Budget: Cost of Changes

Lord Sassoon Excerpts

Tuesday 12th June 2012 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what is their estimate of the cost of the recent changes to the plans outlined in the Budget.

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

My Lords, the recent changes are expected to cost less than £150 million. That is it. I know that the noble Lord, Lord Barnett, enjoys telling the House that I have not answered his questions. I trust that, on this one occasion at least, he will accept that I have answered the Question.

[Lord Barnett]

Yes, the noble Lord has. It makes me wonder why on earth the Government bothered with such controversial cuts if the cost was so small. I was not allowed to use the word “U-turn” in my Question because it was deemed too political. However, if the Government are listening, as they have said they are, are they still listening to and potentially acting on the words of people such as those in the IMF who normally support the Government but have suggested that they should now boost the economy and go for growth, as well as others such as those on the Treasury Select Committee? Why will they not do that? Is there any particular reason?

[Lord Sassoon]

My Lords, a great range of commentators, including the Governor of the Bank of England, the IMF, the OECD and so on, all believe that the Government should stick to their fiscal course, and that is precisely what we intend to do.

[Lord Stoneham of Droxford]

Does my noble friend agree that there is a source of revenue for the Government in that they can both protect and even extend the winter fuel allowance for the most vulnerable in society by asking higher rate taxpayers to pay tax on what they receive?

[Lord Sassoon]

My Lords, what this Government have done as far as the wealthiest are concerned is to raise five times as much tax from them as the Labour Party would have done under its plans, so that the top 1% of the population of earners pay 27.7% of tax. We are very concerned to make sure that tax falls where it should: on the broadest shoulders.

[Lord Eatwell]

My Lords, I am intrigued by the noble Lord’s estimate. Let us say that there is a £150 million cost to these changes. Can he tell the House whether that is the limit of what can be afforded? Could £151 million be afforded, or perhaps two or three times that £150 million, or maybe 10 times that £150 million? What is the limit that can be afforded?

[Lord Sassoon]

My Lords, the recent Budget introduced £9 billion of tax changes. There were a number of measures on which we said we would consult. We consulted and made the changes that were appropriate, which added up to a total in the range of £120 million to £150 million. I can give the House the breakdown if it wants it. Those were the numbers that resulted from the changes that we believed appropriate, having listened to what people had to say to us.

[Lord Hughes of Woodside]

My Lords, the Minister keeps saying that the Government consulted on these changes. As I recall, even 24 hours before they happened, Treasury Ministers were denying that there was any possibility of a U-turn, so please do not rewrite history.

[Lord Sassoon]

My Lords, I am not rewriting history.

[Lord Peston]

Will the Minister clarify his answer? Are we to assume that £125 million is a small number and that all the changes are therefore no big deal or that it is a large number and that the changes are therefore of overwhelming significance? What message is he trying to give us and, for that matter, the public at large?

[Lord Sassoon]

The message I am trying to give the House is that there were changes that we felt appropriate—on VAT on hot food, VAT on static caravans and the proposed cap on giving to charities—and that the total cost of the changes in those three areas was in the range of £120 million to £150 million a year. That is the only message that I am trying to give to the House.

[The Earl of Listowel]

My Lords, the CBI has suggested that a fund of £1 billion should be devoted to providing employment for young people. Have the Government had further time to consider this suggestion from the CBI? I hope that I have it correct.

--- Later in debate ---

[Lord Sassoon]

My Lords, the CBI and other groups are continually putting forward all sorts of interesting suggestions. We consider them and respond appropriately, Budget by Budget. We are listening to them.

Financial Services Bill

Lord Sassoon Excerpts

Monday 11th June 2012 Lords Chamber

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

My Lords, this debate has been every bit as rigorous and illuminating as I expected and I thank your Lordships for approaching the Bill in a thoroughly constructive and thoughtful manner. We have had many useful contributions during the afternoon and evening. Some I would characterise as sighting shots, and we had a few opening barrages. I thank in particular the noble Lord, Lord O’Donnell, for his characteristically clear, focused and constructive maiden speech, which certainly contained a number of well aimed rifle shots.

I was delighted that my noble friends who are former Chancellors welcomed the Bill. I was also pleased that at the start of the debate the noble Lord, Lord Eatwell, said that the fundamental thinking behind the Bill was well founded. Noble Lords who have direct experience of operating within the current structure, including the noble Lords, Lord Myners and Lord Burns, recognised that the tripartite system had not lived up to expectations, to use their measured terms. We have a major piece of legislation in front of us, the importance of which is widely recognised.

Before I get into the detail of some of the points that have been made, I wish to say a few words about the form of the Bill, as speakers, including the noble Lord, Lord Turnbull, and the noble Baroness, Lady Cohen of Pimlico, questioned the way in which it had been written as amending legislation as opposed to a wholesale rewrite of FSMA and other legislation. We thought about this approach very carefully. I appreciate that the Bill in its present form is not easy for any of us, but it is an approach that has been widely supported by consultation respondents and will minimise the extent to which regulated firms and other users of FSMA have to deal with legislative change. It should also allow for more focused scrutiny in this House and by stakeholders of the key changes in the regulatory regime. However, as I am sure noble Lords are aware, the Government have published a consolidated version of FSMA to help to show explicitly what the legislation will look like once it is amended by this Bill. That is available on the Treasury website.

I wish to make one other preliminary remark before we get into the content of the Bill. I noted the very interesting suggestion made by the noble Lord, Lord O’Donnell, of having a standing Joint Committee to assess the new framework. It is an interesting idea but it is for Parliament and not the Government to decide how best to organise its scrutiny activities. However, I repeat that the quality of the Joint Committee’s work in scrutinising the new arrangements underlines the noble Lord’s point. It was good to hear from members of that committee in the debate, such as my noble friend Lady Wheatcroft, the noble Baroness, Lady Drake, and the noble Lord, Lord McFall of Alcluith. However, I am very sorry, as I am sure is the whole House, that we have been robbed of the wisdom of my former noble friend Lord Maples, who would have very much enriched today’s debate.

The hour is late. I will not take this opportunity to read a fully formed speech highlighting again why the Bill is so important to protect the UK financial services sector and the wider economy. I could reiterate the arguments, but I will use the time to answer as many of the points that have been brought up as I can. I will have to leave many others on the table for future discussion or letters as appropriate.

I have tried to group together the points. First, I shall pick up some of the issues on the overall architecture and the cross-cutting issues. Then I will address some of the points on the Bank of England, the FPC objectives and bank governance, and another area where many important points were raised concerning access to financial services, as well as one or two of the international issues that were raised.

On the overall architecture and some of the cross-cutting issues in the Bill, a point that was very clearly made by a number of noble Lords, including my noble friends Lord Lawson of Blaby and Lord Lamont of Lerwick, is the question of judgment and culture—architecture versus institutions. Many speakers have made the point that the culture of regulators is more important than institutional architecture. I agree of course that culture is vital but, as the noble Baroness, Lady Cohen of Pimlico, noted, architecture also matters. That is precisely why we are implementing these reforms to put in place an institutional framework that will allow a culture of focused expertise and judgment to flourish separately and distinctively within the new PRA and the FCA. That is reinforced in the Bill by, for example, imposing the legal duty to supervise firms, which will require the two bodies to develop and promote a culture of supervisory judgment.

There were questions about what is characterised as twin-peaks regulation. I do not like that tag but let me now use it for simplicity. The importance of co-ordination between the PRA and the FCA has been stressed by my noble friend Lady Kramer and others. We agree that this is important. That is why we have proposed cross-membership of the boards of the PRA and the FCA, and it is why there is a statutory duty to co-ordinate the requirement to prepare a memorandum of understanding. These issues have been thought about.

Let us be clear on another issue of co-ordination, which relates to crisis management and particularly the involvement of the Treasury. That issue was raised by the noble Lords, Lord Eatwell and Lord Burns, my noble friend Lady Noakes, and others. The Bill places the Bank under a hard legal duty to notify the Treasury of a risk to public funds. It is a duty that applies regardless of the amount at risk or the Bank’s opinion on what should be done. That is at odds with what I heard from some noble Lords who addressed this point. The MoU also makes it clear that, if there is any doubt, the Bank must notify. The MoU also allows the Treasury to require the Bank to consider making a notification in response to a specific risk or situation.

On one or two other cross-cutting issues, the importance of cost control and proportionality was raised by a significant number of speakers, including my noble friends Lord Flight and Lord Naseby, and the noble Lord, Lord Bilimoria. The Government agree that cost control and proportionality are fundamental. The PRA and the FCA are required to have regard to proportionality. Both regulators are of course required to carry out cost-benefit analyses and to consult on their rules, as one would expect, but there are a number of areas in which the Bill goes further than previous practice. For example, for the first time, the financial services regulators are subject to National Audit Office audit, and the NAO is able to conduct value-for-money studies. That is something new in the structure to be introduced.

There were one or two specific questions on the scope of regulation. My noble friend Lord Flight asked about life companies and observed that they are very different from banks. I certainly agree with my noble friend on that, and it is precisely why we have a different insurance objective for the PRA and explicit provision covering the PRA’s duties in the regulation of with-profits policies. My noble friend Lord Teverson raised a question on rating agencies. The reason why they are not addressed directly in the Bill is that they are now a European competence, and the lead is taken by one of the three European bodies—ESMA—with the Commission.

Two other important areas concerning scope were raised. A number of speakers, including the noble Lord, Lord McFall of Alcluith, my noble friends Lord Lawson of Blaby and Lady Wheatcroft, and others, talked about bank auditors. As with other topics, I cannot do this justice this evening. I simply remind the House that responsibility for looking after auditors and their regulation remains with the Financial Reporting Council, and so it is not part of the Bill. The FRC is doing a significant amount of work around the scope of audit. I was pleased that my noble friend recognised that we had picked up one important issue, going back to his legislation. The practice of dialogue between auditors and regulators, which needs to be addressed, is now in the code of practice, although I heard the suggestion that it might be embodied in the legislation.

Lastly in this area, the question of central counterparty clearing houses—another important issue—was raised by my noble friend Lady Kramer. I remind the House that there is an important European directive coming in this area—the so-called EMIR, the European Market Infrastructure Regulation—which aims to reduce systemic risk in the OTC derivatives space. We want to make sure that what we are doing in the UK fits with the architecture of EMIR, which will itself be directly applicable in the UK. I suggest that we do not want to fall into the trap of super-equivalence. On the other hand, there are provisions in the Bill for rules to be made that fit within the developing architecture of EMIR.

I turn to some of the issues concerning the Bank of England’s FPC bank governance. First, on the question of the FPC and its objective, the Government recognise that the pursuit of financial stability needs to be balanced against the wider contribution of the financial system to economic growth. As I explained at the outset, the Bill seeks to provide this balance by requiring the FPC to have regard to the proportionality of its actions and by preventing it taking any action that would have a significant adverse impact on sustainable economic growth. Having said that, I listened very carefully to the significant number of noble Lords who pointed out that there should be more recognition of growth in the FPC objective. I have already mentioned many of the speakers who addressed that point but the others included the noble Lord, Lord Mawson, who did so in his characteristic way. I cannot promise any amendments in this area. I listened very carefully but I certainly cannot promise one that directs the FPC to have specific regard to the interests of the Lower Lea Valley, although I think that the House heard very clearly all the great things that are going on there. However, I listened to the points that were made.

Points were also raised concerning co-ordination. On the one hand, the Bill is solving the co-ordination problems by making the Bank and the governor responsible for what some characterised as everything; on the other hand, that presents challenges not only for the person of the governor but for bankers and institutions—something that my noble friend Lord Tugendhat and others brought up. Of course, I certainly accept that monetary policy, financial stability policy and prudential regulation are intimately connected. That is why having these responsibilities under one roof is the best way to ensure that co-ordination. Within that framework, in each role the governor does not act alone but is supported by external and non-executive members and others.

There were other points made by the right reverend Prelate the Bishop of Durham and others on Bank of England governance. I said again at the outset that this is an area in which the Government recognise the need to go further, and I have listened to what has been said tonight. I was grateful to my noble friend Lord Stewartby for pointing out some of the lessons from the Board of Banking Supervision and for recognising that we cannot expect to pick up exactly what it was. However, I believe that the lessons from that experience have been picked up in the design of the PRA board. On the power of direction, I heard speakers say that they believed it to be too constrained. I do not believe that that is the case in relation to the scope that it has in special support operations and the provision of emergency liquidity in relation to the special resolution regime, but I am sure that this is something that we will come back to.

Let me turn to a few remarks about issues on access to financial services. I will be unable to do them full justice, but there were issues around diversity of provision—specifically on mutuals. The coalition agreement makes clear the Government’s commitment on mutuals. The Bill requires regulators to analyse the effect of their rules on mutuals, which is a new measure that will help to ensure the fair treatment that we want. The noble Lord, Lord Whitty, and the right reverend Prelate raised questions about the inclusion and universal provision of financial services. They are very important questions but they are essentially questions of social policy, so are for the Government and not directly for the regulatory structure. On SME lending and questions asked by my noble friend Lord Sharkey and others, the Government are taking significant action, which we have discussed before, outside the framework of this legislation to ensure the flow of lending to SMEs. That work will continue.

In another related area, my noble friend Lord Hodgson of Astley Abbotts talked about the importance of social impact investors. I agree with that but I question the role of the legislation that we are talking about in that area. On consumer credit regulation—important points were made again from my noble friend Lord Hunt of Wirral and others—the Government are committed to designing a proportionate model of FCA regulation for the sector. The Government will consult on this and detailed proposals will come forward early in 2013. My noble friend raised the question of self-regulation. I agree with him that self-regulation which is credible, transparent and effective is an important complement to statutory regulation. The FSA is at the moment looking at different industry codes in the credit industry considering whether, and if so, how they can be incorporated into the new FCA regime.

On payday loans, which was addressed by the noble Lord, Lord Mitchell, the right reverend Prelate, and others, we are awaiting the research being done by Bristol University’s Personal Finance Research Centre at the impact on consumers and business of introducing a cap on the total cost of credit—not an easy topic. The final report is on course to be published this summer.

Finally in this area, I will address briefly the question of peer-to-peer lending raised by my noble friend Lord Lucas and others. The Government do not think that statutory regulation is appropriate at this point. The sector is very small and such regulation would be a barrier to new entrants and innovation. However, this is a matter that we will keep under review, and I am grateful to my noble friend for raising it.

On confidential information and its disclosure, I was asked by the noble Baroness, Lady Drake, about the FSA review. If the FSA concludes as a result of the review that changes to primary legislation are needed, we will consider the proposals very carefully and bring forward legislation as appropriate. It is an important issue.

A couple of points were made on the international front, which clearly is highly relevant. The first concerned the mismatch between the architecture in the UK and the developing architecture in Europe. I say to the noble Baroness, Lady Valentine, that this House probably would not want to abolish imperial measures. Certainly I do not want to abolish them. On financial supervisory architecture, we must design something that is appropriate to the UK. I draw the attention of the noble Baroness, Lady Hayter of Kentish Town, to the broad consensus in the evidence given to the Joint Committee that having a different regulatory structure to that of the European supervisory authorities would not present any issues for the UK authorities either in representing UK interests or in the way that firms in the UK are regulated.

I am sure that we will come back at length to the question of international competitiveness that was raised by my noble friend Lord Trenchard and others. The Government’s position is that it is what the regulators—the FCA and the PRA—do that will make the difference in determining whether the UK is or is not a competitive place in which to do business, not having a statement about competitiveness. It will be the high regulatory standards and the stability of the financial sector to which these will contribute—the reliability, fairness and consistency of regulation—that will be important in maintaining and driving forward the attractiveness and competitiveness of London. It is those issues that will address the substance of the point.

A challenge was thrown down at a number of points in the debate. The noble Lords, Lord Bilimoria, Lord Barnett and Lord Burns, asked whether this structure would have prevented the recent crisis. In my opening remarks I did not mean to say—and did not say—that the structure was the direct cause of the crisis. Of course the principal cause was the behaviour of firms. However, I was in the structure between 2003 and 2005, and I know that that behaviour contributed to the severity of the impact of the crisis in the UK. No one had the responsibility, the authority or the tools to monitor the system as a whole in the way that will be provided for in the FPC. I sat in the monthly meetings of the tripartite deputies at which the stability side of the Bank, which was being significantly reduced, nevertheless came forward with very good analyses of some of the problems that were welling up.

This was in 2005; I did not have the benefit of seeing what happened in 2006 or 2007. However, the analysis was brought forward but the Bank did not take it upon itself to do anything with it, and the FSA did not take away the lessons from the analysis. The deputy governor of the Bank and his team were doing very good work but it went nowhere. The FSA had insufficient focus on its roles as the microprudential regulator and the conduct regulator. This is why the Bill creates two new focused regulators. There was also a lack of clarity in the run-up to the crisis and the way in which it hit.

This has been a wide-ranging debate, for which I am very grateful. The provisions in the Bill have already undergone a great deal of scrutiny—three rounds of public consultation, pre-legislative scrutiny, the attention of the Treasury Committee and its passage through another place. The Government have already shown that they are flexible and committed to making the Bill as good as it can be by amending it in response. It is already strong legislation, but I look forward to the further informed challenge that I know I will get from your Lordships in Committee and to the opportunity to improve the Bill still further. However, for now, I ask the House to give the Bill a Second Reading.

[Lord Northbrook]

Will the Minister write to me and the other Members who asked about strengthening the powers of the Court of the Bank of England and of non-executive members on the regulatory bodies?

[Lord Sassoon]

I have already said that we will go through the whole debate and respond on a range of issues that have not been picked up in my response.

Bill read a second time.

Moved by

[Lord Sassoon]

That the Bill be committed to a Grand Committee.

[Lord Sassoon]

My Lords, I beg to move that this Bill be committed to a Grand Committee.

[Lord Hamilton of Epsom]

My Lords, this Bill is of major importance—this is not my idea; it comes from the Minister—and is very significant indeed. However, for some reason the Minister wants to shuffle it off into the Grand Committee Room. The Bill needs close scrutiny and will bring forth the exquisite qualities of your Lordships’ House. There is a massive amount of expertise here that can make positive comment on the Bill and make it better than it is today. It would be quite wrong if we were to vote for the Bill to go into the Grand Committee Room. It should be debated in Committee on the Floor of the House and I hope that the committal Motion will be negatived by the House.

--- Later in debate ---

[Baroness Liddell of Coatdyke]

My Lords, this should not go into Grand Committee, not least because of the historic significance of the past four years and what has happened to financial services—against the background of financial services as a major industry for this country—but also because this is a classic opportunity to showcase the wide range of expertise that is available in your Lordships’ House. This is not a Bill to be put into a corner and forgotten about. It deserves—and the public deserve to see us give—the kind of detailed scrutiny that legislation of this importance merits.

[Lord Sassoon]

My Lords, I am a little surprised by this discussion, not because I do not think it is an important debate but there have been one or two interventions from noble Lords who unfortunately were not here to hear this point addressed during the debate.

First, this was not a decision of mine. I will do whatever the House wants. I was not asked whether I wanted to do it one way or another and I see arguments for doing it either in Grand Committee or on the Floor of the House. This was discussed through the usual channels. I have not seen this sort of discussion in anything I have been involved in. I believe that the usual channels go through these things very carefully, and they came up with an agreement on this that I certainly am prepared to accept.

I also heard the noble Lord, Lord Eatwell, and the noble Lord, Lord Barnett, who is not in his place at the moment, arguing during the debate that the Grand Committee was a better place to take this legislation. I think the noble Lord, Lord Eatwell, referred to the detailed scrutiny of the Bill establishing the Office for Budget Responsibility, on which I had the pleasure and the responsibility of leading. Indeed, that Bill was given very thorough, detailed scrutiny. It was a Bill of great importance—not as big as this Bill but it showed in a related area how effective the Grand Committee can be.

The Welfare Reform Bill can hardly be said to have been an unimportant Bill. What Bill of greater importance has this House considered in the past two years? Everything I have heard suggests that the scrutiny it got in Grand Committee actually worked extremely well, notwithstanding the understandable doubts there were about it.

I do not want to withdraw the Motion. It has been agreed by the usual channels, in which all these matters will have been debated, and I believe that we should stick with what the usual channels have agreed.

[Lord Lamont of Lerwick]

My Lords, I ask my noble friend to think again about this. This may have been agreed by the usual channels but it is not the usual channels that should entirely count on this; it is the will of the House. Almost all the people who have spoken in the debate are present now and a large number of them have expressed the view that this would be an unsatisfactory way of proceeding. The view has been put that this is comparable to the OBR. With great respect, I suggest that this is a much, much more important measure than the OBR.

Secondly, the Grand Committee is a much more restricted form of scrutiny in that you cannot actually vote on amendments; you cannot have a Division. I know that it is the practice of the House that we do not have too many Divisions in Committee on the Floor of the House. None the less, the pressure on Ministers to give a clear explanation to pointed amendments when there is a threat of a Division is much greater and it makes for a much sharper and more lucid Committee when there is the possibility of a Division. Just to have debates in which there are no Divisions and there are many more Divisions on Report does not seem the best and the most satisfactory way of proceeding. I strongly urge the Minister to reconsider.

[Lord Foulkes of Cumnock]

The Minister has said that he personally does not mind whether the Bill is dealt with on the Floor of the House or in Grand Committee, which is very helpful. He founds his argument principally on an agreement through the usual channels—and I have great respect for the usual channels. However, I fear that, because of the recess, the usual channels may not have worked as efficiently and effectively as otherwise. If the Minister were to agree to withdraw the Motion, which would be preferable to a Division, we could have a few days to have further discussion and consultation. By that time, the groups will have met; the Cross-Benchers will have had an opportunity to meet; and we can consider this matter again. All we are doing is suggesting that this matter be postponed for three or four days.

[Lord Sassoon]

My Lords, I have every faith in the ability of the usual channels to work these things out very thoroughly, recess or no recess. We should do what is customary and stick with what the usual channels have agreed.

--- Later in debate ---

[Baroness Noakes]

Perhaps I may challenge the suggestion made by the noble Baroness, Lady Kramer. While officials sit rather nearer to the Ministers in Grand Committee, I think that they take no active part. All we have is that the same number of officials sit rather closer to the Minister, so it makes very little difference in terms of determining government policy. In practice, because no decisions are made in Grand Committee, or at least they are made very rarely there, the proximity of officials is of no account whatever.

[Lord Sassoon]

My Lords, I hear the opposition to this Motion loud and clear. Rather than put ourselves through the agony of going through the Division Lobbies at this late hour, let me withdraw the Motion and let some more discussions go ahead.

Motion withdrawn.

Financial Services Bill

Lord Sassoon Excerpts

Monday 11th June 2012 Lords Chamber

Moved by

[Lord Sassoon]

That the Bill be read a second time.

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

My Lords, I am pleased to have the opportunity to debate the Government’s proposals for financial services regulation. We have an impressive list of speakers today, including former Chancellors, government Ministers and Cabinet Secretaries, so I am sure that it is going to be a lively and interesting afternoon and evening. I am sure that, like me, noble Lords will be particularly looking forward to hearing from the noble Lord, Lord O’Donnell, my esteemed former boss, who will be giving his maiden speech today.

A thriving financial services sector is vital to the prosperity of the United Kingdom, and we can be justifiably proud of the country’s position as a world leader in financial services. As your Lordships are well aware, though, the UK financial system is emerging from the most serious financial crisis in more than 100 years. The Government are determined to learn the lessons from that crisis, which is why we have initiated a fundamental and wide-ranging reform of the financial services sector. That reform will be delivered not only through important changes to the regulatory system contained in the Bill; on Thursday the Government will publish a White Paper setting out how we plan to implement the recommendations of the Independent Commission on Banking. We are also shaping the international response to the crisis with our counterparts in Europe and elsewhere.

The causes of the financial crisis were many and diverse. Certainly it is clear that financial institutions took on risks that they did not understand or effectively manage. As a result our banks became among the most heavily leveraged in the world. Northern Rock was offering 120% mortgages, with an excessive reliance on wholesale funding, and the Royal Bank of Scotland’s acquisition of ABN AMRO was plainly very risky. It was a deal described by the next RBS chairman as,

“the wrong price, the wrong way to pay, at the wrong time and the wrong deal”.

However, the regulators also failed to act on the risks that were building up, both in individual institutions and across the system as a whole.

Let me be clear: the UK’s financial regulatory system was not fit for purpose. The tripartite system, made up of the Financial Services Authority, the Bank of England and the Treasury, failed. This was because no one had the single responsibility to monitor the financial system and address the causes of financial instability.

I was part of the system, as a Treasury official, from the end of 2002 to the end of 2005 and even then, in benign markets, some of the deficiencies of the tripartite were clear. The private sector was already asking who would be in charge in a crisis. When the financial crisis hit, this lack of clarity in responsibility initially meant that there was an inadequately orchestrated response. The FSA, the UK’s monolithic financial service regulator, was asked to do too much. On the one hand, it was required to assess the prudential viability of financial services firms; on the other, it was required to police the conduct of those firms. Because of the wide remit of the FSA, process too often became valued above judgment and box-ticking above informed regulation and supervision. This is why the changes contained in this Bill are vital. We are creating a framework based on clarity of responsibility for regulators. This Bill puts the judgment of expert supervisors at the heart of the new system. Instead of dividing responsibility for financial stability, we are putting the Bank of England clearly in charge.

I will now briefly outline several key themes of the Bill. First, the Bill addresses the widely acknowledged shortcomings of the arrangements in times of financial crisis. This Bill will give the Bank primary operational responsibility for financial crisis management, but the Chancellor of the Exchequer will retain responsibility for any decisions that require the use of public funds. In cases where there is a serious threat to financial stability which puts public funds at risk, the Chancellor will have the power to direct the Bank.

In order to oversee and address systemic risk throughout the entire financial sector, the Bill creates a powerful new macroprudential body in the Bank of England, the Financial Policy Committee or FPC. The Bill gives Parliament the power to bestow important new macroprudential tools on the FPC so that it can act to address the risks it identifies. The FPC will promote a healthy financial system, but not a zero-risk system. It will be a system that can both thrive on and withstand appropriately managed risk. As my right honourable friend the Chancellor of the Exchequer has said, the FPC should not seek to achieve the “stability of the graveyard”, so the Bill recognises that in pursuing a stable financial system, the FPC must not impact on the ability of the financial sector to contribute to sustainable growth in the medium or long term. I know, of course, that the way this is dealt with in the Bill was the subject of some debate in another place.

Since the Bank of England will be taking on a more powerful role, it is right to consider the robustness of its accountability mechanisms. I want to take this opportunity to highlight the work of the Treasury Committee, which engaged constructively with this Bill in a range of areas, not least the governance of the Bank. We welcome the commitment of the Court of the Bank of England to enhance the Bank’s governance arrangements in line with the recommendations of the Treasury Select Committee. As my honourable friend the Financial Secretary to the Treasury set out in another place, the Government will seek to amend the Bill in your Lordships’ House to put these enhanced arrangements on to a statutory footing. I will be listening carefully to your Lordships’ views on Bank governance as we finalise our thoughts on the appropriate amendments to put forward.

The Bill also provides for two focused financial regulatory bodies: the Prudential Regulation Authority and the Financial Conduct Authority. I will take each one in turn. This Bill will establish the Prudential Regulation Authority—the PRA—as a subsidiary of the Bank of England bringing together macroprudential policy and microprudential regulation under the Bank. In its role as a microprudential regulator, the PRA will regulate and supervise firms that manage significant risks on their balance sheets. This includes not only banks but insurers and the more significant investment banks. Crucially, the PRA will be required to take a strong, judgment-led approach. Indeed, it will have a specific duty to supervise to ensure that it actively engages with businesses, scrutinises their business models and carries out forward-looking risk assessments.

The Bill will also establish the Financial Conduct Authority as a focused conduct-of-business regulator. The Bill is good news for consumers of financial services. The FCA will be proactive in securing better outcomes for consumers, with a new competition objective and a new power to ban or impose requirements on products that could cause consumer detriment, enabling the FCA to intervene earlier, before there is evidence of widespread harm. This means that the FCA will be better equipped than the FSA to deal with mis-selling scandals, such as that of payment protection insurance. This morning the Government announced the appointment of John Griffith-Jones as the chair-designate of the FCA. Mr Griffith-Jones is currently UK chairman of KPMG and a professional with many years’ experience of the financial sector. His appointment marks an important step forward in the continuing establishment of the FCA.

The Bill enables responsibility for consumer credit regulation to be transferred from the Office of Fair Trading to the FCA. This transfer will ensure that the consumer credit market also benefits from the FCA’s focused remit, proactive approach and wider powers. However, we are clear that securing effective competition in financial services markets will lead to better outcomes for consumers. That is why the FCA will have an objective to promote effective competition in the interests of consumers. It will also have a duty to seek competition-led solutions to conduct issues when pursuing its other operational objectives. For example, the FCA will consider barriers to entry, encouraging switching, increasing transparency and focusing more on the requirements for information of different consumers, including those who are vulnerable or marginalised.

We are confident that these reforms will make the UK a more attractive place in which to do business. They will help maintain the UK’s position as the leading global financial services centre. A more stable and sustainable financial sector will undoubtedly be a more competitive one. However, markets in financial services are not contained by national boundaries. That is why the Bill contains extensive arrangements to ensure that the new regulators co-operate fully with each other in their dealings with international regulatory bodies.

The Bill’s introduction to Parliament was preceded by an intensive process of policy development. It included three separate public consultation exercises, all of which served to improve the legislation now before the House. I take this opportunity to pay tribute to the valuable work of the Joint Committee on the draft Bill, which included a number of noble Lords who will contribute to today’s debate. They made valuable contributions during pre-legislative scrutiny and I look forward to hearing them share their expertise today. I look forward to working closely with your Lordships during the Bill’s consideration in this House and I welcome the informed scrutiny and expertise that will no doubt be offered.

The Bill comprehensively addresses the failings of the current financial regulatory system. It makes it clear that the Bank will be responsible for monitoring and ensuring the financial stability of the system as a whole. It makes it clear who leads in the event of a financial crisis. Never again will people ask, “Who is in charge?”. It creates two new focused regulators, placing judgment at the heart of microprudential and conduct-regulation. The PRA will be empowered to use its judgment to challenge the excessive and inappropriate risk-taking that led to a run on Northern Rock and the government interventions in RBS and Lloyds TSB. The FCA will be empowered to take proactive steps to regulate conduct in financial markets, preventing detriment to consumers of financial services. I am pleased to present the Bill for noble Lords’ consideration. I beg to move.

Debt

Lord Sassoon Excerpts

Tuesday 29th May 2012 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government, further to their proposals in the Queen’s Speech “to reduce the deficit”, in which year they expect the national debt to start to be reduced.

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

My Lords, the Office for Budget Responsibility’s March 2012 forecast shows public sector net debt falling as a share of gross domestic product in 2015-16. The Government are therefore on course to meet the target for debt set at the June 2010 Budget.

[Lord Barnett]

My Lords, I am grateful for that Answer, but since then the Bank of England has forecast that growth will be even lower and it could be lower still according to other independent forecasters. In those circumstances, the debt is likely to go on much longer. Despite that, I am happy to congratulate the Government on being willing to find up to £1 billion to help the European growth fund if needed, if asked—which I hope they are. Will the Government therefore be willing to find—because it is petty cash in the context of £1 trillion or more of national debt—the same amount or more petty cash for what the CBI is asking for: a UK growth fund for infrastructure expenditure?

[Lord Sassoon]

My Lords, there are all sorts of good ideas and lobbying that come from all sorts of quarters, but if the Government were to treat £1 billion here or there as petty cash, the British public would be absolutely appalled with what we were doing with public expenditure. As for business investment, yes, we talk to the CBI—it comes up with a lot of good ideas—but what is important is that the provisional data for the second quarter of 2012 indicate that business investment is showing a stronger recovery than forecast by the Office for Budget Responsibility. The OBR did not expect business investment to reach the level that we have seen in the second quarter until 2013. It is good that business investment is rising.

[Lord Forsyth of Drumlean]

When the Deputy Prime Minister made his speech in the tractor factory and said that the Government had a moral duty to the next generation to wipe the slate clean for them, that we had set out a plan that lasts six or seven years to wipe the slate clean, to rid people of the dead weight of debt that had built up over time, what was he talking about? Will not the debt have gone up in six or seven years’ time by half a trillion pounds?

[Lord Sassoon]

My noble friend is right to point out quickly the confusion that many of us occasionally suffer on the difference between debt and deficit. Of course, the two things are different.

[Lord Bilimoria]

My Lords, does the Minister agree that one of the main reasons for the financial crisis and the great recession was the record level of low interest rates—we were talking of 5%? Now, for three years, interest rates have been 10 times lower than that. Do the Government want to help money to flow through? Lending needs to increase to small businesses and it is not happening at the moment. Secondly, could the Minister summarise the Government’s strategy and prognosis for the interaction between debt, deficit, interest rates and inflation?

[Lord Sassoon]

My Lords, I think we shall need a little longer on the latter part of the question. The noble Lord, Lord Bilimoria, raises an important point in that the first thing we have to do is to ensure that interest rates are kept low. I need hardly remind the House that 10-year interest rates, as of last night, were at almost record lows at 1.75%. We want to see the benefit of those low interest rates flow through to businesses, which is why, among other things, we have the national loan guarantee scheme. In the time of the noble Lord, Lord Barnett, there was not 3% inflation but it peaked at 26.9% and interest rates were more than 10%. That is why I know he is sympathetic to the challenge we have and why my right honourable friend the Chancellor is doing such a fantastic job in these difficult headwinds.

[Lord Higgins]

My Lords—

[Lord Eatwell]

My Lords, yesterday’s government announcement on VAT will add £110 million to the annual deficit and hence cumulatively to the public debt. Will the Minister explain to the House why the announcement on VAT was not first made in Parliament, in compliance with the Ministerial Code? Will he also tell us what alternative ways of spending the £110 million of petty cash were considered? Does VAT now apply to humble pie?

[Lord Sassoon]

My Lords, I am glad that in the space of three minutes the party opposite’s definition of petty cash has come down from £1 billion to £110 million. On a number of issues, including the VAT changes, we said that we would consult. We have consulted and we have come up with what we believe is the right approach, having talked to a range of interested parties.

[Lord Higgins]

My Lords—

--- Later in debate ---

[Baroness Randerson]

My Lords, the Government have stated repeatedly that reducing the deficit must take priority over reform of the Barnett formula. Can the Minister tell us whether Treasury discussions with the Government in Wales have included consideration of a temporary mechanism—the so-called Barnett floor—which, although it would not solve the problem, would at least alleviate the immediate widening of the unfairness in the funding of Wales?

[Lord Sassoon]

My Lords, we are ranging a little widely at this point. My understanding is that discussions with the Welsh Assembly are going on. We intend to report back by the end of the year. A Barnett floor is one of the ideas that I know has been put forward, among others, and is subject to the discussions with the Welsh Assembly.

[Lord Higgins]

My Lords—

[Lord Low of Dalston]

In the debate on the Queen’s Speech, the noble Lord assured the noble Lord, Lord Skidelsky, that sustainable recovery was already under way, as he has again said this morning in response to the noble Lord, Lord Barnett. How does he reconcile that with the fact that we are actually plunging deeper into recession? Is this recession denial?

[Lord Sassoon]

My Lords, if one looks, for example, at job creation over the two years since the election, the private sector has created more than 600,000 jobs at a time when some 400,000 public sector jobs have been lost. The latest figures show that unemployment is at a seven-month low. Of course we would like to see growth sustained and at a higher level, but we should not run down the very considerable achievements of the private sector in generating jobs and exports in the economy.

[Lord Higgins]

My Lords—

[Lord Higgins]

My Lords, as we have been told time and again by the Opposition that the Government are cutting the deficit by too much and too fast, would it take much longer to reduce the deficit if we were to adopt the policy of the Opposition?

[Lord Sassoon]

Yes, indeed.

Taxation: Plastic Bags

Lord Sassoon Excerpts

Monday 28th May 2012 Lords Chamber

[Baroness Parminter]

To ask Her Majesty’s Government whether they are considering introducing a tax on plastic bags.

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

My Lords, the Treasury keeps all tax policy under continuous review. The Government are aware of the initiatives on the taxation of carrier bags in the devolved Administrations and will be interested to see the evidence of their effectiveness and administrative costs.

[Baroness Parminter]

My Lords, each year we use 6 billion plastic bags in UK supermarkets. Does the Minister recognise the success of the taxation schemes in Ireland, Northern Ireland and Wales which have resulted in a 90% drop in plastic bags and have raised revenue to help deal with the environmental problems caused by these icons of a throwaway society?

[Lord Sassoon]

My Lords, I have learnt a lot about plastic bags over the past couple of days. As I am sure my noble friend knows, there is a voluntary scheme in this country which has reduced the use of single-use bags by some 45% across the UK. The first evidence of how the Welsh scheme, which started on 1 October last year, is doing will come out imminently. Scotland is about to issue a consultation document about possible charging for carrier bags which we will look at, and it is intended that the Northern Ireland scheme will come in in April 2013. I think it is as yet a little early to see what has happened in the devolved Administrations.

[Lord Anderson of Swansea]

The Minister says that it is a little early to see what has happened in the devolved Administrations, but surely the evidence from Wales is already clear. When one goes to a supermarket, one pays 5 pence for a plastic bag, and there has been a very substantial reduction in their purchase—I heard that it is 70% rather than 90%—as a result. Are we now in touch with the Welsh Assembly Government, who have got there first?

[Lord Sassoon]

My Lords, as I have said, we will look carefully at the evidence. The first official figures are due to be released shortly and we will see what they show.

[Lord Jenkin of Roding]

My Lords, is my noble friend aware that over the past six years the issue of plastic bags has decreased by some 40% and that 4 billion fewer bags are used now than six years ago? More recycled plastic is used in the bags that are produced so that the use of virgin plastic has reduced by 61%. Is it not right that a lot of supermarkets have quite sophisticated schemes for encouraging their customers not to use plastic bags? When my wife and I shop at a branch of Sainsbury’s in west London, we are given a credit if we bring our own bags.

--- Later in debate ---

[Lord Sassoon]

My Lords, I agree with my noble friend that progress has been made. We would like to see more progress, of course, but all that has been done without a minimum charge or any form of taxation. The Government encourage all these initiatives.

[Baroness Deech]

Will the Minister extend his concern to the equally wasteful and annoying practice of sending out parliamentary mail in plastic bags that are very difficult to open, not to mention the plastic bags you have to use for little bottles of liquid when going through airport security? However, the mail coming from Parliament is especially wasteful of plastic.

[Lord Sassoon]

My Lords, I am sure that the authorities of the House have listened carefully to that bit of advice.

[Lord Dubs]

Is the Minister aware that he must be the first Treasury Minister in history who seems not to want the money when there is pressure for a tax? The fact is that the voluntary scheme is useful, but does he not agree that taxation could significantly reduce the number of plastic bags in use, thereby saving the environment and perhaps giving the Treasury some more money?

[Lord Sassoon]

My Lords, this is also a Government who take the burdens on business through red tape extremely seriously. We have to balance the various factors at play here.

[Baroness Howarth of Breckland]

My Lords, is the Minister aware that the amount of plastic we are saving from the shops has been overtaken by plastic bags that purport to collect clothing for various charities? Have the Government looked at this? They are very useful for recycling in rubbish bags but I am sure it is another unnecessary use of plastic.

[Lord Sassoon]

I am very happy to learn a bit more about this subject. I thank the noble Baroness.

[Baroness Knight of Collingtree]

My Lords, when my noble friend is considering this matter—bearing in mind all that has been said and the dramatic diminution in the use of plastic—will he also bear in mind that for many people shopping is quite difficult and hazardous? Even if you are only on a very modest diet of bread and butter, butter and bread have gone up a very great deal and it is a little hard for many people to have to pay increased amounts for the things they really must have to live, and then pay again to put it in bags to take it away because they cannot carry it all by hand.

[Lord Sassoon]

My Lords, this is true, although I note that as early as 1997, Waitrose introduced its “bag for life” scheme; for 10p it sells a bag that is replaced free of charge when it is worn out. There are imaginative schemes out there that supermarkets are taking on which will not incur large costs for the consumer.

[Baroness Corston]

My Lords, the Minister referred to the scheme in Wales and implied that it would be very difficult for the Government to make an assessment because the scheme is quite new. What assessment has the Treasury made of the success of the scheme in Ireland? That scheme is probably eight years old and has been spectacularly successful. Dealing with the point raised by the noble Baroness, Lady Knight, people take in their own shopping bags. There has been a great public information campaign and preparation, and a 90% reduction.

[Lord Sassoon]

My Lords, we take all the evidence into account. As we have heard in this interesting discussion, there has been a very significant reduction right across the UK without compulsory measures. We will look at the evidence from Wales and the other devolved Administrations when it comes in.

EU: Euro Area Crisis

Lord Sassoon Excerpts

Thursday 24th May 2012 Lords Chamber

[Lord Campbell-Savours]

To ask Her Majesty’s Government what assessment they have made of the effect on the European economy and financial institutions of the crisis in the euro area.

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

My Lords, the Government make regular assessments of the economic situation as part of the normal process of policy development. The OBR, the OECD, the European Commission, the IMF, and many others expect a euro area recession this year. As we have said, if the euro area does not definitively sort out its ongoing problems, the uncertainty that that will create and its impact on confidence across Europe will continue to have a chilling effect on Britain and the global economy.

[Lord Campbell-Savours]

My Lords, does not Germany bear some responsibility for problems in the eurozone in that it was Germany that turned a blind eye when Goldman Sachs fixed Greece’s books to secure its entry into the euro; it was Germany that turned a blind eye to breaches of GDP limits in the European stability and growth pact; and it was Germany that promoted the euro currency to prevent regional devaluations in neighbouring nation states, thereby protecting its own export markets within Europe? Surely Germany should show a little more flexibility in these matters.

[Lord Sassoon]

My Lords, the key issue about Germany in relation to this Question is that we should be grateful that the German economy continues to grow. About 9% of the UK’s exports go to Germany. It is a very important market for us and it is critical both for us and for the eurozone that Germany and its economy continue to perform relatively strongly.

[Lord Marlesford]

My Lords, does my noble friend agree that countries which, for one reason or another, have to leave the euro area could well continue to use the euro as their currency rather than inventing a new currency, like perhaps the drachma, in which markets might have little or no confidence?

[Lord Sassoon]

My Lords, many people have been painting scenarios of which my noble friend sketches out one. This is not the time to talk about different scenarios. We want to see an early resolution of the Greek uncertainty, the ring-fencing of other vulnerable economies, the recapitalisation of the banks and work on European growth. That has to be the priority for the moment.

[Lord Soley]

The Government say that the eurozone countries must take decisive action. What decisive action do the Government have in mind?

[Lord Sassoon]

Again, my Lords, I will not speculate on the range of scenarios. Plenty of advice has been given to the UK Government, to each of the individual Governments in the eurozone and to the eurozone collectively. The important thing is to get on with it. The next major milestone will be what the Greek people decide at their forthcoming election.

[Lord Dykes]

My Lords, does my noble friend agree that the British Government played a very constructive role in last night’s summit meeting? Will they use their voice to persuade Germany to think again about the business of collective Eurobonds, and enlarging the firewall to make it realistic? That would be an excellent and effective way, without causing inflation, of having a lower yield overall, which would get over the nonsense that eurozone market ratings at the moment are generally lower than those of the much more heavily indebted United States of America and Japan.

[Lord Sassoon]

I certainly agree with my noble friend that my right honourable friend the Prime Minister played a very constructive role in the discussions last night and is clearly open to a range of ideas.

[Lord Foster of Bishop Auckland]

My Lords—

[Lord Barnett]

My Lords, would it not be in the UK’s best interests to recognise the major differences that exist? If we are to help in any way to avoid a messy break-up of the eurozone, would it not be in our best interests to help set up some kind of scheme that would bring about the usual kind of compromise that would help at least in the short term? The noble Lord said recently that the Prime Minister was right and might agree to some kind of support for a growth fund. Does that option still exist?

[Lord Sassoon]

My Lords, as I said in answer to the previous supplementary question, we are playing a very constructive role at the table with the 27, discussing all the possibilities for getting Europe through the present crisis—not only short-term measures that need to be taken but important questions about sustainable growth and the structure of the single market. However, fundamentally it is for the euro area countries to take decisions now about the euro area’s very immediate problems.

[Lord Hamilton of Epsom]

What does my noble friend think about the article in the Times yesterday in which the German Foreign Minister said that within the European budget there were resources that could be used to stimulate the eurozone economy, including about €80 billion which remains unspent as we speak?

[Lord Sassoon]

My Lords, within what needs to be tight discipline—tighter than has been exhibited in recent years—over the overall European budget, certainly these ideas of targeting funds better within the existing budget envelope need to be looked at very hard.

[Lord Harrison]

My Lords, when the noble Lord appears next on the BBC “Today” programme, will he remind listeners that stability bonds are not mini-Eurobonds? What is the Government’s view of stability bonds, which could be part of the growth agenda that we so badly need in the eurozone area and in the EU as a whole? Would we be prepared to join in?

[Lord Sassoon]

My Lords, as I said this morning and on other occasions in the past week, we are prepared to look at ideas. Those that are being floated include increasing the lending capacity of the European Investment Bank and issuing project bonds. We will look at these ideas as they develop.

Euro Area Crisis: EUC Report

Lord Sassoon Excerpts

Monday 21st May 2012 Lords Chamber

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

My Lords, I welcome this opportunity to discuss the European Union Committee’s report on the euro area crisis. I first thank the noble Lord, Lord Harrison, and the committee for its thought-provoking analysis, and particularly my noble friend Lord Roper for not only this report but all the other truly excellent work that the committee has done in recent years, which I am fully confident will continue at that excellent level under the chairmanship of the noble Lord, Lord Boswell of Aynho.

The House is aware that these are difficult and dangerous times for the European and the global economy. The ongoing crisis in the euro area continues to undermine confidence and growth right around the world. We have kept the UK out of that storm by taking decisive and resolute action to tackle our deficit, but it is in our vital interest that the euro area reaches a lasting and sustainable resolution to the crisis, and it needs to do so quickly—a point firmly emphasised by my noble friend Lord Dobbs.

As the noble Lord, Lord Harrison, reminded us at the outset, the Governor of the Bank of England said only last week, the difficulties in the euro area represent,

“the biggest risk to recovery”,

in the UK. So it is in the UK’s national interests that we work to resolve these difficulties.

Resolution of the euro area crisis requires three things: resolving the ongoing uncertainty about Greece; ring-fencing other vulnerable euro area member states; and properly recapitalising Europe’s banks. We should recognise that some progress has been made. Greece was given a second programme of assistance and the face value of its debt written down. As the committee also notes, banks need to be sufficiently capitalised to withstand the instability. At home we have taken the necessary actions and as a result all UK banks passed the recent European Banking Authority capital adequacy tests. However, recent events remind us that significant risks remain and the IMF rightly warns us all that the global economy remains very fragile. That is why we agreed to increase our contribution to the IMF by £10 billion on condition that the IMF supports countries not currencies, that other IMF members also increase contributions, as they have done, and that the Euro area increases its own firewall, as it, too, has done.

Noble Lords will be aware that the Government are taking forward legislation to ratify the EU treaty change that provides the legal basis for the European stability mechanism, and we will start to debate that on Wednesday. That means that the position will, I trust, be clear to my noble friend Lady Noakes and to others in this House: the UK will not be making further contributions to eurozone bailout funds under the EU budget. Ultimately, high deficit, low competitiveness countries need to confront their own problems head on. They need to continue taking difficult steps to cut their spending, increase their revenues and undergo structural reforms to boost competitiveness. I agree with much of what the noble Lord, Lord Giddens, said. This is about economic sustainability, in his words—or fiscal sustainability, as I would put it. He did not find another word for growth so I will continue to call it growth. His analysis was very interesting, although, of course—

[Lord Giddens]

I prefer the term “wealth creation” to growth. You can find other words and you probably need to break them down into various component parts to make sense of what people mean when they use “growth” in a generalised sense, which is not terribly useful.

[Lord Sassoon]

I am grateful to the noble Lord for those comments. I disagree with some of the fundamental aspects of his analysis of the Government’s prescription for the UK economy but I think that goes a bit beyond the narrow topic of today’s debate.

As we have previously said, the euro area must also put in place governance arrangements to deliver the greater collective support and responsibility that the remorseless logic of monetary union demands. We want the fiscal compact to work in stabilising the euro and putting it on a firm foundation. We support the decision of euro area countries in the fiscal compact to commit to clear rules on fiscal discipline which the UK agrees are needed to make the single currency work effectively.

Questions were raised about the ratification of the fiscal compact. Although I will not comment on the likelihood of that happening, I can update the House and report that so far Greece, Portugal and Slovenia have ratified the compact. The compact will come into force once 12 euro area member states have deposited their instruments of ratification. The ratification processes are significantly different in different member states, but that is where things stand.

As the committee report notes, we agree that eurobonds are another issue that deserves further analysis and serious consideration. I agree with the noble Lord, Lord Monks, on that. Of course, any steps that are taken towards closer integration must not be prejudicial to the single market. We agree with the committee that matters relating to the internal market must remain the preserve of all 27 EU member states. This is why last December the Prime Minister did not agree to measures the euro area wanted to pursue on further fiscal integration being part of the EU treaties without adequate treaty-level safeguards for the single market.

I am sure that my noble friend Lady Williams of Crosby will not be surprised—she may be a little disappointed, but I am sure not too disappointed because we have discussed this before—that there is not a lot extra that I can add. My right honourable friend the Chancellor deposited an answer with the Treasury Committee, which is on its website, that goes as far as is appropriate and consistent with the need to keep the details of negotiations confidential. However, I draw noble Lords’ attention, if they have not read it, to that document.

We also agree wholeheartedly with the committee that we all need to address Europe’s low productivity and lack of economic dynamism. The UK has been leading that charge and has formed an alliance with 11 other EU leaders to set out an action plan for jobs and growth in Europe, including completing the single market in services and digital—a point to which my noble friend Lord Maclennan of Rogart drew attention. He was right to do so.

The Prime Minister’s focus at the next informal European Council this month, and at the June European Council, will be on ensuring that the focus in Europe remains on promoting growth. The UK’s specific growth agenda includes the digital single market and the services directive, but also, importantly, completing all the open bilateral EU trade deals, which themselves could add €90 billion to the EU economy. A deal with the US would be bigger than all the others put together, but they are each important. Of course, we want the Commission to commit to a new programme to reduce the overall regulatory burden, following on from the current administrative burden programme that concludes in 2012. The Government will be pursuing that agenda very vigorously with our European partners.

Some other aspects have been referred to in the debate. Again, the noble Lord, Lord Monks, referred to the possibility of an increase in lending capacity by the European Investment Bank. That could indeed have a part to play, although I of course disagree with the noble Lord on his views on a European financial transaction tax. That is not the way to go.

My noble friend Lord Maclennan of Rogart also referred to project bonds, which are another possible funding mechanism, which, if the funding comes out of existing EU resources and is carefully designed to be consistent with the need to minimise EU expenditure, is certainly another option that merits exploration.

I should address one or two of the specific questions that were raised on Greece. I take as my starting point the fact that we must respect the Greek people’s choice in their forthcoming elections. That point was expanded on by the noble Lord, Lord Judd, but I certainly take as a starting point the fact that we have to listen to what they decide they want to do. The important thing for all of us is for Greece to find a way out of economic crisis in co-operation with its creditors and for it to get back to sustainable growth and sustainable wealth generation. This Government hope that Greece can agree a way forward on this as soon as possible.

Notwithstanding the encouragement of the noble Lord, Lord Harrison, I am not going to speculate on what may or may not happen in Greece or in any other EU member state. Various scenarios were painted by some noble Lords—my noble friend Lord Marlesford, the noble Lord, Lord Willoughby de Broke, and others—but I shall not comment on those. All I will say is that the Government are undertaking extensive contingency planning to deal with all potential outcomes of the euro crisis. As the House will recognise, given the sensitivity of this work both to the markets and to international relations we will not deviate from the normal response, which is not to divulge specifics of the Government’s plans.

My noble friend Lady Noakes specifically asked about the exposure of the UK economy to Greece. The numbers relating to the relatively limited direct exposure of the UK banks and the UK economy generally to Greece are published, but clearly there is a need for a convincing firewall, as we all know the step change that there would be if contagion spread. Therefore, although I do not recognise the construction that the noble Lord, Lord Davies of Oldham, put on Robert Chote’s remarks, I think we all recognise the very serious implications if these issues are not dealt with speedily and in all their dimensions.

I was asked about one or two other issues. The noble Lord, Lord Harrison, asked about the impact of the French elections and what changes there will be with the new President. Of course, as he should have been, my right honourable friend the Prime Minister was very quick to congratulate Monsieur Hollande on his election victory. France is an important partner of the UK. We look forward to the close co-operation on foreign and defence policy, as well as on other areas, continuing with the new Government. The Prime Minister and the President had a warm exchange in their initial call and they subsequently met at the G20 meeting at Camp David. They are working together closely and are looking forward to building on the close relationship that exists. Therefore, based on the discussions in recent days, I think that the impact can only be positive.

The last point I raise nervously but I do so for completeness in tackling the issues that came up in the debate. The noble Baroness, Lady Crawley, said that this was not the time to speculate about a possible referendum—words which I am sure her noble friend Lord Mandelson and the shadow Chancellor will very much take to heart if they listen to this debate or read it afterwards. However, I shall not go further than that.

In conclusion, these are indeed dangerous times for the European economy. It is vital that euro area Governments pull together to deliver a sustainable resolution to the crisis, tackling their deficits, forging closer governance arrangements, and boosting competitiveness and growth. On all fronts, the UK will work as a strong and positive partner with our European neighbours to restore prosperity right across the European Union.

Eurozone

Lord Sassoon Excerpts

Thursday 17th May 2012 Lords Chamber

[Lord Empey]

To ask Her Majesty’s Government whether they intend to make any further financial contributions to the eurozone bailout.

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

My Lords, first, we should be clear that there are no requests on the table for further financial assistance. The Government have made clear their view that the responsibility for sorting out the problems of the euro area rests primarily with euro area Governments. The UK will not be a member of the permanent European stability mechanism, which will replace the European financial stability mechanism established under the previous Government, for which the UK holds a contingent liability.

[Lord Empey]

The Minister will be aware that there is considerable confusion in the public’s mind about what our commitments to the eurozone actually are. Although we may not have those commitments through formal European agreements, we are putting more money into the IMF and have done a bilateral deal with Ireland. Can the Minister clarify, in language that people outside can understand, exactly what our liabilities to the eurozone and its member countries are in the event of further financial turbulence?

--- Later in debate ---

[Lord Sassoon]

My Lords, as I explained, there are no requests for further assistance on the table at the moment, so it would be entirely hypothetical to discuss what our further commitments might be. However, as I have said, as of July this year, the permanent European stability mechanism comes in. The UK is not party to the agreement to establish that mechanism and there will be no further commitments from the UK under the European financial stability mechanism from July this year. The IMF does not support the eurozone or any other currency union. It is there to support individual countries, and any assistance is considered country by country on the merits of each case.

[Lord Lawson of Blaby]

My Lords, my noble friend the Minister is causing some of us a little concern. Why did he not answer the Question on the Order Paper with a simple no?

[Lord Sassoon]

Because it is a complicated Question, which deserved a somewhat fuller Answer.

[Lord Tomlinson]

My Lords, as the decisions affecting the eurozone clearly have a major impact on this country and its economy, can the noble Lord at long last tell us precisely what advantages are achieved for the United Kingdom by excluding ourselves from some of the very important European decisions?

[Lord Sassoon]

My Lords, we are not excluding ourselves from very important decisions; we are saying that it is for members of the eurozone to take the lead in sorting out the problems with the euro. We are very much at all the discussions. As well as questions of potential and past bailouts, we are discussing growth strategies and the completion of the single market, which will put Europe back on a sustainable growth path.

[Lord Forsyth of Drumlean]

My Lords, what is complicated about our country borrowing at an increasing rate so that the national debt will be 50% larger in seven years’ time? What is complicated about ruling out providing money to the eurozone that we do not have to spend?

[Lord Sassoon]

My Lords, I have been completely clear that as of this July, the mechanism in the eurozone, which the previous Government signed us up to, will no longer make any future commitments. The new permanent mechanism that is being put in place is a eurozone-led mechanism and the UK is not part of it.

[Lord Barnett]

My Lords, I referred yesterday to a report in the best newspaper in the country, the Financial Times, which obviously the noble Lord, Lord Howell, does not read. That report, by two journalists, said that the Prime Minister was contemplating capital for a European growth fund. That would be a sensible compromise with the new French President. Will the Minister either confirm the truth of this or deny it completely?

--- Later in debate ---

[Lord Sassoon]

My Lords, like my noble friend Lord Howell, I did not see the article. I thought that my noble friend’s answer yesterday was exactly to the point. Ideas have been floated around that the European Investment Bank should increase its capital and stability and in some way its ability to lend. If proposals come forward, we will look at them, but it is very important that the EIB does nothing to prejudice its own debt rating.

[Baroness Falkner of Margravine]

My Lords, given the relatively healthy state of the German economy and its growth rate, are the Government having any conversations with the Germans about using fiscal measures to unleash some consumption and spending within Germany so that 80 million Germans do not keep their money under their mattresses but use it as a spur to generate further growth?

[Lord Sassoon]

My Lords, we do not offer advice to the Germans on how to manage their own economy any more than they would offer advice to us.

[Lord Pearson of Rannoch]

My Lords—

[Lord Campbell-Savours]

My Lords, are Ministers saying that, if the European Union were collapsing all around us, we would stand aside and do nothing at all?

[Lord Sassoon]

No, my Lords, that is not what I have said or am saying.

Environment: Green Growth

Lord Sassoon Excerpts

Wednesday 16th May 2012 Lords Chamber

[Baroness Worthington]

To ask Her Majesty’s Government what assessment they have made of the recent Green Alliance report into the use of tax reliefs to promote sustainable, green growth.

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

My Lords, the views of stakeholders, including the Green Alliance, are given serious consideration when formulating policy. The Government remain committed to increasing the proportion of revenue from environmental taxes. This needs to be balanced with ensuring predictability, stability and simplicity in the tax code. In Budget 2012 the Government further demonstrated their intention to meet their environmental commitments while reducing unnecessary administrative burdens.

[Baroness Worthington]

My Lords, I thank the Minister for his response. I imagine that, as a member of the “greenest Government ever”, the Minister will have warmly welcomed the Green Alliance’s recent report into using tax relief on savings products to bring about green growth. Will he comment specifically on the suggestion that those companies offering products that receive reduced tax relief should be required to adhere to the standards code, which is currently voluntary, and that there should be greater transparency in how they invest the money that is saved?

[Lord Sassoon]

I am grateful to the noble Baroness for confirming the green credentials of this Government. She raises an interesting point because, on the question of transparency, the Green Alliance report refers to all ISAs—so to a broader suite of savings products than merely green products. Any contribution to the debate about increasing transparency is to be welcomed. Other reports have been written recently about transparency around fees in particular, while this one is more about the transparency of the investments in the portfolio. I note that a number of green ISAs already on the market make a virtue out of the transparency that they offer. Generally this is an important debate but one in which the voluntary approach, backed up by the code that the noble Baroness refers to, is right.

[Baroness Kramer]

Would your Lordships agree that many individuals would like the opportunity to put their ISAs into sustainable investments? Is that not an argument for looking at the green investment bank as an opportunity? Are the Government considering opening up the possibility of investment into the green investment bank for institutions and individuals who could then use their ISAs in this way?

[Lord Sassoon]

First, it is important to recognise that there are at least 16 funds that I have been able to identify in the ISA space that are already green or ethical in their scope and branding. More generally, there have been lots of proposals for tailor-made ISAs, such as big society ISAs, small company ISAs, corporate bond ISAs, social investment ISAs and early intervention ISAs. There are a lot of worthy ideas around, all of which have their merits, but on the ISA brand we intend to keep it as simple and broad as it has always been. As for the green investment bank, as my noble friend knows, at the moment it has its initial capital for the next four years and is actively looking at its 21st project. In time it will be able to borrow, but not for the first four years.

[Lord Davies of Oldham]

My Lords, my noble friend Lady Worthington asked an extremely significant question—although she should note, in referring to this “greenest Government”, that irony is wasted upon them, particularly upon their Treasury Ministers. Why are the Government not investigating these matters with greater urgency? Why, for instance, is the relief on capital gains with regard to housing not tied to the energy efficiency of the house being sold? Why are the Government not pursuing strategies like that which would give reality to their somewhat disputed claim?

[Lord Sassoon]

My Lords, the private residence capital gains tax relief means that most people are not liable for capital gains tax on their main residences. If access to that relief were linked to energy efficiency improvements, not only would it override the broad policy aim of that relief—that people are encouraged to save for their house—but what about the large number of people who do not necessarily have the funds to be able to improve the efficiency of their homes? Is it really the position of the Opposition that capital gains tax relief on people’s main residences would be taken away if they were not able to afford efficiency improvements? That is certainly not the policy of this Government.

[Lord Lawson of Blaby]

My Lords, will my noble friend slightly contain his green enthusiasm? Is he aware that the Green Alliance’s headline for the paper to which the noble Baroness referred is “Save tax relief for low-carbon savings and investments”? It is arguing—it may be the view of the Opposition—that all reliefs for savings, investor start-up and business should be abolished except for those devoted to greenery, which should be increased. Will my noble friend confirm that that is not the policy of Her Majesty’s Government?

[Lord Sassoon]

My Lords, I can indeed confirm that that is not the policy of Her Majesty’s Government.

[The Earl of Caithness]

Would my noble friend also bear in mind, in response to the question asked by the noble Lord, Lord Davies, that what the noble Lord proposed about greenness and efficiency would hurt hardest those in the country who do not have cavity walls but have solid brick or stone houses and no access to mains gas? It would penalise those in the country. That again shows that the Labour Party is very anti those living in the countryside rather than those living in urban areas.

[Lord Sassoon]

Apart from the fact that taking away people’s capital gains tax relief by linking it to green efficiency is absolutely not on the agenda, the key point here is that the forthcoming Green Deal—a world-first policy proposal—will mean that many people will be able to make their homes warmer and more efficient. That is what really matters. Of course we want to see more efficient homes, but there are ways to do that, and the Government have a policy.

Queen’s Speech

Lord Sassoon Excerpts

Wednesday 16th May 2012 Lords Chamber

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

My Lords, we have had a wide-ranging and, as ever, insightful debate. I am particularly pleased to have heard the maiden speeches of the right reverend Prelate the Bishop of Durham and my noble friend Lord Ashton of Hyde. I know that the House will look forward to their future contributions if they are anything like as good as their contributions to this debate.

We have an unusual but, we have been reminded, not unprecedented amendment in the name of the noble Baroness, Lady Royall of Blaisdon. While I will respond to as many of the specific points raised in the debate as I can, I will therefore spend the bulk of my time explaining why the House should emphatically reject her somewhat misplaced amendment, which I ask her to withdraw once she has heard what I have to say. Having heard the masterly speech by my noble friend Lord Bates, I rather thought that the noble Baroness might have been minded to withdraw her amendment immediately, but I will have another go.

I welcome this opportunity to reinforce the Government’s commitment to securing our economic recovery and our determination to promote growth, create jobs, and return our country to prosperity. It is not an easy task. It is clear that your Lordships understand the difficult challenge we face to overcome the crippling legacy that was left to us by the previous Government, which included a decade of unbalanced growth that left the UK the most indebted country in the world, resulted in the most highly leveraged financial system of any major economy and meant that the UK entered the crisis with the highest structural deficit in the G7.

All that meant that when we got hit, we got hit the hardest. Our recession was among the deepest and our deficit was among the largest, which means that our challenge to deliver a sustainable recovery is among the greatest. The Government have a strategy to rid the economy of the burden of the debt left by the previous Government and to secure our stability at a time of ongoing European instability, as my noble friend Lord Higgins and other noble Lords reminded us. Our strategy puts private sector enterprise, ambition and innovation at the heart of our recovery. It has delivered over 630,000 new private sector jobs since we came into government, which is one and a half times the number of public sector jobs that have been lost.

Let me remind noble Lords that the Government came to office inheriting the largest peacetime deficit the country has ever faced and the largest forecast deficit in the G20, larger than that of many of those countries mired in the sovereign debt storm in the euro area. Two years ago, UK government bond yields were roughly equal to those in Spain and Italy. Because we took tough decisions to tackle the deficit, our rates have now fallen to near-record lows of less than 2%, while those in Spain and Italy have risen to well over 5%, a point made forcefully by my noble friend Lord MacGregor of Pulham Market. Record low interest rates help businesses to secure affordable loans, families to pay mortgages and the Government to finance the debt mountain with which we have been lumbered.

The solution to debt is not more debt. I do not need to take on the noble Lord, Lord Skidelsky, on this. The noble Lord, Lord Desai, and my noble friend Lady Wheatcroft have already done that for me. However, as my noble friend Lady Noakes pointed out, the Opposition would have us pile on yet more debt, suffer higher interest rates and place a bigger squeeze on families and living standards. Indeed, even this afternoon, the noble Baroness, Lady Royall of Blaisdon, advocated more government borrowing. Let me explain to the House that even a 1% rise in effective mortgage rates would add £12 billion a year to household mortgage payments—around £1,000 on a typical £100,000 mortgage. We should make no mistake: it is the poorest and most disadvantaged, not the wealthiest, who are hit the hardest when a country loses control of its finances.

It is fair that we tackle our debts today so that we do not burden our children tomorrow. We should also ensure that we can continue—which we can—to provide high-quality public services and support to those who need it most, and provide those public services partly though refreshed local government, as my noble friend Lord Tope reminded us a short while ago.

We cannot and will not be complacent about tackling the deficit. We are sticking to our plans. Her Majesty’s gracious Speech reaffirmed that commitment. We will not jeopardise the fiscal credibility that is critical to delivering a sustainable recovery. It is only by securing a sustainable private sector recovery that we can help to restore and improve living standards, support families and get people back into work. That is why this Government have set out ambitious plans to unleash private sector growth right across the UK. Those plans include more than 250 wide-ranging and ambitious economic reforms to lift the dead hand of the previous Government’s legacy from our businesses and entrepreneurs.

We are reducing corporation tax to 22% by 2014; cutting an uncompetitive and ineffective top rate of income tax; slashing the red tape that continues to suffocate our most entrepreneurial start-ups; overhauling our cumbersome planning rules to embed a presumption in favour of sustainable development; and setting out plans for some £250 billion of infrastructure investment, including the new green investment bank with an initial capitalisation of £3 billion. In answer to my noble friend Lady Kramer, I say that we want to get that £3 billion into real investment as soon as the large projects will permit. As my noble friend Lady Randerson said, the green investment bank is already in business; it is actively considering the first 20 proposals. Beyond that, we are helping to tackle underinvestment in renewable energy as a precursor to comprehensive electricity market reform through the energy Bill, and helping to attract the £110 billion of investment that we need in the next decade to deliver secure, low-carbon energy across the UK. That was a point made very clearly by my noble friends Lord Crickhowell, Lord Selborne and Lord Freeman. The noble Lord, Lord Rowe-Beddoe, pointed out one very challenging but potentially significant opportunity in delivering that ambition.

The Government are ensuring that our businesses have access to finance by securing £190 billion of new lending to UK companies in 2011 and providing SMEs with access to cheaper loans through the new national loan guarantee scheme. My noble friend Lord Northbrook questioned whether it was up and running. Indeed it is, as evidenced by the fact that Barclays and Lloyds have already issued bonds linked to the loans in the scheme.

As my noble friend Lord Caithness noted, securing a more resilient and sustainable financial sector through the banking reform Bill is another priority. It is a measure which, as my noble friend Lady Wilcox said earlier, will complete its passage in this Parliament. We also will increase the opportunities for businesses to capitalise on non-bank lending channels.

Across government, we are matching the endeavour of our businesses to restore growth across the UK. Through the enterprise and regulatory reform Bill, we are driving through regulatory reform, streamlining employment tribunals, boosting research and development through the catapult scheme, as the noble Lord, Lord Broers, reminded us, making it easier to do business and giving employers more confidence.

[Lord Skidelsky]

How long does the Minister think that it will be before sustainable recovery happens?

[Lord Sassoon]

My Lords, it is already in progress. The fact that, in the two years that this Government have been in office, the private sector has created twice the number of jobs that have come out of the public sector is clear evidence of that. Today, we have the numbers that show unemployment is at its lowest level in seven months. It is much higher than we would like but it is reducing. These and other evidence which noble Lords have given in the debate shows that, while there is a lot more to do, in the face of these huge headwinds from the eurozone and elsewhere sustainable recovery is under way.

One of the biggest challenges to make sure that that recovery is sustained is regulation. My noble friends Lord Ashton of Hyde, Lord Lucas and Lady Noakes, and the noble Earl, Lord Lytton, all pointed to some big challenges on the regulatory agenda. We will not shy away from them.

In my noble friend Lord Patten’s discussion of regulation, he referred to the fennel on the brochure that the Government put out. I am sorry that I have not been able to determine whether they were British or foreign fennel but, either way, making sure that they are supplied through the supermarkets on proper terms is something which the new grocery adjudicator will bring.

In the enterprise area, I can assure my noble friend Lord Tugendhat that, again, as my noble friend Lady Wilcox explained in her speech, we will introduce provisions on directors’ pay in the enterprise Bill. In another important area of enterprise, I can assure my noble friend Lord Lexden that the ministerial working group on Northern Ireland is making good progress and will report this summer.

On rural affairs, we are supporting growth across all parts of the UK. I can absolutely assure my noble friend Lord Gardiner of Kimble that we take these issues very seriously. We are committing £530 million for rural broadband deployment by 2015 and creating rural growth networks to help overcome barriers to growth, such as poor infrastructure and mobile networks. We are adopting the ecosystems approach, as my noble friend Lady Miller of Chilthorne Domer noted, and will introduce reforms in the water sector, as noted by my noble friend Lady Parminter and the noble Lord, Lord Whitty, although I note that we are urged onwards by my noble friend.

I heard very clearly what the right reverend Prelate the Bishop of Hereford said about the importance and difficulties of the agricultural sector, which was also referred to by my noble friend Lady Byford, who again linked it to the importance of the grocery adjudicator.

On transport, we are introducing a Bill by the end of 2013 to secure powers to construct and operate the next phase of the high-speed rail network from London to the West Midlands. I learnt quite a number of things in areas of transport of which I did not know the fine detail until this evening. My noble friend Lord Brougham and Vaux rightly pointed out the difficulties in motor insurance—and now I understand the role that telematics and number plate issues will have as Ministers work both on the cost of insurance and on driving out uninsured vehicles from our roads.

The noble Viscount, Lord Simon, reminded us about high-speed issues, and that is noted. My noble friend Lord Bradshaw again reminded us of some important issues in the rail freight area. My noble friend Lady Scott of Needham Market talked interestingly about the possibilities for the local enterprise partnerships to promote local roads. She got a little ahead of commitments in some areas that I could give, but she was rightly challenging and reminded us of what can and must be addressed.

The global market is changing. Unlike our predecessors, we will make sure that the UK is not cut adrift. Over the last year alone, the value of UK goods exports to India grew by 40% and to China by over 20%. As my noble friend Lord Razzall pointed out, in the first quarter of this year the UK exported more cars than it imported for the first time since 1976. That was driven by strong demand from the US, Russia and China. The opportunities of course flow in both directions. The UK is now the number one destination for inward investment from some of the world’s largest investors, including countries such as Kuwait and Qatar. The Tata-owned Jaguar Land Rover has already announced 1,000 jobs at Halewood and £1.5 billion of annual investment in new technologies and products. I was sorry to hear the noble Lord, Lord Davies of Oldham, running down the idea of foreign ownership in our car manufacturing and other areas, when we should be immensely grateful and very proud that we can attract this investment.

My noble friend Lady O’Cathain mentioned the revival of the steel industry. Just last month the Redcar steel works on Teesside kick-started steel production for the first time in two years on the back of investment from Thailand. That is what global investment is doing—securing local jobs.

So this is a comprehensive strategy to return the UK to prosperity. It will not be an easy task and I know that for many families these are tough times, an issue to which my noble friend Lord Shipley specifically referred. But we will not let our poorest and most vulnerable families bear the consequences of the Opposition’s failures when in government. That is why we secured the largest ever cash rise in the basic pension and uprated working age benefits by 5.2 %, protecting the real incomes of the poorest, and that is why we are increasing the personal allowance, reducing tax paid by the basic taxpayer by £350, lifting 2 million people out of tax altogether. It is why we are supporting our young people through the recovery. I agree very much with the noble Lord, Lord Borrie, on the importance of this. It is why we are providing more apprenticeship places than any previous Government. Four hundred and fifty thousand apprenticeships were started in 2010-11—a record in modern times. I am grateful to my noble friend Lord Addington for understanding that we are making progress in this area but that we need to address quality issues—it is not merely a numbers game. It is why we are launching a new £1 billion Youth Contract, supporting up to half a million young people into work, learning their trade, and equipping them for their future career. As John Cridland, Director-General of the CBI has said, it is a scheme that strikes at the “scourge of youth unemployment”.

In conclusion, this is a bold programme for economic reform. It is a vision to return the country to prosperity, tackling the crippling legacy of debt, restoring our competitiveness, boosting private sector growth, investing in our infrastructure and supporting families and young and vulnerable people as we recover from Labour’s economic disaster. As we have seen today, the Opposition have no credible response to the economic challenges that the country faces. Indeed, I have heard no response at all today. Whereas they borrowed their way into trouble, under the coalition we will earn our way out of it.