Autumn Statement

Debate between Lord Sassoon and Lord Hollick

Wednesday 5th December 2012 Lords Chamber

[Lord Sassoon]

I could spend the rest of the three minutes and a lot longer on this but I will be brief. Again, I am grateful to my noble friend for his remarks.

On how the infrastructure is funded, there is still a need for a large debt component in many of the projects, and the debt markets continue to be very difficult. My noble friend is completely right about the appetite of the sovereign wealth funds and I will be going to the Gulf again to visit a number of them next week. But the debt component remains difficult.

As to whether the investment is flowing through, total private and public investment in infrastructure is now running at £33 billion per year compared to an average of £29 billion per year under the previous Government—even with all the investment in social infrastructure that went on. While there is more to be done, that is an important number.

There are other areas, yes, where we need to make more progress. I draw my noble friend’s attention to the policy decisions on energy over the last week, which should now enable the energy markets and investors to invest in a broad sweep of nuclear, renewable and gas assets.

[Lord Hollick]

My Lords, I add my congratulations to the Minister. Optimistic he may be, but what remarkable chutzpah he and the Chancellor have shown on a day when they have missed all their key targets.

I wonder if he could help me with just a couple of points in the blizzard of information that we have had today. Is there any increasing demand as a result of the measures announced? As the Minister knows, demand is absolutely essential if we are to have growth and it would appear that the OBR has taken into account all the measures but has still downgraded significantly the growth over the next five years.

Secondly, in Annex B.1 of the Treasury document, the suggestion is that the bottom three deciles of the population will bear about three-quarters of the burden of the fiscal consolidation. In 2015-16, 96% of the reduction will be borne by cuts in welfare and public spending; only 4% will come from tax increases. That is rather different from the 80:20 the Chancellor talked about.

Finally, on the question of interesting accounting, the Autumn Statement includes receipt in the current financial year of £3.5 billion from the auction of the 4G spectrum, which is yet to take place. This receipt is apparently used in the current year to reduce the debt, but appears then to be used in the following financial year to finance spending plans. How can that be?

[Lord Sassoon]

My Lords, first, the test of increase in demand will ultimately be the growth numbers. The OBR has set out its forecast of growth numbers and—I can only repeat—it is forecasting higher growth next year for the UK compared to countries such as France and Germany.

On the question of the distribution, I draw the attention of the noble Lord, Lord Hollick, to the new chart on the overall level of benefit and public spending receipts in the supplementary document, which shows that, contrary to what the noble Lord is saying, the overall result is significantly progressive across the quintiles.

The deficit reduction plan will continue to be on a 80:20 basis; in other words, with 80% of the deficit consolidation coming from spending reductions and only 20% from tax—just as it was before today. That has not changed. As far as the spectrum auction is concerned, the £3.5 billion has been certified by the OBR as its central estimate of the money that will be coming in this tax year.

Independent Commission on Banking

Debate between Lord Sassoon and Lord Hollick

Monday 19th December 2011 Lords Chamber

[Lord Hollick]

My Lords, I welcome the Government’s response. It is an important step, but only a first step, to what surely must be full separation of the banks. That is the logic of the Vickers report and is, I should point out, the logic of the Government’s response, which states:

“The Government believes that the ring-fenced bank should not be dependent on the financial health of the rest of its corporate group for its solvency or liquidity”.

If that is to be achieved, the treasury function, which is right at the heart of banking, would need to be split and there would need to be two treasury functions. Similarly, loan capital would have to be provided separately from the high street bank. That would simply leave the question that my noble friend Lord Eatwell raised: what happens to the capital in the event that the holding company goes under? Surely, the logic of this is to separate these two completely. Can the Minister confirm that banks would be required to separate the treasury function, whereby loan capital will have to be raised separately for the high street bank?

[Lord Sassoon]

First, I do not accept that the Government’s logic drives towards complete separation any more than the ICB itself argued for it. The ICB and the Government believe that there are efficiency and other benefits in allowing banks to keep the two parts of the business together under one holding company. However, the principal protection in the areas to which the noble Lord refers is that there will be limits on the exposures of the ring-fenced bank to other parts of the group. That is what, in particular, will deal with the noble Lord’s concerns.

Regulatory and Banking Reform

Debate between Lord Sassoon and Lord Hollick

Thursday 16th June 2011 Lords Chamber

[Lord Sassoon]

My noble friend’s first question was about whether this is twin peaks, triple peaks or whatever. I have always found that a somewhat stale way to analyse the issue because over the past decade constant comparisons were being made between single peaks, twin peaks and so on, so I am reluctant to be drawn into characterising what we are now proposing as any number of peaks. All I can say is that it is emphatically not a triple-peak solution in that the macroprudential and the micro in the PRA are going to be in one body in the Bank of England. So although characterising it as twin peaks is closer to the models that have been analysed by academics and others over the last few years, it gets us back to language that I am not sure is entirely helpful. However, it is certainly not a triple-peak solution.

On the questions around separation and permeability of the ring-fence, the Government will be guided by the independent commission’s final report. But it is also important to recognise what the ICB’s interim report did and did not say. To put it simply, it certainly was not a division between retail and investment banking. The commission acknowledged that a balance has to be struck between imposing very high costs on an important sector and the degree of safety. The point of firewalling is not to eliminate all risk, but to minimise the risk and cost to the taxpayer should a bank fail. The ICB is now focused on these issues between now and September. The principal issues to be looked at by the Government and the Bank of England will be the powers to manage the collapse of any investment bank, were that to happen in the future. As I hope was clear from my honourable friend’s Statement, one of the principles in establishing the ring-fence is to make sure that the taxpayer is not exposed on either side of it. Therefore, getting rid of the risk of moral hazard is at the centre of the construct that we are looking to put in place.

[Lord Hollick]

My Lords, I, too, welcome the Government’s endorsement of the requirement for high-street banks to be better capitalised. However, I share the concerns of the noble Lord, Lord Higgins, about the efficacy and efficiency of ring-fencing, as opposed to total separation. As the Minister will know from his time in the City, banking groups are funded and the Treasury is run on a group basis. To separate the groups and deal with permeability will be extremely difficult. A legal separation would reduce, if not eliminate, the risk of inter-group contagion. It would also allow the risks of the high-street bank and the investment bank—or whatever the Minister chooses to call it—to be properly priced. This would benefit the ordinary consumer. The lower cost of borrowing that a better capitalised high-street bank paid could then be passed on to the borrower.

The second issue that arises on this is, again, a welcome commitment to apply this right across the banking industry. However, many of our banks are headquartered in other countries. Have the Government had any discussions with the Governments of, for instance, the United States and Spain? Do they share the Government’s enthusiasm for this approach? Will the Government also ensure that the lead regulator—whether in the United States or in Spain—will follow the same path?

[Lord Sassoon]

My Lords, there are many questions wrapped up in all that. I am conscious that we have four minutes to go. I repeat myself, but we have set up the independent commission with a suitable group of experts and resourced with a secretariat that is now grappling with precisely these questions. Legal separation has, in the history of the US and Glass-Steagall, proved itself to be an incomplete answer to this. We have to find the best answer. We have set out the Government’s perspective, which is to endorse the principle, and set down the standards by which we shall judge the solution that the commission comes up with. I am sure it will listen to the ideas that are put forward here this afternoon, as well as to all the other submissions that it receives. It is not an easy challenge for the commission, but it is made up of the best people to carry it out.

On the international side, one of the standards by which the Government will judge the solution and decide whether to endorse it is compatibility with the international rules. That is the minimum. That is not what the noble Lord went on to say. As to whether other people will come with us, all I can say is that there has been a high degree of interest in what the commission has come up with in its interim report. People around the world are studying it. We shall see in time whether they will follow it. All I know is that the eyes of the world are very much on the continuing work of the commission.