do not believe that saying whether it is extra-territorial will clarify the point at all. What I am trying to do is get to the substance of what the clause is intended to achieve. I do not know whether it is being suggested that we should not, for example, be able to freeze the assets of the likes of Osama bin Laden, if he had assets in this country, just because he does not happen to be here. Is that what is being suggested we should be prevented from doing?

[Lord Davies of Stamford]

Osama bin Laden—

--- Later in debate ---

[Lord Stoddart of Swindon]

My Lords, on this important amendment, we have heard from the Minister that because he is a layman, as I am, he is not able to answer the questions raised by the noble and learned Lord, Lord Lloyd, in a manner that satisfies those of us who are laymen and thus enables us to vote intelligently if a vote is called.

[Lord Sassoon]

My Lords, I am grateful to the noble Lord, Lord Davies of Oldham. I hope that the majority of us are clear about the intended scope of Clause 1, so I shall move on to deal with some of the other aspects. However, it is quite clear that the scope of Clause 1 is as intended and required by our obligations under UN Resolution 1373, which is the relevant resolution.

It is worth noting that while the majority of asset-freezing cases in the UK are against those who are charged or convicted of terrorist offences, at the moment there are six cases where it has been necessary, in order to protect the public from terrorism, to act upon the intelligence picture which, for reasons of national security or admissibility of evidence, cannot be used as the basis for criminal charges. However, that does not, of course, mean that those people do not continue to pose a serious risk to national security. Therefore, to limit final designations only to those subject to a criminal charge would exclude such groups and individuals as I have described. This would fatally undermine the preventive and disruptive nature of the asset-freezing regime as well as impact significantly on its operational effectiveness.

Nevertheless, the Government recognise that the Bill as it was introduced raised civil liberties concerns, and it was to address those that we amended the Bill so that a higher final designation threshold of reasonable belief, rather than the previous reasonable suspicion threshold, is being introduced. However, again I stress that there is a twin test, as the test of necessity for public protection also needs to be met. I do not think that the noble and learned Lord, Lord Lloyd of Berwick, drew attention to that.

The noble and learned Lord referred to a final order as giving an indefinite freeze. However, it is important to recognise that freezing orders have to be relooked at whenever the evidence changes or after 12 months. While “final order” is the term in the Bill, we should remember that a final order or a final designation will expire after 12 months unless it is renewed. We have also provided that the legal challenge to any designation should be by way of appeal. The Government continue to believe that the Bill strikes the right balance between safeguarding a person’s rights and protecting the public.

Amendments 9 and 11 require the Treasury to apply to the court to make an interim designation.

[Lord Lloyd of Berwick]

I have not addressed those amendments yet. I believe they have been degrouped and appear in the next group. I specifically asked before I addressed the House that those amendments, which relate to an entirely separate subject matter—namely, the interim order, not the final order—should be degrouped. If the Minister did not hear that, he can answer what I have to say in due course.

[Lord Sassoon]

My Lords, the last grouping I have seen from the Printed Paper Office suggested that everything was grouped together. Perhaps I should break off here and ask the noble and learned Lord whether he is prepared to withdraw Amendment 1 and not to move Amendments 3 to 6.

[Lord Skelmersdale]

My Lords, it would make life a lot clearer for me if the Minister could say whether anything in Resolution 1373 prohibits a state that has signed up to it from producing legislation on the same subject that is more severe than the resolution suggests.

[Lord Sassoon]

I am not aware of anything in the resolution that prevents legislation going further. The Bill does what is required to properly implement Resolution 1373 but, if it did go further, that would not be precluded by the terms of the resolution.

[Lord Lloyd of Berwick]

My Lords, the Minister has not fully dealt with the point that what is now proposed goes well beyond what is required by Resolution 1373. He argued that that resolution was intended to be preventive and that what is now proposed is preventive. The resolution states, in paragraph 1(a), that it is intended to be preventive, but it then goes on to say how it is to be preventive by requiring all member countries affected by the resolution to pass legislation to freeze the assets of those who have been charged or convicted of a terrorist offence. That is clear from the language of the resolution. Simply to say that the resolution is intended to be preventive and that the Bill is preventive is not an answer to that point.

The only real answer that has been given was that given by the noble Lord, Lord Bach, when he repeated what was said by the noble and learned Lord, Lord Wallace of Tankerness, in Committee. In particular, he said:

“I also asked how many persons outwith the UK have been subject to designation for asset freezing; the answer is 36, of which 22 are entities and 14 are individuals”.—[Official Report, 6/10/10; col. 150.]

How can that be so under the terrorist orders unless they were intended to be extra-territorial?

That brings us back to the question whether Clause 1 is extra-territorial. The fact that something has happened is by no means proof that it was justified, as indeed is the case with the whole history of this part of the law, which has had to be corrected by the Supreme Court in its most recent decision. Those figures do not convince me at all. We return to the question whether Clause 1 on this particular point is intended to be extra-territorial. It is clear to my mind that it is not, for the reasons that I have already given—namely, that other provisions in this Bill are said to be extra-territorial and this is not included among those provisions. That merely confirms the ordinary rule that we apply all the time that legislation is not extra-territorial unless it is stated to be so.

There is a further question relating to the figures given by the noble and learned Lord, Lord Wallace of Tankerness. If those persons were outside the jurisdiction, how were they notified? Under Clause 3, it is the obligation of the Treasury to notify a person immediately when the final order or an interim order is made. How can we be sure that that is being done when the person is outside the jurisdiction, wherever he may be? The argument that my amendment would in some way cut down a valuable power that the Treasury now has and would not have if my amendment were passed is simply not, with respect, borne out. I am not willing to withdraw the amendment and will take the opinion of the House.

--- Later in debate ---

Moved by

[Lord Sassoon]

2: Clause 2, page 2, line 14, leave out ““terrorist activity” means” and insert “involvement in terrorist activity is”

[Lord Sassoon]

My Lords, the Government’s intention behind this amendment is to clarify that the words “involved in” in the legal tests for interim and final designations do not mean something additional to the activities and conduct referred to in the definition of “terrorist activity”. In Committee, my noble friend Lady Hamwee indicated her concern that use of the term “involved in” could capture people whose conduct did not fall strictly within Clause 2(2) but who were simply associates of people whose conduct did fall within that clause or who were merely innocent bystanders. This was not the Government’s intention, nor do we think that it is the effect. However, by tabling this amendment to make it clear that “involvement in terrorist activity” means no more than the activities and conduct described in Clause 2(2), I hope to ensure that there can be no doubt or further confusion. I thank my noble friend for her intervention in Committee and hope that she and other noble Lords will be minded to support our amendment. I beg to move.

[Baroness Hamwee]

My Lords, I am extremely grateful to the Minister for this amendment. The Bill creates a number of offences, so I felt that it was important to be crystal clear about the provisions. In my view, the amendment achieves that. I thank my noble friend.

--- Later in debate ---

Moved by

[Lord Sassoon]

7: Clause 4, page 3, line 17, leave out “such steps as they consider appropriate” and insert “reasonable steps”

[Lord Sassoon]

My Lords, these amendments relate to the requirement on the Treasury, where an interim or final designation expires or is varied or revoked, to take such steps as it considers appropriate to bring that fact to the attention of those informed of the interim or final designation.

When the Bill was being discussed before the Committee of the whole House, the noble Lord, Lord Pannick, expressed concern that the wording of what are now Clauses 8(2)(b) and 9(2)(b), which make provision for the duration, variation and revocation of interim designations, did not hold the Treasury to a sufficiently high standard, as it was open to it to consider, in its own subjective determination, the steps to be taken to inform those informed of an interim designation of the expiry, variation or revocation of the interim designation.

We agree that it is important that persons informed of an interim designation are also informed of an expiration, variation or revocation of that designation and, on reflection, we believe that it is appropriate to make express provision in the Bill for the Treasury to be required to take reasonable steps to notify such persons. Furthermore, the same standard should be applied to the steps that the Treasury must take to inform persons of the expiry, variation or revocation of a final designation. Therefore, these amendments, which I hope address the noble Lord’s concerns, amend not only Clause 8(2)(b) and Clause 9(2)(b), but Clause 4(5)(b) and Clause 5(2)(b), which make provision for the duration, variation and revocation of final designations. The amendments have the same effect on each of the clauses, in that they remove the Treasury’s discretion to determine subjectively the steps that it considers appropriate and replace it with an obligation to take steps that, on an objective assessment, would be considered reasonable in the circumstances. I therefore beg to move.

[Lord Pannick]

My Lords, these amendments meet the concerns that I expressed in Committee. I am grateful to the Minister for listening and acting.

--- Later in debate ---

Moved by

[Lord Sassoon]

8: Clause 5, page 3, line 24, leave out “such steps as they consider appropriate” and insert “reasonable steps”

--- Later in debate ---

[Lord Sassoon]

My Lords, Amendments 9 and 11 require the Treasury to apply to the court to make an interim designation. As I set out in Committee, the Government continue to believe that Ministers are best placed to take decisions to impose asset freezes, but it is absolutely right that these decisions should be subject to intense scrutiny by the courts in cases where a person wishes to challenge the asset freeze.

I believe that there are three compelling reasons why decisions to impose asset freezes should be taken by the Executive. First, they are preventive, not punitive, measures taken on the basis of operational advice to protect national security. It is accepted practice for such decisions to be taken by Ministers, who take decisions to impose proscriptions, deprivations of citizenship and exclusions. Secondly, Ministers are then accountable for these decisions to Parliament and the courts. This clear accountability and their broad view of the threat posed mean that Ministers are best placed to weigh the protection of national security with the interests of the designated person. Thirdly, there are strong international comparisons for this practice. The US, Australia, Canada and New Zealand all entrust asset-freezing decisions to the Executive, whereas the noble and learned Lord’s amendment would introduce mandatory court involvement in the making of interim asset-freezing decisions.

With permission, I should like to set out why the Government do not believe, as a matter of principle, that any asset-freezing decisions need to be approved by the courts. I accept, for example, that control orders work differently and are approved in this way, but the Government do not believe that the courts should have the same role in asset freezing, because the circumstances are clearly different. Asset freezes interfere with property rights but they do not impact on human rights to the same extent as control orders, which can impose restrictions on movement, association and communication. Furthermore, in contrast to control orders, asset freezing is not primarily used against people in the UK who cannot be prosecuted or deported. Indeed, as we have already discussed, only about 10 per cent of asset-freezing cases involve people who are in the UK or hold funds here and who have not been prosecuted for a terrorist offence. In cases where people are prosecuted for terrorist offences, evidence against them will be brought before a court.

In the case of terrorist groups or individuals overseas, the asset freeze has a less direct impact because it applies only within UK jurisdiction. Overseas terrorist groups and individuals have not challenged their asset freezes in the UK courts and we do not believe that mandatory court decision-making or approval would add any real value in these cases. Indeed, it may even provide groups such as Hamas with a public platform on which to challenge the UK’s operational and foreign policy decisions.

We therefore believe that the right way to recognise the need for proper judicial scrutiny over asset freezing is not to introduce mandatory court involvement but, rather, to make it clear that there is robust court scrutiny of cases where individuals or entities wish to challenge their freezes. The Government therefore brought forward amendments to the Bill to specify that challenges to designations should be on the basis of an appeal, rather than judicial review. Although I realise that judicial involvement is a principle on which certain noble Lords will have strong views—one certainly—I hope that they will be able to accept that the right way forward is to maintain the current drafting of the Bill and I ask the noble and learned Lord, Lord Lloyd of Berwick, whether he is prepared to withdraw the amendment.

[Lord Lester of Herne Hill]

My Lords, perhaps I may briefly echo my support for the noble and learned Lord’s amendment.

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Given that the noble Lord has already expressed some approval for the co-operation of the Opposition on crucial aspects of the Bill, I think that he should answer our anxieties in that respect.

[Lord Sassoon]

My Lords, I will first address Amendments 12 to 14, which concern making a subsequent interim designation of someone who has already been subject to an interim designation. A common theme of the amendments is the information which can be used to make a further interim designation against the same person. These amendments clarify that the Government can make a further interim designation against the same person only on the basis of significant, not incidental, new information. The Government agree that any new information would need to be significant in order for the Treasury to make another interim designation. Our amendment is tabled to make it clear that a second interim designation cannot be made on exactly the same or substantially the same evidence.

The amendment moved by the noble Lord, Lord Pannick, prevents the Treasury making more than one interim designation of the same person in relation to substantially the same evidence, but not exactly the same evidence. I am grateful to the noble Lord for what I took to be the likelihood of him formally withdrawing his amendment—he is nodding. He also said that he will support the government amendment dealing with that point, and I am grateful for that.

The amendment tabled by my noble friends Lady Hamwee and Lady Falkner of Margravine mirrors the government amendment but, in addition, prohibits the Government making a further interim designation on the same person within a period of six months. I understand that the purpose of this amendment is to ensure that interim designations are not abused effectively to subject someone to a continuous interim designation lasting more than 30 days. In practice, it is extremely unlikely that the Government would be able to make the same person subject to a second interim designation within six months without a final designation being made. This would arise only where we are unable to make a final designation but have become aware of substantial new information showing that a further interim freeze is necessary for public protection. Such a situation would be extremely unusual. Ordinarily, we would expect that significant new information would support a reasonable belief threshold, but it is nevertheless possible. Any second interim designation must, of course, be necessary for public protection as well as not being based on the same information or, as we propose, substantially the same information. We believe that these are the right safeguards and that an arbitrary period during which the second interim designation cannot be imposed is unnecessary. We would not want to deny ourselves the ability to make a further interim designation in these circumstances. If we were so denied, it would leave the public exposed to an unacceptable terrorist threat. We therefore cannot accept this amendment, and I hope that my noble friends will not move it but will support the government amendment.

Before speaking to the government amendment, I will discuss the other amendments in this group. Amendment 10 limits the circumstances where interim freezes can be imposed to when the Treasury considers that there is an urgent need to act before proper consideration can be given to whether the reasonable belief threshold for a final designation can be met. We share the view that interim designations should be made only where necessary. Where the Government have sufficient evidence available at the outset to meet the reasonable belief test, the Government will make a final designation, not an interim one. This reflects that the fact that where we can do so, it is clearly in the Government’s interest to make a final designation rather an interim designation because, first, a final designation lasts for 12 months compared with 30 days for an interim designation and, secondly, because it is not in the Government’s interest to suggest to the designated person and to the outside world that we have only reasonable suspicion of a person’s involvement in terrorism where we in fact have reasonable belief. Therefore, interim designations will be made only in cases where the Government at the time of making the decision have sufficient evidence to meet a reasonable suspicion test but not a reasonable belief test.

The amendment proposes that as an additional safeguard interim designations should be made only where there is an urgent need to act before the Government have considered whether there is sufficient evidence to make a final designation. Let me stress that there is already an important safeguard in place. Interim designations and final designations can be made only where necessary for public protection. The question raised by this amendment is what additional purpose is achieved by requiring not only that interim freezes must be necessary for public protection but that there must also be an urgent need to act. If an urgent need to act is the same as being necessary for public protection, there is no need to add it. If, however, an urgent need to act is something additional to “necessary for public protection”, what situations does it cover that the phrase necessary for public protection does not?

In our view, the Government must be free to impose interim freezes in cases where we have sufficient evidence to meet the reasonable suspicion test and where we consider that it is necessary for public protection. To accept a situation where the Government consider that an interim freeze was necessary for public protection but were unable to act would negate the purpose of making provision in the legislation for interim freezes and would increase the risk to the public from terrorism. For this reason, the Government cannot support the amendment and I hope that the noble Lord will withdraw it.

The noble and learned Lord, Lord Lloyd of Berwick, has not spoken to Amendment 15, so I propose to move straight to Amendment 17. This amendment seeks to clarify that where an interim designation expires, whether after 30 days or on the making of a final designation, this does not prohibit the continued investigation of that person by the relevant authorities. I am grateful to the noble Lord, Lord Davies of Oldham, for reminding us of the underlying purpose of all this activity against terrorism of which this Bill forms a part. The Government must be enabled to deploy all reasonable legislative and other appropriate powers to prevent terrorism. Therefore, it is good to be reminded of that at this point.

However, asset freezes are separate and completely distinct from investigative operations. While investigations may be relevant to the evidential base for making an interim designation, they are not directly linked. Neither the existence nor the expiry of an interim designation prohibits the relevant authorities from pursuing or continuing investigations they determine to be necessary. For that reason, we do not believe that it is necessary to amend the legislation and therefore hope that the noble Lord will not press his amendment.

[Lord Pannick]

My Lords, in relation to Amendment 10, the Minister emphasises that an interim designation order may be made only where it is necessary for purposes connected with protecting members of the public. Of course, he is correct. The difficulty with that argument is that the same criterion appears in precisely the same form in Clause 6(1), which is concerned with interim designation orders, and in Clause 2(1), which is concerned with final designation orders. Indeed, the criteria in the Bill for making an interim designation order are exactly the same as the criteria for making a final designation order, save that the final designation order may be made only where there is reasonable belief and the interim designation order may be made where there is reasonable suspicion.

My point is that there needs to be in the Bill something that identifies the circumstances in which it may be appropriate for the Treasury to take this, I hope, exceptional step of making an interim designation order even though it only has reasonable suspicion. The Minister, with great respect, has not answered my point that it can surely only be where there are circumstances of urgency and when the Treasury has not had time to deliberate and decide whether there is reasonable belief that it could be appropriate to make an interim designation order.

I am not going to pursue this matter today, but I ask the Minister and those who assist him to read the report of this debate before the next stage just to see whether he may be persuaded that there is something in what I say. He has himself brought forward, helpfully, a number of amendments to clarify the Bill in order to remove potential ambiguities, and I suggest that this is another. For the moment, I beg leave to withdraw the amendment.

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Moved by

[Lord Sassoon]

14: Clause 6, page 4, line 2, after “same” insert “, or substantially the same,”

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Moved by

[Lord Sassoon]

16: Clause 8, page 4, line 31, leave out “such steps as they consider appropriate” and insert “reasonable steps”

--- Later in debate ---

Moved by

[Lord Sassoon]

18: Clause 9, page 5, line 3, leave out “such steps as they consider appropriate” and insert “reasonable steps”

--- Later in debate ---

[Lord Sassoon]

My Lords, it has been an interesting discussion. I am grateful to the noble Lord, Lord Judd, for recognising that the Government have put in this independent review process. We have modelled the provisions for the independent reviewer on those in the Prevention of Terrorism Act 2005, which we believe provide an effective model for the statutory, independent asset-freezing reviewer. The tributes that have been paid to the work that my noble friend Lord Carlile of Berriew has done, and to which I add my own, are the strongest possible endorsement of the framework we have used and on which we have modelled the provisions in the Bill.

Amendment 23A requires the independent reviewer to be approved by Parliament. We have heard very clearly from my noble friend Lord Carlile that independence is not to do with the detail of the appointment process, but the state of mind and the way in which the reviewer goes about his or her business. Of course, the independence of the reviewer is absolutely essential as part of the safeguards and will be a principal objective of the appointment that is made. But that does not mean that we believe it is necessary for Parliament to approve the independent reviewer. That would be a significant departure from standard practice in these matters. The appointment of a reviewer by government reflects a longstanding principle of ministerial responsibility about appointments. It is something for which Ministers are directly accountable to Parliament and to the public. Parliament will of course be able to scrutinise the work of the reviewer and hold him or her to account through existing mechanisms; for example, through parliamentary committee scrutiny.

Amendment 23B requires the reviewer to have a secretariat that is independent from government to assist him in the task. For reasons, including those given by my noble friend Lord Carlile of Berriew, we do not consider this to be a necessary provision. The independent reviewer will be provided with a secretariat and administrative support in this case, as necessary, by the Treasury. As my noble friend has explained, in practice these matters are not easy. He has set out a model that suited his way of working. It combines, under exactly the same provisions as we are proposing in this legislation, his operating partly in his own offices and partly, for matters of security and confidentiality, within, in his case, the Home Office. That does not appear to have impacted adversely in any way on his ability to carry out the role. Indeed, he has explained why in aspects of it it has been necessary to have the provision of a secretariat of civil servants, whose work he has warmly commended. We do not see why this should be any different for the independent reviewer of the asset-freezing regime.

To make the obvious point, creating a new and independent secretariat would mean a significant and ongoing cost. It is important, especially at the present time and in the present financial climate, that the best value for money is achieved, consistent with all the other objectives that we need to meet. We believe that the Treasury can provide the necessary secretariat without affecting the independence of the review or creating further significant costs.

Amendments 23C, 23D and 23E would replace the independent reviewer’s obligation to report to the Treasury with an obligation to report to Parliament. The annual reports and other ad hoc reports from my noble friend Lord Carlile of Berriew have always been provided, as he has eloquently explained, in the first instance to the Home Office to check factual accuracy, and to check that they do not inadvertently include any classified material and cannot be published. Similarly, asset freezing also deals with highly sensitive and classified material. We therefore believe that a similar process is appropriate.

Given that the independent reviewer will have access to all relevant papers and evidence, including highly classified intelligence reports, and on occasion material that is being considered as part of a separate criminal prosecution, it is only sensible to ensure that published reports do not include classified or sub judice material. Parliament could certainly not undertake such a check. But I can assure noble Lords that the Government will not seek to influence in any way the outcome of these reports. The reports will be provided to Parliament as quickly as possible and will be made available to the public.

Finally, Amendment 23F states that the appointment of the independent reviewer will be for five years and that it will not be renewable. We do not believe that it is necessary to have a statutory limit on the length of time that a reviewer should remain in post. There may be valid reasons why a reviewer should leave at an earlier stage. Equally, there also may be valid reasons why a reviewer should stay in post for longer, such as the expertise that a reviewer builds up over time of the legislation that is being reviewed, which may be invaluable to the review process.

The Government consider it essential that the report is impartial and transparent. As I said in Committee, the independent reviewer will be free to review any aspect of the asset-freezing regime. I would therefore hope that the noble Lord will be prepared not to press his amendments.

[Lord Judd]

I thank the noble Lord for that full reply and appreciate the tone in which it was given. I also thank everyone who participated in this debate and, if I may, I have a special word for the noble Lord, Lord Lester, who supported the amendment. I say that because it is fascinating to watch even one of my oldest friends—we were at the same school—grappling with the realities of his intellectual and legal convictions, and the cause of coalition politics. I understand his predicament and think that he spoke as positively as he could. Obviously I am glad that my noble friend Lord Davies commended the amendment. It is always nice to feel that one’s Front Bench is behind an amendment of this kind.

I have also a warm word of thanks for the noble Lord, Lord Carlile, for sharing so much of his experience and insight. We are fortunate to have someone of his calibre doing the job. But that is the point: he emphasised that it is the rugged independence of the reviewer that matters. We are making provision in this legislation for a future in which we do not know who the reviewers will be. They may not all be as robust and at times combative as the noble Lord has proved himself to be. The advantage of what we are proposing is that there will be a system that gives resources to and backs the reviewer in order to enable him or her to play the part as fully as they should.

The noble Lord and others spoke about costs, and of course one recognises that there may be costs involved. We are talking about justice in the face of the most terrible and sinister provocation, and of preserving the essence of what makes our system of justice, of governance and of democracy worth defending. If we really believe in these things, there will be a price. But we cannot simply trim still further because by doing so we give a victory to the extremists. What I have always been determined to see in our approach to these matters is that we do not inadvertently give the extremists a victory—a score. That is why it is so important that we demonstrate to the world and to others that we are proud of our system of justice and our freedoms. We know that in the context of terrorism it is necessary to introduce special measures, but in doing so, we must be determined to ensure that all can see that we will keep the diminution of our systems of justice as we understand them to an absolute minimum, and that what is being done can be justified. That is crucial and therefore the importance of the independence of the reviewer cannot be overstated. It is vital. In that sense, what the amendment proposes is a system that will enhance and demonstrate that independence.

This is a vital issue. I do not want to see the processes of rationalisation beginning to erode it all over again. That is how we slip and how, inadvertently and step by step, incrementally we give the terrorists and the extremists a victory. By doing so, the society we will end up with will not be the society we are trying to protect. From that standpoint, and because it is such an important issue of principle, I wish to test the view of the House.

Pensions

Lord Sassoon Excerpts

Thursday 21st October 2010 Lords Chamber

[Baroness Greengross]

To ask Her Majesty’s Government how they will ensure that people get value for money when purchasing a pension annuity.

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

The Government believe that it is important to incentivise individuals to save for retirement and recognise the importance of the annuities market. We support the open market option, which enables individuals to shop around for the best rate, and continue to consider ways to make this more effective. Complementing this, we will continue to work with interested groups to improve the quality of pre-retirement advice, including seeking independent financial advice, so that consumers can make an informed choice on how best to draw benefits from their pension fund.

[Baroness Greengross]

I thank the Minister for that helpful reply. However, as we know, many potential annuitants do not realise that there is an open market option. Has the noble Lord considered introducing the approach that the Pension Income Choice Association, PICA, has put forward? It believes that the default option should be for everyone to have the opportunity to review their options when they retire. It would like to see the production of a personalised statement—a sort of passport—which would contain sufficient information for people to use to obtain quotations.

[Lord Sassoon]

My Lords, I am grateful to the noble Baroness for raising this important topic. Some 450,000 annuity policies are written every year, with around £11 billion in annual premiums. I am aware that the Pension Income Choice Association has recently met my honourable friend the Financial Secretary to discuss its proposals. We encourage consumers to shop around under the open market option and we welcome all suggestions as to how this can be made more effective.

[Baroness Hayter of Kentish Town]

My Lords, given the importance of this issue, particularly for those with small pots of money, can the Minister assure the House that nothing in the spending review will undermine the plans for a generic financial advice service to help those with small pots, for whom the choice of a good annuity is so important?

[Lord Sassoon]

My Lords, I can confirm that we want to push on with our proposals for financial education underpinning choices about retirement savings and other important financial services. The Consumer Financial Education Body has been asked by the Government to work up its plans for an annual health check. It publishes a guide on retirement savings. I certainly take the point very well.

[Lord Newby]

My Lords, following on from that question, does the Minister accept that the key problem with people deciding which annuity to purchase is often that they are not experts and want impartial advice at that point? That is why the Consumer Financial Education Body is so important. Will he redouble the Government’s efforts to get the Consumer Financial Education Body to develop an online tool so that people who are looking to decide which annuity they purchase can go not only to the company from which they are taking their pension pot but also to someone who is clearly impartial?

[Lord Sassoon]

My Lords, I agree with my noble friend that we need to look at all options to make it easier for people to access online and other sources of independent advice. The CFEB was a significant initiative of the previous Government and we are encouraging it to press forward on this issue.

[Earl Cathcart]

My Lords, I ask this question with a certain amount of self-interest. Is it the Government’s intention to remove the requirement to buy an annuity when a person gets to a certain age? If it was made optional for the owner of the pension pot, they could receive the annual income from that pension, albeit probably smaller than the annuity, and then the capital sum would fall into the estate on death.

[Lord Sassoon]

My Lords, I am happy to confirm to my noble friend that the Government have announced that compulsory annuitisation at age 75 will end. As an interim measure, we have raised the limit from 75 to 77 years to make sure that people are not trapped in compulsory annuitisation while we consult—as we have been doing—on a new system that gives people greater choice as to how they save for their retirement.

[Baroness Browning]

Will my noble friend look at the length of time it takes for people who exercise an open-market option to receive their money? Very often, they are quoted two to three months. Of course, there have to be exchanges of paperwork and documentation has to be verified, but there can be significant changes in the fund during that time of process.

[Lord Sassoon]

My Lords, my understanding is that, thanks to work being done by the Association of British Insurers and others and the introduction of a new electronic transfer system, the actual time taken to make the transfer has come down from 35 days to 11 days. However, if there are other ways of making the transfer process easier, we will of course look at them.

[Lord Davies of Oldham]

My Lords, is not the real problem for the foreseeable future that, with interest rates low, the returns on annuities will be well below people’s expectations? Could not the Government think more radically about this in the longer term? Could we not think of following the pattern adopted by some other European Governments on annuities, whereby people would be able to purchase government bonds at a slightly better rate of interest than obtains at present and at the same time contribute to the Government in the shorter term sums which would help the Exchequer?

[Lord Sassoon]

My Lords, low interest rates are vital to the growth of the economy. In that context, it is important that people are able to choose between a wide variety of savings products. As well as making more flexible people’s choices about their retirement savings, the Government offer not only the opportunity to invest in gilt-edged securities but a range of products through NS&I.

Taxation: Avoidance

Lord Sassoon Excerpts

Wednesday 20th October 2010 Lords Chamber

[Lord Foulkes of Cumnock]

To ask Her Majesty’s Government what specific proposals they have to reduce tax avoidance.

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

The Government announced at the June Budget that they are strengthening the legislative framework to reduce the opportunities for tax avoidance. They are doing this through policy reform, by targeting areas of the tax system that present the highest avoidance risks and examining the case for a general anti-avoidance rule.

[Lord Foulkes of Cumnock]

But did the Minister hear the Chancellor say in his Statement, which the Minister is going to repeat, that,

“those with the broadest shoulders should bear the greatest burden”?

The Deputy Prime Minister, Nick Clegg, said that tax avoidance, as opposed to evasion, is legal but morally unacceptable, so is it not the case that if the multimillionaires, including those in the Cabinet and the Prime Minister’s business advisory committee, had paid their fair share, some of the cuts and some of the job losses that have been announced today could have been avoided?

[Lord Sassoon]

My Lords, I could trade names of Members all round the House but I am not going to stoop to that. The critical issue is indeed, as the noble Lord says, that tax avoidance as opposed to tax evasion is legal, but we want to make sure that taxpayers pay what is due. In that connection, we will take a broad, strategic approach to reduce the complexity of the tax system, to make sure that the tax code is legally robust and to make sure that we attack and challenge unreasonable avoidance in a focused and expert way.

[Lord Oakeshott of Seagrove Bay]

My Lords, non-dom tax status is an enormous open invitation to tax avoidance, as we know only too well from our battles to deal with non-doms in this House. Is the Minister aware of the Liberal Democrat tax manifesto pledge to make non-doms pay their full British tax after seven years? Will he also tell us when and how the Treasury will report on the promised review of non-dom tax status?

[Lord Sassoon]

My Lords, I remind my noble friend that the coalition Government’s policy in this area is that we will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat policy. The policies that were in my noble friend’s party manifesto at the election are indeed getting detailed consideration. In particular, as he knows, the general anti-avoidance rule, which was the linchpin of those policies, has been the subject of recent consultation.

[Lord Barnett]

My Lords, this morning the Chancellor repeated what the Minister said to me in a Written Answer—namely, that it is hoped that doing something about tax avoidance will achieve £7 billion. In his Written Answer to me on 7 October, he said,

“separate figures are not available for avoidance and evasion, and could be produced only at disproportionate cost”.—[Official Report, 7/10/10; col. WA 28.]

In that case, how will he ever be able to say that he has saved £7 billion? Will he still be using it in his deficit-cutting programme?

[Lord Sassoon]

My Lords, it may be helpful if I make it clear that the £900 million of additional money that HMRC will have to use is principally to tackle tax evasion. We are talking about avoidance this afternoon, but the £7 billion will principally be from money that is not avoided but evaded.

[Lord Forsyth of Drumlean]

My Lords, would my noble friend not agree that how we use language is important? There is a big difference between tax evasion and tax avoidance. After all, everyone with an ISA is involved in tax avoidance. It is extremely important that we make clear the distinction between that which is legal and that which is illegal.

[Lord Sassoon]

My Lords, I am grateful to my noble friend, who has made the position absolutely clear. Minimising tax payments is perfectly reasonable. Where it gets into the avoidance on which HMRC needs to focus is where people have minimised their tax payments in a way that HMRC believes to be contrary to the way in which Parliament intended the tax laws to operate.

[Lord Beecham]

My Lords, will the Minister ask Sir Philip Green to complement his report on efficiency savings with a report on tax avoidance?

[Lord Sassoon]

My Lords, I think that Philip Green has done the nation a single service in exposing the extraordinary amount of waste in government that was left unattended to by the Labour Government for 13 years. We will come on to the consequences of that later this afternoon.

[Lord Tebbit]

My Lords, does my noble friend agree that an ounce of practical help is worth a kilo of words? Could he undertake to instruct the noble Lord, Lord Foulkes, on how he could offer not to avoid tax by taking advantage of his personal tax allowance? He could start paying 40 per cent tax on all his income from the first pound. That would save him from avoiding tax, which is obviously what he wants to do.

[Lord Sassoon]

I am grateful to my noble friend. One or two correspondents have written in to ask how they could volunteer cheques to the Treasury to help to reduce the national debt, but it seems that the Treasury does not yet have such a facility. However, if other people would like to contribute more in their tax, we can set up the necessary arrangements.

[Lord Eatwell]

My Lords, is the Minister aware that the figure that he has given for reducing tax avoidance and evasion is roughly the same as that which is being taken out of the welfare budget in the current spending review? Why do the Government not collect the taxes and stop hitting the poor?

[Lord Sassoon]

I am a little at a loss to understand why the noble Lord is questioning why we are putting extra money into HMRC to recover this enormous sum of £7 billion annually by the end of the spending review period when that was not done by the previous Government.

[Lord Elystan-Morgan]

My Lords, is it not the case that the real dividing line is not between evasion and avoidance? Evasion is criminal but, as far as avoidance is concerned, nomenclature should be devised to make it absolutely clear that there are two categories. There is that category where decent ordinary citizens so adjust their affairs that they properly are free from tax that would otherwise be charged. The other category is redolent with mind-boggling artifices that are nothing but a sham. Will the Minister give an undertaking to consider nomenclature that will draw a clear distinction between those two categories?

[Lord Sassoon]

My Lords, I appreciate the difficulty, which is why I attempted earlier to distinguish between the two cases around what appears to have been the intention of Parliament when it drafted the tax laws concerned.

Comprehensive Spending Review

Lord Sassoon Excerpts

Wednesday 20th October 2010 Lords Chamber

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

My Lords, with the leave of the House, I will repeat a Statement made in another place by my right honourable friend the Chancellor of the Exchequer.

“Mr Speaker, today’s the day when Britain steps back from the brink and when we confront the bills from a decade of debt; a day of rebuilding, when we set out a four-year plan to put our public services and welfare state on a sustainable footing for the long term, so that they can do their job of providing for families, protecting the vulnerable and underpinning a competitive economy. It is a hard road, but it leads to a better future.

We are going to bring the years of ever-rising borrowing to an end. We are going to ensure, like every solvent household in the country: that what we buy, we can afford, that the bills we incur we have the income to meet and that we do not saddle our children with the interest on the interest on the interest of the debts we were not ourselves prepared to pay.

Tackling this budget deficit is unavoidable. The decisions about how we do it are not. There are choices, and today we make them. Investment in the future, rather than the bills of past failure: that is our choice. We have chosen to spend on the country’s most important priorities: the healthcare of our people; the education of our young; our nation’s security; and the infrastructure that supports our economic growth. We have chosen to cut the waste and reform the welfare system that our country can no longer afford.

This is the context of the spending review. We have, at £109 billion, the largest structural budget deficit in Europe—this at a time when the whole world is concerned about high deficits and our economic stability depends on allaying those concerns. We are paying at the rate of £120 million a day—£43 billion a year—in debt interest, this at a time when we all know that the money would far better serve the needs of our own citizens than those of the foreign creditors we borrow from. We have inherited from the previous Government plans—if you can call them that—that envisaged our national debt ratio still rising in the year 2014. Not a single penny of savings had been identified. Indeed, they are plans that envisaged the Chancellor of the Exchequer standing here in 2014 presenting a spending review that still had years of cutting public spending ahead of it. That is why last year the IMF warned this country to accelerate the reduction in the deficit. That is why the OECD, the Governor of the Bank of England and the CBI all agreed with the IMF.

The action we have taken since May has taken Britain out of the financial danger zone. The immediate reductions to in-year spending have bought us a breathing space in the sovereign debt storm. The creation of an independent Office for Budget Responsibility has brought honesty back to official forecasts. I can confirm to the House that the OBR and its new chair, Robert Chote, have audited all of the annually managed expenditure savings in today’s Statement.

The emergency Budget in June was the moment when fiscal credibility was restored. Our market interest rates fell to near record lows, our country’s credit rating was affirmed and the IMF went from issuing warnings to calling our Budget “essential”. Now we must implement some of the key decisions required by that Budget. To back down now and abandon our plans would be the road to economic ruin. We will stick to the course, we will secure our country’s stability and we will not take Britain back to the brink of bankruptcy.

In the Budget, I set out the tax increases we were prepared to make, including on capital gains at the higher rate, pension relief on the largest contributions and, for the first time, a permanent levy on banks. We also had to increase VAT, where, fortunately, we were able to benefit from the preparatory work of the previous Government. But I made it clear that spending reductions rather than tax rises needed to make up the bulk of the consolidation. That is what the leading international evidence suggested worked best. So I set out spending totals for the coming years and announced some £11 billion of welfare savings that would help achieve them. I also set out a new fiscal mandate for the public finances to eliminate the structural deficit by balancing the cyclically adjusted current budget over five years, by 2015-16. We set a target of national debt falling as a proportion of national income by that same year. We explained how, for reasons of caution, we will achieve both these objectives a year earlier in 2014-15.

I can confirm that the spending plans I set out today will achieve a balanced structural current budget and falling national debt on that same timetable. I can further confirm that the current spending totals I set out in the Budget for each of the next four years are the same as the current spending totals I set out today. They have not changed. Next year, current expenditure will be £651 billion, then £665 billion the year after and £679 billion the year after that, before reaching £693 billion in 2014-15. The House will note that current spending is rising, not falling, over this period. This is partly because, even with the measures we take today, debt interest payments will continue to grow in these years. Debt interest payments will reach £63 billion in 2014-15—for it takes time to turn around the debt supertanker—but I can now report to the House that against the plans we inherited, one of the departments which suffers the greatest cut today, and at the steepest rate, is the department for debt interest. Debt interest payments will be lower by £1 billion in 2012, then £1.8 billion in 2013 and £3 billion in 2014—a total of £5 billion over the course of the spending review. That is the equivalent of 16 new hospitals or the annual salaries of 100,000 teachers.

At the Budget, I also set out my plans for capital spending over the next four years. I can now tell the House that capital spending will be £51 billion next year, then £49 billion, then £46 billion, and £47 billion in 2014-15. That is about £2 billion a year higher than I set out in the Budget. Given the contractual obligations we inherited from the previous Government, doing anything else would have meant cutting projects which would clearly enhance the economic infrastructure of the country. This has no direct impact on whether we meet the fiscal mandate or the year in which the debt ratio starts falling. So total public expenditure—capital and current—over the coming years will be £702 billion next year, then £713 billion, £724 billion, and £740 billion in 2014-15. In real terms, public spending will be at the same level as in 2008. Our public services and our welfare system will be put on a sustainable long-term footing and we will make sure that the financial catastrophe that happened under the previous Government never, ever happens again.

I turn now to the spending decisions and the three principles I propose to apply to the choices we have to make. First, on reform, in every area where we make savings, we must leave no stone unturned in our search for waste and we must deliver the changes necessary to make our public services fit for the modern age.

Secondly, on fairness, we are all in this together and all must make a contribution. Fairness means creating a welfare system that helps the vulnerable, supports people into work and is also affordable for the working families who pay for it from their taxes. Fairness also means that, across the entire deficit reduction plan, those with the broadest shoulders should bear the greatest burden; those with the most should pay the most, including our banks.

Thirdly, on growth, when money is short, we should ruthlessly prioritise those areas of public spending which are most likely to support economic growth, including investments in our transport and green energy infrastructure, our science base and the skills and education of citizens.

Let me explain now how these principles have guided our specific decisions. First, on reform, I believe that the public sector needs to change to support the aspirations and expectations of today’s population, rather than the aspirations and expectations of the 1950s, so the spending review is underpinned by a far-reaching programme of public service reform. We saw over the past decade that more money without reform was a recipe for failure; less money without reform would be worse; and we are not prepared to accept that, so we have begun by squeezing every last penny that we can find out of waste and administration costs.

Our ambition in this review was to find £3 billion of savings from the administrative budgets of central government departments. With the help of the Green review and the work done by my right honourable friend the Minister for the Cabinet Office, I can tell the House that we have gone further than we thought possible in cutting back-office costs. Quangos will be abolished, services will be integrated, assets will be sold and the administrative budgets of every main government department will be cut by a third. The result is this: we promised £3 billion of Whitehall savings; we will deliver £6 billion.

Of course, there is understandable concern about the reduction in the total public sector headcount that will result from the measures in the spending review. We believe that the best estimate remains the one set out by the independent Office for Budget Responsibility. It has forecast a reduction in headcount of 490,000 over the spending review period. Let us be clear: that is over four years, not overnight. Much of it will be achieved through natural turnover, by leaving posts unfilled as they become vacant. Estimates suggest a turnover rate of over 8 per cent in the public sector. But yes, there will be some redundancies, which will be up to the decisions of individual employers in the public sector. That is unavoidable when the country has run out of money.

We feel responsible for every individual who works for the Government and we will always do everything that we can to help them to find alternative work. In fact, in the past three months alone, the economy created 178,000 jobs. So we should remember that, unless we deal with this record budget deficit decisively, many more jobs will be in danger in both the private and the public sector.

The Cabinet Office and the Treasury will oversee the programme of Whitehall savings. Both departments will lead by example. The core Cabinet Office budget will be reduced by £55 million by 2014-15. Additional allocations will be provided to fund electoral reform, support the big society, establish community organisers and launch the pilots for the national citizen service, which will give young people, for the first time, a right of passage to citizenship.

In recognition of the challenges faced by the voluntary and community sector, I am establishing a one-year £100 million transition fund to help those facing real hardship. The Treasury will see its overall budget reduced by 33 per cent and we will share the department’s enormously expensive PFI building, which my predecessor -but-one signed up to, by moving part of the Cabinet Office into the same premises.

The Chancellor is also a royal trustee, and I want to say something briefly about the Civil List. As I outlined in the Budget, the 10-year settlement expired this year, and no provision for a new settlement had been made when we entered office. Her Majesty has graciously agreed to a one-year cash freeze in the Civil List for next year. Going forward, she has also agreed that total royal household spending will fall by 14 per cent in 2012-13, while grants to the household will be frozen in cash terms. In order to support the costs of the historic diamond jubilee, which the whole country is looking forward to celebrating, there will be a temporary additional facility of £1 million. After that, the royal household will receive a new sovereign support grant linked to a portion of the revenue of the Crown Estate, so that my successors do not have to return to the issue so often.

Central to this review is the reshaping of our public services. First, there needs to be a dramatic shift in the balance of power from the central to the local. A policy of rising burdens, regulations, targets, assessments and guidance has undermined local democracy and stifled innovation. We will completely reverse this. We will give GPs power to buy local services, schools the freedom to reward good teachers, and communities the right to elect their police and crime commissioners. Secondly, we should understand that all the services paid for by government do not have to be delivered by government. So we will expand the use of personal budgets for special education needs, children with disabilities and long-term health conditions. We will use new payment mechanisms for prisons, probation, and community health services, and we will encourage new providers in adult social care, early years and road management.

For local government, the deficit we have inherited means an unavoidably challenging settlement. There will be overall savings in funding to councils of 7.1 per cent a year for four years. But to help councils, we propose a massive devolution of financial control. Today, I can confirm that ring-fencing of all local government revenue grants will end from April next year. The only exception will be simplified schools grants and a public health grant. Outside of schools, police and the fire service, the number of separate core grants that go to local authorities will be reduced from more than 90 to fewer than 10. Councils and their leaders will remain accountable, but they will no longer have to report on 4,700 local area agreement targets.

The local government settlement includes funding for next year’s council tax freeze to help families when their budgets are too tight. We are also introducing tax increment finance powers, allowing councils to fund key projects by borrowing against future increases in locally collected business rates. Some in local government have concerns about the financing of social care. I can announce that grant funding for social care will be increased by an additional £1 billion by the fourth year of the spending review and a further £1 billion for social care will be provided through the NHS to support joint working with councils, so that elderly people do not continue to fall through the crack between two systems. That is a total of £2 billion of additional funding for social care to protect the most vulnerable.

We will also reform our social housing system, for it is currently failing to address the needs of the country. Over 10 years, more than half a million social rented properties were lost. Waiting lists have shot up, families have been unable to move, and, although a generation ago only one in 10 families in social housing had no one working, this had risen to one in three by 2008-09.

We will ensure that social housing is more flexible. The terms for existing social tenants and their rent levels will remain unchanged. New tenants will be offered intermediate rents at around 80 per cent of the market rent. Alongside £4.4 billion of capital resources, this will enable us to build up to 150,000 new affordable homes over the next four years. We will continue to improve the existing housing stock through the Decent Homes programme, and we will reform the planning system so that we put local people in charge, reduce burdens on builders and encourage more homes to be built, with a new homes bonus scheme.

Within an overall resource budget for the Department for Communities and Local Government that is being reduced to £1.1 billion over the period, priority will be given to protecting the disabled facilities grants. This will go alongside a £6 billion commitment over four years to the Supporting People programme, which provides help with housing costs for thousands of the most vulnerable people in our communities.

In recognition of the important service provided by the fire and rescue service, we have decided to limit its budget reductions in return for substantial operational reform.

I turn to reforms in our security and defence. Yesterday my right honourable friend the Prime Minister set out the conclusions of the strategic defence and security review. He explained in detail how we will protect the British people, deliver on our international obligations and secure British influence around the world. This spending review provides the resources to do just that. The budget for the Ministry of Defence will reach £33.5 billion in 2014-15, a saving of 8 per cent over the period. On top of this settlement, we will continue to provide out of the reserve the resources that our forces in Afghanistan require. As a Chancellor, I believe strongly that if we ask our brave service men and women to risk their lives on our behalf in active combat, then we should give them all the tools they need to finish the job.

But our international influence and our commitments to the world are determined not only by our military capabilities. Our diplomacy and development policy matter, too. Savings of 24 per cent in the Foreign and Commonwealth Office budget will be achieved over the review period by a sharp reduction in the number of Whitehall-based diplomats and back-office functions. There will be a focus on helping British companies win exports and secure jobs at home, and, with the help of UKTI, we will attract significant overseas investment to our shores.

I can also confirm that this coalition Government will be the first British Government in history, and we will be the first major country in the world, to honour the United Nations commitment on international aid. The Department for International Development’s budget will rise to £11.5 billion over the next four years. Overseas development will reach 0.7 per cent of national income in 2013. This will halve the number of deaths caused by malaria. It will save the lives of 50,000 women in pregnancy and 250,000 new-born babies. Whether working behind the counter of a charity shop, volunteering abroad or contributing taxes to our aid budget, Britons can hold their heads up high and say, even in these difficult times, that we will honour the promise we made to the very poorest in our world.

Our aid budget allows Britain to lead in the world. It may be protected from cuts but not from scrutiny. I have agreed with my right honourable friend the Development Secretary a plan of reform that reduces administration costs to half the global donor average, ends the aid programmes that we inherited in China and Russia, focuses on conflict resolution and creates an independent commission to assess the impact of the money we commit.

I turn now to security at home. Protecting the citizen is a primary duty of government. Our police put themselves in harm’s way to make the rest of us safe, and we owe them a debt of gratitude. But no public service can be immune from reform. Her Majesty’s Inspector of Constabulary found in his recent report that significant savings could be made in police budgets without affecting the quality of front-line policing. Tom Winsor is leading a review of terms and conditions which will report on how the police service can manage its resources to serve the public even more cost-effectively.

Using independent forecasts for the precept, the settlement I am proposing today will see police spending falling by 4 per cent each year. By cutting costs and scrapping bureaucracy, we are saving hundreds of thousands of man-hours. Our aim is to avoid any reduction in the visibility and availability of police in our streets.

Our new national security strategy judges terrorism to be one of the highest risks facing this country. Therefore, I am prioritising counterterrorism over the review period, in both the Home Office budget and the single intelligence account. We have been assured that this will maintain our operational capabilities against al-Qaeda and its affiliates and against Northern Irish terrorist threats. This will enable us to meet the terrorist threat and protect the Olympic Games in 2012. Overall, the Home Office budget will find savings of an average of 6 per cent a year.

The Ministry of Justice’s budget will reach £7 billion by the end of the four-year period, with average savings of 6 per cent a year. A Green Paper will set out proposals to reform sentencing, intervene earlier to give treatment to mentally ill offenders, and use voluntary and private providers to reduce reoffending. Over the period, £1.3 billion of capital will also be provided to maintain the existing prison estate and fund essential new-build projects, but plans for a new 1,500-place prison will be deferred. The Law Officers’ Department will reduce its budget by a total of 24 per cent over the period, with the Crown Prosecution Service greatly reducing its inflated cost base. Reforms will also be required to streamline the criminal justice system, close underused courts and reduce the legal aid bill. We need fair access to justice, but provided at a fair cost for the taxpayer.

All the reforms I have spoken of—to Whitehall and the way services are provided, to local government, and to our defence, security and justice system—will improve both the value for money for taxpayers and the service provided to the public. Next month, each government department will publish a business plan setting out its reform plans for the next four years, so that their priorities are clear and the public can hold them to account.

Reform is one of the guiding principles of the spending review. So too is fairness. Let us be clear. There is nothing fair about running huge budget deficits, and burdening future generations with the debts that we ourselves are not prepared to pay. How ironic that it was the previous Labour Prime Minister himself who once observed:

“Public finances must be sustainable over the long term. If they are not, the poor … will suffer most”.—[Official Report, Commons, 2/7/97; col. 303.]

That is why we are restoring order to our public finances before that is allowed to happen.

A fair Government deal with the deficit decisively—that is what we are doing today—and a fair Government make sure that those with the broadest shoulders bear the greatest burden. The distributional analysis published today shows that those on the highest incomes will contribute more towards this entire fiscal consolidation, not just in cash terms, but also as a proportion of their income and consumption of public services combined.

I completely understand the public’s anger that the banks that were so appallingly regulated over the past decade, and whose near collapse wrought such damage on the economy, should now be contemplating paying high bonuses. We are overhauling the system of regulation that we inherited so that the Bank of England, with its clout and reputation, is put in charge. We have set up the Independent Commission on Banking to look at the structure of the industry, and next year we will receive its report.

Today we set out very clearly, for all to take note of, our objective in taxing the banking industry going forward. We neither want to let banks off making their fair contribution, nor do we want to drive them abroad. Many hundreds of thousands of jobs across the whole United Kingdom depend on Britain being a competitive place for financial services. Our aim will be to extract the maximum sustainable tax revenues from financial services. We will assess what those maximum revenues could be—not just in one year, but over a period of years.

We have already decided, in the face of opposition from the previous Government, to introduce a permanent levy on banks. The legislation will be published tomorrow. Once fully effective, the permanent levy will raise more net each year and every year for the Exchequer than the one-year bonus tax did last year—and I note that the previous Chancellor now admits that it failed to curb behaviour and was not sustainable.

However, that is not enough. We want the banks to pay not just by the letter of the tax law, but by its spirit. A year ago, the previous Government announced in a fanfare that they would require banks to sign up to the code of practice on taxation. I have asked the Revenue how many of our leading 15 banks actually signed up. The answer is four—four out of 15. That is what happened when they were in office: all talk and no action. I have instructed the Revenue to work with the banking sector to ensure the remaining banks have implemented the code of practice by the end of next month.

We also need to address the situation under the last Government where the gap between the taxes owed and the taxes paid grew considerably. So in this spending review, while the HM Revenue and Customs budget will be expected to find resource savings of 15 per cent through the better use of new technology, greater efficiency and better IT contracts, we will be spending £900 million more on targeting tax evasion and fraud. This additional £900 million is expected to help us collect a missing £7 billion in tax revenues.

Nor will fraud in the welfare system be tolerated anymore. We estimate that £5 billion is being lost this way each year—£5 billion that others have to work long hours to pay in their taxes. This week we published our plans to step up the fight to catch benefit cheats, and to deploy uncompromising penalties when they are caught.

That brings me to the wider welfare budget. A civilised country provides for families, protects the most vulnerable, helps those who look for work, and supports those in retirement. That is why one of the first acts of this coalition Government was to relink the basic state pension to earnings, and guarantee a rise each year by earnings, inflation or 2.5 per cent—whichever was higher. Never again will those who worked hard all their lives be insulted with a state pension increase of just 75p. But this guarantee of a decent income in retirement has to be paid for at a time when people are living much longer than anyone predicted. We should celebrate that fact, but also confront it. Lord Turner’s report on pensions, commissioned by the last Government, acknowledged that a more generous state pension had to be funded by an increase in the pension age. Even since its publication, life expectancy has risen further than it predicted.

Before the summer we launched a review on increasing the state pension age, and that has now concluded. As a result, I can today announce that the state pension age for men and women will reach 66 by 2020. This will involve a gradual increase in the state pension age from 65 to 66, starting in 2018; and it will mean an acceleration of the increase in the female pension age already under way since this April. From 2016, the rate of increase will be three months in every four rather than the current plan of one month in every two. Raising the state pension age is what many countries are now doing, and will by the end of the next Parliament save over £5 billion a year—money which will be used to provide a more generous basic state pension as we manage demographic pressures.

Earlier this month, we also received the interim report from John Hutton’s public service pension commission. I am sure the whole House will want to thank John for this excellent and independent piece of work. I welcome his findings, and I hope that they will form the basis of a new deal that balances the legitimate expectations of hard-working public servants for a decent income in retirement with the equally legitimate demands of hard-working taxpayers that they do not pay unfairly for it.

The elements of this new pension deal are clear. We should accept that public service pensions continue to provide a form of defined benefit, and that there is no race to the bottom of pension provision. We want public service pensions to be a gold standard. At the same time, we should accept that they must be affordable.

When these public service pension schemes were established in the 1950s, taxpayers made half the contributions. Today they make up two-thirds of contributions, and the unfunded bill is set to rise to £33 billion by 2015-16.

We should accept, as John Hutton does, that there has to be an increase in employee contributions, although I also agree with John that this should be staggered and progressive. That means that the lower paid and those in the Armed Forces are protected and the highest-paid public servants, who get the largest benefits, pay the highest contributions. We will await the full commission report next spring before coming to any conclusions on the exact nature of the defined benefit and progressive contribution rise. We will also launch a consultation on the fair deal policy, but we will carry out, as the interim report suggests, a full public consultation now on the appropriate discount rate used to set contributions to these pensions. From the perspective of filling the hole in the public finances, we will seek changes that deliver an additional £1.8 billion of savings per year in the cost of public service pensions by 2014-15, over and above the plans left to us by the previous Government.

It is also clear that the current final salary pension terms for MPs are not sustainable, and we anticipate that the current scheme will have to end. We will make a further Statement following the publication of Lord Hutton’s findings.

The welfare system is also there to help people of a working age when they lose their job, have a disability, start a family and need help with low pay, but the truth, as everyone knows, is that the welfare system is failing many millions of our fellow citizens. People find themselves trapped in an incomprehensible out-of-work benefit system for their entire lifetimes because it simply does not pay to work. This robs them of their aspirations and opportunities, and it costs the rest of the country a fortune. Welfare spending now accounts for one-third of all public spending. Benefit bills have soared by 45 per cent under the previous Government. In some cases, the benefit bill of a single out-of-work family has amounted to the tax bills of 16 working families put together. This is totally unsustainable and unfair. The previous Government promised reform and flunked it. We will deliver.

My right honourable friend the Work and Pensions Secretary is setting out proposals, with my support, to replace all working-age benefits and tax credits with a single, simple universal credit. The guiding rule will be this: it will always pay to work. Those who get work will be better off than those who do not. It represents the greatest reform to our welfare state for a generation. It will be introduced over the next two Parliaments at a pace that ensures we get this right. I have set aside more than £2 billion over this spending review of resources to make this happens and it will go alongside our new work programme, which we are also funding today. Drawing on the skills of the voluntary sector and private providers, the work programme will provide intensive help to those looking for work and support for those who could look for work but currently lack the confidence or skills to try.

The Department for Work and Pensions will make savings to help to deliver these schemes by increasing the use of digital applications and reducing overheads. We will also be seeking substantial savings from the rest of the £200 billion benefit bill on top of those already identified in the Budget. As I said in June, the more we can save on welfare costs, the more we can continue other, more productive, areas of government spending. In the massive public consultation we conducted over the summer, the overwhelming message we received was that the British people think it is fair to cut welfare bills in order to protect important public services.

So today I announce these further welfare savings. We will time-limit contributory employment and support allowance for those in the work-related activity group to one year. This is double the length of time that applies to contributory jobseeker’s allowance. We will increase the age threshold for the shared-room rate in housing benefit from 25 to 35, so that housing benefit rules reflect the housing expectations of people of a similar age not on benefits. We will give local authorities greater flexibility to manage council tax, together with direct control over council tax benefit, within an overall budget that will be reduced by 10 per cent from April 2013.

We will align the rules for the mobility and care elements of disability living allowance paid to people in residential care, generating savings but enabling us to continue with this important benefit. We will freeze the maximum savings credit award in pension credit for four years, thereby limiting the spread of means-testing up the income distribution.

We will further control the cost of tax credits by freezing the basic and 30-hour elements for three years. We will change the working tax credit eligibility rules so that couples with children must work 24 hours per week between them. We will return the childcare element of the working tax credit to its previous 70 per cent level. We will also introduce a new cap on benefits. No family that does not work will receive more in benefits than the average family that does go out to work. That is a tough, but fair deal. Of course, those in receipt of disability living allowance, working tax credit or the war widow’s pension will be excluded.

Taken together, all these welfare measures I have outlined will save the country £7 billion a year. But we want to ensure that low-income families with children are protected from the adverse effects of these essential savings, because this Government are committed to ending child poverty. I can announce today that I am increasing the child element of the child tax credit by a further £30 in 2011-12 and £50 in 2012-13 above indexation. This will mean annual increases of £180 and then £110 above the level promised by the previous Government. This will provide support to 4 million lower-income families. I can confirm that using the same model as we inherited, the spending review will have no measurable impact on child poverty over the next two years, while we await the conclusions of the report by the right honourable Member for Birkenhead.

Let me now turn to the universal benefits. I have taken the difficult decision to remove child benefit from families with a higher rate taxpayer. I wish that it were otherwise, but I simply cannot ask those earning just £15,000 or £30,000 to go on paying the child benefit of those earning £50,000 or £100,000. The debts of the previous Labour Government, and the need to make sure that the better off in society also make a fair contribution, make this choice unavoidable. It also means that no further changes to child benefit are required. Child benefit will continue to be paid in the normal way to the great majority of the population from birth until a child leaves full-time education at the age of 18 or even 19. We can afford to do this because, according to the latest independent estimates from the Office for Budget Responsibility, removing child benefit from higher rate taxpayers saves Britain £2.5 billion a year.

We will also keep the universal benefits for pensioners, in recognition of the fact many have worked hard and saved all their lives. Free eye tests, free prescription charges, free bus passes, free TV licences for the over-75s and winter fuel payments will remain exactly as budgeted for by the previous Government, as promised. I am also turning the temporary increase in the cold weather payments introduced by the previous Government into a permanent increase. In my view, higher cold weather payments should be for life, not just for elections.

So, too, are the promises we make on the National Health Service. The NHS is an intrinsic part of the fabric of our country. It is the embodiment of a fair society. This coalition Government made a commitment to protect the NHS and increase health spending every year. Today, we honour that commitment in full. Total health spending will rise each year over and above inflation. This year we are spending £104 billion on healthcare, capital and current combined. By the end of four years we will be spending £114 billion. We can afford this in part because of the decisions on welfare that I have just announced and because we have made tough decisions in other parts of the government budget. But to govern is to choose, and we have chosen the NHS.

That does not mean that we are letting the health department off the need to drive forward real reform and savings from waste and inefficiency. Productivity in the health service fell steadily over the past 10 years, and that must not continue. By 2014, we are aiming to save up to £20 billion a year by demanding better value for money. But the money we save will be reinvested in our nation’s healthcare.

As the independent forecasts we published in the Budget show, we need to make these savings to deal with our ageing population and the rising costs of new medical treatments. But there are also new services we can offer. A new cancer drug fund will be provided, spending on health research will be protected and we will prioritise work on the treatment of dementia. We will expand access to psychological therapies for the young, elderly and those with mental illness. We will fund new hospital schemes, including the St Helier, the Royal Oldham and the West Cumberland.

For health spending, as for other spending announcements, there will be consequential allocations for Scotland, Wales and Northern Ireland. The Barnett formula will be applied in the usual way, which means that the increase in health spending and the relative protection of education spending will feed through to the devolved resource budgets. It means that all three nations will actually see cash rises in their budgets, albeit rises below the rate of inflation. For Scotland, the resource budget will rise to £25.4 billion in 2014-15. For Wales, it will rise to £13.5 billion, and for Northern Ireland, it will rise to £9.5 billion. In Scotland, we are proceeding with the implementation of the Calman reforms. In Wales, we will consider with the Assembly Government the proposals in the final Holtham report, consistent with the Calman work being taken forward in Scotland.

In Northern Ireland, the collapse of the Presbyterian Mutual Society has caused great hardship, and people have been left without their money for too long. I can confirm today that we will provide the Northern Ireland Executive with £25 million in cash and a £175 million loan to help those who have lost their life savings.

We will also help those across the United Kingdom who have lost money as a result of the collapse of Equitable Life. For 10 years, the Equitable Life policyholders have fought for justice. For 10 years, the previous Government dithered and delayed and denied them that justice. It is time to right the wrong done to many thousands of people who did the right thing, saved for their future and tried not to depend on the state, and then were the innocent victims of a terrible failure of regulation. So let me make it clear. I accept the findings of the Parliamentary Ombudsman in full. I have read the advice of Sir John Chadwick, and I thank him for it, but I do not agree with the level of compensation his analysis suggested. I agree with the ombudsman that the relative loss suffered is the difference between what policyholders actually received from their policies and what they would have received elsewhere. The Parliamentary Ombudsman herself recognised that a balance had to be struck between being fair to policyholders and fair to taxpayers, particularly when many budgets and benefits are being cut. But money we pay out has to come from general public expenditure. I have decided that the fair amount to pay out in total is in the region of £1.5 billion, two-thirds of which will be found in this spending review period. Those who had with-profits annuities are particularly hard hit, as they were retired and were unable to move their savings elsewhere. As a result, the Government will cover the cost of the total relative loss suffered by these deserving people. The scheme will start making payments next year.

These measures and our welfare reforms mean that it will always pay to work. Benefit savings will help us protect key public services like the NHS. There is help for those who have saved and lost everything. These are fair decisions, consistent with the second principle of this spending review.

The third and final principle centres on growth and promoting a private sector recovery. By restoring macroeconomic stability, we have brought certainty to businesses. By cutting business taxes, we are giving business the freedom to compete. Today’s review builds on these steps because, even when money is short, we should prioritise those areas of public spending which are most likely to support economic growth. That is what we are doing in the Department for Business, Innovation and Skills. Administration will be cut by £400 million. Twenty-four quangos will be cut. Lower-priority programmes like Train to Gain will be abolished. Adult learners and employers will have to contribute more to further education. This means that today I can announce the largest ever financial investment in adult apprenticeships, an increase of more than 50 per cent on the previous Government, helping 75,000 new apprentices a year by the end of the spending review period.

We will maintain and invest in the Post Office network and protect community post offices.

We will come forward with our detailed response to Lord Browne’s report on higher education funding and student finance, including our plans to provide financial support to encourage those from the poorest households to stay in education. Our universities are jewels in our economic crown and it is clear that if we want to keep our place near the top of the world league tables, then we need to reform our system of funding and reject—as, to be fair, many opposite do—the unworkable idea of a pure graduate tax. Clearly, better off graduates will have to pay more, and this will enable us to reduce considerably the contribution that general taxpayers have to make to the education of those who will probably end up earning much more than them.

Overall, average annual savings of 7.1 per cent will be found from the Department for Business budget, the minimum it was asked to find. Within those savings, however, the Secretary of State and I have decided to protect the science budget. Britain is a world leader in scientific research and that is vital to our future economic success. That is why I am proposing that we do not cut the cash going to the science budget. It will be protected at £4.6 billion a year. Building on the Wakeham review of science spending, we have found that within the science budget significant savings of £324 million can be found through efficiency. If these are implemented, then, with this relatively protected settlement, I am confident that our country’s science output can increase over the next four years.

We will also invest £220 million in the UK Centre for Medical Research and Innovation at St Pancras, fund the molecular biology lab in Cambridge, the animal health institute in Pirbright and the diamond synchrotron in Oxford.

Research and technological innovation will also help us with one of the greatest scientific challenges of our time—climate change—and it will support new jobs in low carbon industries. So today, even in these straitened times, we commit public capital funding of up to £1 billion to one of the world’s first commercial scale carbon capture and storage demonstration projects. We will also invest over £200 million in the development of offshore wind technology and manufacturing at port sites.

Yesterday protestors scaled the Treasury urging us to proceed with our idea for a Green Investment Bank. It is the first time anyone has protested in favour of a bank. We will go ahead. I have set aside in this spending review £1 billion of funding for the bank, but I hope much more will be raised from the private sector and the proceeds of future government asset sales. The aim of all these investments is for Britain to be a leader of the new green economy—creating jobs, saving energy costs, reducing carbon emissions.

We will also introduce incentives to help families reduce their bills. We will introduce a funded renewable heat incentive. Our green deal will encourage home energy efficiency at no upfront cost to home owners and allow us to phase out the warm front programme. Overall, the total resource settlement for the Department of Energy and Climate Change will fall by an average 5 per cent a year but there will be a large increase in capital spending, partly to meet unavoidable commitments on nuclear decommissioning.

Defra will deliver resource savings of an average 8 per cent a year, but we will fund a major improvement in our flood defences and coastal erosion management, and that will provide better protection for 145,000 homes.

Britain’s arts, heritage and sport all have enormous value in their own right, but our rich and varied cultural life is also one of our country’s greatest economic assets. The resource budget for the Department for Culture, Media and Sport will come down to £1.1 billion by 2014-15. Administrative costs are also being reduced by 41 per cent; 19 quangos will be abolished or reformed. All of this is being done so we can limit four-year reductions to 15 per cent in core programmes like our national museums, the frontline funding provided to our arts and Sport England’s whole sport plans. We will complete the new world-class building extensions for the Tate Gallery and British Museum in London. The Secretary of State will provide details of further projects shortly. I can also announce today that in order that our nation’s culture and heritage remains available to all, we will continue to fund free entry to museums and galleries. There is ongoing provision of the £9.3 billion of public funding for a safe and successful Olympic and Paralympic Games in London in 2012.

We have also approached the BBC to ensure that it, too, makes its contributions, as a publicly funded organisation, to savings during this spending review. I am pleased to confirm that we have struck a deal this week. The BBC will take from the Government the responsibility for funding the BBC World Service and BBC Monitoring, as well as part-funding S4C. This amounts to some £340 million of savings a year for the Exchequer by 2014-15. To ensure that the cost of these new obligations is not passed on to the licence-fee payer, the BBC has agreed a funding deal for the full duration of its charter review. The licence fee will be frozen for the next six years. This deal helps almost every family and is equivalent to a 16 per cent saving in the BBC budget over the period, similar to the savings in other major cultural institutions.

The BBC has also agreed to reduce its online spend and make no further encroachments into local media markets to protect local newspapers and independent local radio and TV. It will also contribute to the £530 million we will spend over the next four years to bring superfast broadband to rural parts of our country that the private sector will take longer to reach. Pilots will go ahead in the Highlands and Islands, North Yorkshire, Cumbria and Herefordshire. All of this will help encourage the growth of our creative industries as a key part of the new economy we are seeking to build.

After our defence requirements are met, the Department for Transport will receive the largest capital settlement. Over the next four years, we will invest over £30 billion in transport projects—more than was invested during the past four years. £14 billion of that will fund maintenance and investment in our railways. Direct bus subsidies will be reduced, but statutory concessionary fares will remain. The cap on regulated rail fares will rise to RPI plus 3 per cent for the three years from 2012, but that will help this country afford new rolling stock as well as improve passenger conditions.

The Secretary of State will set out how more of the transport money will be allocated next week, but I want to tell the House today about some projects that will go ahead, for let us remember that, even after these tough spending settlements, the country is still going to be spending over £700 billion a year. In Yorkshire and the Humber, capacity on the M62 will be expanded, £90 million will be spent to improve rail platforms across various towns and cities and we will also improve line speeds across the Pennines. In the north-east, £500 million will be spent refurbishing the Tyne and Wear metro and Tees Valley bus network. In the north-west, we will invest in rail electrification between Manchester, Liverpool, Preston and Blackpool, and we will provide funding for a new suspension bridge over the Mersey at Runcorn.

Rail and roads are devolved to the Scottish Executive, as are roads in Wales, but I can tell the House that major rail investments around Cardiff, Barry and Newport will go ahead. In the East Midlands, the M1 and A46 will be improved. In the West Midlands, we will extend the Midland Metro and completely redevelop Birmingham New Street station. In the south-west, we will fund improvements on the M5 and M4, and the new transport scheme for Weymouth. In the east of England, colleagues will be delighted to know that the A11 to Norwich will be upgraded.

Around London, we will widen the M25 between 10 different junctions and complete the improvement to the A3 at Hindhead, while in London, on top of the Olympics, a major investment in our capital city’s transport infrastructure will take place. Crossrail will go ahead and key tube lines will be upgraded for the 21st century. That is nothing like the complete list.

So, yes, we are saving money and putting the state on a more sustainable footing, but even then we will still be spending tens of billions of pounds on Britain’s future infrastructure. Next week we will also set out our national infrastructure plan so that private money is also put to work in building for this country the economic infrastructure that our businesses need. Our regional growth fund will also help us do that. As promised, £1 billion has been found for the fund over the next two years—money designed to lever in private investment in areas of our country where it has been too absent over the past decade. I can announce today that I am providing close to half a billion pounds extra in the third year for the regional growth fund.

Long-term investment in the capacity of our transport, our science and our green energy will all help move Britain from its decade-long dependence on one sector of the economy in one part of the country, and the ruin that that led to.

The most important ingredient that a 21st-century economy needs is well educated children who believe in themselves and aspire to a better life, whatever their background or disadvantages. In June, after the Budget, when the Chief Secretary to the Treasury and I turned our attention to how to allocate spending between government departments, we set ourselves a goal. We wanted to see if it was possible, even when spending was being cut, to find more resources for our schools and for the early-years education of our children. I can tell the House that we have succeeded. It has meant other departments taking bigger cuts, but I believe strongly that this is the right choice for our country’s future.

There will be a real increase in the money for schools, not just next year or the year after, as the previous Government once promised, but for each of the next four years. The schools budget will rise from £35 billion to £39 billion. Even as pupil numbers greatly increase, we will ensure that the cash funding per pupil does not fall. We will also sweep away all the different ways in which money is ring-fenced so that schools can decide how to spend their money as they see best.

We will also introduce a new £2.5 billion pupil premium that supports the education of disadvantaged children and will provide a real incentive for good schools to take pupils from poorer backgrounds. This pupil premium is at the heart of the coalition agreement and at the heart of our commitment to reform, fairness and economic growth.

Parents, teachers and community groups will be supported if they wish to establish free schools. We will fund an increase in places for 16 to 19 year-olds, and raise the participation age to 18 by the end of the Parliament. That enables us to replace education maintenance allowances with more targeted support.

We will also provide support for the early years of our children. The increased entitlement to 15 hours a week of free education for all three and four year-olds, introduced under this Government, will continue. Sure Start services will be protected in cash terms, and the programme will be refocused on its original purpose. We will help them further by introducing for the first time 15 free hours of early education and care for all disadvantaged two year-olds so that these children have a chance in life and are ready, like the rest of their class mates, for school.

Overall, the Department for Education will be required to find resource savings of only 1 per cent a year. Central administration will be cut by one-third and five quangos will go. The capital budget will have to bear its share of the reductions. As the House will know, we have had to phase out the hopelessly inefficient and overcommitted Building Schools for the Future programme, but £15.8 billion will be spent to maintain the school estate and rebuild and refurbish 600 schools.

I repeat: the resource money for schools, the money that goes to the classroom, on the broadest definition, including all the main grants, will go up in real terms every year. It is a real investment in the future of our children and in the future growth in our economy.

Mr Speaker, let me conclude. The decisions we have taken today bring sanity to our public finances and stability to our economy. They deal decisively with the largest budget deficit that this House of Commons has ever had to face outside of wartime. We have had to make choices about the things we support. Today I have announced real increases in the NHS budget and the resources for schools, as well as new investments in the economic infrastructure of our economy. I have also announced real reductions in waste, and reforms to welfare, and through this we will reshape public services to meet the challenges of our times. During the process of this spending review I have received many submissions, including one from the party opposite that the average cut for unprotected departments should be set at 20 per cent over the coming four years rather than the 25 per cent that I anticipated in my June Budget. I have examined this proposal carefully and I have consulted the published documents of my predecessor, the right honourable Member for Edinburgh south-west. Because of our tough but fair decisions to reform welfare and the savings we have made on debt interest, I am pleased to tell the House that it has been possible, and the average saving in departmental budgets will be lower than the previous Government implied in their March Budget. Instead of cuts of 20 per cent, there will be cuts of 19 per cent over four years, so I thank them for their input and look forward to their support.

This coalition Government faced the worst economic inheritance in modern history. The debts that we were left threatened every job and public service in the country, but we have put the national interest first, made the tough choices, protected health, schools and investment in growth, reformed welfare and cut waste, made sure that we are all in this together and taken our country back from the brink of bankruptcy. A stronger Britain starts here. I commend this Statement to the House”.

My Lords, that concludes the Statement.

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[Lord Sassoon]

My Lords, for the Opposition to describe as a gamble all that we have done in a radical spending review seems incredible. Whey they were in government, they put more and more money on the table, doubled their bets and got credit until the music stopped. We were then left with the largest budget deficit in peacetime history. Now they have the gall to come here and say that what we are doing to put order back into the public finances is a gamble. It was absolutely unavoidable that we had to clear up the mess that we were left with. The overwhelming probability, in the commentaries that have continued to be published since the Budget, is that the plan will deliver what my right honourable friend the Chancellor said it would deliver.

The noble Lord talked about unemployment. As I have made clear, the independent estimates of the Office for Budget Responsibility forecast a reduction over four years of 490,000 employees in the public sector. However, the same OBR forecast done at the time of the Budget said that, in every year of the forecast period, total employment in the country would rise and unemployment would go down. To put that into perspective, it is worth remembering that in the last consolidation of national finances in the wake of the recession of the early 1990s, between 1992 and 1997, 690,000 jobs were cut from the government workforce, but they were more than absorbed by the increase of 1.7 million in private sector jobs. That has been done before under a Conservative Government and will be done again.

I begin to feel my age in this House when my old speeches are read back to me. It is very good and useful that the noble Lord reminds us of exactly what we said we would do and have done, which is to combine the necessary retrenchment with radical reform of how the public sector goes about its business. The combination of saving hard-working taxpayers their money with introducing radical reform is nowhere better demonstrated than in the welfare arena. The move over two Parliaments to a universal credit system is the most radical change in welfare for many decades. The noble Lord asked me who would pay for that change and all the other changes. The tables are all there at the back of the document explaining that the top quintile of the population will bear the largest share of the burden. There the noble Lord will find tables and analysis, which the previous Government did not care to show the nation in any spending review. However, I repeat that those who can afford to bear the greatest burden will pay for the change.

I am grateful to the noble Lord for his slightly back-handed compliments on science, although I will take them as well meant. He clearly appreciates that the effort we have made on investment in science and wider infrastructure is absolutely critical to the medium-term growth of the economy. That is why we have maintained the science base in cash terms. I do not know whether, out of the science expenditure, we can provide calculators to noble Lords so that they can make calculations from percentages to money terms and so on, but perhaps that is something that those looking at procedures can look at.

The question on social housing gives me an opportunity to draw attention to how we can deliver so much more if we apply decent disciplines to public expenditure. We will deliver 150,000 new units of social housing in the next four years at a cost of £4.4 billion. In the previous four years, the previous Government built 170,000 new homes at a cost of £11 billion—another indication of the sort of waste that is of the past.

Coming back to the big questions of growth, which are absolutely critical, I know that the OBR, international forecasters and forecasters from the City are all forecasting continued growth this year, sustained and rising for the next few years. In the second quarter of this year, we had growth of 1.2 per cent and we had new jobs created in the first quarter—

[Noble Lords]

Oh!

[Lord Sassoon]

Thanks to the stabilisation of the economy and the confidence that came with the new Government, we had second-quarter growth of 1.2 per cent and more than 300,000 new jobs.

Lastly, whose policies are these and where is the endorsement coming from? The noble Lord talked about the interest bill, so perhaps I may put it to him this way. The day before the election, the Government of the United Kingdom were paying 96 basis points more than the German Government for 10-year money. That was the increment that we had to pay over what Germany was paying. As of the moment that the Chancellor sat down this afternoon, those 96 basis points had reduced to 56. That represents a saving on a daily basis of millions of pounds that eats into the £120 million daily bill of interest that the previous Government left us with.

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[Lord Howe of Aberavon]

My Lords, my question is: will it not remain essential for months and indeed years ahead to have a similar economic discipline to that being imposed so far in this comprehensive spending review? Also, given the many features with which the Chancellor has dealt today, is not this review absolutely inescapable? It is not merely a comprehensive spending review but a continuous spending review, to which the party opposite has offered no alternative policy but in which the policy of the Government has been clearly set out comprehensively and with courage.

[Lord Sassoon]

My Lords, I am grateful to my noble and learned friend Lord Howe of Aberavon for reminding us of the confidence that we can have in the tough decisions that this Government have taken. He was the architect of a similarly bold, tough and successful consolidation of the public finances in the early 1980s. This is indeed an important lesson for us. I agree with him that this must be driven through in the way in which he describes. He points out that the Opposition have provided no alternative policies, but it is worse than that: I understand that, when listening to my right honourable friend’s Statement in the Chamber, the shadow Chancellor sent out an e-mail in his name—I do not know how he did it—asking the public or whomever he was e-mailing for any ideas so that the Opposition could formulate an alternative policy. We look forward to hearing the outcome.

[Lord Sewel]

My Lords, I have a specific question for the Minister. Will he answer the question that my noble friend Lord Eatwell asked and turn the percentages into numbers, particularly the contribution to be made by the welfare budget? When my noble friend asked that question, I noticed that there was some scribbling going on in the Box and a note appeared shortly afterwards. Perhaps the Minister could share that note with us.

[Lord Sassoon]

My Lords, I could sit here for a long time, get out my calculator and work these things out. All the numbers are set out in the book; there still seemed to be copies in the Printed Paper Office when I came into the Chamber. There are probably more important things to be talking about now.

[Lord Desai]

My Lords—

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[The Lord Bishop of Blackburn]

My Lords, very many of us are eager to see the big society, with its vision of neighbourliness, prevail. Neighbourliness requires a particular care for children, who are a gift and not a commodity, and for poorer families. Given that many children and poorer families will be badly affected by the reduction in benefits, can the Minister tell us where this lost support may be found in the future for children and poorer families?

[Lord Sassoon]

My Lords, I am grateful to the right reverend Prelate for drawing our attention to the question of children, which I shall come back to. In respect of his question about poorer families, I draw the House’s attention to the new section at the back of the document, which for the first time lays out the effect on the deciles and quintiles of the population of all the measures that we have taken in the spending review and the Budget. It confirms the fairness of the overall construct—namely, that those who can afford to pay more will do so and that the poorest in society are protected.

The spending review will provide additional support to the most disadvantaged children at every stage, particularly in education, and will support social mobility. As I said when repeating the Statement, free early years education will be extended to 15 hours and care will be given to the most disadvantaged two year-olds. Critically, we will introduce a £2.5 billion pupil premium. There will be more generous maintenance provision and a scholarship fund of £150 million to underpin higher education funding for disadvantaged children. The entire spending review has taken fully into account the needs of children, particularly in education. The coalition Government have taken action to protect families. Overall, there is no measurable impact on child poverty from all the model changes for the next two years.

[Baroness Hollis of Heigham]

My Lords—

[Lord Bilimoria]

My Lords, the Minister has confirmed that public expenditure will go up in actual terms. Historically, 40 per cent was deemed to be the sensible level of public spending expressed as a percentage of GDP and a sensible balance between the private sector and the public sector. Is the Government’s aim to get back to that 40 per cent figure on a regular basis? In this environment, one would need to do that anyway regardless of the budget deficit. In that sense, I welcome the reductions in the welfare budget, which were badly overdue. Although spending on the National Health Service has been ring-fenced, the efficiency savings there are also very welcome and I think that the whole public would agree with them. However, in the coalition Government’s spirit of the transparency, the Chief Secretary revealed to us yesterday that 500,000 jobs would be lost in the public sector, a figure that the Minister has confirmed today. How confident are the Government of those jobs being replaced in the private sector? How confident are they that they have done enough to stimulate growth in the private sector, particularly against a backdrop of increased capital gains tax and higher rates of tax in every area? How difficult will it be?

[Lord Sassoon]

My Lords, I am grateful to the noble Lord, Lord Bilimoria, for drawing our attention to the important question of the balance between the public and the private sectors, which had got completely out of kilter under the previous Government. I repeat that this is not just an exercise in cutting back expenditure, necessary and unavoidable though that is; it also entails a critical rebalancing of the public and the private parts of the economy. What we have announced today will take the public sector part of the economy back towards that 40 per cent figure. In answer to the question about the absorption of the inevitable job losses in the public sector, I draw the noble Lord’s attention to the fact that, in the past quarter alone, the private sector generated 178,000 new jobs. That was in one quarter, so we should be confident, when the Office for Budget Responsibility believes that overall employment in the economy will rise year by year, that that indeed will be the case and that the inevitable reduction in public sector jobs will be more than absorbed.

[Baroness Hollis of Heigham]

My Lords—

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[Lord Newby]

My Lords, a lot of attention has rightly been paid to the effect that the Statement will have on public sector employment. Will the Treasury urge all departments to examine a range of measures, such as part-time working and a complete freeze on bonuses and increments, all of which have already been widely adopted in the private sector and would have the effect of reducing to a minimum the number of public sector job losses?

[Lord Sassoon]

I thank my noble friend Lord Newby for drawing attention to the fact that departments will be encouraged to take the maximum opportunity of flexibility in pay and other conditions in the way that he described to mitigate the effects of the inevitable job reductions in the public sector. We will also be introducing a number of other measures to mitigate those job losses, which of course we very much regret. For example, we are introducing the regional growth fund and there is the protection that comes with the wider pension reforms. With assistance from Jobcentre Plus, there will be a further range of measures to mitigate the effects of the job losses in the public sector.

[Lord Davies of Stamford]

My Lords—

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[Lord Davies of Stamford]

I take it that the Government themselves acknowledge that the recovery is fragile and that, by reducing planned public expenditure and increasing taxes so drastically—the Statement rather skated over the taxes aspect—thereby taking demand out of the economy, they are taking some risk, at the very least, with that fragile recovery. In that context, was it sensible to announce the reduction of public sector jobs by 490,000 before publishing the detailed departmental plans from which, presumably, that figure was derived? As a result, not merely the holders of the 490,000 jobs but the whole public sector—millions of people and their families—will be deeply anxious about their future and will be reducing, perhaps drastically, household expenditure. That will take more demand out of the economy quite unnecessarily in a context where we require the reverse of that.

[Lord Sassoon]

My Lords, I think that what the country has really been worried about is how the Government would deal with this horrendous deficit problem. What underpins the prospects for renewed, sustained growth is that we have reduced the deficit as a necessary precondition and that we have done so in such a way that the markets are convinced that we are serious about it. The latest official data show that GDP grew strongly, by 1.2 per cent, in the second quarter. It is the substantial accumulation and growth of government debt that risks that ongoing recovery and that is what we have dealt with.

[Lord Higgins]

My Lords, one thing is absolutely clear, which is that Mr Gordon Brown inherited the most favourable economic situation of any Chancellor since the war and left behind an enormous problem for the coalition to deal with. However, as anyone who has had experience of this sort of exercise will know, it is remarkable that the Treasury, officials and Ministers have managed to produce such a comprehensive review in such a short time, dealing with everything from Equitable Life to coastal erosion to measures overseas to deal with malaria and so on. What is being overlooked is that the Statement mentions not only cuts but a number of increases in public expenditure. It is really, apart from dealing with the deficit, a reappraisal of the priorities that we ought to have. From that point of view, it does exactly the right thing. Indeed, there is no cut. Public expenditure, as I understand it, is to go up from £651 billion to £693 billion. That is scarcely a cut by any standard. That is the kind of number that the noble Lord on the Front Bench was asking for.

May I put this question to my noble friend? It is difficult to ascertain from the Statement what the effect will be on aggregate demand. Will it reduce aggregate demand in the economy or will it increase it? If it is going to increase it, clearly the Bank of England will need to take that into account. If it is going to reduce it, it is important that action should be taken to offset the cuts that are being made by quantitative easing or whatever may seem appropriate. Could the noble Lord tell us: is this something that increases or decreases aggregate demand?

[Lord Sassoon]

My Lords, I am grateful to my noble friend Lord Higgins. I will relay to my right honourable friend the Chancellor and to all the very hard-working officials in the Treasury his generous words, which confirm that this is indeed a radical, fair and comprehensive spending review. In answer to his question about demand, clearly, with the independent projections from the Office for Budget Responsibility and all the other commentators of consistent growth going forward, demand will indeed increase. The question of what role the aggregate increase in the money supply plays is one on which, as we know, the Governor of the Bank of England continues to be very much focused as he leads on the conduct of monetary policy.

[Baroness Hollis of Heigham]

My Lords, the devil is in the detail, as has been said before. The Statement says that pension savings credit will be frozen for four years, saving in total—on page 11 of the Red Book—£1 billion from pensioners. The state pension will rise with earnings, so that pensioners not in need of pension credit will be better off, which is good, but poorer pensioners dependent on pension savings credit will find that the income and the increase in state pension will be offset by the freeze in the savings guarantee and they will be worse off. Better-off pensioners will be better off, while poorer pensioners will be worse off. Is that fair?

[Lord Sassoon]

I understand that the amount affected by the freezing of the credit approximates to £1.50. I think that it is important to consider this in the context of everything else that we have done for pensioners and elderly people in this spending review—

[Noble Lords]

Answer the question!

[Lord Sassoon]

We need to look at it in the overall context of what the Government have done for elderly people, because this is important. The critical decision is that the Government, as announced before, will meet their commitment to uprate the basic state pension by whichever is the highest—earnings, prices or 2.5 per cent—from April 2011, as well as preserving other key pensioner benefits, which people have questioned, including the winter fuel payments, the free TV licences, the bus travel, the eye tests and the prescriptions. I am grateful for the question on the detail but I think that it gives me the opportunity to emphasise the overall deal for pensioners, which we think is important in this spending review.

[Lord Forsyth of Drumlean]

I congratulate my noble friend and the Chancellor on the excellent Statement, which shows great courage as well as great care in taking forward the mess that we inherited from the previous Government. The previous occupier of his office—the noble Lord, Lord Myners—was almost certainly correct when he assured this House that we would end up making a profit and getting our money back from the bank bailouts. Given that, should we not make it absolutely clear to the country that we have had to take these measures, which Members opposite are complaining about, because for years Mr Gordon Brown as Chancellor and Prime Minister made this country live beyond its means and was borrowing at the height of the boom; and that, despite these measures, our debt as a nation will increase? Could my noble friend tell me how much our national debt will have increased by, despite these measures, by the end of this Parliament? Given that number, how on earth can we take seriously Members opposite who are criticising what is a responsible programme from my noble friends and from our coalition partners?

[Lord Sassoon]

My Lords, I think I would probably faint at this moment if I even mentioned the debt number. The critical thing is that the debt will peak and we will bring it down, as we said we would, within this spending review. I am grateful to my noble friend for stressing that it has indeed been a courageous and careful exercise that is enabling us to make sure that the debt tops out and starts to come down within the spending review period. He reminds us that a twin failure of the previous Government caused the mess that we are in: first, as my noble friend points out, the great increase in public expenditure that we could not afford; and, secondly, the complete failure to regulate our banking system properly, which caused the whole house of cards to come down. I can give my noble friend the numbers on the public sector net debt, which will go up from 53.5 per cent of GDP in 2009-10 to a staggering 70.3 per cent in 2013-14 before we bring it down to 69.4 and 67.4 per cent by 2015-16 thanks to the measures that this Government have announced today.

[Lord Touhig]

My Lords—

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[Lord Stoddart of Swindon]

Yes, he is; he is an independent Labour Cross-Bencher. The Government have ring-fenced health and overseas aid. Is there not another item that has been ring-fenced? It is our net contribution to the European Union, which is £6.7 billion this year. Would the Minister agree that if that were reduced by 20 per cent, it would enable 55,000 more nurses, policemen or teachers to be employed? Should our country not come first rather than subsidising other countries?

[Lord Sassoon]

I thank the noble Lord, Lord Stoddart, for a question that reminds us that we are working extremely hard as a nation to live within our means. It is equally important that within Europe the European Union also lives within its means. The Government will be doing everything they can to make sure that proper financial discipline is applied to the European budget this year and for the next spending period. I do not know, but I have a sense—I might like to ask on the subject—that the Labour Members of the European Parliament were today voting to allow the European Union to have its own tax-raising powers to fund a separate pot of money. The present Government want to see proper discipline applied to European Union expenditure.

[Lord Touhig]

My Lords, the noble Lord said that fairness is important to his Budget. He went on to say that a civilised society protected the most vulnerable. Yet in 21st-century Britain 30 per cent of disabled people live below the poverty line. What specific measures are proposed in this spending review to reverse that and to give some fairness and justice to the most vulnerable in our society?

[Lord Sassoon]

My Lords, as I have reiterated, at the absolute centre of this spending review is the universal credit, which, over the next two Parliaments as we bring it in, will go to the heart of the challenge the noble Lord poses. As to the provision for disabled people, people with long-term conditions account for around 70 per cent of the NHS budget, which is the area of spending being protected above all others.

People with disabilities and social care needs will also benefit from the additional resources given to social care within the health and local government budgets. People with care needs are also being protected from the extension of the single-room rate in the housing benefits. Finally, of the measures to which I should draw the attention of the House, families where someone claims a disability living allowance will be exempt from the new cap on total household welfare payments. Care for disabled people is absolutely at the heart of this review.

[Baroness Noakes]

My Lords, my noble friend was accused by the noble Lord, Lord Eatwell, of ideology in pursuing the excellent programme that he set out in the Statement. Will he confirm that it is necessity and not ideology that has driven today? Will he further confirm that we inherited the largest deficit in the G20 and an economy where public sector productivity had gone backwards for most of the previous 13 years? We found budgets, such as defence, which were overcommitted to an extent more than the annual budget. Will my noble friend confirm that we are committed to restoring efficiency and effectiveness to public spending, which are principles that eluded the Benches opposite for the previous 13 years?

[Lord Sassoon]

I am happy to confirm the very succinct summary put forward by my noble friend Lady Noakes of what is at the heart of this spending review. Effectiveness and fairness are what we are aiming at.

[Lord Kilclooney]

My Lords—

[Lord Kilclooney]

My Lords, it is only right to say thank you. Northern Ireland, historically and geographically, has been very closely associated with Scotland. As a result, the Presbyterian Church in Northern Ireland is the largest Protestant communion in that province. The problems of the Presbyterian Mutual Society have been a running sore for several years. Will the Minister take note that there will be widespread appreciation across Northern Ireland that this problem has finally been addressed in the Statement?

[Lord Sassoon]

I am very grateful to the noble Lord for drawing attention to the fact that the Presbyterian Mutual Society has been a long-running issue which was not gripped by the previous Government. Whether it is that or properly compensating the policyholders of Equitable Life, we have got on and made what we believe to be fair decisions which were dodged by the previous Government.

[Lord Desai]

My Lords—

[Lord Winston]

My Lords, would the Minister be kind enough to answer my noble friend Lord Eatwell’s question about universities? Does he agree that the Browne review can in no way cover the costs of teaching, which we need, in the universities which contribute so much to our economy beyond the STEM subjects and so much to our civilised society?

[Lord Sassoon]

I am very happy to endorse absolutely that sentiment of how critical it is to support the finest universities in the world, which stand up with the universities of the US at the top of all the league tables. While we preserve critical elements of science spending, there needs to be a fundamental rebalancing—that is exactly what the noble Lord, Lord Browne, proposed in his report—between what the state can afford to pay and the contributions paid by those who benefited from a university education. That is what we are proposing.