Finance: Peer-to-Peer Lending

Debate between Lord Sassoon and Lord Barnett

Wednesday 19th December 2012 Lords Chamber

[Lord Barnett]

My Lords, I wish the noble Lord well in his retirement. I hope he is retiring only from the Treasury. I have very much enjoyed our exchanges over the past two-and-a-half years.

Can he confirm that one of the many subsidiaries of the huge new Bank of England under the Financial Services Act will have the power to regulate in this case? When it is really a business-to-business matter—it is a big and growing business and I gather that some trade associations are already involved—can the Minister say whether it would be liable to tax relief and therefore part of a possible new tax avoidance scheme? Of course, that will be very different from one Peer lending to another, or one Baroness lending to another.

[Lord Sassoon]

As always, I am grateful to the noble Lord, Lord Barnett, who keeps me on my toes until the end. On regulation, we had some interesting debates in the course of the passage of the Financial Services Act but, on balance, I think it is appropriate that p-to-p lending comes within the FCA’s regulatory framework. We also need to look at the experience in places such as the US and ensure that regulation does not kill off what could be a very valuable contribution to lending. There are some issues on tax, which are the subject of ongoing debate between the industry and HMRC. We certainly do not want anything to stand in the way of the growth of industry. I do not believe that tax issues do that. There is a big, ongoing agenda of which the noble Lord, Lord Barnett, identifies some of the key issues.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Wednesday 5th December 2012 Lords Chamber

[Lord Sassoon]

Indeed. I should say that it is subject to what is laid down in statute about the Monetary Policy Committee and the Financial Policy Committee and so on. If they are decisions of the Monetary Policy Committee, then they are the decisions of the Monetary Policy Committee. If they are the decisions of the Bank, the court will decide how they are taken. As for the question from my noble friend Lord Flight, of course it will be the PRA staff who will supervise and lead on the direct relationships with the banks or insurance companies, for example, that are being supervised. Technically, the PRA staff will be seconded from the Bank. There will be a close working relationship, which is part of the benefit of bringing it all together under the one umbrella.

[Lord Barnett]

I hope I did not misunderstand, but the Minister seemed to say that all decisions of the Bank are made by the court. Does that mean that when the Governor of the Bank of England makes a policy decision, it is not his decision, but a decision of the court?

[Lord Sassoon]

No, my Lords, that is not what I said. I said that the court is the governing body of the Bank. So unless specified in some other way, it is ultimately the decision of the court as to whether it takes a decision or delegates it. When it comes to policy decisions of the sort that the noble Lord is describing, they are of course delegated ones. All we are trying to do in this amendment is make it clear what decisions should be taken by the court and only by the court.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Wednesday 28th November 2012 Lords Chamber

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

My Lords, this group of amendments concerns Part 5, which is concerned with inquiries and investigations. It carries forward provisions relating to independent inquiries called by the Treasury and applies these powers to both the PRA and the FCA, also introducing a number of new provisions for the regulators to carry out investigations when regulatory failure has occurred, or may have occurred. As such, Part 5 is a very important part of the Bill, as indeed my noble friend Lady Noakes noted when she described the provisions in it as “crucial to the Bill” when we last discussed these matters on 25 October. During our discussions on that day, I indicated that I would go away and consider carefully the important points made by my noble friend and the noble Lord, Lord Davies of Oldham. I also promised to reflect further on a topic on which we have spent many a happy hour—namely, the uses of “may” and “must” in the Bill.

I hope that noble Lords will be pleased to note that the Government are bringing forward a number of amendments informed by our previous discussion of Part 5. Amendments 107B and 107C amend Clause 76, which provides the Treasury with a power to require either regulator to carry out an investigation when the Treasury considers it in the public interest for the regulator to do so. The current drafting of Clause 76 provides that in such circumstances the Treasury may order an investigation. Amendment 107B changes this discretion to a duty by changing “may” to “must”, and Amendment 107C is consequential on Amendment 107B. The Government agree with the points made that when the public interest test is met, surely the Treasury must require an investigation. Changing “may” to “must” is the right course of action. If an investigation by the regulator is in the public interest, and the regulator is not already carrying one out, then it is right that the Treasury should be required to order an investigation.

Amendment 107D responds to issues raised by the noble Lord, Lord Davies of Oldham, in Committee. The amendment provides that where the Treasury directs either regulator not to carry out an investigation into possible regulatory failure or otherwise gives a direction to the regulator as to how it should carry out such an investigation, then such a direction should be laid before Parliament. The amendment also provides that the Treasury should do so as soon as is practicable after issuing the direction. I share the view of those contributing to debate in Committee that this will increase transparency and therefore confidence in the regulatory regime. However, in recognition of the fact that there may sometimes be circumstances where laying the direction before Parliament could have negative and unintended consequences, the amendment provides that the Treasury need not lay the direction before Parliament if doing so would be against the public interest. I beg to move.

[Lord Barnett]

It behoves me to say thank you to the noble Lord. It is hard to believe that the amendment that my noble friend and I tabled has now been accepted. I do not know what to say. Thank you is the only thing I can say.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Monday 26th November 2012 Lords Chamber

[Lord Sassoon]

It did go through my mind to ask my noble friend Lord Newby to assure me that we were back on Report—because we went back into Committee mode for a bit last week—so I am grateful to the noble Lord, Lord Peston, for confirming that we are indeed on Report.

As I said in our previous discussion on professional standards, and as the noble Baroness knows full well, the Joint Committee of the two Houses is working away on this—indeed, I think it is sitting again this afternoon; I am looking around to see who is here and who is not in their place—and it will come forward with its suggestion as to what would be the appropriate body for professional standards.

Sadly, although professional standards are enormously important and they absolutely need to be raised in the industry, that does not mean that we do not need the construct that we are talking about in this clause. However, I can confirm to the noble Baroness that I expect that the default will be to publish and that there will be only limited circumstances, of which I have described one—although I cannot think of many others—in which it would wish not to publish. Indeed, other provisions in the Bill require the FSA to have regard to the desirability in more general terms of publishing as a back-stop.

[Lord Barnett]

Initially, I understood the Minister to say that the policy is the same after this amendment as before. I find that difficult to understand—if that is what he said. We are back to this “must” and “may” again. Saying that the FCA may publish such information is very different from saying that it must publish it. How does the Minister explain the fact that it is now only “may” and it is no different in policy?

[Lord Sassoon]

My Lords, as we have discussed before—and perhaps we will come back to it in other amendments over the next couple of sessions—the mere fact of putting in the Bill a statement with a “may” in it actually carries much more than the common-sense connotation of “may”; it holds up a presumption that something is going to happen in this area. Here, we are merely allowing a small amount of room for what my noble friend explained as circumstances in which we would all agree it was patently absurd to give the full decision, if in fact it was based on a misunderstanding and the problem has gone away and we are just seeking to do a bit of tidying-up based on reflection on a discussion of this very point in October.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Tuesday 20th November 2012 Lords Chamber

[Lord Barnett]

I am sorry to interrupt, but I am trying very hard to understand where we are getting to. I understand that we will finish up with regulations on top of all this, which will finally decide the matter. However, I am still unclear about it. We had the note earlier from the Minister’s officials, which set it out very clearly. We are talking about not trivial sums here but global sums of $300 trillion. These are mind-boggling figures. It is not $300 million or $300 billion but $300 trillion. What we are deciding in considering this Bill clearly has major global interest. Have there been serious discussions on a global scale?

Earlier, my noble friend asked the Minister—wrongly, I think—whether his legal officials had given him a guarantee that they had got the wording right. Nobody is going to give him a guarantee; I assure my noble friend of that. It is a question which cannot be answered, because they will not give it; how can they? How can anyone? The noble Lord, Lord Sassoon, cannot give us a guarantee that the Bill has got it right now. My noble friend Lady Hayter found one lot that was wrong. It would not surprise me if she found something else wrong, if she were to look further, because it is a very complex matter. We will now have complex secondary legislation on top of all this shambles. I very much hope that this will be successful, but I am sorry to say that the way it has all worked out, I certainly could not guarantee it.

[Lord Sassoon]

My Lords, there has been consultation on these clauses already. These clauses, which were published last month, have not been put forward in some huge rush; they have been put forward with due speed to reflect the seriousness of the situation that the LIBOR scandal revealed. Yes, there are hundreds of billions of dollars-worth of contracts relying on LIBOR, but many other very important equity market and other indices, in the UK and around the world, have functioned successfully for many decades. I have no doubt that as well as accounting firms and others, people who provide indices in other contexts—those who provide market data and who support market infrastructure—would be the sorts of entities that would be well suited to be the administrator of this important benchmark. There are many other critical functions of price discovery out there which are wholly run by private sector entities, albeit regulated under FiSMA in the UK, so we should not make a great drama out of this. The FCA will be regulating this activity, including the performance of the specified person.

The noble Lord, Lord Eatwell, asked perfectly reasonably about what happens if somebody is not performing and does not want to give it up. Because the administration is proposed, subject to the secondary legislation passing, the administration of LIBOR will come within regulation. If the administrator is not performing, therefore, the regulator—namely, the FCA—can take regulatory action in appropriate cases, which could include removing permission to act, if appropriate.

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[Lord Sassoon]

I have some understanding, but I am a non-lawyer and it was a long time ago so it is only slight. Price stabilisation rules go back to pre-1991. They are very specific rules that allow things to be done in markets in very prescribed circumstances that would run against what might be perceived to be the free flow of markets. As the noble Lord knows, they were introduced in the context of ensuring a safe and stable aftermarket following a large share issue. I think they were first used in this country by the Government in the second sale of British Telecom shares, and they relate to that regime. If there is something else going on there, I will write to the noble Lord, but they are not intended to be some carve-out that could be used to get people off a charge of manipulating LIBOR.

[Lord Barnett]

I asked the Minister whether the criminal sanctions could be used retrospectively against those who may well be criminally responsible for the LIBOR scandal.

[Lord Sassoon]

Forgive me; I thought I did answer. It is an absolute principle that we do not put in place retrospective criminal offences because that would be, among other things, against human rights legislation. We will certainly not be doing that.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Monday 12th November 2012 Lords Chamber

[Lord Barnett]

My Lords, I strongly support my noble friend in her amendment. The noble Lord, Lord Blackwell, seems to be replying for the Minister, telling us why it is not necessary. Is it harmful to have this amendment in the Bill? If so, let him tell us how rather than asking whether it is necessary. As I would have expected, the case has been made very well indeed by my noble friend Lady Hayter and supported elegantly and eloquently by my noble friend Lord Peston. I hope the Minister will not take any notice of the noble Lord, Lord Blackwell, when he replies.

[Lord Sassoon]

My Lords, I always take a lot of notice of my noble friend Lord Blackwell. However, Amendments 25B and 31A raise a very important issue. The revelations during the summer about the attempts to manipulate LIBOR and Euribor demonstrated, if any demonstration were needed, that perhaps a considerable number of individuals in the banking sector have failed to live up to the most basic standards of professional conduct and that must, of course, be put right. We are tabling our amendments to this Bill to bring the setting of LIBOR within the scope of the regulatory regime and make it a criminal offence to attempt to manipulate benchmark rates, but that is only the first step.

The critical issue here, which I think has been rather forgotten in this debate, is that the Government acted very quickly to establish the Parliamentary Commission on Banking Standards and the noble Baroness, Lady Hayter of Kentish Town, made a passing reference to it. The noble Lord, Lord Peston, suggested that I may fob the House off by saying I have another version—he would say an inferior version—of this in the Bill. I absolutely will not say this. I will say there is a superior answer to this very big problem coming from the Parliamentary Commission on Banking Standards. I entirely accept that there is a serious issue to be dealt with but the commission is established, it is doing its work and it will look at precisely what is needed to deal with the challenge.

[Lord Sassoon]

I will come on to that if the noble Lord, Lord Peston, will hear me out. Of course it is no good having a commission if its recommendations are not going to be taken seriously or enacted if necessary. We should remind ourselves of how this House is represented on the commission. It is quite striking that I do not see my noble friends Lady Kramer or Lord Lawson of Blaby in their places this afternoon, nor indeed the right reverend Prelate the Bishop of Durham or the noble Lords, Lord McFall of Alcluith and Lord Turnbull. Why are they not here? I believe it is because the commission is at work today looking into these very critical questions. Experience and authority is being brought to bear on these issues in order to identify ways to put the highest standards of ethics and professionalism at the heart of the UK banking system and I believe that we should leave the commission to do its work.

I know, as do other noble Lords, that the commission will examine all possible solutions and of course the introduction of codes of conduct should be one of them. We have heard different views about the effectiveness of codes of conduct, but it is quite right for the commission to look at that. The commission has the membership and the tools it needs to do a very thorough job in this area and I do not think we should pre-empt it. It has the power to interview witnesses under oath and to send for the necessary people and papers. It has already heard evidence from, among others, Paul Volcker, the former chairman of the Federal Reserve, Martin Wheatley the chief executive designate of the FCA and from various members of the Independent Commission on Banking. The commission has already gathered an impressive range of written evidence from stakeholders, including the major banks, regulators and consumer groups, and that evidence was published last Thursday.

So, given that the commission’s work is ongoing, it is not the right time to make decisions on this very important matter. To do so would be to pre-empt and undermine the conclusions of the commission, which is investigating this issue so thoroughly.

[Lord Barnett]

My Lords—

[Lord Sassoon]

I will give way to the noble Lord, Lord Barnett, in a moment but perhaps I may answer specifically the question of the noble Lord, Lord Peston.

The Government look forward to receiving the commission’s report and recommendations and will consider them with great care. It is due to report by the end of the year. As to when we might legislate, as the House knows, the Government will introduce the banking reform Bill, which was published in draft last month, into Parliament in the new year. That Bill may well provide an appropriate vehicle to implement any of the commission’s recommendations that require legislation. So we certainly will not lack a possible legislative vehicle, in the right timeframe, when the recommendations are made by the commission.

[Lord Barnett]

My Lords, the noble Lord has not hesitated, quite rightly, to put the LIBOR scandal amendments in this Bill. Now he is saying that he does not want to put in the code of conduct in case the commission comes up with it. In that case, why has he put the LIBOR scandal amendments in the Bill?

[Lord Sassoon]

My Lords, the Government kicked off a number of inquiries and reviews immediately we became aware of the LIBOR scandal. Martin Wheatley, the managing director of the FSA and the chief executive designate of the FCA, carried out one of the reviews which have led directly to the amendments in this Bill. We have acted on his amendments specifically addressing criminal offences and so on around LIBOR in this Bill. We also set up the commission to look at the wider question of professional standards and the way that banking operates and it will report by the end of the year. We will have a legislative vehicle in the new year, if required, to take up its recommendations, which the Government will take very seriously.

It is not that we are dragging our feet or want to stop these issues being addressed. It would just seem foolish to pre-empt a commission of great eminence which is doing enormously important work as we speak. I hope that, on that basis and the confirmation I have given about what is going on, the noble Baroness will be persuaded to withdraw her amendment. While the Government agree with the need to restore public trust in banking, we should not jump to legislate now but do so once the parliamentary commission has had time to do its work.

Economy: Quantitative Easing

Debate between Lord Sassoon and Lord Barnett

Monday 12th November 2012 Lords Chamber

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

My Lords, the Bank of England has estimated that the first round of quantitative easing reduced gilt yields by one percentage point, raised real GDP by around 1.5% to 2%, and increased inflation by around three-quarters to one-and-a-half percentage points. The Bank has also launched the funding for lending scheme to reduce bank funding costs and provide a strong incentive to make loans to companies and households cheaper and more easily available.

[Lord Barnett]

My Lords, therefore without QE, the recession would have been even worse. Is the Minister aware that since then, the Governor of the Bank of England said that the MPC would have to “think long and hard” before it restarted QE. The deputy governor said that it would be inappropriate to go on with it because there is no appetite to borrow and invest. On top of that, the chief economist of the Bank of England said recently that the economy is stuttering to start. He said that after knowing all that the Government are now proposing. What else are they going to do?

[Lord Sassoon]

My Lords, first, since the noble Lord talks about the state of the economy, we should recognise that employment is at a record high; inflation, for which the MPC has responsibility, has come down very significantly; the trade deficit is down; and the economy is growing again. We really do not need too much unreasonable doom and gloom. I could cite many other recent quotes from the Bank of England, which has made its position completely clear. In October 2012, the governor said that the MPC stands,

“ready to inject more money into the economy”.

As, when and if it thinks the assessment is right, it is free and able to do it.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Tuesday 6th November 2012 Lords Chamber

[Lord Sassoon]

Yes, my Lords, the court is the governing authority of the Bank, and that is, I believe, completely the right construction for this particular matter.

[Lord Barnett]

What the noble Lord said just now seems to provide a new reason to change the name of the oversight committee. We do not need one. He is saying that the governor and the board of the Bank will know better than the oversight committee. Why bother with an oversight committee at all? That would be a simple solution.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Wednesday 24th October 2012 Lords Chamber

[Lord Sassoon]

I will get there eventually. If the Committee will permit me, I will address the point. I will not necessarily give complete satisfaction but we will get there.

The Bill makes a number of provisions that are intended to deliver greater accountability and carries forward the power of the Treasury to arrange independent inquiries into regulatory failures. It also provides for new duties on the two authorities to carry out investigations of their own—if necessary, at the instigation of the Treasury—and report their findings to the Treasury where there has been regulatory failure and certain other criteria are met.

I turn first to Amendments 190B and 192ZA, which probe why, if the public interest test is met, the Bill provides that the Treasury “may” require an inquiry. By changing “may” to “must”, their intended effect—as we have heard—is that in all cases where the test is met, the Treasury should have to require an inquiry. Amendment 190AA achieves the same end by a different means, specifying that the Treasury must arrange an inquiry where the two conditions in Clause 64 are met unless there is a public interest in not doing so. I agree with my noble friend that, if there is an overwhelming public interest in having an independent inquiry or in the regulator carrying out an investigation, the Treasury should step in to ensure that that happens. As it stands, the Bill gives the Treasury a little bit of discretion here. This is not about wriggling out of the need to call for an inquiry; it simply acknowledges that in reality, circumstances may dictate that even though the test is met, an inquiry or an investigation under this Bill is not necessarily the best course of action.

For example, there may already be an alternative independent inquiry going on—perhaps a parliamentary commission or other parliamentary inquiry—or an inquiry under the Inquiries Act. In the case of the provisions relating to investigations carried on by the regulator, the regulator itself may already be carrying on an investigation under Clauses 69 or 70. However, as my noble friend is aware, and as the noble Lord, Lord Barnett, has reminded us, I have already confirmed that I am giving careful thought to the wider use of “may” and “must” throughout the Bill. This is a huge exercise, taking up some mighty brains. All I would say at this stage is that although there are certainly not many cases that deserve intense scrutiny, this is certainly one of the instances that merit serious consideration. I will leave it at that. We will come back if we find any suitable candidates for changing.

Amendment 193 to Clause 79 seeks to place an explicit duty on the regulators to ensure that when a complaint against a regulator needs to be investigated, they appoint an investigator who is suitably qualified and experienced. This amendment is not necessary; it has also not been spoken to by the noble Lord, Lord McFall of Alcluith, so I will leave it at that. I shall turn to Amendments 192ZZA, 192ZZB and 192C.

[Lord Barnett]

Perhaps I misheard the Minister on the must/may argument, which he did not seem fully to explain. He must have had a major reply from officials to his request on a Bill as huge as this, with so many musts and mays throughout. What exactly did they recommend? Did they recommend, as always, that there must be agreement with the noble Lord or was there a point at which they said that it is possible that must might be better than may? Is this one of them?

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[Lord Sassoon]

I shall probably get into trouble if I say anything that is terribly helpful. However, the Government want to get on with it as quickly as we reasonably can. I would like to think that it will not be very many months before the Bill gets here. But, whenever it arrives, it is no excuse for not getting on with these clauses.

[Lord Barnett]

My Lords, perhaps I may make it clear that I do not disagree with the two new clauses. I was saying that we will have a banking Bill in this House shortly. This Bill relates to banks and investment firms. However, if the banking Bill is amended to allow two separate companies, as I hope it will be, so that investment firms are handled quite separately from the way they are handled in the present situation, it would change the whole process. The Minister says that we must get on with it. But this Bill will not be an Act until approximately the end of the year. The new Bill will be before us a few months later. Does the Minister know of some crisis that we do not know about?

Taxation: International Companies

Debate between Lord Sassoon and Lord Barnett

Tuesday 23rd October 2012 Lords Chamber

[Lord Barnett]

Does the Minister accept that the Prime Minister’s, and indeed the Chancellor’s, definition of aggressive tax avoidance needs clarifying? In any case, does he accept that all tax avoidance schemes are always one step ahead of the Treasury and the Inland Revenue? Would it not be sensible and simple—all past Governments have always refused to do this—to have simple legislation to say that any tax avoidance scheme has to be approved by HM Treasury? Would that not solve the problem?

[Lord Sassoon]

The noble Lord, Lord Barnett, always wants me to be clear and simple, so the answer is no to his first two questions. On the third question, he has an underlying, quite proper, concern, which is why the work that Graham Aaronson has done for the Government on a general anti-avoidance rule, the so-called GAAR, is a very important part of ongoing work.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Wednesday 17th October 2012 Lords Chamber

[Lord Sassoon]

No, indeed. The next time, in another context, the noble Lord challenges me about why we are not disclosing more meetings, I shall remember what he just said about informal and confidential meetings. It is important that they happen. Having seen how things happened before and how they happen now, it is striking to see the much greater regularity of meetings between the principals—they are critical—than happened at some periods in the past. That is very important as a background in peacetime as well as in crisis time.

I hope that is clear. The Bank is in charge of operating the resolution regime, but the Chancellor must agree to any use of public funds and has the final say when they are used. Even setting aside the unintended drafting of Amendment 190ZE to include a power that would be even more widely drawn than the 1946 Act, the targeted power that we have drawn is the appropriate one. If we had drawn the power more widely to allow for future proofing, as my noble friend puts it, I would be standing here defending why we had left such an important area open in the Bill. It is better to draft such a power related to the system as we know it. It is broadly future proofed in the sense that there is a clear distinction between the use of public funds and other matters, and after that helpful debate I hope that my noble friend will withdraw her amendment.

[Lord Barnett]

I thought that the Minister in his earlier answer was about to say that the meetings between the Governor and the Chancellor would be available on the web. The other day he rather misled me and probably the House when he said, in answer to my question about a meeting between the OBR and the Chancellor and how often he had had meetings in the last 12 months, that it was all transparent and on the web. I am no expert in these matters, but I spent quite a bit of time on the web and could not find it there. I asked my noble friend Lord Peston, who is perhaps better on the web. He too spent a lot of time on it and still could not find it, either transparently or non-transparently. Can the Minister explain to the House whether it is misleading to suggest that these things are transparent on the web?

[Lord Sassoon]

My Lords, although I believe that we are allowed to use portable electronic devices in the Chamber, I cannot in 30 seconds find it. I can assure the noble Lord, Lord Barnett, that it is done on either a quarterly or six-monthly basis. I do not know whether the search was made on the OBR website or the Treasury website, but my recollection is that the OBR releases something on its website periodically. I will find the appropriate link and let the noble Lords have it.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Monday 15th October 2012 Lords Chamber

[Lord Barnett]

My Lords, this group of amendments seems, at least to me, to emphasise ever more the huge powers that are being given to the Bank of England under this Bill. I am grateful to the Minister for all his clarifications so far, and I take it from what has been said about the European situation that this is not one of those areas where the Government are looking to transfer power away from Brussels. However, my main question is this: given the huge powers that are being given to the Bank of England under the Bill—this might explain why there are so few applicants for the post of governor; it is such a complex job that no one wants it, even with a salary of £300,000 a year and going up all the time—will the Government give new thinking to the whole idea of the extra powers that are being given?

[Lord Sassoon]

First, my Lords, there is no question in this of anything being transferred to or from the EU. This is just a regime around the winding-up administration for the insolvency of UK clearing houses, so I assure the noble Lord that that issue does not arise. It was his Government—the previous Labour Government—who identified this general area as one that needed to be dealt with, particularly in the context of deposit takers, where the need was identified to put additional provisions in place for resolution regimes. We built on the work initiated by the previous Government and have identified other systemically important parts of the system.

We are talking about clearing houses and recognised investment exchanges this afternoon, and we will go on in a future session to talk about investment banks. We are merely saying that we have identified other areas where the authorities need to have powers similar to the ones that came out of the legislation initiated by the previous Government, and are putting that in place.

As to the cumulative amount of responsibility that we are giving to the Bank of England, we have already in the course of the very useful scrutiny of this Bill made some important changes, including putting the oversight committee in place to respond to the sort of challenge that the ever-nimble-on-his-feet noble Lord, Lord Barnett, raises. I therefore think that we have covered that issue up front in this Bill and that the Government have made some big concessions.

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[Lord Barnett]

My Lords, I would like some clarification. New Clause 296A in Amendment 176D says that the Bank of England “may” direct, not “must”, even though it has regard to the public interest, while new Clause 296A(2) says that the direction “may” specify various things. The direction is then enforceable only on the application by the Bank by an injunction or by other complicated means. Why should it not be “must” if it is in the national public interest? I do not understand why the word “may” is there rather than “must”.

[Lord Sassoon]

My Lords, I shall try to deal with a number of those points. First, on the general question of “may” and “must”, I have quite a lot of sympathy with the noble Lord, Lord Barnett. I thought that we were going to have a more extensive discussion about “may”s and “must”s in our previous session, but unfortunately and regrettably the noble Lord was not able to be here, so we did not spend as much time discussing it as we could have done. There were some instances last week where I thought that on a first reading he and the noble Lord, Lord Peston, had spotted some rather good examples where those terms should be reversed, although they had spotted one or two others where I did not agree with them. However, it provoked quite a long discussion with the Treasury lawyers and drafting experts. As a general matter, I have asked them to reassure me on all the “may”s and “must”s in the Bill, as I am a bit confused sometimes. However, a general defence of this is that, even though some of us as laymen may think that a “may” should be a “must”, it gives rise to all sorts of difficult potential legal challenges. As noble Lords will know, this is a common feature of a lot of legislation that we discuss. I have asked the draftsmen to reassure me that there are no instances where we could change the language in the Bill. I am grateful to the noble Lord, Lord Barnett, for that.

In answer to my noble friend Lady Kramer, as the Committee will know, EMIR will, in the main, force mandatory clearing of OTC derivatives. That will increase the role of, and risk concentrated in, clearing houses and is part of the driver behind introducing these new powers now. I reassure my noble friend that these provisions are entirely consistent with and complementary to EMIR. The intention is that the EMIR regime will be agreed in full by 1 January 2013, with 12 months thereafter to comply. I believe that that gives enough time to explain to all concerned how these various powers are going to be operated. However, I will take back my noble friend’s specific concern that all relevant guidance, particularly in the area that we are discussing this afternoon, goes out in good time. I will discuss that with the authorities.

On the specific questions that arise from the London Stock Exchange, I confirm to the noble Baroness, Lady Cohen of Pimlico, that I answered the question on the first point directly. On the second point, we need to recognise that there are two rather different sets of trigger conditions. The power of direction is designed to avert situations where resolution is necessary. The special resolution regime itself is to be implemented where there is no realistic prospect of the clearing house continuing to function. While I am happy to debate and take away the noble Baroness’s point—I will read carefully what she said on the record—I believe that there is a fundamental mis-read-across between the appropriate trigger conditions for a power of direction as opposed to a special resolution regime. Of course, if there is anything more I can add on that, I will write to all those on the copy list.

--- Later in debate ---

[Lord Barnett]

I suppose that I should not be surprised. The noble Lord has heard a very serious case made from all sides of the House and he cannot even bring himself to say that the Government will at least consider a possible amendment which may not be exactly the same as that which my noble friend suggests. I suppose that the regulators, the new FCA, may be perfect and will never make a mistake. But as regards this modest little amendment, he could at least say, before my noble friend perhaps seeks to withdraw, that the Government would be willing to consider it. Can he not even say that?

[Lord Sassoon]

With all due respect to the noble Lord, this slightly misses the point. As I have explained, within much the same remit under FiSMA, to which we have added one additional piece of protection, the FSA exercises the judgment and comes up with the structure that this Committee seems broadly happy with. It is entirely fair and proper to allow the successor body the space to come up with a decision which finds approval in decisions that were previously taken about this structure. Therefore, based on our approval of how it has done up to now, we should have confidence that it will do it again. It has heard loudly and clearly the support that your Lordships will give it if it takes that approach.

Economy: Deficit Reduction

Debate between Lord Sassoon and Lord Barnett

Monday 15th October 2012 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what is their latest estimate of the debt to gross domestic product ratio in 2015 under the current deficit reduction plan.

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

My Lords, the Office for Budget Responsibility produces the official fiscal forecasts. The OBR’s March 2012 forecast shows public sector net debt peaking at 76.3 per cent of gross domestic product in 2014-15 and subsequently falling in 2015-16 consistent with the Government’s supplementary target for debt. The OBR will publish updated forecasts alongside the Autumn Statement on 5 December.

[Lord Barnett]

My Lords, I thank the noble Lord for his Answer. Is he aware that there has been a later report from a more independent source—namely, the IMF—which states that in 2015 the net debt as a percentage of GDP will be about £50 billion more than the Chancellor previously expected? In those circumstances, does he not accept that the OBR is less independent for the very good reason, as was set out in the beginning, that its forecasts are influenced considerably by the general and regular meetings that it has with the Chancellor and Treasury officials? How many have there been in the past 12 months?

[Lord Sassoon]

No, my Lords, I do not accept for one minute any questioning of the independence of the OBR. It was set up on a statutory basis through a Bill to which the noble Lord, Lord Barnett, contributed. It is set up totally independently under a respected head, Robert Chote, and his team and I refute absolutely any question that it is not independent. All of its meetings with the Chancellor and the dates on which data are transferred over are transparently set out on the Treasury website.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Monday 8th October 2012 Lords Chamber

[Lord Eatwell]

My Lords, I rise to raise an important issue concerning the conduct of the Committee stage of the Bill. On 3 October—last Wednesday—I wrote to the noble Lord, Lord Sassoon, in these terms:

“The Wheatley study on the future of LIBOR has produced a series of conclusions with which the Labour Party is broadly in agreement. I congratulate both Martin Wheatley and his team for their achievement, and the Government for initiating this investigation.

I note from the statements of Treasury ministers, and from the Treasury website, that it is the Government’s intention to implement the Wheatley proposals by means of amendments to the Financial Services Bill. No such amendments have been tabled as of yesterday”.

That was 2 October, and indeed no amendments have been tabled as of today.

“I presume that such amendments will involve predominantly clauses that have not yet been debated (as suggested by reference to particular FSMA clauses in the Wheatley Report itself)”.

The Wheatley report refers to the first clause that we will debate today.

“However, it is possible that you will also need to introduce amendments to clauses already debated, in which case it would be entirely inappropriate to introduce such amendments at Report. Given the importance of these issues it is imperative that the House have the opportunity to debate these matters in the freedom of Committee, rather than under the constrained rules of the Report Stage.

May I therefore have your assurance that should the Government, as a consequence of the Libor scandal and of the recommendations in the Wheatley Report, plan to introduce amendments to clauses 1 to 5, or at some later stage, amendments to clauses at that time already debated, that you will re-commit the appropriate clauses, hence ensuring that the House of Lords has the scope for full debate”.

It has since become clear that the Government intend to introduce on Report all the entirely new material presaged in the Wheatley report. The noble Lord, Lord Sassoon, wrote to me on 2 October—the day before I wrote to him which was somewhat mysterious. He said:

“I do not believe that it is necessary to recommit the Bill, and see no reason why a substantive debate on the relevant clauses at Report stage would offer insufficient opportunity for scrutiny by the House.

Re-commitment would risk unnecessarily delaying the implementation of both these important reforms to LIBOR setting processes, and of the equally urgent reform of the UK’s financial regulation regime which we have been debating through the Committee sessions to date”.

The noble Lord’s reply does not take into account what I actually asked for. First, I was not asking for total recommitment. I was asking only for the clauses which deal with entirely new material from the Wheatley report to be recommitted. Secondly, I believe very strongly that with respect to financial regulation it is not an issue of quibbling about delay but of getting it right. These enormously complex matters deserve the iterative consideration which is possible only in Committee. I remind noble Lords that on Report they can speak only once. Thirdly, it is quite wrong to deny this House the opportunity to consider entirely new and complex material within a Committee setting. I would therefore ask the noble Lord, Lord Sassoon, to reconsider his rejection of my proposal that the relevant clauses be recommitted.

If he is unwilling to do that, perhaps I may make a constructive proposal. Either he or the Chief Whip, who unfortunately is not in her place, should give an assurance that the rules of Report will be relaxed for consideration of what might be called the “Wheatley” clauses when they are introduced.

[Lord Barnett]

I warmly agree with my noble friend on the Front Bench, and it gives me an opportunity to refer to the noble Lord, Lord Sassoon, himself. In the Recess I read with regret that he proposes to retire at the end of this year. He and I have had a few exchanges across the Floor and I will miss them, but I look forward to continuing with those exchanges until the end of the year.

Not only do I agree with my noble friend in the points he has made about the Bill, what is even more important is that the whole Bill should be dropped for the moment. There is no hurry for it and much of it will cause great damage to financial services in this country. As the noble Lord, in his new position, is no longer going to be quite so subservient to the Chancellor of the Exchequer, I certainly hope that he can tell us the truth, drop the Bill for the time being and, as my noble friend has suggested, come back to the House with a new one.

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

My Lords, I thought we were going to talk about some clauses on LIBOR, but we have now strayed, in the imaginative way that the noble Lord, Lord Barnett, does, into scrapping the Bill. I can assure the House that the Government intend to carry on with this Bill according to the timetable because it is vital that we get the financial regulatory architecture right. It is an architecture that failed us miserably in the financial crisis, so we will of course press on with the Bill.

As noble Lords know, LIBOR is the most significant interest rate benchmark used by the market—not just the UK market, but globally. It underpins contracts worth at least $300 trillion, so it is imperative that market confidence in the rate is restored quickly in order to ensure that, in the future, contributors to this benchmark act with greater integrity, promoting financial stability, legal certainty and business continuity. It is important to be clear about that. It is also important to be clear that the Government have not yet announced our response to the Wheatley review, so what the noble Lord, Lord Eatwell, raises is a somewhat hypothetical question at the moment. He notes correctly that my right honourable friend the Chancellor of the Exchequer has indicated that the Financial Services Bill is the Government’s preferred legislative vehicle to implement new policy arising from the review. Should the Government decide to accept Martin Wheatley’s recommendations in full, we anticipate that the clauses which would implement the review will indeed be debated at the Report stage of this Bill, and the draft clauses will be published in good time in advance of that date.

As noble Lords with longer experience of the House than me will well know, recommitment is an extremely unusual procedure. Notwithstanding what the noble Lord, Lord Eatwell, says, it would risk causing delay not only to these important reforms of the LIBOR setting processes but to the Bill itself. It is quite routinely the case that government amendments setting out new policy are tabled at the Report stage, and in this case, as the noble Lord has confirmed, there is broad cross-party consensus in favour of the policy. There has already been wide debate of the issues during the period when Mr Wheatley was carrying out his work. In the light of that, I believe that substantive debate on the relevant clauses at the Report stage will offer sufficient opportunity for scrutiny by the House, but I am sure that, in the normal way, the usual channels will consider the business of the House, as they always do. That is the appropriate way to carry this sort of thing forward.

This is a significant piece of legislation, which has already benefited from a very constructive approach to scrutiny from your Lordships’ House. We will do all we can to reinforce that debate including on any clauses we bring forward on LIBOR through, among other channels, briefing parliamentarians separately outside the formal debate. However, I suggest that for this afternoon it might be more productive to carry on with the sixth day of our scrutiny of the Bill.

Finance: Loan Guarantee Scheme

Debate between Lord Sassoon and Lord Barnett

Tuesday 24th July 2012 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government how the loan guarantee scheme, announced in a Written Statement by Lord Sassoon on 18 July, will work.

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

My Lords, under UK guarantees the Government aim to kick-start major infrastructure projects that may be struggling to access private finance. Eligible projects will be subject to a detailed assessment process and the Government will conduct and consider the most effective form of guarantee based on the specific project risks. The Government have wide discretion over how a guarantee is structured, subject to the terms and dynamics of each individual project. The guarantees could cover key project risks such as construction, performance or revenue risk.

[Lord Barnett]

I thank the Minister, although his Reply might have been better as an Oral Statement. I welcome the infrastructure plan. However, with the Prime Minister talking about a 10-year austerity programme and with growth likely to indicate tomorrow that we are in a triple-dip recession, is that not one of the reasons why even companies with 100% guarantees will not want to borrow money? That applies to the main scheme and even the PPP. No one should be surprised. The Prime Minister originally said that the plan would come into force in 2014 at the earliest but, given the economic background, do we not need it now, not in 2014? In those circumstances, could he suggest to the Chancellor that he consider a quadruple U-turn and find a little cash to help kick-start the infrastructure plans, which are so welcome?

[Lord Sassoon]

My Lords, I am very happy to correct the noble Lord, Lord Barnett. Some £40 billion of projects in the national infrastructure plan that are due to start construction before 2015 could well be eligible for guarantees under the scheme. We are inviting applications for guarantees now and, subject to legislation, we hope to have the first guarantees granted this autumn, so this is absolutely not something that waits till 2014. It is because of the strength of the national balance sheet and the fiscal retrenchment that we are able to come forward with a £40 billion scheme that starts this autumn.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Wednesday 18th July 2012 Lords Chamber

[Lord Barnett]

My Lords, I, too, congratulate the noble Baroness on her appointment to the Joint Committee. I hope she will be able to do something that, from what I have seen, the committee has not been able to do before; namely, focus on the job in hand. She said—and I disagree with her strongly—that this Joint Committee would be enough to do the job completely. I cannot see that happening from what I have seen of it now, although I am sure she will not be grandstanding as members of the committee are doing today. My noble friend Lord McFall will probably do a better job; I congratulate him too on his membership of the Joint Committee.

I strongly support my noble friend Lady Hayter on this amendment. I am concerned by the broader issue of the FCA. The Government have changed the name from the FSA to the FCA. I am not sure that the FCA will be any better at dealing with the problems that have arisen about LIBOR or anything else, or with all the mistakes that were made. Perhaps the Minister will have in his brief the number of FSA staff who have now simply changed their letters and become members of the FCA. While I am digressing slightly, perhaps I could digress a little more and ask the Minister if he can do what the noble Lord, Lord De Mauley, could not do earlier; namely, to answer my question about why the Government decided to make a statement about an important issue of loan guarantees on the “Today” programme this morning and not in the House. I look forward to hearing the Minister on that.

The whole issue of what the FCA is going to be able to do within the Bank of England disturbs me a great deal. I am not at all sure that it should have been done in this way. To give huge powers to the Bank of England, as I said, is hardly likely to help, judging by what has happened in the past. We now know from the governor of the Bank and others that they knew nothing whatever about what was going on, which is rather surprising, to say the least.

The noble Baroness, Lady Kramer, was able to bring LIBOR into this whole issue in her amendment. Like my noble friend Lord Peston, I am not quite sure how she managed to get it there but she did, and the best of luck to her. I hope that she gets a reply. For the moment, though, I wonder what changes the Minister hopes to see that will improve what went on before. The FSA was clearly not successful in the role that it had been given. I would like to see some of these amendments approved so that we can see the FCA doing a better job. I wish that that might be true but I am bound to say that I look forward to what the Minister will tell us about how great this new FCA will be. For now, though, I will leave it with him and, as I say, perhaps he can digress slightly and answer my other question.

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

My Lords, I hope that the Committee will agree that it is probably better, given the number of members of the committee here, if I stick to matters relevant to this group of amendments rather than wandering off into the long grass from where I might never come back. All three amendments in this group relate to concerns that have arisen in connection with the recent LIBOR scandal, and in that context I am sure that the Committee would like to thank not only my noble friend Lady Kramer and the noble Lord, Lord McFall of Alcluith, but my noble friend Lord Lawson of Blaby, the noble Lord, Lord Turnbull, and the right reverend Prelate the Bishop of Durham for kindly agreeing to join the parliamentary committee on banking standards, which goes to the heart of the concerns raised in the amendments.

I turn to the issue of professional standards. Amendment 104ZB seeks to place requirements on the FCA to impose a training regime. The object of the regime is to specify minimum standards of competence and integrity, and it will include continuous professional development and a code of conduct. Amendment 110ZB seeks to extend the non-exhaustive definition of the integrity of the UK financial system by adding a reference to the professional standards of those working in financial services.

As a former chairman of the IFS School of Finance—what was previously called the Institute of Bankers—I believe as firmly as anyone that professional education has to be a cornerstone of standards in the banking industry. Personally, I wish that more banks would insist on more of their employees going through structured professional education, not just at the start of their careers but right through them. In answer to the point made by the noble Lord, Lord Davies of Stamford, there are indeed providers of these courses of great distinction, including the IFS School of Finance, and many bankers go through them. However, we would all like to see many more going through them and on a continuous basis.

Having said that, particularly in the light of the LIBOR scandal, we must ensure that our regulators have the right powers to set and enforce high standards of behaviour in the financial services industry. That is why we have invited Parliament to set up an inquiry into standards in that industry. While I share many of the concerns of the noble Baroness, Lady Hayter, that does not mean that I can support these amendments, which I consider unnecessary and to be coming forward at the wrong time. Neither amendment gives the FCA powers to impose standards of integrity and competence that it does not already have. The FCA’s integrity objective contains an indicative and non-exhaustive list of matters that are relevant to the UK financial system operating with integrity. The conduct of those working in financial services is already covered by the objective, even if it is not listed here. The list contains a number of matters relevant to the LIBOR example, including the soundness of the system and the orderly operation of markets. These can be ensured only if standards of professionalism are maintained by those in the industry.

Governor of the Bank of England

Debate between Lord Sassoon and Lord Barnett

Tuesday 10th July 2012 Lords Chamber

[Lord Sassoon]

First, my Lords, for the clarity of the noble and learned Lord, the Chancellor has said:

“When the time comes, the best person for the job will be appointed, whoever she or he may be”,

so he is very clear on that point. The noble and learned Lord goes on to make an interesting suggestion about one of the possible dimensions of the job, and I listen carefully to what he has to say on that point.

[Lord Barnett]

My Lords, under the Financial Services Bill that we have been debating, the new governor would need to be chair of, or to manage, the FPC, the FCA, the PRA and the Court of the Bank of England. That involves, of course, threats to financial stability, the removal or reduction of risks, enhancing the resilience of the financial system, educating the public and, above all, co-operating with the Treasury, which is quite a job as I am not sure it knows what all these things are. Does the Minister think that a man or woman exists who is capable of doing that job, or is he thinking of applying himself?

[Lord Sassoon]

My Lords, the Bank of England is going to have a very large new mandate, and the points that the noble Lord makes are rather important to this. Whether on the MPC, the FPC or the PRA, the governor is going to be very well supported, not only by deputy governors but by a range of internal and external experts. Just for clarification, the governor no longer chairs the court; that is chaired by a non-executive chairman. I do not know how it was in the noble Lord’s day, but I am sure that co-operation with the Treasury is going to be the least of the new governor’s difficulties.

Economic Policies

Debate between Lord Sassoon and Lord Barnett

Wednesday 4th July 2012 Lords Chamber

[Lord Sassoon]

The noble Lord, Lord Low of Dalston, raises some important points. Let me try to summarise. On the one hand, the public sector deficit has already been reduced from 11% to 8% of GDP. Public sector employment is down more than 400,000 from the unsustainable levels that it had reached. That is very real progress and we are on track on that dimension.

On the other side, we should not underplay the real success of the private sector in the most difficult and challenging conditions. Some 800,000 new jobs have been created since the election—166,000 new private sector jobs in the past quarter. Unemployment is down by 51,000 in the latest quarter. The private sector is doing a fantastic job to get this country out of the mess that we were left with. That is what it is all about.

[Lord Barnett]

My Lords, last week, the noble Lord misled the House in a reply to a question from my noble friend Lord Peston. He said that the IMF supported the Government's “fiscal course”. May I quote directly from what the IMF said? It said that although it endorsed the deficit cutting plans of the Government, if growth failed to pick up it would help to consider delaying cuts in expenditure and also,

“focus on temporary tax cuts and greater”,

infrastructure expenditure. The noble Lord likes the IMF. Will he take its advice?

[Lord Sassoon]

I did not bring my IMF quote book today to trade on this one, because the Question is about the Government's assessment of the success of their economic policies, not what the IMF is saying about them. I am sure that we will come back to that on another occasion.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Tuesday 3rd July 2012 Lords Chamber

[Lord Sassoon]

My Lords, as was in the Statement yesterday, I can confirm that the SFO is on the case, looking at all the possibilities for criminal prosecutions and that the Crown Office in Scotland is doing likewise. There has been no request of which I am aware from the SFO for additional resources. I assure my noble friend that, if there was such a request, it would be looked at sympathetically by the Government. It has been an important and lively debate because these are critical issues for the financial services industry and I hope that, with those further explanations, the noble Lord, Lord Eatwell, will withdraw his amendment.

[Lord Barnett]

I am sorry to hear that it has been a wholly non-party political debate today until the noble Lord got up. However, will he at least consider—or, if not him, get somebody in government to consider—the point that my noble friend Lord Peston made? Given the circumstances of great national interest involved here, the Prime Minister should take the trouble to talk to the leader of the Opposition with a view to finding a way through that would be accepted on all sides. In those circumstances—if he could give us the kind of assurance that we need—I would certainly press my noble friend to withdraw the amendment. Can he give us any kind of assurance?

[Lord Sassoon]

My Lords, even better than that, two Motions will be tabled in another place on Thursday which will give an opportunity for the different views of the Government and Opposition on these matters to be aired fully. We should look very seriously at where that debates leads to.

FSA Investigation into LIBOR

Debate between Lord Sassoon and Lord Barnett

Monday 2nd July 2012 Lords Chamber

[Lord Sassoon]

My Lords, first, I will not comment further on the senior executives of Barclays. Clearly the chief executive is coming before the Treasury Committee later this week and will be asked a lot of questions that will further elucidate those aspects.

On the question of prosecution, the basic flaw is that the setting of LIBOR was not and is not a regulated activity, so the FSA does not have a direct way in. My noble friend is right to be quizzical and shake her head but that is the position as it was under FiSMA and the construct put in place by the previous Government. If the FSA wanted to bring criminal prosecutions, as it has done with the civil settlement, the attempted fixing of LIBOR is an activity that is ancillary to a regulated activity. The construct is difficult and the chairman of the FSA has pointed out the difficulties.

As I said in repeating my right honourable friend’s Statement, most normal people would assume that there was a prima facie case to look at the Fraud Act and false accounting and that is precisely what the SFO was doing. Through the inquiries that are going on, we will look at what needs to be done to plug gaps in the financial services legislation. For the avoidance of doubt, I should tell my noble friend that there will certainly be no retrospective legislation in respect of criminal action because—before anybody else jumps up—it would be against the European Convention on Human Rights. I am sure that my noble friend would not want us to go there—and she acknowledges that.

As to which regulator started work when, I would not rely too much on what the newspapers say. As with all these things, I am sure that in due course the regulators will look into their conduct and the lessons to be learnt. I certainly would not take as gospel the newspaper reports of who started when.

[Lord Barnett]

My Lords, the Minister is obviously aware that this has not just started. It has been going on for years and it could not have involved only Barclays but virtually every major bank, not only in the UK but elsewhere. Barclays could not have been handling this on its own. Listening yesterday to the chairman of the FSA, the noble Lord, Lord Turner—who unfortunately is not in his place—the FSA knew nothing whatever about it, nobody in the Bank of England seems to have known anything about it, and now the noble Lord, Lord Sassoon, tells us that the Treasury has known about it apparently for only a short while. We obviously recognise that to be the truth, but should there not be criticism of some of the people involved here? The sheer incompetence of not knowing anything about it deserves some kind of criticism.

I appreciate that the Minister cannot say that he will listen and change anything, because it is a matter for the Chancellor. However, my noble friend Lord Eatwell put a lot of serious points to him and I hope that he will take them back to the Chancellor to ensure that there are some changes. There should be some changes now.

Economy: Deficit Reduction

Debate between Lord Sassoon and Lord Barnett

Thursday 28th June 2012 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government whether they remain of the opinion that their deficit reduction plan has been the right policy for the United Kingdom; and, if so, why.

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

My Lords, tackling the large deficit that this Government inherited was, and is, necessary to restore public finances to a sustainable path. Reversing the historic rise in public debt will strengthen the UK’s medium-term growth prospects.

[Lord Barnett]

My Lords, has the Minister seen the OECD’s latest figures, which show that when the Government took office in 2010 our net debt in that year was 53.9% of GDP, while in Germany it was 52.2%? By 2013, next year, they say that UK debt will be 74%, although it is likely to be higher now in the light of the latest figures, while Germany’s will still be 50.5%. The budget deficit was serious, of course, but it cannot be blamed for those figures. Does the Minister not agree that those figures show that the real reason behind this is that Germany had growth, whereas the Chancellor’s deficit reduction plan deliberately had no growth? In those circumstances, can we now expect another U-turn, shortly I hope, to provide some capital for structural expenditure, which might just help to kick-start a bit of a revival?

[Lord Sassoon]

My Lords, the debt figures that the noble Lord, Lord Barnett, recited precisely illustrate the structural deficit challenge that we inherited from the previous Government. We have already reduced the current budget deficit from 11% to 8% of GDP in two years, but there is much more to do, and we will do it. We will be reducing borrowing by £155 billion a year by 2016-7, compared to what it otherwise might have been under another Government. We will keep on with that task.

Financial Services Bill

Debate between Lord Sassoon and Lord Barnett

Tuesday 26th June 2012 Lords Chamber

[Lord Barnett]

Name one. Anyway, I do not wish to delay the Committee much longer, and I will withdraw the amendment.

[Lord Sassoon]

Before the noble Lord sits down, I would point out that very recently Rachel Lomax was a very distinguished deputy governor of the Bank, to name but one, and there are now some very able senior female members in the banking sector, to avoid any doubt on that matter.

Wales: Barnett Formula

Debate between Lord Sassoon and Lord Barnett

Wednesday 20th June 2012 Lords Chamber

[Lord Sassoon]

My Lords, first, on the numbers, which the noble Lord, Lord Wigley, quoted, when the Holtham commission reported to the Welsh Assembly in July 2010, it claimed that Wales had a £300 million funding shortfall. I do not recognise the new figure put out by Plaid Cymru yesterday but the point is that Wales has received nearly £500 million additional funding in the current spending review, SR10. In 2010-11, funding in Wales was running at some 15% above the level in England, so we need to keep the numbers in perspective. As I have said previously, yes, we recognise the significant issues that there are with the Barnett formula.

[Lord Barnett]

My Lords, as the noble Lord knows, a powerful Select Committee of this House unanimously recommended major reform, which would help not only Wales but every other part of the UK, particularly Scotland, where there needs to be reform. I gather that, subject of course to the Scottish people sensibly voting against separating from the UK in a referendum, the Government have in mind a major financial reform in Scotland, probably well before the time that the Minister has always mentioned. In those circumstances, would not then be a good time for Scotland to make that piece of essential reform?

[Lord Sassoon]

My Lords, we are straying a bit from Wales, but I am very happy to talk about Scotland. Of course, we recently passed through this House the new Scotland Bill, now an Act, which made some very significant changes resulting from the Calman commission recommendations. In respect of the eponymous formula of the noble Lord, Lord Barnett, the difficulty that we have among others is that there is no consensus across the UK on what could replace it. Since 1978, it has stood the test of time, and it is very difficult to find a better basis.

Budget: Cost of Changes

Debate between Lord Sassoon and Lord Barnett

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.

Debt

Debate between Lord Sassoon and Lord Barnett

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.

EU: Euro Area Crisis

Debate between Lord Sassoon and Lord Barnett

Thursday 24th May 2012 Lords Chamber

[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.

Eurozone

Debate between Lord Sassoon and Lord Barnett

Thursday 17th May 2012 Lords Chamber

[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?

Economy: Credit Easing Policy

Debate between Lord Sassoon and Lord Barnett

Thursday 26th April 2012 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what evidence they have that the Chancellor of the Exchequer’s credit easing policy is increasing business investment.

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

My Lords, the national loan guarantee scheme was launched on 20 March to provide cheaper loans for smaller businesses. Businesses have now started to benefit from these loans. Also, under the £1.2 billion business finance partnership, the Government intend shortly to invest up to £700 million with some or all of the seven shortlisted fund managers. Although it is too early to draw conclusions on any impact, credit easing is expected to have a positive effect on the economy.

[Lord Barnett]

Bearing in mind that the Answer that the noble Lord has just given me is not quite relevant to the Question on the Order Paper, surely the Answer should have been that the Office for Budget Responsibility—which meets regularly with the Chancellor and the Treasury—said in March, at the time of the Budget, that there would be a 6.9 per cent fall in business investment. Why did he not want to tell us that? At the same time the OBR told us that there would be growth this year. As the Minister knows, in the first quarter we have had negative growth of 0.2 per cent. In those circumstances, do he and the Chancellor believe that without QE we would have had even worse negative growth? Is that the Government’s position? What do they plan to do? Are they planning to increase QE, or are they taking note of the Treasury Select Committee’s recent report which pointed out the serious effect it was having on retired people who are taking out annuities and getting very low interest rates?

[Lord Sassoon]

My Lords, I fear that I will not be able to do justice to all the six questions that I thought I detected, but let me try to deal with one or two. First, we should distinguish between credit easing, which is the policy announced by the Chancellor and made manifest in the national loan guarantee scheme, and quantitative easing, which is the responsibility of the Bank of England. As to quantitative easing, if the noble Lord, Lord Barnett, had asked me I would have answered that the Bank of England’s own assessment is that under quantitative easing the economy has benefited by between 1.5 to 2 per cent. One can therefore draw inferences from that for what a more limited scheme targeted at small businesses will achieve.

As to the question of the levels of investment in the economy, that is set out in the latest report from the Office for Budget Responsibility. It is therefore its independent figures, not mine, which point out that the fall-off in levels of business investment and the expected sharp recovery very much follow the pattern seen in the recession of the early 1990s. It is territory that we have been in before and the Government believe that we should respond in the ways that we have. As to the evidence that the national loan guarantee scheme is gaining traction, Barclays has already issued a £1.5 billion bond backed by the scheme, and Lloyds has issued $1.4 billion since the scheme started on 20 March. So it is indeed, unlike some of the schemes introduced by the previous Government, up and running and having an effect.

Economy: Quantitative Easing

Debate between Lord Sassoon and Lord Barnett

Monday 19th March 2012 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government why the Chancellor of the Exchequer agreed the latest increase in quantitative easing.

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

My Lords, the independent Monetary Policy Committee has operational responsibility for monetary policy. The MPC judged in February 2012 that without further monetary stimulus it was more likely than not that inflation would undershoot the 2 per cent target in the medium term. The Chancellor agreed that an increase in the asset purchase ceiling would provide the MPC with the scope to meet the inflation target in the medium term and gave his authorisation to proceed.

[Lord Barnett]

My Lords, I thank the Minister for that Answer. That increase was initiated by the Monetary Policy Committee but, under the terms of the original agreement in 2009, the Chancellor had to give his consent—which I assume he did. The current Chancellor took over that policy. As I understand it, he said at the time that it was a “leap in the dark”, designed because all other government policy had failed. Does he still feel that that is the case, or has he changed his mind? What does he now expect from QE?

[Lord Sassoon]

My Lords, I reiterate that the MPC has operational control and freedom here. The Government, on behalf of the taxpayer, indemnifies the Bank against losses, so of course any increase in the limit of the asset purchase facility has to be authorised by the Treasury. As to what people’s quotes might be, I know that I get into trouble if I start questioning whether the noble Lord, Lord Barnett, has correctly quoted my right honourable friend. I am sure that he did, but in completely different circumstances. The situation now is that we have tight fiscal policy. Against that discipline, the monetary policy of the Bank of England can be conducted with confidence. Tight fiscal discipline and loose money is the policy prescription. I suspect that that was not the policy prescription when my right honourable friend made that quote.

EU: Economic and Financial Issues

Debate between Lord Sassoon and Lord Barnett

Monday 12th March 2012 Lords Chamber

[Lord Sassoon]

My Lords, the fiscal compact intergovernmental treaty was discussed at the European Council on 8 and 9 December. As has been discussed on a significant number of occasions, the UK did not get the safeguards it was looking for and is not a party to that treaty, which is why we did not sign it in the fringes of the European Council on 1 and 2 March.

[Lord Barnett]

My Lords, will the noble Lord accept my congratulations to the Government on following the previous Government’s agreement not to join the euro? Nevertheless, would it not be as well to admit that because of that, unfortunately, the whole question of the survival of the euro is discussed mainly among eurozone Finance Ministers? Why will he not admit it?

[Lord Sassoon]

Well, I have not been asked the question in those terms before. It is for the eurozone members to bear the brunt of sorting out the eurozone. That is exactly what they are getting on with doing, which is why we welcome the fiscal compact intergovernmental treaty as a necessary step towards the remorseless logic that with currency union comes much closer fiscal union. We keep close to it. Meanwhile, we are working with many like-minded states on an ambitious pro-growth agenda, which is what Europe also desperately needs.

Budget Deficit

Debate between Lord Sassoon and Lord Barnett

Wednesday 15th February 2012 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what assumptions they are currently using about what the scale of the deficit will be on 31 March 2012, and how this compares to what had been predicted by the Office for Budget Responsibility at the time of the last budget.

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

My Lords, the Office for Budget Responsibility published its most recent forecast on 29 November 2011. Its forecast for public sector net borrowing in 2011-12 is £127 billion. This represented an increase of £5 billion since the forecast produced for Budget 2011. The OBR attributed the worse economic outlook to three factors: the sharp increase in global commodity prices over 2010 and 2011; the impact of the euro area crisis; and the ongoing structural impact of the financial crisis.

[Lord Barnett]

Actually, my Lords, I knew that. My Question was about assumptions in the Treasury; surely its officials cannot sit there twiddling their thumbs twice a year waiting for the OBR forecast. Is not the major problem that the Chancellor has concentrated to such a degree on the deficit that he has lost track of where that is taking him? The plain fact is that it is a lack of growth that is doing the damage. Now, as we know, the Chancellor has had to extend the balancing of the budget to 2017, and he may well have to extend that further. Many of the Chancellor’s friends who supported him, like the IMF and the OECD, are now saying that if the position deteriorates, as it is clearly doing, then he should be more flexible. Would he consider, for example, something that would help in the short term—namely, finding the odd few billion, which would not be very much in relation to the total deficit, in order to kick-start the privately funded infrastructure plans that he has spoken about previously? Would that not at least help to alleviate some of the problems?

[Lord Sassoon]

My Lords, I shall try to deal with at least some of the noble Lord’s supplementary questions. First, there is a process of exchanging and discussing numbers between the OBR and the Treasury under the memorandum of understanding. The details of all communications between the OBR and Ministers will be published in due course on the OBR’s website, as they were in the run-up to last year’s Budget.

Secondly, on the question of the deficit reduction plan, it is interesting to look at the recent IFS green budget, which does a comparison between the coalition plans and the relatively sober Alistair Darling plans rather than the Ed Balls plans. The comparison shows that up to 2016-17 the cumulative impact of Mr Darling’s policy would have been that debt under a Labour Government was £201 billion higher than it will be under the forecast for the coalition Government. As the markets have made clear this week, if we listened to suggestions about making increased spending commitments now, our interest rates would go sky high and our industry would be crippled. We are sticking to our plans, but the private sector will contribute to significant infrastructure investment of the sort that both the noble Lord, Lord Barnett, and I would welcome.

EU: Fiscal Compact Treaty

Debate between Lord Sassoon and Lord Barnett

Tuesday 7th February 2012 Lords Chamber

[Lord Sassoon]

My Lords, I am happy to confirm to my noble friend that of course this intergovernmental agreement, which goes to the heart of strengthening the fiscal arrangements within the eurozone, is a necessary but not sufficient part of what we hope to see with the eurozone returned to health. There are a number of other critical elements, including sorting out the immediate situation in Greece, getting the European banks’ capital positions where they need to be, and so on.

[Lord Barnett]

My Lords, will the noble Lord be advising the Government to be one of the 27 member states agreeing to a fiscal solution to the problem or will the Government take the view that, whatever happens in the short term, in the longer term it is perfectly impossible for a country like Greece in the state that it is in to be able to have the same exchange rate and interest rate as Germany? In those circumstances, will the Government be making arrangements and planning for something to happen that would not be helpful, because, as the Chancellor put it, it would be disastrous if the whole thing broke up? Is contagion a bigger problem than many of us expected it to be?

[Lord Sassoon]

My Lords, it continues to be the Government’s wish that the eurozone holds together and makes the arrangements, some of which I outlined in my previous answer. As I have said in answer to previous questions from the noble Lord, Lord Barnett, the Government take all precautionary measures and look at all scenarios that there may be as this still very severe situation continues to unfold.

Individual Savings Accounts: AIM Shares

Debate between Lord Sassoon and Lord Barnett

Tuesday 31st January 2012 Lords Chamber

[Lord Sassoon]

My Lords, it is entirely appropriate, because ISAs are the main savings vehicle for people in this country, that a range of products, both cash and equity and debt products, should be eligible for an ISA. As I explained, there is an appropriate line to be drawn, and it is where the previous Government and this Government drew it. This Government are fully continuing on AIM with the previous Government's policy.

[Lord Barnett]

My Lords, I declare an interest as a holder of ISAs who has no desire to invest in AIM. The noble Lord, Lord Forsyth, made a major point to which the Minister did not reply. It is totally inadequate to keep saying that the Government are not going to do it. Will the Minister not at least reconsider it?

[Lord Sassoon]

My Lords, there are no plans to reconsider it. My noble friend Lord Forsyth put up another possible reason why the Government might not want to make the change. I said that the Government were not making the change for the reasons that I first gave.

Eurozone Crisis

Debate between Lord Sassoon and Lord Barnett

Tuesday 17th January 2012 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government whether HM Treasury is developing contingency plans for use in the event of a Eurozone collapse.

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

My Lords, as my right honourable friend the Chancellor of the Exchequer made clear in the Autumn Statement, the Government, including of course the Treasury, are undertaking extensive contingency planning to deal with all potential outcomes of the euro crisis.

[Lord Barnett]

Thanks for that very informative reply. I hope that there will never be a need to use the contingency reserve, because, as the Chancellor has said, it would be devastating for the UK economy if there was a collapse in the eurozone. We already have a near recession—if not an actual one—forecast without such a collapse. I gather that the Government are more amenable to the new draft treaty that has been promoted for the next summit. In those circumstances, and given the risk of jeopardising the slightest chance of preventing that collapse, would he not agree that it would be very foolish to veto that summit as well?

[Lord Sassoon]

My Lords, first of all I welcome the compliment paid to my Answer by the noble Lord, Lord Barnett. He asked me a yes or no Question. I gave him a very full Answer and some extra things he did not ask about, so I am glad that he appreciates that. I am not going to speculate on our negotiating position because this is all very fast moving. All I can reiterate is that we are working very hard with our European partners to see a resolution of all aspects of the crisis. They have invited us to be at the table to discuss the arrangements that the eurozone countries are making among themselves and we are active and positive participants when we are invited to be there, as we are at those discussions.

Economy: Private Capital Investment

Debate between Lord Sassoon and Lord Barnett

Tuesday 20th December 2011 Lords Chamber

[Lord Barnett]

My Lords, the Question asked what additional facilities the Government have provided. In practice, would the Minister agree that there are no additional facilities outside the deficit reduction plan? Indeed, the measures that he has already mentioned were well taken care of when the OBR reported that growth will be down to 0.7 per cent, which is hardly helping. In the light of the current economic situation, will the Government consider real, additional facilities outside the deficit reduction plan?

[Lord Sassoon]

My Lords, to be clear, the three measures that I mentioned in my opening Answer were indeed new and additional measures, the costings of which are given in the Autumn Statement.

Economy: Deficit Reduction

Debate between Lord Sassoon and Lord Barnett

Thursday 15th December 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what evidence they have that their deficit reduction plan is working.

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

My Lords, tackling the deficit is necessary to supporting sustainable economic growth. The Government’s consolidation plan has restored confidence in the UK’s fiscal position, preserving our AAA credit rating and leading Standard & Poor’s to move the UK’s rating from negative outlook to stable. In May 2010, the spread of UK gilts to German bunds was in line with Italy and Spain; since then, UK rates have fallen by over 150 basis points but Italian and Spanish bond yields have risen by over 100 basis points.

[Lord Barnett]

In the midst of all that, the noble Lord forgot to answer the Question. As I am sure he will recall, the Prime Minister said that the deficit would be eliminated in 2015 and his own Office for Budget Responsibility has said that it will be 2017. Why was he not willing to say that? Is there something wrong in telling the truth that he has to give me a long, wordy Answer? However, it is even worse than that—and some very respected forecasters are forecasting that it could be even worse. Would he not accept that if the circumstances change, through no particular fault of the Government, changes in policy should take place? For example, we might do something to stop the unemployment figures announced yesterday being even worse. What does he have in mind in the event of some kind of major change in circumstances?

[Lord Sassoon]

My Lords, the Government are on track to meet the fiscal mandate which was set by my right honourable friend the Chancellor. The mandate requires the Government to bring the cyclically adjusted current balance into balance at the end of five years. The Opposition may not like it but that fiscal rule means that there is an ability for us to be flexible in the face of very difficult economic conditions; it means that we can preserve the infrastructure expenditure, which is so important, to underpin long-term growth; and it means that the automatic stabilisers can operate. If the noble Lord, Lord Barnett, is suggesting that we should abandon all of that, I wonder what his policy would be.

Economy: Government Policies

Debate between Lord Sassoon and Lord Barnett

Wednesday 7th December 2011 Lords Chamber

[Lord Sassoon]

My Lords, our exporters are leading the growth in this country and indeed, although it is early days, there are some signs from the figures over the past 18 months that at last, after a decade of a declining share of world trade, the UK’s share is increasing. It is a modest increase and it is early days but our exporters are performing very strongly.

[Lord Barnett]

I would like to welcome one part of the Statement from the Chancellor, when he said that he had negotiated £20 billion of funds from pension funds for infrastructure investment. That is very welcome. However, could the noble Lord tell us how exactly it is to be financed with the pension funds? Is it a PFI deal, or what rate of interest are they going to be paid?

[Lord Sassoon]

I am grateful to the noble Lord, Lord Barnett, for welcoming this important initiative. In fact it is a case of the pension funds coming to us. That particular group of pension funds has £800 billion under management. So it will be funds that they already have under management, and they wish to allocate a greater share to the infrastructure sector. It does not hit the public sector in any way.

EU: Member States’ Budgets

Debate between Lord Sassoon and Lord Barnett

Tuesday 29th November 2011 Lords Chamber

[Lord Sassoon]

I beg my noble friend’s pardon. I think that a number of false premises were used to back up that supplementary question.

[Lord Barnett]

My Lords, if the eurozone decides to strengthen its fiscal rules, which many press upon it as being vital if they are to work, but there is no question of a change in the treaty, what would the Government do, because we clearly would not be involved?

[Lord Sassoon]

My Lords, this is a fast-evolving set of proposals. Indeed, the euro area’s Finance Ministers are meeting later this afternoon. One of the issues on the table is that the Commission and the euro group are exploring the possibility of limited treaty changes, and Mr Van Rompuy is due to present the outcome of that work to the December European Council. When we see any proposals—if there are any—we will consider what we should do about them.

International Monetary Fund

Debate between Lord Sassoon and Lord Barnett

Thursday 24th November 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government by how much they expect to increase their contribution to the International Monetary Fund.

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

My Lords, at the G20 Britain, and all the other countries, agreed to ensure that the IMF continues to have resources to play its systemic role to the benefit of its whole membership. We stand ready to contribute within limits agreed by the House and set out in the International Monetary Fund Act 1979. However, there is currently no agreement about the timing, extent or exact method through which IMF resources will be increased.

[Lord Barnett]

In thanking the noble Lord for his Answer, I remind him that the Chief Secretary to the Treasury said on 6 November that he expected our contribution—which is the Question I asked—would be up to £40 billion. Perhaps the noble Lord could answer that as well. He and the Government recognise the need to provide funds for the IMF. Indeed, the Prime Minister said in the House on 7 November that it would be irresponsible to walk away from helping the IMF, but that it must not be used for a bailout. Can the Minister explain the difference between helping for a bailout and helping for a crisis—a very serious world crisis?

[Lord Sassoon]

My Lords, in answer to the first question, the position under the International Monetary Fund Act 1979 is that the limits agreed by Parliament currently stand at 38.8 billion SDRs, or about £38.3 billion. That is where the £40 billion figure comes from.

On the question of what the IMF is there to do, it is to look at the overall systemic risks in the world and support individual countries. It is not there to support countries in one particular zone as opposed to others or to support currencies. It is there to consider, under its criteria, country by country, where support might be needed.

Economy: Inflation and Unemployment

Debate between Lord Sassoon and Lord Barnett

Thursday 27th October 2011 Lords Chamber

[Lord Barnett]

My Lords, I beg leave to ask the Question standing in my name—rather than the previous Question—on the Order Paper.

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

My Lords, the Government’s economic policy objective is to achieve strong, sustainable and balanced growth. Budget 2011 reaffirmed the independent Monetary Policy Committee’s remit to target 2 per cent inflation, as defined by the 12-month increase in the consumer prices index. The Government have introduced a range of measures to reduce unemployment and support the unemployed into work, including get Britain working, the work programme and modernisation of Jobcentre Plus.

[Lord Barnett]

My Lords, I hope that the modest attempts that the Treasury is making to help the unemployment situation are successful. However, does not the Minister accept, if he wants to be honest with the House, the plain fact that the deficit reduction plan overshadows all those minor measures, and unemployment continues to rise? I do not expect him to be able to announce what the Chancellor is going to do in the near future. However, given the change of circumstances around the economy, will he at least tell us that the Chancellor is considering, without changing the plan, at the very least putting off some of those measures to later years and bringing forward some of the infrastructure and capital expenditure plans, which would help to reduce the terrible unemployment that is blighting so much of the country?

Banking: Quantitative Easing

Debate between Lord Sassoon and Lord Barnett

Monday 10th October 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what recent discussions have been held by the Chancellor of the Exchequer regarding the sale of government-held shares in Royal Bank of Scotland and Lloyds TSB, and regarding the effect of additional quantitative easing on that sale.

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

My Lords, Treasury Ministers and officials have meetings with a wide range of organisations. It is not the Government's practice to provide details of all such meetings

UK Financial Investments—UKFI—manages the Government’s shareholdings in the banks. UKFI aims to dispose of the shares in an orderly manner and it continues to monitor market developments and to look at the range of alternatives. The ultimate decision to proceed with any transaction will rest with HM Treasury.

[Lord Barnett]

My Lords, I am glad to hear that. However, last week it was reported that the Governor of the Bank of England told the Chancellor that he would not use QE to help the banks, including presumably the Royal Bank of Scotland and Lloyds, but, in fact, the quarterly review said that the Government authorised the Bank to pursue a number of activities targeted to improve the facilities of banks. Who is making decisions here: the governor or the Chancellor?

[Lord Sassoon]

My Lords, I think we risk straying from the Question. I know that, in a masterly wheeze, words about QE were added to this Question late in the day by the noble Lord, Lord Barnett. I think that quantitative easing is one of many questions relevant to the sale of bank shares but a relatively small consideration in present circumstances. Given that the Question is about the sale of bank shares, this is one of many factors that is relevant.

Economy: Capital Expenditure

Debate between Lord Sassoon and Lord Barnett

Tuesday 4th October 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government, following announcements by the Deputy Prime Minister on capital expenditure programmes, what consideration they are giving to increasing capital expenditure beyond the amounts included in the Chancellor’s deficit reduction plan.

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

My Lords, the Government are sticking to the spending plans set out in the 2010 spending review. Within this, however, we have been able to fund additional, targeted capital expenditure from otherwise unspent funds. This includes £500 million for the Growing Places initiative and £250 million on broadband access and support for world-leading computer technology.

--- Later in debate ---

[Lord Barnett]

I am sure that that will not please Nick too much. My Question asks whether any money has been spent beyond the deficit plan: the answer is clearly no. In any case, the hundreds of millions of pounds which I am happy to see was found in Manchester will surely be overshadowed by the IMF results, which recently forecast that growth of our economy will be not much more than 1 per cent. That in turn will lead to a much higher rather than lower deficit. Indeed, as I am sure the Minister is aware, the Financial Times recently forecast, based on OBR methodology, that the deficit will be £12 billion higher than previously thought. In those circumstances, will the Minister tell us the Treasury's estimate of the deficit at the end of the five-year term?

[Lord Sassoon]

My Lords, as the noble Lord, Lord Barnett, knows very well, we have set up the Office of Budget Responsibility to keep track of all the forecast numbers and we will get its update later in the autumn. The critical point is, as my right honourable friend the Prime Minister said at the weekend, we are spending over £3 trillion of public money in four years and we are not going to wreck what we now have in a very low interest-rate environment for the sake of spending a few more billion. We will stick to our spending plans.

Independent Commission on Banking

Debate between Lord Sassoon and Lord Barnett

Monday 12th September 2011 Lords Chamber

[Lord Sassoon]

I am very grateful to my noble friend. We will work as hard and as fast as we can now to take forward consideration of the detail. As I have stressed, we have accepted the recommendations of the report in principle, but there is a lot of potential devil in the detail and we need to do a full cost-benefit assessment. Indeed, we need to work through what would be appropriate to introduce into the financial services Bill and what would need a stand-alone Bill. I have no idea how the committee may want to proceed, but it now has the Vickers report in front of it and we will get on with sorting out all these issues as quickly as possible. However, we should not underestimate the amount of work for officials and the amount of consultation needed to get the detail right.

[Lord Barnett]

I welcome the Statement and I note that, in its recommendations, the commission talked about the short-term report being dealt with as soon as possible, although it would take until 2019 to deal with the full action that needs to be taken. I would like to clarify this with the noble Lord. He talked about some of the points and he repeated part of the long Statement about what will happen, but could he clarify how soon he expects the banks to be in a position to do the kind of reform recommended in this report, which is so strongly supported by the Chancellor? Is not the real current danger that, if the eurozone banks collapse, as, regretfully, seems all too likely—recently the Chancellor said that that would not just be disastrous for Europe but for us as well—we could be bailing out banks long before 2019, whether we are in the eurozone or not and we may have to bail some out in the very near future? How would that fit in with the reform in the short term that will enable the actions which are strongly recommended by the report to be carried out?

[Lord Sassoon]

I am grateful to the noble Lord, Lord Barnett, for welcoming the Statement. Clearly, there is a series of different sorts of recommendations in the report. Some of them relate to ring-fencing and the adequacy of capital, where the date of 2019 fits in with the move to implementation of Basel III. So there is a clear logic for making sure that the construct that we are putting in place here is targeted at the same date as the related international recommendations in the same area. On the other hand, of course there are recommendations in areas such as competition, connected, for example, with the ongoing disposal of Lloyds branches, where the timetable is rather different and where the commission, quite rightly, is looking to see action on a shorter timescale. We need to look at the pacing of some of the reforms in relation to 2019, that being the date of Basel III implementation, and others in relation to the individual merits of the case. That is the approach we will take.

Public Expenditure: Deficit Reduction

Debate between Lord Sassoon and Lord Barnett

Tuesday 6th September 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government how much public expenditure has changed in the Chancellor of the Exchequer’s deficit reduction plans through the use of the flexibility built into his plans.

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

My Lords, the Government’s fiscal mandate targets a cyclically adjusted aggregate to allow some fiscal flexibility at a time of economic uncertainty and to allow the automatic stabilisers to operate in full. Automatic stabilisers are those features of the tax and spending regime, such as unemployment benefits, that vary with the economic cycle and so act to stabilise the economy. The forecast for total managed expenditure by 2014-15 increased from £737.5 billion in Budget 2010 to £743.6 billion in Budget 2011.

[Lord Barnett]

The noble Lord forgot to mention that he apologised recently for having denied that the Chancellor had said in terms that he had flexibility built into his plan. I assume that he is now admitting, despite all the figures that he has just given us, that that is the case. Therefore, should the Chancellor not be using that flexibility in the current economic circumstances? He said recently:

“The break-up of the euro would be economically disastrous, including for Britain”.

That seems all too likely at the moment. Given the lack of growth in the United States and Europe, is this not a good time to use that flexibility, rather than all that stuff that he does not believe in himself?

[Lord Sassoon]

I do not know to which “he” the noble Lord is referring, whether it is me or my right honourable friend the Chancellor, but we all believe in it and we are sticking to it. However, as I have explained, the cyclically adjusted nature of the mandate which the Chancellor has set means that, in times of economic uncertainty, factors such as varying levels of employment and inflation feed through so that the economy benefits, for example, from increased social security benefits and we do not in some slavish way have to cut back on other expenditure. The flexibility is there for very good reasons and it is operating.

Finance: Eurozone

Debate between Lord Sassoon and Lord Barnett

Tuesday 19th July 2011 Lords Chamber

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

My Lords, the Chancellor of the Exchequer regularly discusses the situation in the euro area with his European Union colleagues, including in bilateral meetings and at the Economic and Financial Affairs Council. The most recent ECOFIN meeting on 12 July, which the Chancellor attended, covered the situation in the euro area, and a number of previous ECOFIN meetings have also discussed this. The Treasury continues closely to monitor financial developments in the euro area.

[Lord Barnett]

My Lords, the Chancellor was quoted as saying—I hope that the noble Lord does not mind me quoting him—that they should try to obtain a settlement whereby banks are more heavily capitalised. That was a very sensible suggestion, although it might be difficult to achieve. I hope that the noble Lord is not complacent that, if the crisis really hits the eurozone, simply because we are not in the scheme we will be all right since it will not cost us any euros. We would not have to bail out European banks, but we would have to bail out UK banks that got into serious trouble. Does he accept that it would be sensible for the Chancellor to be much more positive about trying to achieve a deal? Indeed, if he can get a sustainable deal that is recognised internationally, he should go as far providing guarantees because that would be a sensible move which would safeguard UK taxpayers from tens if not billions of euros.

[Lord Sassoon]

My Lords, the Government are not the least complacent about the very serious situation in the eurozone, as evidenced by not only the continuing discussions around the next stage of the programme for Greece but also the situation of Italy as regards the capital markets and its interest rates recently. The most constructive things we can do are, first, to make sure, as the FSA and the Bank of England are doing, that the UK banks are subjected to stringent stress tests; and secondly that they continue to build up, as they have done satisfactorily so far, their capital liquidity positions. In his discussions with the eurozone, my right honourable friend the Chancellor has made it quite clear how supportive the UK is not only of the short-term measures in which we are not directly involved—the Eurogroup discussions around Greece—but also through ensuring that Europe presses ahead with the structural adjustments that are needed to bring sustained growth to Europe. At the same time, we also make it abundantly clear that it is for the eurozone itself to finance further bailouts and that the UK, as has been agreed in the context of Greece, is not going to be a direct participant in these bailouts.

Finance (No. 3) Bill

Debate between Lord Sassoon and Lord Barnett

Monday 18th July 2011 Lords Chamber

[Lord Sassoon]

My Lords, we have had an interesting debate this evening, and I thank all the noble Lords for their contributions. In particular, I congratulate my noble friend Lord Magan of Castletown on what was—to echo the words of the noble Lord, Lord Davies of Oldham—a masterly tour d’horizon of the economic scene. I have to say that it was about the one thing on which I agreed with the noble Lord, Lord Davies, but let me come back to that.

As I said in my opening remarks, the Government welcome the constructive comments of the Economic Affairs Committee, and we will take these into account as we entrench a more predictable, stable and simple tax system. This year’s Finance Bill, the third of the current Session, has come through an unprecedented degree of consultation and engagement, and implements many of the changes announced at the Budget.

As we said at the Budget, and as we said last year, we are committed to growth through investment, through private sector recovery, and not through unsustainable deficits. This Bill moves us forward on that path to stability and recovery. It promotes our international competitiveness by cutting corporation tax by a further 1 per cent and by reforming our controlled foreign company rules. These are key steps to creating the most competitive tax system in the G20.

The Bill encourages growth by supporting our entrepreneurs and SMEs, by doubling entrepreneurs’ relief, increasing R&D tax credits and cutting the small profits tax rate. It embodies fairness by lifting hundreds of thousands of people out of income tax, and by ensuring that other sectors of society make a fair contribution to cutting the deficit and restoring sustainable growth. It provides for a better environment by incentivising investment in cleaner sources of energy. I am pleased to say that these points were picked up in different ways by a number of noble Lords in this debate.

Let me first take what I might call the pessimist tendency. The debate did not get off to a cracking start given the tone set by the noble Lord, Lord Myners, and followed up by the noble Lord, Lord Barnett, so let me talk to the pessimists for a moment. This is an economy in which the private sector has generated over 500,000 new jobs in the last year. Manufacturers are talking to me about shortages of skills; about the need for more engineers; about welcoming the Government’s apprenticeship schemes; and all the noble Lord, Lord Myners, does is talk down the prospects for the economy. To be fair to him, he recognises that the economy is in the difficulty it is in because his Government did not deal with the structural deficit when they could have done. I certainly applaud his frankness, but it is a frightening challenge; and a legacy which the previous Government left.

I am, however, encouraged. On Friday, I was in Manchester, the old stamping ground of the noble Lord, Lord Barnett, an area where the rebalancing from the public to the private sector is as challenging as anywhere. The latest quarterly survey from the Greater Manchester chamber of commerce points out encouraging signs. I think that some noble Lords need to get out and about around the country more.

On the specific point which the noble Lord, Lord Barnett, raised about reserves, it is a little late at night to go into details about this. However, I know that it is a point that bothers the noble Lord considerably so I will write to him.

[Lord Barnett]

Don’t bother.

[Lord Sassoon]

The noble Lord says “Don’t bother” so I will not. I do not know whether other noble Lords heard; as he tells me not to write, I will not, but I have made the offer.

As to the extraordinary speech from the noble Lord, Lord Myners, which continually came back to praise the former Chancellor, Mr Darling, I can only think that he read in the Sunday newspapers, as I did, that Mr Darling is coming close to finalising his memoirs. I assume that this was a late play to make sure that Mr Darling looks favourably on the noble Lord, Lord Myners, and his part in the previous Government, but we shall see. We then got away from the pessimists but came back to one or two a bit towards the end. I am sorry that the noble Lord, Lord Haskel, joined in by talking about the Government transferring debt to the citizens. The trouble is that the government debt is the debt of the citizens and that attitude, I fear, underlay so much of what the previous Government did. They completely failed to recognise that it is the citizens who, at the end of the day, have to pick up the debt.

In terms of unrealistic ways to go about getting us out of the challenge we are in, I have to say to the noble Viscount, Lord Hanworth, that one way in which we will absolutely kill growth is if we raise further the top rate of income tax from a level which is not one that this Government wish to see in the medium term. We desperately need to encourage entrepreneurship and growth and the one thing we should not think of doing is further raising the top rate of tax. I am pleased to see the noble Lord, Lord Myners, nodding in approval.

I do not recognise the picture which the pessimists paint. However, I recognise that there are a lot of serious challenges out there, which noble Lords pointed to throughout the debate. I cannot deal with them in detail but my noble friend Lord Newby was the first—and virtually the last—speaker to refer to the European dimension, which is very difficult, while my noble friend Lord Higgins again pointed out the real challenges that there are in analysing the monetary situation and taking lessons from it.

The noble Lord, Lord Desai, raised the question of the savings rate and I completely agree with the challenge that that poses. I am delighted that the noble Lord appears to have lost none of his vigour even though it appears that Delilah may have got at Samson. It was a great reassurance that he is still on fine form. My noble friend Lord Ryder of Wensum was also on fine form. He raised a lot of points but, yes, regulation and employment are very challenging. I would point out to my noble friend that we are in the process of putting 21,000 regulations on the Red Tape Challenge website. We will indeed eliminate significant quantities of regulation while on employment law, another key area, we have already made moves on unfair dismissal to right the balance between employers and employees. My right honourable friend the Chancellor has identified five other areas where we are looking at employment regulation at the moment.

The noble Lord, Lord Watson of Invergowrie, talked about the protection that is important to lower-paid public sector workers. The Government have indeed made the £250 payment for all those within central government and are encouraging all other public sector bodies to abide by that.

Office for Budget Responsibility

Debate between Lord Sassoon and Lord Barnett

Wednesday 6th July 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what further discussions they have had with the Office for Budget Responsibility regarding their central growth forecast for 2011.

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

My Lords, there is a memorandum of understanding which sets out a framework for co-operation between the Office for Budgetary Responsibility and HM Treasury. It states that they are expected to meet regularly to scrutinise forecasting assumptions. The OBR will publish a list of contacts with Ministers, special advisers and their private offices shortly after each autumn and Budget forecast. All credible forecasters are clear that the UK economic recovery will continue. The OBR will publish a new economic forecast later this year.

[Lord Barnett]

My Lords, I thank the Minister. Paragraph 3.6 of the OBR’s economic and fiscal outlook states that,

“there is considerable uncertainty around all the forecast judgements we make”.

I know that the Chancellor cannot introduce a plan B because it would kill plan A. When the BBC last week gave him an alternative, the Chancellor said that “flexibility” was written into his plan. What does he mean by flexibility? Is it the Treasury’s special reserve? If so, can he remind us how much is in it and how much is left after expenditure on the MoD, Libya and other departments? Is that what he meant? If so, can he exceed it with the permission of the House of Commons? Therefore, is that a sort of plan B?

[Lord Sassoon]

I would love to be able to tell noble Lords what was in the mind of Robert Peston or whoever was being quoted, because it certainly was not the Chancellor. It was somebody interpreting the mind of the Chancellor.

Of course, there are certain ways in which there is flexibility within the numbers, because the automatic stabilisers operate as the economy fluctuates. In that sense there is flexibility, but I have no idea otherwise what that particular commentator had in mind. It certainly had nothing to do with use of the reserve.

Banking: Lloyds and RBS Shares

Debate between Lord Sassoon and Lord Barnett

Thursday 30th June 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government whether they plan to transfer some shares of the Lloyds TSB and RBS banks to taxpayers, as suggested by the Deputy Prime Minister.

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

My Lords, UK Financial Investments manages the Government’s shareholding in financial institutions. UKFI’s objective is to dispose of the investments in an orderly and active manner, with an overarching objective of protecting and creating value for the taxpayer. The Treasury and UKFI continue to assess all potential options to realise value for taxpayers through the disposal of these shares.

[Lord Barnett]

My Lords, there is a well known saying by a famous American tennis player: “You cannot be serious”. Does the noble Lord himself believe what has been said, given that that would achieve nowhere near best value? If you wanted to have an administrative scheme that was absolute nonsense, you could not find a better one. Given that the Government manage potential sales, is the Minister seriously suggesting that the Chancellor is looking at that proposition? If so, what would be the eventual cost in loss of expected revenue in due course from the sale of Lloyds and RBS shares?

[Lord Sassoon]

My Lords, what I said is that we are considering all options for the disposal of the shares in RBS and Lloyds Banking Group. My right honourable friend the Deputy Prime Minister has asked the Treasury to consider a particular disposal option, and that is what UKFI and the Treasury are doing.

Oil Prices

Debate between Lord Sassoon and Lord Barnett

Wednesday 8th June 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what plans HM Treasury has to ensure that inflation is reduced and consumers derive benefit when there is a reduction in oil prices.

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

My Lords, the independent Monetary Policy Committee of the Bank of England, the MPC, is responsible for maintaining price stability. It sets policy to meet the inflation target in the medium term. The MPC continues to judge that inflation is likely to fall back through 2012 and 2013. Petrol retailing is a competitive market. It is that competition which should see reductions in oil prices passed on to consumers.

--- Later in debate ---

[Lord Barnett]

I thank the noble Lord for his Answer. I am conscious of the fact that he has a propensity to quote what I said some 40 years ago. I thought of checking this time, but on reflection I realised that the Government have inherited a different policy from that of my time. In 1997, the then Chancellor Gordon Brown, as the noble Lord has pointed out, introduced a new policy involving the transfer of power from the Chancellor to the Governor of the Bank of England and the Monetary Policy Committee. The Government do not particularly like the then Chancellor but I assume that they are happy with the inheritance. Perhaps the noble Lord will confirm that. I know that he does not like talking about interest rates but will he also confirm the extreme national and international importance of interest rates and that the Chancellor still has absolute confidence in the governor and his policy for dealing with inflation?

[Lord Sassoon]

My Lords, I am very happy to confirm that this Government are entirely comfortable with the structure around the MPC and have complete confidence in the governor. I could go on. I have quotes from 40 years ago. I was going to use quotes from 30 years ago but if the noble Lord would prefer me not to use them on this occasion I will not do so. However, his words of wisdom are always my guide.

Public Expenditure: Reserve

Debate between Lord Sassoon and Lord Barnett

Monday 9th May 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government whether the public expenditure reserve is adequate to meet any potential requirement.

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

My Lords, the contingency set aside in the Government’s public expenditure plans over the period 2011-12 to 2014-15 amounts to 0.6 per cent, 0.8 per cent, 0.9 per cent, and 1 per cent of each year’s total managed expenditure. The Government believe that this is a prudent level of contingency to hold against unforeseen costs during the 2010 spending review period, but it is not intended to cover all possible eventualities.

[Lord Barnett]

I thank the Minister for his Answer, but would not some flexibility be positively helpful? For example, if growth was not as good as we all hoped and unemployment continued to rise, could not additional funds for the contingency reserve be a sort of plan B? The Chancellor need not call it that but just do it, as it would be positively helpful. Indeed, that would help the deficit reduction by increasing growth and reducing unemployment.

[Lord Sassoon]

No, my Lords, that would not be the right approach at all. The words of a distinguished former Chief Secretary to the Treasury in another place on 17 March 1977 got it absolutely right:

“It is no good drawing up elaborate spending plans without the determination and means of ensuring that the planned total”,

expenditure,

“is not exceeded. We have that determination … The contingency reserve regime is strict. We do not allow additional expenditure to count against the contingency reserve until we are fully satisfied that offsetting savings are not to be had”.—[Official Report, Commons, 17/3/77; col. 641.]

That is what the noble Lord, Lord Barnett, said in 1977, and he got it absolutely right.

--- Later in debate ---

[Lord Sassoon]

We are straying a bit from the subject of this Question but, as there do not seem to be many other noble Lords wanting to get in, I will say that I know how difficult it is for the ONS to produce these statistics. I am sure that it will continue to look at all ways of improving the way that it deals with the data. There was a one-off change to the way in which construction data were reported and the industry is questioning that. I am sure that the ONS is on the case.

[Lord Barnett]

My Lords, I am flattered that the Minister thought it necessary to research what I said 34 years ago when I was that much younger, but could he try to answer my supplementary Question this time?

[Lord Sassoon]

I am hearing that people seemed to think that I gave quite a sufficient answer the first time around. The noble Lord got it absolutely right when he was Chief Secretary and that is what my right honourable friend the present Chief Secretary will be doing.

Inflation

Debate between Lord Sassoon and Lord Barnett

Thursday 17th March 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government whether they will clarify the comments made by the Chancellor of the Exchequer to the Governor of the Bank of England in his letter of 15 February on inflation targets.

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

My Lords, consistent with the Monetary Policy Committee remit, the governor is required to write to the Chancellor if inflation deviates from the target of 2 per cent as measured by the 12-month increase in the consumer prices index by more than one percentage point. In his response to the governor, the Chancellor noted the Monetary Policy Committee’s assessment of inflation prospects relative to the inflation target and welcomed the committee’s determination to ensure that inflation returns to target in the medium term.

--- Later in debate ---

[Lord Barnett]

My Lords, I congratulate the noble Lord on the variety of ways that he finds not to answer a question. There are only two answers to the big issue on interest rates: whether or not you agree that they should go up. The Chancellor, in reply to the Governor of the Bank of England, who had said that increasing interest rates would be a futile gesture at the moment, said that he had “complete confidence” in the governor. In those circumstances, and given that this Government are the most transparent in history, can the Minister tell us the Chancellor’s view? Is he for or against an increase in interest rates?

[Lord Sassoon]

My Lords, first, I am grateful for the congratulations, however backhanded, offered by the noble Lord, Lord Barnett, and I will bank them. We are discussing the letter from my right honourable friend the Chancellor to the governor. In that letter, as I attempted to explain in my first Answer, he does not express any view about interest rates because, as the noble Lord well knows, the setting of interest rates is an independent matter for the Monetary Policy Committee of the Bank of England. I am sorry if I have to be boring about this, but there seems to be some misunderstanding. It is absolutely not for the Chancellor to express any view on this matter. What he does, as the noble Lord recognises, is to express confidence in the governor and the MPC structure and to support their independence.

Independent Commission on Banking

Debate between Lord Sassoon and Lord Barnett

Monday 28th February 2011 Lords Chamber

[Lord Sassoon]

My Lords, I agree with my noble friend that risk and the stability of the system go the heart of the remit of the commission. However, the individual product sets which are offered by individual banks is at the moment a matter for the Financial Services Authority, and I am sure that it will be taking its responsibilities very seriously in relation to the business models and products of all the banks it regulates.

[Lord Barnett]

My Lords, whatever the final recommendations of the commission, what work has the Treasury done with regards to splitting? Would it be helpful to the certain sale of our shareholdings? If it turns out to be bad, will the Minister be acting, as the noble Baroness asked, on a potential splitting?

Monetary Policy Committee

Debate between Lord Sassoon and Lord Barnett

Wednesday 16th February 2011 Lords Chamber

[Lord Barnett]

I welcome the Answer from the noble Lord, but does it include what the Chancellor told the Treasury Select Committee; namely, that he is going to follow the policy of the previous Chancellor, which would not prevent him reducing or increasing quantitative easing, although he has the powers? Then again, the governor also said in his letter to the Chancellor, published on 14 February, that he believed that inflation would have been below the 2 per cent target if it had not been for three exceptional factors. Does the noble Lord agree with that because the Chancellor’s letter is somewhat unclear to say the least? As to the balance of risk that the governor was writing about, he seemed to be worried about the problems for growth and employment if he increased interest rates. Does the noble Lord agree with that?

[Lord Sassoon]

My Lords, first, it is for the Bank of England to make any proposals on quantitative easing if and when it wants to, and the Chancellor will then look at them. I am certainly not going to deconstruct and provide a commentary on the exchange of letters yesterday. However, the noble Lord, Lord Barnett, indeed identifies some of the points made by the governor in the letter, where he clearly sets out the downside risks and refers to questions about the “margin of spare capacity”. On the other side, he refers to possible “upside risks”, particularly in relation to inflation expectations. However, I suggest that noble Lords read the letters, rather than have me interpret them.

National Insurance Contributions Bill

Debate between Lord Sassoon and Lord Barnett

Wednesday 2nd February 2011 Lords Chamber

[Lord Sassoon]

My Lords, this has been an interesting and high-quality debate, as is usual for this House, even if it has gone off into general economic issues on a number of occasions. Nevertheless, I am grateful to all noble Lords who have contributed.

Perhaps I may first address one or two of the questions and concerns that have been raised in connection with the national insurance contribution rate rises. I shall to try to restrain myself and not be drawn into some of the broader economic debate. My noble friend Lord Newby neatly knocked some of those concerns on the head, and your Lordships do not need another long lecture from me to explain just why the deficit reduction is necessary and what the greater construct is.

The noble Lords, Lord McKenzie of Luton and Lord Myners, referred to VAT in different ways. The critical point here is that consumption taxes are generally regarded by economists as being the least damaging to growth. If we had raised in other ways the £13 billion that it was regrettably necessary to raise out of the increase in VAT—for example, through larger increases in national insurance contributions—it would have been significantly more damaging to growth and jobs.

The noble Lord, Lord McKenzie of Luton, asked about the £1.4 billion effect on employers. This is a complicated matter, because there is a net overall benefit of £3 billion accruing from the total package, but it is the case that the way in which we have ameliorated the previous Government’s plans means that some of the benefit is switched from national insurance contributions to income tax. So, yes, there will be a net rise in national insurance contribution payments, compensated by a larger fall in income tax payments. While one can dice and slice this any number of ways, the critical point is that, in total, employers will be £3 billion better off next year, and that figure will rise in future years.

The noble Lord, Lord McKenzie of Luton, asked about the relationship of thresholds going forward. We have no plans to break the alignment of income tax higher rate threshold and the upper earnings and profits limits. Beyond this, we will review options for simplification in the light of any advice we get on priorities which are identified by the Office of Tax Simplification as and when it looks at this area.

The last main point on Part 1 of the Bill related to the important question of the funding of the National Health Service. This was also referred to by the noble Lord, Lord Davies of Oldham. I hope it is completely clear to noble Lords that nothing in the Bill affects in any way the commitment to increase NHS spending in real terms in each year of this Parliament. We can afford to do this without additional funding from national insurance contributions. I hope that gives reassurance and answers some of the specific questions raised by noble Lords on Part 1 of the Bill.

There were a number of detailed questions on Part 2 of the Bill. The first general group of questions related broadly to the scope of the holiday, both geographically and in relation to charities in particular. On the question of charities, which was referred to by the noble Lord, Lord Myners, and the most reverend Primate, it is not the case that charities are excluded from the scheme, but they must qualify in a number of respects. First, a new charity must be located in one of the relevant regions and it has to carry on a trade. In those circumstances, the holiday will apply subject to the charity meeting the other qualifying conditions.

It would be wrong to say that all charities are excluded, but I accept that non-trading charities are. If they had been included, it would have complicated the scheme and created complexity around administration, eligibility, anti-avoidance rules and so on. Any benefit ensuing is likely to be limited as we estimate that relatively few non-trading charities employing staff are likely to be set up over the holiday period.

The consistent theme is that the scheme is targeted at new businesses creating employment. If a new charity carries on a business, it will qualify.

[Lord Barnett]

My Lords, the noble Lord gave a definition of “trade” as “trading”. However, Clause 5(6)(a) refers to,

“a trade, profession or vocation”.

Is that not somewhat different?

[Lord Sassoon]

My Lords, I think it is a wider definition, so if a charity in those areas was carrying on activities that went beyond trading, my understanding is that the charity would qualify. The noble Lord, Lord Barnett, makes a point that perhaps the latitude for charities is wider than I am painting it. However, the critical point here—perhaps I am using “trading” too loosely—is that we are talking about creating new employment. If a new charity is carrying on a business that creates employment, it will qualify.

Currency Markets

Debate between Lord Sassoon and Lord Barnett

Wednesday 2nd February 2011 Lords Chamber

[Lord Sassoon]

My Lords, we want to see a transparent, deep and liquid market in the euro, other currencies, commodities and all forms of securities. As my noble friend suggests, it is right that London has taken the lead not only in global currency trading but in so many other markets. This Government intend to ensure that that continues to be the case.

[Lord Barnett]

Could the Minister confirm the recent figures issued by the highly respected Bank for International Settlements that the sovereign debt owed to British banks by Ireland, Greece and Portugal is something like $233 billion and would be $370 billion if Spain was included? In those circumstances, would it not be sensible to involve ourselves in discussions on a serious eurozone scheme that would help to avoid any serious problems?

[Lord Sassoon]

My Lords, the European stability mechanism is the permanent mechanism that will replace the temporary arrangements and there is a commitment among European leaders to complete the design by March 2011. Even though we are not in the eurozone and will not be a member of the new stability mechanism, we have been invited to participate in the design. My right honourable friend the Chancellor confirmed to President Juncker, I think on 7 December, that the UK would take up that invitation to participate in the design.

Monetary Policy Committee

Debate between Lord Sassoon and Lord Barnett

Monday 31st January 2011 Lords Chamber

[Lord Sassoon]

My Lords, that was a nice long lecture. I think there was a question at the end of it. It is precisely because the Government took resolute and early action to restore the fiscal position to one that pulls us back from the brink of the disaster which the previous Government left us with that the Bank of England can conduct monetary policy on a prudent basis and, as I said in my earlier Answer, all forecasters that I know of are forecasting that inflation is likely to come back towards the target range.

[Lord Barnett]

As the Minister appears to agree with the Chancellor on almost everything, does he agree with the Governor and the majority of the members of the MPC that the interest rate should be kept at its present level?

[Lord Sassoon]

My Lords, I will not fall into the trap of second-guessing the MPC. As I have said, the Monetary Policy Committee of the Bank of England runs monetary policy on an independent basis. That was an establishment of the previous Government to which I pay tribute. I am certainly not going to do anything other than restate the critical importance of the independence of the Monetary Policy Committee. It is up to the committee to decide how to hit the inflation target, which it is doing with the full confidence of the Government.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Sassoon and Lord Barnett

Monday 31st January 2011 Lords Chamber

[Lord Barnett]

My Lords, as from time to time I disagree with my noble friend Lord Eatwell, I make it clear that on Amendment 6 I strongly agree with him. It makes sense to separate the review from the political cycle. I will disagree with him at a later stage, but on this I thought that he made a very good point.

I am never surprised at the noble Lord, Lord Burns, speaking as if he is on the Treasury Front Bench. We should not be surprised; he has been doing it all his life. He did a marvellous job in the Treasury, particularly for the five years that I was there.

I thought that my noble friend Lord Eatwell made a good point about the cycle, as did my noble friend Lord Myners, and I hope that on reflection the Minister will accept the amendment. It makes a lot of sense and he might, on this occasion, accept it.

[Lord Sassoon]

My Lords, I start by welcoming the noble Lord, Lord Myners, back to the Chamber. I am not sure that he had quite got his script co-ordinated with the Front Bench, but I accept his congratulations. I will put aside their slightly backhanded nature. Next time I think he should speak to his Front Bench, which seemed to be taking sole credit for the government amendments that have come forward. Nevertheless, I am grateful to him.

--- Later in debate ---

[Lord Barnett]

The noble Lord, Lord Burns, never disappoints me. I am delighted to see that he agrees with the principle of the amendment. I agree with the principle but I disagree with the amendment. Once again, my noble friend Lord Eatwell ignores this House. He would like to see the scrutiny undertaken just by the Treasury Committee of the House of Commons. I have no objection to that and, indeed, I would be delighted if the Minister accepted it, because the Treasury Select Committee of the House of Commons, under different chairmanships, has usually done a great job and continues to do a very good job now under a Conservative chairman. Why does my noble friend not wish to have this scrutinised, as my noble friend Lord Peston and I proposed in Grand Committee, by the Economic Affairs Committee of the House of Lords? As a former chairman, I am prejudiced and my noble friend Lord Peston was a longer-term chairman of the committee. It has always done an excellent and very independent job in this House.

If the Minister is minded to accept an amendment occasionally, and can ignore the word “resist” in his brief, perhaps he might be willing to add to the amendment the words “the House of Lords Economic Affairs Committee should also carry out scrutiny”. We now have a former Chief Secretary to the Treasury chairing the committee and doing an excellent job. On this occasion, I hope that the noble Lord, Lord Sassoon, will accept the amendment as amended by my suggestion. I beg formally not to move.

[Lord Sassoon]

My Lords, perhaps I may just get my head round the formal non-moving of an amendment that has not been put down. I shall try to give the noble Lord, Lord Eatwell, the reassurance that he seeks in this area. The Government support the spirit of the amendment. Transparency and parliamentary scrutiny of the OBR’s budget are absolutely central to safeguarding its independence. I do not think that there is any difference between us on that point.

The next issue is getting a proportional arrangement which achieves the objective. The effect of the proposed amendment has already been achieved. In line with the Treasury Select Committee's recommendation, the annual budget of the OBR will be identified separately in the Treasury's estimate and it will be available for the Treasury Committee to scrutinise in another place. Nevertheless, we have gone further than the Treasury Committee asked for in order to enhance the transparency of the OBR’s budget and critically to protect it from any suggestion of politically motivated cuts. Again, in line with the Treasury Select Committee’s recommendation, the OBR will also be able to submit to the Treasury Select Committee an additional estimates memorandum alongside that of the Treasury in which it can explain for itself the reasons for changes in the available budget for the year ahead. I think that will go beyond what is proposed, in effect, in this amendment because the OBR will be free to explain in full what any changes in the budget mean.

I agree with the noble Lord, Lord Burns, that if we need to be concerned about anything here it is the multi-year aspects of it, which the proposed amendment does not address. The OBR has already been provided with an agreed and publicly documented multi-year budget, so that an annual budget exercise cannot be used to exert hidden pressure on the OBR. This specific element has been welcomed by the IMF.

I will divert for a moment to address one or two of the points raised by the noble Lord, Lord Eatwell, on some of the international experience in this area. While I am sure that the Toronto Globe and Mail is a fine source of reporting, I think it is relevant to remember that the Canadian Parliamentary Budget Officer is really not in any comparable position to the OBR. Its budget is not separately identified anywhere within the estimates of expenditure presented to the Canadian Parliament. It is a very different office from the one we are looking at. The Parliamentary Budget Officer in Canada was not given an agreed and published multi-year budget. I think we are in very different territory from Canada.

Hungary was mentioned. It is interesting to note that Hungary’s Fiscal Council chairman pointed out—I do not know whether this is correct—in the context of saying it was very, very rare to introduce substantial changes or abolish fiscal councils that the only example he could point to was Venezuela under Hugo Chavez abolishing its fiscal council. So there are one or two examples but they are not comparable examples. It is precisely to guard against any suggestion of such interference that we have put in place the measures that we have.

In trying to give the noble Lord the reassurance he seeks, we have discussed already the responsibility of the OBR’s non-executives. Critical to that is their duty to report on anything that appears to them to constrain the OBR’s discretion. Of course, that would include any attempt to control the OBR through manipulating its budget. To quote the chair of the Treasury Select Committee:

“It is vital that the OBR has the resources it needs. The Committee will monitor this carefully: the terms of reference suggest that the Treasury accepts the importance of transparency and separate disclosure, and we will have the information we need”—

we, the Treasury Select Committee—

“to do our work”.

The package of measures we propose for the OBR in the Bill follows the recommendations of the Select Committee and in the judgment of the Treasury fully reflects that intention. The chair of the OBR has already made clear that he has adequate resources and that he will promptly raise any issues on funding with the Select Committee—a very public forum in which to raise any concerns.

Finally, I will quote Robert Chote at his pre-appointment hearing in front of the Select Committee. He said:

“If you accede to my appointment and I find myself being squeezed in that way, this committee will be hearing about it very promptly. That’s how we make that public and ensure that those sorts of pressures do not go unremarked”.

I suggest that there are a considerable number of safeguards in place. Indeed, we go further than the noble Lord’s amendment because we believe that the multi-year dimension is as important as, if not more important than, the single year dimension to which his amendment refers. In view of the reassurance that I have been able to give him, in particular pointing to the role that we have just now confirmed for the non-executives, I hope that he will withdraw the amendment.

Inflation

Debate between Lord Sassoon and Lord Barnett

Wednesday 19th January 2011 Lords Chamber

[Lord Sassoon]

My Lords, of course the Government are concerned about the current level of inflation and the impact that it has on many parts of society, particularly on working families, savers and others. However, how the Bank of England meets the Government’s set target for inflation, including decisions about what it does, if anything, about quantitative easing or the reversal of it, is an operational decision for the bank.

[Lord Barnett]

My Lords, can the noble Lord confirm that he is not joining those who wrongly seek to pressurise the MPC to increase interest rates? Furthermore, as he cares about transparency, will he perhaps now take the opportunity to answer the Question for Written Answer that I put to him some time ago and tell us precisely what the Treasury representative on the MPC was instructed to say to the committee about the Treasury’s view on interest rates?

[Lord Sassoon]

My Lords, I am very happy to confirm that the Government have every confidence in the MPC. They regard its independence as a cornerstone in making sure that the Chancellor’s inflation target is hit as far as it is in the power of the MPC to achieve it. That is what it is asked to do and there is absolutely no interference. As I have explained before, a representative of Her Majesty’s Treasury does indeed attend MPC meetings—not in any way to interfere with the independent deliberations of the MPC but to make sure that the committee is aware of relevant Treasury policy decisions, such as what is coming out of budgets. That is all I can say.

Deficit Reduction

Debate between Lord Sassoon and Lord Barnett

Tuesday 18th January 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government why the Chancellor of the Exchequer has excluded potential privatisation proceeds from his deficit reduction plans.

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

My Lords, since 1998, HM Treasury’s overall deficit reduction measure has been public sector net borrowing, or PSNB. Under this measure, privatisation proceeds from the selling of shares in companies do not affect the deficit.

[Lord Barnett]

Yes, my Lords, but, as the noble Lord knows, the Chancellor, replying to questions at the Select Committee recently, admitted that there are large sums that they are considering from the sale of assets. He also said that not all the proceeds must be used to reduce the national debt. The Conservative chairman of the Select Committee then said that he must have quite a bit in his back pocket; he was referring to the tens of billions of pounds from sales. I know that the noble Lord cannot reverse what the Chancellor said, but can he at least assure us that there is no basis in the dastardly charge that the Government are trying to build up a large fund to reduce taxation rather than some of the worst, most painful cuts that are now taking place?

[Lord Sassoon]

The noble Lord, Lord Barnett, called it a “dastardly charge”; I am sure that I would not characterise it quite like that. The fact is that my right honourable friend the Chancellor is hiding nothing. It is simply that, as I have explained, under the measure that has been used since 1998 for measuring the deficit, privatisation sales—the sales of shares in companies—do not rank against the deficit, so my right honourable friend can have nothing up his sleeve.

However, it is important that the Government exercise stewardship over all their assets, fixed and otherwise, so that we have an ambitious programme to raise proceeds—they may not all count for deficit reduction—which will affect the debt position. That chimes in with the modernisation of government. Of course, among the most valuable assets the Government have are the shares in the banks which were nationalised. We want to ensure that the taxpayer gets a good return on those shares.

Individual Savings Accounts

Debate between Lord Sassoon and Lord Barnett

Monday 20th December 2010 Lords Chamber

[Lord Sassoon]

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

[Lord Barnett]

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

Bankruptcy

Debate between Lord Sassoon and Lord Barnett

Tuesday 7th December 2010 Lords Chamber

[Lord Barnett]

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

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

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

[Lord Barnett]

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

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

[Lord Sassoon]

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

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

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

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Sassoon and Lord Barnett

Monday 6th December 2010 Grand Committee

[Lord Sassoon]

I am grateful to my noble friend for trying to bring this back into perspective. Of course the OBR scrutiny, as the noble Lord, Lord Eatwell, acknowledged just now, will be based on challenging the assumptions underpinning the AME costings. How it then formed the judgments that it did is for the office, not me, to interpret. However, I am happy to point noble Lords towards what has been published and see whether there is anything else that the OBR thinks would be helpful to say on the matter after the discussion this afternoon. Clearly, the OBR will not sign off on its scrutiny of AME savings if it does not think that the methodology and the numbers are reasonable.

[Lord Barnett]

My Lords, there is no need for noble Lords to waste their time looking at websites. I submitted a Written Question to the Minister asking when the OBR scrutinised these particular points. The Answer stated that the noble Lord, Lord Sassoon, passed my question to Robert Chote, who quickly gave me an answer. He referred in particular to chapter 3 of the 150-page document. I went through chapter 3 very carefully. Like the noble Lord, Lord Peston, I could not see in the whole of the chapter any details about scrutiny—far from it. Chapter 3.2 states:

“This is our central projection, or in other words, we believe there is an equal likelihood that growth will turn out to be higher or lower than we forecast”.

How do you scrutinise that? Or perhaps you should audit it. Or perhaps I have been going over the top, as the noble lady, Baroness Noakes, said. If I really wanted to go over the top, noble Lords on the Committee would know that they have heard nothing yet.

The noble Baroness, Lady Noakes, seems to think that she is still sitting on the Front Bench. I do not mind that. She was very good on the Front Bench. Occasionally she got it right. However, today she tells me that I am over the top. I wish someone, perhaps the noble Lord, Lord Sassoon, would explain where I am over the top. I have said that Robert Chote is being used by the Treasury. That is undoubtedly the case, and all that this brief debate has done is emphasise that. Indeed, the Minister has still not replied, or perhaps he has accidentally overlooked replying, to my Question about how often since or before this report Robert Chote and his colleagues met the Chancellor and other Ministers.

[Lord Sassoon]

Forgive me, but I went through the detail of what was published on the OBR’s website by Mr Chote, and I shall say it again. According to the document released by the OBR on its website, between 4 October and 29 November 2010 there have been seven substantive contacts between the OBR and Treasury Ministers, special advisers and their private office staff, including four e-mails, two meetings and one transmission of a hard-copy document. The details of the two meetings are included in the log on the website. I have tried to give this information and I repeat it now. There have been two meetings—on 4 November and 18 November. The details are set out on the website.

[Lord Barnett]

I must tell the noble Lord that I may not be doing my job properly, but I do not spend my life going through Treasury or OBR websites. Perhaps I should; it might make me better informed. I would not go “over the top”, as the noble Baroness described me. I doubt it. It might make me even more so. The noble Lord, Lord Sassoon, has now told us information that I confess I had not read on the website. It may be that every other Member of the Committee has read it on the website.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Sassoon and Lord Barnett

Wednesday 1st December 2010 Grand Committee

[Lord Barnett]

My Lords, I agree with the noble Lord. Although I am sure that the Minister will consider the amendment carefully before we get to Report, I wonder whether it would be simpler for him to add a few words to it—namely, that the Economic Affairs Committee of the House of Lords might be added to this consideration. I am sure that he would be happy to see that done.

[Lord Sassoon]

My Lords, I am quite puzzled by this amendment because we are moving into unusual territory. We believe it absolutely right for the Treasury Committee to have a veto over the role of the chairman, but it is almost unprecedented for Parliament or parliamentary committees to have such roles at all, let alone over non-executive members. One of very few other appointments that is subject to a parliamentary veto of the sort provided for in this Bill is that of the Comptroller and Auditor-General.

In terms of the non-executives, I do not share the analysis of the noble Lord, Lord Eatwell, in terms of expertise. I shall come back to the other constitutionally substantive point, which is that we are not talking about experts in this area in any sense but about those who will bring independence of mind and who will challenge and support. That is potentially a much wider field of candidates. So I think that such appointments would rest on the relatively narrow point about what the Treasury could bring to bear, and actually I do not think that it would have anything special to bring to this. The wider point to be made here is that we would be moving into new and extraordinarily different territory. To take one broadly similar example, the non-executive members of the board of the UK Statistics Authority are appointed by the Minister for the Cabinet Office after consulting with the chair of the UK Statistics Authority. So we are following a perfectly respectable precedent.

In answer to the question of why the names that are being considered for the non-expert, non-executive role should be nominated by the OBR, again we want to strike a balance between appointment by the responsible Minister, who is the Chancellor, while not leaving it entirely to the Chancellor and the Treasury to come up with names. So again there is a perfectly well precedented route by which the authority concerned has a role in identifying candidates. That would include the Debt Management Office, the Crown Estate Office, the museums, the Natural Environment Research Council—I could go on.

Our suggestion in the Bill for how this should work is well-worn territory; there is nothing so different about the role of these non-execs. We have already had some questions about how substantive the role is, but there is nothing that takes the roles of these non-execs into remotely different territory from the role of non-execs in a lot of other well functioning bodies in the broader public sector, and we have broadly followed the appointment processes in those other areas. I am genuinely puzzled by this amendment and do not believe that it would add anything to the strength of the OBR governance arrangements.

--- Later in debate ---

[Lord Barnett]

My Lords, it is really all about perception. We all know Robert Chote, the chairman; I respect him and believe him to be truly independent. Being based in the Treasury, with everything that that means, would clearly be wrong, but on the other hand I read recently—I do not know whether this is right—that the OBR was looking for premises outside. It may already have found them, so this amendment may not be necessary. Perhaps the Minister can tell us.

[Lord Sassoon]

My Lords, I hope that we might be able to dispose of this a little more speedily than some other matters today, although it is important. I shall make the situation clear: Robert Chote has announced that the OBR is moving out of the Treasury and will do so—my speaking note says “next month”. I think that we are already in next month. It will be moving out in December. Before Christmas the OBR will be out of the Treasury building and going to Victoria Street, so it will not be too far away. I think that the noble Lord, Lord Burns, noted at Second Reading that the OBR will inevitably work closely with the Treasury. It will be out of the Treasury building but it will not cost its members too much in shoe leather if they occasionally need to have meetings with the Treasury and with other government departments. The OBR is moving out and it is up to that body where it goes. We should not lay down in legislation whether it should go to one place and not to another.

--- Later in debate ---

[Lord Barnett]

My Lords, this is a simple question and I hope that the Minister will be able to reply. I have nothing more to say. I beg to move.

[Lord Sassoon]

My Lords, Amendment 13 is intended to create a legal obligation for the OBR to publish the nature and membership of committees or sub-committees and to publish the reports of those committees. It is inconsistent with the right of the OBR under paragraph 11 of Schedule 1 to determine the procedure of any committee or sub-committee. We should not seek to fetter the way in which the OBR organises its committee structure and processes. While I am happy to talk at greater length, we should leave it up to the OBR to determine how its committees and sub-committees should operate. This would be consistent with everything that we have said about the independent and unfettered way that it should go about its business.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Sassoon and Lord Barnett

Monday 29th November 2010 Grand Committee

[Lord Sassoon]

I am grateful to the noble Lord and I confirm what he said about the broad purposes and the general greater transparency that flows from all this. I do not believe that anything in the Bill restricts the OBR’s ability, within its mandate, to lay out whatever it considers appropriate. Indeed, I do not think that anything in the guidance will dictate the methods of analysis that the OBR undertakes. The guidance absolutely cannot include provisions on that. The charter seeks to explain what transparency means. Perhaps it is appropriate to highlight paragraph 4.8 at the top of page 12 of the charter, which states:

“Transparently means that the OBR is to act openly, setting out with clarity the assumptions and judgements that underpin its work. It should proactively seek to make available its analysis. It should publish reports according to a regular and predictable process”.

It gives very wide latitude in the areas to which the noble Lord rightly draws attention. We are not seeking to circumscribe how it does this.

[Lord Barnett]

The noble Lord now seems to be saying that the OBR can already do the job that the amendments are suggesting. In that case, why not accept the amendments? He has not given us a good reason for rejecting them. He seems to be saying that the OBR can already do the job and the amendments are not necessary, so what harm would including them do?

Finance (No. 2) Bill

Debate between Lord Sassoon and Lord Barnett

Monday 22nd November 2010 Lords Chamber

[Lord Sassoon]

My Lords, the noble Lord, Lord Myners, is a master at selective quoting of the evidence. There has been a marginal widening of the spread over the 10-year Treasury, and there has been a significant narrowing against the 10-year bond, which is a much better comparator, and against all the other comparators that I look at on a daily basis. I am very happy to go on answering the noble Lord's questions on this point for as long as he would like, but the predominant evidence suggests that not only have spreads narrowed against the comparators but the price of CDSs on UK gilts has fallen considerably as others have gone up. That is proof that people get the message that we have the growth policies in place. It extends to cutting the deficit, low interest rates, tax policy, the focus on investment in infrastructure in a very tight spending review, the attack on regulation, and I could go on. Whether we shall have White Papers, Green Papers or discussion documents, there has been a very full suite of growth policies and there is plenty more to come.

As to whether I should explain what I mean by the brink of bankruptcy, the noble Lord, Lord Barnett, has already stepped in to point out what I was going to point out: that he has already tabled a Question for oral answer. He has got to the front of the queue, and I do not want to be discourteous to him. He will receive a considered answer.

[Lord Barnett]

I have no objection whatever if the Minister has a better definition than he has given so far.

[Lord Sassoon]

For the time being, I refer the noble Lord to the first edition of the Oxford English Dictionary, volume 1, part 2, under “B”, which was printed some time in 1888. That is quite a good starting point. We shall return to that in answer to his Question in a few days’ time.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Sassoon and Lord Barnett

Monday 8th November 2010 Lords Chamber

[Lord Sassoon]

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

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

I shall come back to the point about independence.

[Lord Barnett]

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

--- Later in debate ---

[Lord Barnett]

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

[Lord Sassoon]

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

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

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

Finance: Fiscal and Monetary Policy

Debate between Lord Sassoon and Lord Barnett

Tuesday 2nd November 2010 Lords Chamber

[Lord Barnett]

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

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

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

[Lord Barnett]

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

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

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

[Lord Sassoon]

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

Banking: Bonuses

Debate between Lord Sassoon and Lord Barnett

Monday 1st November 2010 Lords Chamber

[Lord Sassoon]

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

[Lord Barnett]

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

[Lord Sassoon]

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

Public Expenditure: Value for Money

Debate between Lord Sassoon and Lord Barnett

Tuesday 26th October 2010 Lords Chamber

[Lord Sassoon]

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

[Lord Barnett]

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

[Lord Sassoon]

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

Taxation: Avoidance

Debate between Lord Sassoon and Lord Barnett

Wednesday 20th October 2010 Lords Chamber

[Lord Sassoon]

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

[Lord Barnett]

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

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

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

[Lord Sassoon]

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

Bank of England: Economic Forecast

Debate between Lord Sassoon and Lord Barnett

Wednesday 6th October 2010 Lords Chamber

[Lord Barnett]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper, and I think I might prefer my noble friend to answer it. [Laughter]

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

Would anyone else like to answer? The Government consider a range of external views, including those of the Bank of England, when making their assessment of the UK economy and in developing policy. The Bank of England economic forecast in the August inflation report is very clear that the Monetary Policy Committee expects the UK recovery to continue, and its growth forecasts remain higher than those presented at the Budget by the independent Office for Budget Responsibility.

[Lord Barnett]

I think I thank the Minister for that Answer, but he forgot to tell us what his views are of the Governor of the Bank of England. As he did not, perhaps noble Lords will not mind if I quote something that he said the other day at the TUC conference. He said, and it is worth quoting:

“There is a perfectly reasonable debate about the precise speed at which to reduce the deficit”.

Does the Minister agree with that?

Banks: Business Lending

Debate between Lord Sassoon and Lord Barnett

Wednesday 28th July 2010 Lords Chamber

[Lord Sassoon]

My Lords, indeed, I do agree with my noble friend. What a surprise. The Government recognise that access to finance is absolutely critical for businesses to survive and grow and that small and medium-sized companies face particular challenges. We need a recovery led by sustained expansion in the private sector and, in particular, by growth in business investment, seizing the opportunities presented by a recovering global economy, which is at the heart of the Prime Minister’s visit to India this week. The Government agree that we must continue to support British businesses when they are ready to export and will continue to look, in particular, at the services provided by UK Trade & Investment and the Export Credits Guarantee Department, both of which have shown a significant increase in their export support during the past year.

[Lord Barnett]

My Lords, could the Minister clarify the Government’s policy in this regard? Does he accept that the global banking crisis stemmed from banks lending and creating bad and doubtful debts, which were then packaged up and called derivatives, or toxic debt? The Government now want the banks to start lending more. How are they proposing to do that?

[Lord Sassoon]

My Lords, the first thing that we have to do is to recognise that the reason why both the Government and the banks were overleveraged, let alone investing in inappropriate products, was at heart a failure of regulation. So the first step that we have taken is to completely overhaul the financial regulatory system to make sure that banks do not get the country into the financial stability crisis that we inherited. The second thing that we have to do is to make sure that banks are enabled to rebuild their capital base so that they can have a secure capital base on which to lend to small and medium-sized businesses in particular. We have set out a range of measures on that, including in the Budget and the Green Paper earlier this week.

Finance Bill

Debate between Lord Sassoon and Lord Barnett

Monday 26th July 2010 Lords Chamber

[Lord Sassoon]

My Lords, as I conclude the debate on this Finance Bill—and I note that it is a debate on the Finance Bill, although I am grateful to noble Lords who have contextualised it by talking more widely about the Budget—I thank all noble Lords for their contributions, which have played an important part in scrutinising this legislation. I beg to differ from the view expressed by the noble Lord, Lord Tunnicliffe, at the outset, that this debate would be a formality. It has been an excellent debate, and I would like to start by drawing attention to the maiden speeches of my noble friends Lord Spicer and Lady Browning. Their contributions did not disappoint. My noble friend Lord Spicer drew important lessons from economic history. He started a bit of a debate with the noble Lord, Lord Barnett, about who had participated in more Finance Bills. I have to confess that I have only part of one to my name so far, but there will be another one later this year, so I will be trying my best to catch up.

My noble friend Lady Browning talked about the important need for financing for small and medium-sized enterprises, which is one key plank of the Government’s focus at the moment. Attention was drawn to this issue by my noble friend Lord Bates and the noble Lord, Lord Myners. In response to points made by my noble friend Lord Higgins and others about the money supply, the proof of the pudding is in the eating—which is partly whether finance does indeed flow particularly into the small and medium-sized enterprise sector of the economy. I remind your Lordships that today the Treasury and BIS, my right honourable friend Dr Cable’s department, jointly published the document Financing a Private Sector Recovery. The noble Lord, Lord Myners, might like to read that as an exposé of government policy in this important area.

The Government have inherited an exceptional fiscal challenge. Within seven weeks of taking office, we have set out a decisive plan for dealing with this challenge. Within 12 weeks we have our first Finance Act in place, legislation which will help to restore our public finances and confidence in our economy. We have also set up the independent Office for Budget Responsibility, which has been much discussed today. The noble Lord, Lord Stern, has today graphically shown why the OBR is so necessary. He speaks in the very guarded language of a former distinguished Second Permanent Secretary to the Treasury and head of the Government Economic Service. When he talks about the way in which revenue forecasts in particular were previously handled by Treasury Ministers and their advisers, and talks in terms of lack of clarity, hopeful judgments and inflated forecasts, I take that as a damning indictment of the way in which Ministers under the previous regime were able to play fast and loose with the data. That approach has made the OBR necessary, and the OBR will not allow Ministers to take such an approach in future.

I very much take to heart the suggestions that the noble Lord, Lord Stern, made about the conduct of the OBR. I note his well-balanced perspective on these issues of independence which other noble Lords seem to have got excessively fussed about in recent weeks. I also note that even the view of the noble Lord, Lord Barnett, on the OBR may be softening a bit. I think that I heard him talk about semi-criticism. He is shaking his head, but if we have got to semi-criticism, we are making progress, and we might have him fully on board very shortly.

As we are talking about the conduct of fiscal policy under the previous Government, I should point out that the noble Lord, Lord Myners, drew attention to the previous fiscal rules, which were open to all sorts of manipulation. The beginning and end of cycles could be changed at the whim of Ministers, and Ministers did so regularly.

The noble Lord, Lord Barnett, also drew attention to the relationship between the Monetary Policy Committee and the Treasury. Even though he attempted to put a completely false construction on my previous answer on this point, I absolutely stand by what I said. I am sorry to disappoint him on that.

[Lord Barnett]

I pointed out that I was delighted that the Treasury intervenes in the MPC. I asked the Minister to make sure that it intervenes again in the future.

[Lord Sassoon]

I thank the noble Lord for that. But I did not say that the Treasury intervened at all in the workings of the MPC. It has a representative there to point out policy matters which the Treasury might be aware of or which it thinks the MPC might be aware of. That is not in any sense intervention in the way in which I think the noble Lord means it.

Debt Management Office

Debate between Lord Sassoon and Lord Barnett

Tuesday 20th July 2010 Lords Chamber

[Lord Sassoon]

My Lords, as I have stressed, monetary policy is for the Bank of England. Therefore, it is not for me to comment on the way in which it exercises that responsibility. But the fact is that it took the decisions that it did to purchase assets under the so-called quantitative easing programme in order to meet the inflation target which the Chancellor gives them. The Bank’s latest assessment was that that programme contributed to keeping long-term interest rates 1 per cent below what they would otherwise have been.

[Lord Barnett]

My Lords, the noble Lord has just said that it is not for him to comment on what the Bank of England does, but a senior official at the Treasury sits in on Monetary Policy Committee meetings on a permanent basis. Does he never talk to him?

[Lord Sassoon]

My Lords, it is correct that a senior official of the Treasury sits in on the monthly Monetary Policy Committee meetings, but that official is not a member of the committee. I have performed that function myself on one occasion, and I understood that it was my duty to bring to the attention of the MPC anything the Treasury thought it ought to be aware of.

EU: Financial Assistance to Member States

Debate between Lord Sassoon and Lord Barnett

Monday 19th July 2010 Lords Chamber

[Lord Sassoon]

My Lords, I have not had this kind of stereophonic or quadraphonic experience before.

I note what my noble friend says about strengthening currencies but it is not the Government’s practice to comment on movements in the currency markets.

[Lord Barnett]

My Lords, does the noble Lord accept that there are potential serious losses to UK banks, not least those owned by taxpayers? I hope he is saying that it would be sensible to occasionally join in with good and sensible proposals to help those UK taxpayers.

[Lord Sassoon]

Indeed, my Lords. Out of the €500-billion package agreed on 9 May, the UK participates in the €60-billion element of it. I agree that it is appropriate the UK should play its part. I remind the noble Lord that on Friday 23 July the bank stress tests will be published, which will be another important component in ensuring the stability of Europe and the eurozone.

Office for Budget Responsibility

Debate between Lord Sassoon and Lord Barnett

Tuesday 6th July 2010 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government how the independence of the Office for Budget Responsibility is guaranteed.

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

My Lords, the Office for Budget Responsibility was established to make independent assessments of the economy and public finances. The terms of reference for the interim OBR describe its independence. They make it clear that the OBR’s assessments are produced with no ministerial involvement and that the OBR has the freedom to publish information at its discretion. Sir Alan Budd will be advising the Chancellor on the arrangements for the permanent OBR, including on issues relating to independence.

--- Later in debate ---

[Lord Barnett]

I thank the Minister for his Answer. Can he tell us whether it was the sheer incompetence of the Government in not letting the OBR have independence that led Sir Alan Budd to resign, or was it my Question? Is not the real problem the reliability of the OBR’s forecasts? Is the Minister aware that the OBR has itself expressed great uncertainty about its forecasts? In the circumstances, and given the possibility that it could be wrong, as many leading economists have said, is it set in stone that the OBR should continue with its actions even if the economy has actually gone into a downturn even faster than the OBR had forecast?

[Lord Sassoon]

My Lords, in answer to the first question, I am sorry to pour cold water on a newspaper story, but Sir Alan always planned to leave in the summer. He was appointed to provide forecasts for the emergency Budget and to advise on the establishment of a permanent OBR, which is exactly what he has done and will continue to do. The noble Lord, Lord Barnett, asked, secondly, about what he described as “uncertainty” around the forecast. The whole point about the way in which the OBR has presented its forecast is that it has given a transparent probability distribution. The Treasury has never done that before in its forecasts; it has simply given a line and not explained the variability around it. Forecasts are of course subject to probability distributions and the OBR has followed the best practice for forecasts that the Bank of England and others have used for many years. As to what will happen if the forecasts change, the Chancellor has set a fiscal mandate and it is the responsibility of the OBR following each Budget or other fiscal event to report on whether his latest announcement still sets a course that has a 50 per cent or greater probability of meeting the mandate.

Economy: Eurozone

Debate between Lord Sassoon and Lord Barnett

Monday 21st June 2010 Lords Chamber

[Lord Sassoon]

My Lords, I will deal first with the question of competitiveness. The UK Government, the European Council and the Union well recognise that competitiveness must be improved in parallel with steps that are being taken to deal with the immediate financial situation of a number of member states. I draw my noble friend’s attention to the EU economic taskforce under the leadership of the President of the European Council, Herman Van Rompuy, which will report to the October Council. As well as dealing with crisis resolution matters, it has competitiveness indicators very much on its agenda. Indeed, it considers competitiveness absolutely in parallel with crisis resolution issues, as well as more broadly as part of the Europe 2020 exercise.

On the alternative investment fund managers directive, the European Council and the European Parliament have each taken positions that do not agree with each other, so the UK Government and the industry have a short window up to the end of July in which to make final representations and attempt to make sure that we get the best deal for what is a very important industry for the City of London out of this trialogue process.

[Lord Barnett]

My Lords—

[Lord Pearson of Rannoch]

My Lords, does the noble Lord agree that a good way in which to protect the British economy would be to refuse to underwrite massive sums for Brussels, such as the £8 billion mentioned by his noble friend Lord De Mauley on 8 June, which are illegal under the treaties? How many billions are we going to be exposed to through the illegal breach of Article 125, which forbids member states to bail out others?

--- Later in debate ---

[Lord Sassoon]

My Lords, I think that we will probably come back to the question of bank levies tomorrow after my right honourable friend the Chancellor of the Exchequer’s Budget. He has made it completely clear that the UK supports bank levies. We will take unilateral action, but we want to seek international agreement to make sure that the bank levies are, as far as possible, introduced on a common basis.

[Lord Barnett]

My Lords, the noble Lord will have noticed that he did not answer the Question on the Order Paper. Does he recognise that there are serious consequences for the UK if there is any major collapse in the economy in the eurozone, not least to the UK banks which have large numbers of debts owing from many countries within the eurozone? In those circumstances, should we not seek to help rather than hinder them and gloat over their difficulties?

[Lord Sassoon]

My Lords, I am grateful for the reminder that not only are 40 per cent of the UK’s exports exposed to the eurozone—so we want to see a stable eurozone—but that through financial linkages the whole financial system, including the banking system, is exposed. That is why we believe that the forthcoming publication of bank stress tests is an important part of the support going forward.

Financial Services Regulation

Debate between Lord Sassoon and Lord Barnett

Wednesday 16th June 2010 Lords Chamber

[Lord Sassoon]

I thank the noble Lord, Lord Higgins, and share with him what he says about the Bank of England. It is clear that the macro-prudential toolkit will likely focus on capital liquidity and leverage, and it is for further consideration as to what other tools may be appropriate. On the other work that has been done by the Which? Commission and people in other countries, it should remind us that whether it is in the US, at the European level or by the cross-party Which? Commission here, just about everyone except the previous Government was getting on with looking at the structure of the industry. That emphasises why we should waste no time in getting on with the commission’s work now.

[Lord Barnett]

My Lords, no one doubts that at the time the FSA was very poor in its regulatory responsibilities, but does the noble Lord agree that not many others were much better, including the then Governor of the Bank of England? Nobody gave any serious warning of the looming crisis. Now we are told that we are to have a new quango or commission. What evidence is there that the new tools to be given to the Bank of England—tools that could readily have been given to the noble Lord, Lord Turner, and the FSA, which is already in place and seems to be doing a fair job at the moment—will mean that it does any better?

[Lord Sassoon]

My Lords, I should point out to the noble Lord, Lord Barnett, that the Bank of England was indeed drawing attention in its financial stability reports to the debt crisis and some of the looming debt problems, but did not have the tools to deal with it. In his Mansion House speech in June 2009, the governor himself commented that even under the partially patched up regime that the previous Government put in place,

“it is not entirely clear how the Bank would be able to discharge its new statutory responsibility if we can do no more than issue sermons and organise burials”.

It is all very well having some of the new tools in place, but they need to be in the right hands—those of someone who can bring the responsibilities together.

Office for Budget Responsibility

Debate between Lord Sassoon and Lord Barnett

Monday 14th June 2010 Lords Chamber

[Lord Barnett]

My Lords, I have not had the opportunity to go through as much of the detail as my noble friend Lord Eatwell, who I thought did very well and exposed so much of this so-called “independent” report. We were told just now in an answer by the Minister that the Chancellor saw some figures on 28 May, so the so-called “independent” OBR was consulting the Treasury all along. Is that true? Was it really being consulted all along, or is it truly independent—any more independent than all the other “independent” forecasts we get from all kinds of sources?

More important is the accusation by the Chancellor that the figures previously issued in the name of Treasury officials, not by the former Chancellor, were dishonest—that they were fiddled by Ministers and yet Treasury officials allowed them to go out in their name. Is that not rather insulting of officials?

More seriously, how many Treasury officials who were doing this job before are still there? Or are they now working for the OBR? Perhaps the Minister will tell us. He also referred to this five-year forecast. Most people, including myself, would be reluctant to forecast a few months ahead, let alone five years. Will he reassure us that that forecast will not be amended every few months by the independent OBR?

More importantly, will he confirm what the assumptions were for unemployment if the Chancellor’s deficit reduction programme, to be announced in the Budget, is anything like the rhetoric we hear at the moment?

[Lord Sassoon]

I am grateful to the noble Lord, Lord Barnett. He enables me to confirm the nature of the independence of the OBR. To call into question the independence of Sir Alan Budd and his committee—as he went on to say, that is not the most important thing, so perhaps I should pass over it and move on.

I also rather resent, on behalf of the Treasury officials with whom I work every day, the thought either that they were in some way party to some conspiracy before or that they are not capable of doing work, then or now, of the highest quality. The difference now is that the OBR has set out critical fan charts to show central forecasts and probability distributions around those forecasts. Noble Lords may tut-tut, but this is a practice that has been adopted by the Bank of England in its forecasts for many years.