Income Equality and Sustainability

Lord Tunnicliffe Excerpts

Wednesday 6th May 2020 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I too thank the most reverend Primate the Archbishop of York for introducing this debate and for his service to the country and the House of Lords. I also welcome the right reverend Prelate the Bishop of Derby—my hometown—and look forward to her future contributions after such a good maiden speech.

It has been an interesting debate, wide-ranging and touching on many points. I will try to give a personal perspective on inequality, which is about so much more than income. When I was young—I was born in 1943—we were poor. But my father had secure employment as a porter in the National Health Service. We had a council house, with security of tenure. We had controlled rents. In summary, we lived poor but in no fear. Today’s working poor are the very opposite. They have low incomes, employment insecurity, housing insecurity—frequently because they do not have security of tenure—and escalating housing costs in the private sector. They have lived over the last 10 years with declining public services on which they disproportionately depend.

The working poor live in fear, a fear that most of us in this House—there may be exceptions—cannot begin to imagine. When things go wrong, they go very wrong. If people are in the wrong part of the economy—including large parts of the care and hospitality sectors—when things go wrong, as Covid has illustrated, they go catastrophically wrong.

However, there are other features of inequality which we must not ignore. The most obvious of these is the inequality of capital and asset wealth. This is where housing, for some, instead of being a problem, is the opposite. My own house is probably now worth, in real terms, two or three times what I paid for it, without anything having been done by me to contribute to that appreciation. Housing ownership exacerbates inequality in a number of ways, including in retirement. The working poor are likely still to be in insecure rented accommodation when they retire; the affluent will by then almost always own their own house and their retirement will therefore be that much more comfortable. The inequality of capital wealth flows through to subsequent generations through inheritance. We must not forget also that there are inequalities through responsibility, where carers look after their young and old, as well as inequalities in standards of work and in relation to work satisfaction.

Poverty is wrong. Poverty in all its forms is unfair and uncaring. It creates a society that is unfair and uncaring. This is in income, housing, security and fear. In my experience, high pay is unnecessary. Most high pay depends on bonuses. Bonuses pervert behaviour and we know that we get some pretty perverted behaviour as a result of them, as the noble Lord, Lord Balfe, noted.

The economic and social effects of Covid-19 will take many years to run through. Instead of seeing these as a threat, we must see them as an opportunity—as some have said, a Beveridge moment. We must try to get a better understanding of our society and of inequality and its effects. I believe that a better understanding will lead us to a more equal society, a society more at ease with itself, with a more holistic understanding of value, not simply of wealth.

Budget: Economic and Fiscal Outlook

Lord Tunnicliffe Excerpts

Tuesday 5th May 2020 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, a number of noble Lords have called this debate surreal, ludicrous and “Gilbert and Sullivan”. As Treasury spokesman for the Opposition, I must apologise for causing it to happen. We have found year on year that this debate comes at a useful time, and we can use it to discuss the whole economy. Noble Lords did not have to volunteer for this debate if they did not think it was useful.

The debate has, surprisingly, involved quite a lot of concern about Brexit, which has been the preponderant theme. There has been much talk about how wonderful and invigorating it might be, but overall very few feel that Brexit will be positive in economic terms. With Covid-19, the problems of negotiating it are really quite frightening. Conversely, the need to co-operate with our neighbours in this crisis is most important.

There has been discussion on this, and the Government have restated their commitment to leave the Common Market and end the transition period at the end of December this year. I, like many others, feel that this would be disastrous. The idea that we can negotiate a sensible deal in this time is unreal. The only real probability of leaving on 31 December is that we will leave without a deal at all.

There has been considerable debate about the economy, but it is unfortunate that there has not been more concentration on what I would loosely call the economic infrastructure of the country. We have to worry about saving companies, both the SMEs and the strategic sectors such as aviation and steel that, once lost, would be very difficult to rebuild. The whole task of the future has to be much more holistic than we have seen so far. I agree with the number of noble Lords who have said that we should not aim to go back to where we were; we have to pursue policies which are different and more holistic and which involve considerable innovation. We cannot assume that we will enter another devastating period of austerity, as we have had since 2010.

Turning to the technicalities of the Motion, we have to submit a statement to the EU that was circulated to us yesterday—the 2019-20 convergence programme for the United Kingdom. However, as I understand it, all we are formally approving is the input into the document. The document comes from Budget 2020—HC 121—and the two OBR documents.

I turn first to the Budget half of this. It is no longer credible. Great chunks of the Budget will not happen, in terms of both revenue, which will be damaged severely by the virus, and the expenditure that has been necessary to make sure the economy does not collapse. The virus and the Chancellor have changed things. We support what has been done so far, but it is becoming clear that problems with the design and performance of many of the existing programmes are reducing their take-up. The efficacy of these programmes will be essential in the dealing with the impact of the crisis on jobs and incomes.

The Labour Party has three tests for the economic response to the coronavirus: keeping people in work, getting cash to struggling businesses, and preventing additional poverty through changes to social security. We believe that international co-ordination needs to be rapidly increased, with the Treasury leading on extensive co-ordination with the IMF, the G20 and EU policymakers. It was good to see that a global conference was recently held on these issues, but unfortunate that the US and China did not take part. It will be interesting to know what further plans the Government have to pursue this sort of conference.

We call on the Government to act urgently to protect jobs and incomes by preventing even more people being made redundant, by acting on those employers who continue to refuse to furlough affected workers. We need to fix blockages in the business loans scheme so that businesses can access the support that they desperately need. The bounce-back loans are clearly a first step but there is a considerable gap in those schemes, with the larger loans being much more difficult and, it is feared, not arriving in time. We need to clarify urgently the situation for those currently excluded from the Government’s self-employment and furlough schemes.

We should turn universal credit advances into grants and consider additional changes to improve universal credit. We should make all workers, including the low-paid, eligible for statutory sick pay and increase its level. We should spearhead international co-ordination to prevent worldwide spillovers in financial systems caused by the crisis. We should make public the proposed exit strategy to ensure that economic measures remain appropriate in protecting the long-term future of business and workers. It is the long term we need to worry about, as well as the short term. Finally, we need to reflect on the fact that key workers’ hourly wages are 8% lower on average than those of other employees. As we recover from this pandemic, we must ensure that key workers are never again left overlooked and underpaid.

Turning back to the Budget, while I accept that the issues have inevitably changed, I would like to be assured by the Minister that the spending parts of the Budget designed to take us out of austerity will still take place. The Government announced a £27 billion programme with unprecedented investment in urban transport, including £4.2 billion for a five-year integrated transport settlement for eight city regions, on top of £1 billion allocated to shovel-ready transport. There were also commitments to funding a shared rural network, with £5 billion for a gigabit broadband rollout in the hardest-to-reach areas, record funding of £5.2 billion for flood defences between 2021 and 2027, and a £10.9 billion increase in housing investment to support a commitment to build at least 1 million new homes by the end of the Parliament. The Government are also investing £1.5 billion in new capital spending for further education colleges and £2.5 billion for a national skills fund. All these things are in the Budget. Can the Minister assure me that they remain commitments and will be delivered as part of the end of austerity, in our looking forward to a brighter future?

Economy: Update

Lord Tunnicliffe Excerpts

Tuesday 28th April 2020 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I am grateful to the Minister for repeating yesterday’s Statement and to the entire Treasury team, Ministers and officials, for their continued work in response to coronavirus.

As the Chancellor said in his Statement, these are tough times. The Minister read out the number of new universal credit claimants, as well as the staggering figure of 4 million furloughed jobs. He also warned that things are likely to get worse before they get better. Even if the figures do not grow, they are clearly worrying in the economic context. We have seen the projections of the OBR, the statistics in relation to business confidence and the analysis of a variety of economists and think tanks. However, throughout all this we must remember that behind the numbers and statistics are real lives and hard struggles to keep households running and businesses afloat.

Yesterday, the shadow Chancellor asked what steps the Government are taking to convert initial universal credit loans into grants to ease the burden on new claimants. She noted that the issue appears to be with the IT system behind universal credit, rather than a lack of political will. In response, the Chancellor listed a number of benefit reforms introduced by the DWP. However, he failed to answer the particular point on the IT problem, so I hope the Minister can comment. For the avoidance of doubt, do the Government agree that initial universal credit loans should be converted into grants if the IT problems can be overcome? If the answer is yes, what is being done to solve those IT problems?

Turning to the wider economic response, we welcome the many measures announced thus far and have, I hope, played a constructive role on occasions such as these. My honourable friend the shadow Chancellor has had multiple meetings and exchanges of correspondence with the Chancellor; I hope she receives a speedy reply to the questions attached to her latest letter.

The announcement of so-called bounce-back loans, which will be 100% guaranteed by the Government, is a welcome step. We are grateful to the banks for getting the scheme up and running so quickly and hope it will ease some of the concerns and cash-flow issues of SMEs across the country.

Problems remain for those firms seeking more than £50,000 of support. Many will rightly question why they are not able to access funds as quickly or easily. I therefore hope that the Minister can offer assurances that the Government are looking at ways to make the main coronavirus business interruption loan scheme faster and less cumbersome. The long-term cost of not improving the system could be significant. That said, we appreciate the speed at which the Treasury has worked to formulate its response to Covid-19, and that the calls from SMEs, backed by the Labour Party, for swifter access to business loans have been heeded, at least in part.

While we accept that the initial government response had to be reactive, I hope the Minister can comment on what is being done to shift thinking towards a more proactive, whole-economy view, whereby sector-specific problems are identified earlier. It is vital that further coronavirus support schemes are designed and rolled out when they are of most use, rather than when the situation on the ground has become critical. Specifically, is cross-departmental work being undertaken to produce a whole-economy view? If the answer is yes, who is responsible? If the answer is no, why not?

One example of this concerns pubs and restaurants. These businesses play a vital role in communities across the country, both in the pleasure they bring and the employment they support. However, they face perhaps the greatest uncertainty of all. They are likely to be the last to reopen and, assuming social distancing remains in place for some time, their capacity, and therefore their earning potential, will be much reduced. This raises a number of questions.

The Minister will know that Section 82 of the Coronavirus Act 2020 affords increased protections for commercial tenants, in the event of their being unable to pay rent. However, these protections will lapse at the end of June unless extended by a negative SI. Will the Government be extending this provision and, if so, until when? He will know that the equivalent protections in Section 81 for residential tenants run until the end of September, offering greater certainty. Further, can the Minister confirm whether the Government are looking at what forms of additional support may be provided for such small businesses, even once they have reopened? If firms are having to operate differently because of government guidelines, they should surely not have to accrue debt as a result.

Finally, if the earning potential of pubs and restaurants is limited for an extended period, what protections can the Government put in place to ensure that landlords do not begin to seek other tenants, such as fast-food chains or takeaway restaurants, which are likely to be perceived as safer options? There are many other examples of where long-term, proactive thinking is required, so I hope the Minister will make himself available for further exchanges in the future.

[Baroness Kramer (LD)]

My Lords, the bounce-back loans are clearly welcome, but I am going to press for more help for the self-employed who have fallen through the gaps in all the various rescue packages, especially the independent contractors who take much of their income in dividends and the newly self-employed. When we come out of lockdown, self-employment will be critical. It is a path for those who will have lost their jobs because of the pandemic and cannot return to them, and we will need innovation. As the Government know, a lot of innovation is embedded in these self-employed individuals, and I hope they will look again, because they must support this sector.

We all kept a minute’s silence today for key workers who have died, but many such key workers are very low earners with insecure work. Will the Government show their respect for these individuals by reviewing their funding of both social care and local government to ensure that those workers are properly paid, with proper employment rights, in recognition of the vital role they play and the vital contribution they make to all of us?

At the end of lockdown, public sector net debt will be at a historic high—certainly by the end of the pandemic. As the Government grapple with paying that debt down, will the noble Lord take action to tax the digital companies that have so far managed to pay very little tax in the UK though they now dominate large sectors of our economy? Indeed, they are doing well in the pandemic. I do not say that as an insult, but it increases the tax they should be contributing. Indeed, there are others who are, frankly, doing well out of the pandemic. Quite a number of traders have made windfall profits. Does the Minister agree that the Government should look for these companies to pay windfall taxes?

Budget Statement

Lord Tunnicliffe Excerpts

Wednesday 18th March 2020 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I thank the noble Lord for introducing this debate, in particular for his intelligent and pragmatic approach in addressing not only the Budget but the Statement made last night. I assume that he will be responding to questions from noble Lords on last night’s Statement as well as the Budget itself. I note that he nods as I say those words.

Our post-Budget debates are often interesting affairs, not least because an extra week or two allows for greater scrutiny of the famous Red Book. I expect that this one will be even more enlightening, even if for the wrong reasons. As the Chancellor acknowledged in his Statement last week, the Spring Budget took place against an unconventional political and economic backdrop. Not only was it delivered by a Chancellor who had not expected his promotion, but it came as the global Covid-19 pandemic required a series of extraordinary actions from the Government.

We have since had a supplementary economic Statement from the Chancellor in which he announced additional measures to assist some of the businesses that will be worst affected in the weeks and months ahead. I want to be clear: to a large extent we support the action being taken. There are areas where we have concerns, but we appreciate the spirit in which Ministers have approached this challenge. Many of my noble friends have been engaged in meetings with their opposite numbers in recent days and have been able to put forward concerns and suggestions, which appear to have been taken seriously.

Before turning to our analysis of the economy, I place on record our thanks to everybody across the UK who is working to minimise the wide-ranging effects of Covid-19. Our NHS workers are once again demonstrating their heroism in the face of unprecedented demand. Public health and other authorities are reacting swiftly and decisively. Many members of the public are supporting friends and neighbours, helping them navigate these most unusual times. We thank them for all their hard work and community spirit.

I am grateful to all noble Lords who are due to participate in this debate and to those who have considered their own circumstances and decided to stay away on this occasion. We may not get to hear their words of wisdom this time, but we look forward to doing so in future.

As I have mentioned the coronavirus, I will raise our concerns about it now. As I have said, we largely support the measures that have been announced, but noble Lords will not be surprised that we have some concerns. This is a fast-moving situation and there will be more to come. Although it is perhaps a little late, we welcome the establishment of new government committees to enable swifter, joined-up responses to new developments.

Nevertheless, as we discussed in yesterday’s PNQ on entertainment venues, some recent announcements have caused confusion rather than offering clarity. The issues relating to insurance seem to have been resolved, but in such turbulent times it is vital that the Government are a calming influence, rather than causing further uncertainty. There remains the question of unequal treatment; banks are offering mortgage customers the ability to negotiate payment holidays, but there is a lack of action to ensure that renters are not adversely impacted by temporary cash-flow problems. We have been promised a statement by the Secretary of State for Housing, Communities and Local Government. When will this take place?

We have previously relayed concerns over the current level of statutory sick pay, which we believe introduces a risk that some will have to choose between health and financial hardship. This should concern us all. We have also expressed alarm that some firms have moved swiftly to lay off staff, pushing them towards benefits rather than guaranteeing stronger levels of protection. As the director of the Institute for Fiscal Studies has noted, it will remain expensive for businesses to pay their staff, particularly if demand drops. Therefore, we urgently need targeted government intervention to protect workers.

The crisis will inevitably create incidents of real hardship. We therefore welcome the funding of local hardship funds, but while the headline figure of £500 million sounds significant, it will be spread across hundreds of authorities. Will a top-up be available if required? What of the administrative side? Will costs be reimbursed by central government, or will councils have to deduct them from the funds allocated? We welcome the changes to the benefit system to improve access for those who fall on hard times. However, questions remain over universal credit, particularly regarding the five-week delay; is that being lifted?

As this is a debate on the state of the economy, I want briefly to touch on the overall economic picture. Last week’s Budget was delivered on a day when the Office for National Statistics estimated flat GDP growth for the last quarter. Manufacturing figures continue to cause alarm, and growth in services has been inconsistent. As the Resolution Foundation noted, pre-coronavirus, the Office for Budget Responsibility forecast average annual growth of just 1.4% in the coming years. This is even weaker than the sluggish rates we have seen in the post-financial crisis era. The economic hit from weaker growth, even on these incomplete forecasts, is around £300 per household this year, rising to almost £600 per year by the middle of the Parliament. To people up and down the country, this outlook, which must now be seen as a best-case scenario, does not sound like the Government fixing the roof.

Yesterday, the OBR’s Robert Chote warned that Britain faces “a wartime situation” and must do more to support households and businesses through the current health crisis, even if this leads to increased borrowing and national debt. Charlie Bean, a former deputy governor of the Bank of England said:

“If you damage the economy, you damage the public finances further down the road.”


Whether it is a financial crisis or something such as this, all the evidence shows that big action taken early is better than half-hearted action delayed. Last night’s economic Statement provided a step forward, but it is not yet clear whether Ministers have a firm grip on the scale of the challenge our economy faces. If we get one thing from the Minister’s response this evening, it is that I very much hope I am proved wrong.

Returning to the spring Budget, I was disappointed that we saw nothing substantive on social care. In his first Downing Street address, the Prime Minister told us that he had a plan that was “oven-ready”. It was said that the Government have recently decided to convene cross-party talks on the future of care. It has taken years to get to this stage, and while a level of consensus is clearly needed to address the long-term challenges we face, local authorities and care providers will continue to face an uphill struggle in the meantime. According to the Local Government Association, adult social care faces a funding gap of £810 million in 2021, rising to £3.9 billion in 2024-25. That gap accounts only for core pressures. When factoring in unmet and under-met needs, and workforce challenges, the cost will be much higher.

Speaking of local authorities, I note that other than one-off schemes relating to the virus, and the commitments to reviewing business rates, there is little to offer long -term reassurance on the provision of local services. Indeed, the LGA expressed disappointment that next year’s public health budget was not confirmed, despite the new financial year being just weeks away. This was addressed yesterday, but the cause of the delay is not clear.

While there have been real-term increases for the year ahead, these do not compensate for funds being reduced by £700 million over the past five years. After the cancellation of the last comprehensive spending review, the Chancellor has finally launched a new exercise. I hope that it addresses the fact that England’s councils face an overall funding gap of almost £6.5 billion by 2025, which is only to meet demand and inflation pressures. Improving local services will require significantly more. I hope that it will also enable the Government finally to get to grips with the many big challenges that our country faces. After calling and winning called an election, more was expected from the Prime Minister and his Chancellor. We have heard that the Government want to tackle low pay by increasing the national living wage, yet workers will have to wait five years for a modest increase, and only if the economic conditions allow for it. Even then, the basic wage will remain far below the level suggested by the Living Wage Foundation.

We are told that the Government want to tackle rough sleeping, which has increased exponentially since 2010, but did homeless services receive the £1 billion they needed to reverse previous cuts? No, they did not. Neither did Ministers commit enough money to tackling domestic violence. The £10 million provided for

“innovative new approaches to preventing domestic abuse”

would need to be multiplied more than 15 times to meet the needs of refuges.

Ministers say that the UK has the most ambitious climate-change agenda in the world. However, this Budget barely mentions the climate crisis. The IFS said that in terms of reaching net zero

“the decisions made in this Budget don't provide great confidence that the government is willing to grasp the nettle.”

This is particularly disappointing since the UK is to host the COP 26 conference.

While I reiterate our general support for the actions relating to Covid-19, I express our disappointment that this Budget represents another missed opportunity. We hope that the negative consequences of a decade of austerity will finally begin to be addressed when we see the outcome of the spending review. We desperately need progress on social care, more funds for councils and steps forward on a variety of societal issues. However, on current form, and given the challenges facing the UK and global economies, there is little cause for optimism.

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[Lord Agnew of Oulton]

That is an extremely good idea. I will certainly take it back to the Treasury, where we will investigate it.

[Lord Tunnicliffe]

If the Minister is going to write to individuals, will he copy in all noble Lords who participated in the debate?

[Lord Agnew of Oulton]

Yes, of course. I am afraid I have not had time to answer various noble Lords’ specific questions, so I will ensure that they are all copied in to my replies.

To sum up, there have been many calls today for the Government to move faster—not just by putting more money into the system but by being ever more restrictive of people’s liberty and way of life. Indeed, I was at a meeting with the Prime Minister last night. He said to the assembled group, “Even in the war, we didn’t stop people going to the pub.” We have to try to bring the country with us as we do some of the most profound things to happen in our lifetime.

I want to finish on a slightly more positive note. For those noble Lords interested in history, it is worth remembering that it was in difficult times like this that the Education Act 1944 was introduced for its Second Reading that January, nearly five months before D-day and nearly 18 months before the war was won. Parliament had the vision then to introduce legislation that would change the lives of young people in peacetime well before we had any sense that we had achieved peace. I hope we will be able to look back on this Budget in 18 months’ time and say something similar, but for the whole economy and everyone who lives in Britain.

Employment Allowance (Excluded Persons) Regulations 2020

Lord Tunnicliffe Excerpts

Tuesday 3rd March 2020 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I will be extremely brief. I am supportive of this change. It seems appropriate that the employment allowance is focused on the smallest businesses. I fully accept what the Minister says: that small businesses will be far more motivated to take on additional staff than any large business by this—in effect—grant.

On reading this, it seems that one of motivations is to make sure that the employment allowance is covered by only the de minimis regulations in the EU. Am I correct that it is the Government’s long-term policy focus to direct this aid towards small businesses, and that this is not just an accommodation to what they see as an EU framework—in other words, that it portends the future? Can the Minister give us any further assurance that any money saved will be redirected into the small business community?

[Lord Tunnicliffe (Lab)]

My Lords, the Explanatory Memorandum states:

“The purpose of this reform is to target the Employment Allowance to support smaller businesses.”


It directs us to Employment Allowance: Excluded Persons Regulations 2020, a document published in January this year, which repeats that statement:

“This reform is designed to focus the Employment Allowance at the original intended beneficiaries: smaller businesses.”


This is rubbish. You have businesses that can currently claim this £3,000, you have a very large group of businesses whose NI bill is less than £100,000—for which the rules will not change one iota as a result of this SI—and you have another group in the £100,000-plus category that will get nothing. It may be the Government’s intention to focus on smaller businesses, but this SI has no such effect. In fact, the sole impact of this SI is to save the Government money. I do not mind this, and the statutory instrument is perfectly reasonable. I just do not like the fact that false claims are made in this document. Unless the noble Lord is able to give me the assurance that the noble Baroness, Lady Kramer seeks, it seems improper to claim that taking money from one group while doing nothing about another somehow focuses more money on the group that you are not going to change.

Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020

Lord Tunnicliffe Excerpts

Tuesday 3rd March 2020 Lords Chamber

[Baroness Kramer (LD)]

My Lords, we are indebted to the noble Baroness, Lady Lister, for illuminating the underlying policy issues that underpin these statutory instruments. There is a real fear in my party—and I know in hers—that the changes that are taking place today embed, in effect, austerity for those on benefits and those on the lowest incomes. However, because we are looking at statutory instruments, I am going to make my comments extremely narrow. I recognise that for the annual rerating of NIC contributions and various other benefits, we are simply implementing a mechanism that has been through a normal parliamentary process. Frequently, this has been part of a Budget; it would certainly have been debated in both Houses, and MPs would have had an opportunity to express an opinion in the Commons if they wished to make changes. However, I am somewhat at a loss—and perhaps the Minister will help me—as to how any of that applies to the changes in PT and LPL.

It is not that I have a particular objection to the changes, but it appears that their basis lies in the Conservative manifesto, not in actions taken in the other place either in the form of a Budget—because the Budget is not due for another week—or in a finance Bill, which is where I would expect fundamental changes such as this, which affect most working people, to be embedded. It is hard to accept that changes are being made to national insurance contributions, which have a major impact on the Budget, but not within the context of the Budget. I am rather concerned that the Government might be returning to a pattern that we have seen in the past, when major policy change was introduced by statutory instrument rather than through primary legislation or being put into the Budget framework, where full debate and challenge could take place. It happened with universal credit, as I think everybody who is present in the House today will remember, and I am now concerned to see this appearing here within two of these statutory instruments. So that is where I would like the Minister to focus: to explain why a change which, as far as I can see, perfectly belongs to next week’s Budget and a finance Bill, is appearing in a statutory instrument, where, by definition, the debate is extremely limited and challenge is, frankly, near impossible.

[Lord Tunnicliffe (Lab)]

My Lords, I will take a similar self-denying ordinance to that of the noble Baroness, Lady Kramer, and speak relatively briefly. I would like simply to put on record my support for the excellent speech by my noble friend Lady Lister. I join with the noble Baroness, Lady Kramer, in failing to understand why this is not part of the Budget. Because it is not part of the Budget, it is lacking in process. In some senses, virtually all the changes that the Minister described are designed to introduce the CPI increases of 1.7%. Insomuch as that has previously been announced in budget processes, I cannot object, except on the wider basis that my noble friend Lady Lister outlined.

There is one particular increase, however—the increase in PT, which I am told is the “primary threshold”—which is not in line with inflation. Its excuse for being introduced is that it is in the Conservative manifesto. I have a copy of that manifesto and I have to admit that I could not find it. Fortunately, a member of the Treasury was able to advise me that it was on page 15—which was conveniently not numbered, but never mind. It says:

“We not only want to freeze taxes, but to cut them too. We will raise the National Insurance threshold to £9,500 next year—representing a tax cut for 31 million workers.”


I thought that a basic rule of introducing a change of policy would be that it would be properly costed. Just to make sure that this was not trivial, I did a few sums. The effect, as the Minister said, is to increase the threshold by £868; it would have increased a little anyway because of the 1.7%, but the policy impact is something like a real £720 increase. If you multiply that by the 12% rate and the 31 million people involved, you get a figure of, say, £2.7 billion. My concern is that such a sizable sum ought to have been properly set out and illustrated.

The Explanatory Memorandum says:

“A Tax Information and Impact Note has not been prepared for this instrument as it gives effect to previously announced policy and it relates to routine changes to rates, limits and thresholds.”


Well, it does not. This one is clearly a policy change, and clearly the cost is a few billion pounds. Will the Minister tell us how much it will cost? Why was it not set out in the Explanatory Memorandum? Surely it is improper to introduce a national insurance change that is a reduction in taxation without calculating its cost and putting that in the public domain.

[Lord Agnew of Oulton]

My Lords, I will try to deal with the queries raised by the noble Baronesses and the noble Lord. I will start with the question asked by the noble Baroness, Lady Lister, on the impact of the historic benefit freeze. We have to put all these events into some context. When the freeze was originally announced in 2010, we were putting the public finances back on track. For example, before 2010, welfare spending was rising at an unsustainable rate. Between 1997-98 and 2010-11, welfare spending rose by £84 billion in real terms—a 65% increase. The Government are committed to building a welfare system that ensures that work pays, that there is a strong safety net for people who need it, and that the system is fair for claimants and taxpayers. As I mentioned in my earlier comments, this is a substantial payment back into the system to support some of our most needy and vulnerable people. However, the Government are not able to provide a blank cheque for an unlimited uprating from the years of austerity that we have had to come through.

--- Later in debate ---

[Lord Agnew of Oulton]

The answer to the first part of the noble Baroness’s question is that this is what it will cost; the figure I mentioned earlier in my comments, which I think was £800 million, is the cost. The second question was: what about the people at the top end? Again, I am proud to represent a Government who are focusing our attention on those at the very bottom end of income, so this is where we are at the moment. I cannot speak for the Budget—

[Lord Tunnicliffe]

Can I just check the Minister? The area that I was concerned about, which is the increase in the PT, affects virtually every taxpayer and is not in any way concentrated at the bottom end of employment.

Freedom of Information Act 2000

Lord Tunnicliffe Excerpts

Tuesday 23rd July 2019 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I thank the noble Lord, Lord McNally, for securing this important debate. I fear that my words will very much echo his and I feel sorry for the Minister that he has so far had so little support. As we have heard, freedom of information requests are an essential safeguard in our system of government. They give the public the tools to hold the Government to account over the decisions they take and the way taxpayers’ money is spent. The Freedom of Information Act 2000 covers central government departments and the executive agencies and public bodies they sponsor. They typically receive around 8,000 to 9,000 freedom of information requests every quarter. That has risen from about 7,000 per quarter in 2010. The percentage of freedom of information requests that departments refuse to comply with in full has increased from around 40% in 2010 to 55% by the end of 2018.

As well as this, the Act covers Parliament, the Armed Forces, devolved Administrations, local authorities, the NHS, schools, universities and police forces. However, since the legislation was introduced, there has been an explosion of private-sector involvement in public functions. This has been driven by this Government’s ideological pursuit of privatisation and outsourcing. But companies which enter into such contracts are not subject to FOI requests and subsequently not subject to similar levels of accountability as others working in the public sector. The Information Commissioner's Office, which is tasked with the special monitoring of FOIs, said,

“The lines between public and private sector service delivery have blurred as local authorities enter joint ventures with private companies and some start to trade on for-profit and not-for-profit bases. However, this growing area of quasi-commercial activity is removed from public scrutiny offered by the FOIA”.


I am particularly concerned that large companies can achieve a quasi-monopoly position and end up bidding for contracts at a lower market value when they are up for renewal. The Public Accounts Committee found that between January 2016 and July 2018 government departments had to renegotiate over £120 million worth of contracts with the private sector to ensure public service delivery would continue because they were initially contracted out too cheaply. I believe this is slowly destroying the public sector and stops smaller companies being able to enter the market. With competitors squashed, costs are forced down and inferior labour conditions are introduced. Profits subsequently rise and, instead of being reinvested in public services, they fill the pockets of those running such companies and their owners. As the Freedom of Information Act 2000 does not cover such outsourcing and private/public sector contracts, I am unable to discover to what extent this is happening.

I am losing track of the number of failures of outsourcing which have come to light in the past few years. These have thrust the question of whether private companies should provide public services into the spotlight. We all know how the catastrophic collapse of Carillion highlighted the problems with the outsourcing business model. Its collapse in January 2018 directly impacted on 30 councils and 220 schools. But the list of failures does not stop there. In May the Government were forced to announce a U-turn to reverse their 2014 part-privatisation of probation, and in April they said that they would take HMP Birmingham permanently back into public ownership from G4S after appalling violence and an inspection report last August.

A similar experience can be found at the local level. Bedfordshire County Council’s contract with HBS for financial services, human resources and other services was ended early after major dissatisfaction with services. Barnet council had to pay thousands of pounds for emergency IT services after its regular provider went into administration.

I also highlight the failings of Capita and its botched recruitment contract with the Army. Recruitment is in free fall, with numbers standing at 75,880—well below the Government’s target of 82,000. Can the Minister explain why the Government continue to sign new contracts with companies—for example, the recent £525 million MoD contract which will privatise large parts of its fire and rescue service to Capita—despite these companies having failed to simply do their job? To put it simply: outsourcing as it stands is a broken business model.

Following these failures, the public have rightly lost confidence in the privatisation of our public services and the carve-up of the public realm for private profit. They are keen for outsourcers to be subject to the same law as the rest of government. However, current loopholes in the Freedom of Information Act, as well as in the Human Rights Act, are hindering any efforts to do so, and the Information Commissioner, Elizabeth Denham, has called for FoI laws to be extended to all public service suppliers. This would force companies running public services to answer to the public. Does the Minister agree that introducing more accountability can help restore some trust? Can the Minister confirm that the Government will follow the ICO’s advice and extend FoI requests to all public service suppliers?

Last Saturday, Labour announced that we would transform the legislative framework around outsourcing contacts by making them subject to the Human Rights Act and the FoI Act. We would legislate to ensure that local authorities review all service contracts when they expire and to create a presumption that service contracts will be brought back in-house and delivered by the public sector unless certain conditions and exemptions are met. We would also introduce a new set of minimum standards in contracts where outsourcing has to continue, including a fair wage clause, trade union recognition, supporting local labour and supply chains, annual gender pay audits and time-limited contracts. Will the Government be making a similar commitment? These changes will help bring accountability and public responsibility, as well as fairer working conditions, to a failed model which has been protected by this Government for too long.

It is clear that outsourcing and contracting out public functions to the private sector cannot continue without reform. The constant failures coming from major outsourcing firms cannot be allowed to continue. It is time to give the same tools to the public to hold private companies to similar standards as government departments when carrying out important public functions. Extending FoI requests is a key part of that but, overall, we also need to move away from an ideological desire to privatise first and ask questions later. However, I believe that will come only from a change of government.

Inflation

Lord Tunnicliffe Excerpts

Monday 1st July 2019 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I join other noble Lords in congratulating the noble Lord, Lord Forsyth, on securing this debate, on his committee’s report and on his speech, which he delivered in his usual clear and fairly concise manner. I find myself in a state of shock, praising him in such an effusive way. This is not normal, but we do not live in normal times. The two Tory candidates for the role of Prime Minister are in a bidding war to spend public money. They seem keen to overtake the Labour Party on the left. It will all end in tears, and one of the malign manifestations will be—yes—inflation.

The topic of the report is the measurement of inflation, an involved and important topic. It is one that particularly resonates with members of my generation, given the centrality of inflation to political debate and media coverage of the economy during the 1960s and 1970s. We are also, sadly, the generation that tends to have index-linked pensions. I have four, I think, but I have lost track of which is CPI and which is RPI.

The Economic Affairs Committee has done a valuable service in analysing a faulty methodology, concluding that the Office for National Statistics is failing in its statutory duty to provide accurate economic data. The old established measurement, the retail price index, is subject to much criticism in the report. It has, since 2010, showed a wide discrepancy from the consumer price index, with the gap between the two rising from 0.5% to around 0.8%.

This is of the greatest significance in modern times, as the Government have developed a habit of choosing to apply the lower CPI measure when spending money and the higher RPI measure when collecting it. As Martin Lewis, the founder of MoneySavingExpert.com, said:

“Where it costs us more, they use RPI. Where it costs the state, they use CPI. There is no logical justification, it does not make any sense whatsoever. It’s a very simple way of cooking the books”.


The report refers to this practice as inflation-shopping and calls for the use of a single measure of inflation in future.

As I do not want to repeat points made by many other noble Lords, let me briefly cover why that trend is so problematic. Many welfare benefits are subject to the four-year freeze, which we on these Benches continue to find deplorable. For those benefits uprated each year, such as those aimed at disabled people or carers, the increase is capped at the level of CPI. On the other hand, interest on student loans rises by up to RPI plus 3% each year. The House of Commons Library has estimated an additional cost to students of £16,000 over the lifetime of their loan.

Ministers allow regulated rail fares to rise by the rate of RPI each year, although average pay growth has tended to fall below that level in recent years. Meanwhile, the Office of Rail and Road has confirmed that it will transition to CPI for new connection contracts, as with access contracts. This is designed to lower train operators’ costs, but also to cut state subsidy. Alongside this change, the Secretary of State for Transport wrote to rail unions asking them to calculate wage increases by CPI. Despite warm words, there has been no specific pledge that savings will be passed on to commuters.

These examples highlight that an acute aspect of the problem is the Chancellor’s considerable say in the use of different inflation measures. The UK Statistics Authority has admitted that there is a problem with the RPI but has not ordered a correction in the formula because doing so would impact on many UK Government bondholders.

Box 6 of the committee’s report provided a helpful summary of the clearly defined legal duties on the UK Statistics Authority. Section 7 of the Statistics and Registration Service Act 2007 outlines a public interest in the provision of quality official statistics. Section 21 requires the Chancellor to consent to any fundamental change in the inflation index that would be detrimental to gilt investors—something that the UKSI’s chairman did not believe would be forthcoming. However, both the Chief Secretary to the Treasury and the Chancellor said in their evidence that they would be happy to discuss any proposals for change. I put it to Ministers that the general interest in Section 7 should far outweigh the limited interest in Section 21 and that an appropriate response should be to correct the RPI measure incrementally.

The committee was critical of the UK Statistics Authority for its treatment of RPI as a legacy measure, given that it is still widely used, particularly in pay settlements. As the trade unions have outlined, RPI has long existed as the main reference point for pay negotiations. It has been estimated that a general shift to CPI would see the average worker’s salary fall by £350 per year. It would also have a significant impact on pensions.

In March 2018, the Department for Work and Pensions calculated that a switch to CPI on defined benefit pensions would result in,

“a £12,000 reduction in the value of pension income per affected member, on average over their lifetime”.

The Institute and Faculty of Actuaries believes that if a scheme were to change inflation indexes, a 65 year- old man who had been expecting pension increases in line with RPI could expect to receive aggregate lifetime pension payments about 10% to 15% lower.

Where do we go from here? The report notes that, in true “third way” style, the Government, the Bank of England and the UK Statistics Authority increasingly see CPIH, which includes owner-occupiers’ housing costs, as a preferred longer-term measure. However, the committee outlines how CPIH has faced problems since its introduction in 2013. It echoed the views of several witnesses, who raised concerns about the use of rental equivalence in CPIH and called for more work to be done before a single measure of inflation is identified and adopted.

It is clear that the Government are not yet in a position to fulfil the committee’s wish of selecting a single measure, but the proposed five-year timescale identified by the noble Lord, Lord Forsyth, and his colleagues appears sensible. Given the importance of inflation measures for the everyday costs of people up and down the country, I hope the Minister will be able to demonstrate that the Government now have a firmer grip on this issue than was suggested in their evidence to the committee.

--- Later in debate ---

[Lord Young of Cookham]

That goes to one recommendation directed at the UKSA. That issue will be addressed directly in the government response to the recommendations. I cannot give my noble friend an answer today; I hope that he understands why.

In introducing the debate, my noble friend wondered whether the Government discussing this issue with the UKSA somehow compromised the UKSA’s independence. It is perfectly legitimate for the Government to discuss matters with the UKSA without interfering with its independence in decision-making. We discuss a wide range of issues with it—as we should, given that the ONS is the producer of economic statistics. One can have that dialogue without encroaching in any way on the UKSA’s independence. The Government continue to discuss the relevant issues raised by the report; the Chancellor wrote to my noble friend last week, outlining that point. I stress to my noble friend, the noble Lord, Lord Sharkey, and other noble Lords that we are working hard to respond to the committee’s report as quickly as possible. We will communicate a date for this response in due course and will provide sufficient notice for the markets.

Let me move on to the central focus of the inquiry, namely the RPI. As the Government have stated before, we recognise that there are flaws in the way that RPI is measured and that, as a result, its rate of inflation is higher than that of other measures, such as the CPI and CPIH, which is the CPI including owner-occupiers’ housing costs.

The report from the committee is the latest in a series of reports on this intractable issue. I highlight this to stress how complex it is. In 2012, the then National Statistician launched a consultation on potential changes to the RPI following concerns about the increased wedge between RPI and CPI, which had been driven primarily by the 2010 change in the collection of clothing prices. There was then a considerable response, both on matters statistical and non-statistical, and in 2013 the then National Statistician responded, arguing that the RPI did not meet the highest standards expected for a national statistic. That answers the question of the noble Lord, Lord Lea, as to why it was regarded as discredited: the UKSA stripped the RPI of its national statistic status.

However, given its widespread use in the economy, the National Statistician argued that the RPI should remain unchanged. In 2015 a review into consumer price statistics, which had been led by Paul Johnson of the Institute for Fiscal Studies, was published. This also criticised the RPI and recommended that it should be classed as a legacy measure and that its use should be actively discouraged.

Let me explain the Government’s use of inflation statistics and highlight how they have not ignored the criticisms of RPI. Since 2010 the Government have reduced their use of RPI. They have moved the indexation of direct taxes, benefits, public sector pensions and the state pension from RPI to CPI. More recently—this addresses the accusation of index shopping made by a number of noble Lords—in April 2018 the Government brought forward switching the indexation of business rates from RPI to CPI.

[Lord Tunnicliffe]

Did the Minister say that the state pension was linked to CPI? I thought it was triple-locked—I hope it is because I draw it.

[Lord Young of Cookham]

One of the locks is CPI.

[Lord Tunnicliffe]

My understanding of this part of my income is that it is the greater of CPI, RPI or, I think, 2.5%.

[Lord Young of Cookham]

We have moved the indexation of direct taxes, benefits, public sector pensions and the state pension from RPI to CPI. If that is wrong, I am sure a signal will come from the far end of the Chamber to put it right before I sit down.

I was dealing with the issue of index shopping and said that in April last year we brought forward switching the indexation of business rates from RPI to CPI. This move is expected to save businesses almost £6 billion over the next five years—at, of course, a cost to the public purse.

At Budget 2018 we outlined our policy on inflation statistics. Specifically on RPI, the Government committed to not introducing new uses of RPI and to reduce its existing uses when and where practicable. I note that the report encourages the Government to move all uses to CPI. However, the matter of practicability is key and further moves away would be complex. It has not been clear in recent years which measure of inflation it would be appropriate to use, although that picture is now getting clearer.

One sizeable area where RPI is used is in the Government’s index-linked gilts—a number of noble Lords mentioned this, including my noble friend Lady Browning— which are indexed to RPI. The Government have no plans to stop issuing index-linked gilts indexed to RPI. As the demand for RPI-linked debt is vast in comparison to CPI, particularly from the pensions sector—the largest holder of gilts by sector—the taxpayer gets far better value for money issuing into this market. Until such time as we can be satisfied that there would be sufficient demand for a new debt instrument, and that it would deliver better value for money, we will continue to issue RPI-linked gilts.

As mentioned by the noble Lord, Lord Macpherson, demand for CPI-linked debt is growing. However, given that demand for RPI-linked debt is stronger, the Debt Management Office gets better value for money by continuing to meet this demand. However, in response to the noble Lord, Lord Macpherson, the issuance of new debt instruments is kept under review.

On the Government’s future use of inflation statistics, particularly in relation to CPIH, noble Lords have raised concerns over its suitability as a headline measure for the Government. Again, I pay tribute to the work of the ONS, led by John Pullinger. CPIH has undergone extensive development, choosing between different methodologies where necessary, and rigorous testing by the independent Office for National Statistics. This robust process has led to CPIH being approved as a national statistic, meaning that it is fully compliant with its code of practice for statistics. The Office for Statistics Regulation recommended to the board of the UKSA that CPIH be granted national statistic status, which is the highest kitemark of quality in our statistical system. Following this extensive development, at Budget 2018 the Government stated that their objective was for CPIH to become their headline measure over time.

The Government have not, however, set a date for CPIH to become their headline measure of inflation. This is because CPIH is a relatively new measure—a number of noble Lords touched on the issue of housing. CPIH has only recently been certified a national statistic, and it was only late last year that an updated historical back series was published, extending the series. With this back series in hand, work is now ongoing to understand its properties compared to CPI and RPI. The Government will regularly update Parliament on their progress towards using CPIH and, of course, on its broader strategy on inflation statistics.

Perhaps I may touch on some of the issues raised in the debate. The noble Lord, Lord Tunnicliffe, raised the benefits freeze. The decision to freeze most working-age benefits from 2016-17 was one of a number of difficult decisions that the coalition Government took to put the public finances back on track. We have no plans to repeat the freeze and we expect working-age benefits to rise with inflation from April next year.

The noble Lord, Lord Tunnicliffe, mentioned Sections 7 and 21 of the Statistics and Registration Service Act. Other noble Lords also mentioned the issue—the noble Lord, Lord Turnbull, in particular. We recognise the committee’s view on this and the Government will respond to the report in due course and on that specific recommendation. Changes to RPI are a matter for the independent UK Statistics Authority and the Office for National Statistics. That is a response to the suggestion that RPI could be incrementally corrected.

In conclusion, I recognise that I have not been able to go as far as noble Lords would have wished. The Government note that this report covers complex and wide-ranging issues, and makes a number of serious and sober recommendations to both the Government and the UKSA. Given the extensive use of RPI in the economy, the complex nature of some of those uses and their interactions, and, most importantly, the effect on people and the economy, the Government believe that it is necessary to take time to consider the committee’s report carefully before responding.

The Government recognise that RPI is a flawed statistic, and stress that they have not avoided acting on the issue. They recognise that further work must be done, but note that further moves away from RPI are complex. Further, the necessary work to prepare for CPIH is yet to be completed. I say to the noble Lord, Lord Sharkey, that the Government will respond as soon as practicable to noble Lords’ report and are working extremely hard so to do.

Finally, I will convey to the Chancellor the sense of frustration expressed by my noble friend Lord Forsyth and others about the time it has taken to respond to the report. I will personally relay that message.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Lord Tunnicliffe Excerpts

2nd reading (Hansard): House of Lords
Wednesday 26th June 2019 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, before I begin, I should like to thank the Minister and his team for the briefings they have held on this Bill. Early engagement is always useful, particularly when dealing with technical taxation measures. In particular, his team’s and his own thoroughness is such that I do not expect to have to bring forward any probing amendments; the concept of the Bill has been battered into my brain sufficiently.

Second Reading is normally a time for us to come together and debate the lofty ambitions of the Government of the day. Clearly, the role of your Lordships’ House is somewhat constrained when it comes to matters of finance. However, noble Lords ordinarily enjoy the opportunity to make speeches on wide-ranging aspects of the UK economy. But as has become conventional in these somewhat unconventional times, Ministers have found themselves scrambling for any legislation that can bulk out the timetable and survive a fractured House of Commons. So, having dealt with the fate of 19 individual animals—as important as they are—just last week, your Lordships’ House now finds itself discussing the mirroring of current income tax arrangements for termination awards and proceeds from sporting testimonials for national insurance purposes.

I understand from those who follow such things that I achieved notoriety in the stand-up routine of the Times journalist Matt Chorley when I used his catchphrase, “This is not normal”, in a debate in February. However, we find ourselves in the longest parliamentary Session by sitting days since the English Civil War while the Government scrape the barrel for things to do. This truly is not normal. We on these Benches would prefer to be dealing with more pressing tax matters. That includes taking action to crack down on the tax avoidance and evasion that prevents much-needed extra spending on public services.

Nevertheless, while the Bill before us lacks ambition, we must diligently carry out our work and consider the implications of these changes to the tax code. The genesis of the Bill was a wide-ranging review by the Office of Tax Simplification in 2013. The first set of recommendations, to make relevant payments subject to income tax, were legislated for several years ago. Now, as the Minister explained, we are legislating to levy class 1A employers’ NICs charges on the same payments. While the OTS has a noble aim, the matters under consideration today provide a reminder of why tax is often anything but simple.

On termination payments, we have concerns that the introduction of additional employer NICs may act as a disincentive to responsible employers who want to top up statutory redundancy payments in recognition of an employee’s contribution to the firm. I am grateful to Treasury officials who have listened to this concern in meetings and I accept their argument that the number of cases is likely to be small. However, I hope that the Minister can provide reassurance that the Government will reflect on this point when reviewing the impact of the legislation in due course.

While the definition of a termination payment is beyond the scope of the Bill, as helpfully laid out in a letter from the Minister on 24 June, I hope consideration will be given to how future tax changes can encourage employers to properly look after those employees whom they have to let go.

I would be grateful if the Minister could clarify how different forms of termination payment, whether below or above the £30,000 threshold, are treated for the purposes of determining eligibility for, and the calculation of, social security benefits such as universal credit.

In a meeting with the Minister and his officials, we also discussed the potential for errors to be made when the new regime takes effect in 2020. I was reassured that responsibility for any miscalculations will lie ultimately with the employer and that individuals will not be pursued by HMRC to recoup any sum from which the correct deduction has not been made. I would be grateful if the Minister could put this on the record and confirm that this differs from the situation with regard to income tax, whereby shortfalls in tax due can be recouped in the usual way.

Turning to sporting testimonials, I understand that the Minister will provide further clarity on the types of event to which the Bill extends; that is, providing a plain English explanation of “non-contractual, non-customary”. The policy note on GOV.UK notes that the impact of this change is “negligible”. It notes that around 220 testimonial committees are established each year, but that only a small number will be impacted by the measure. It further acknowledges that there will be a cost and additional administrative burden for testimonial committees as a result of the policy change. Given that the Exchequer will gain little, I return to my previous observation that tax simplification, while desirable, should not be prioritised over other, more fundamental issues in the tax system or wider UK economy.

A concern raised by my colleagues in the Commons related to the Bill’s impact on charitable donations arising from testimonials. A number of sports men and women who are financially secure choose to use their testimonial to support charities, including their own foundations. However, introducing a new NICs charge will reduce the funds passed on to those organisations. Can the Minister clarify what guidance will be made available to committees to ensure that charitable donations resulting from testimonials are treated in a tax-efficient manner? As in the case of redundancy payments, it would be a shame if an unintended consequence of this measure was to introduce additional barriers to what we all recognise as generous and responsible behaviour.

Finally, as the Bill progressed through the Commons, my colleagues probed what steps the Treasury will take to review its impact. We may choose to pursue this as the Bill progresses here, particularly in relation to my concerns about charities. We look forward to continuing our engagement with the Minister and his officials, and hope that the Government will take appropriate steps to address the concerns raised. I also note that the more interesting elements of the Bill, frankly, sit in the income tax legislation to which it cross-refers. Therefore, it would be inappropriate for this House to address the fundamental concept of the Bill, which is to use the essence of the tax legislation as the basis on which it functions. We are not likely to pursue any amendments to that end.

Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019

Lord Tunnicliffe Excerpts

Tuesday 7th May 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I am so glad I did not have to write the content of this SI; it was hard enough trying to work one’s way through it when simply reading it. It is obviously the result of a combination of “Oops!” and communication with customers. I see absolutely no reason to oppose it. If anything, this underscores the complexity of trying to make arrangements for dealing with a no-deal scenario. I hope we never have to use it, because we would run into more “Oops!” if we ever found ourselves in that situation. I hope the Treasury is going ahead with a mapping exercise to try to link this all together, because how anybody who functions in the industry can ever work their way through all this is completely beyond me. Frankly, if you ever needed an argument for remaining, it seems that this alone provides it.

[Lord Tunnicliffe (Lab)]

My Lords, this is one of many no-deal SIs on which I have been forced to represent Her Majesty’s Opposition from the Front Bench—a pretty unattractive pastime. The principal reason for this is the fact that most of these SIs amend an SI that amends an SI that amends an Act that is many years old, which makes it fundamentally difficult to understand them. When one has put all the intellectual effort into understanding the so-called no-deal SI, one then discovers that the actual substance of the SI is frequently merely technical or consequential.

I found that this SI, and particularly its Explanatory Memorandum, really won the prize for being the most difficult to understand yet. In my frustration, I thought I would find out to what standard an Explanatory Memorandum should be created. I had the inspiration to go along to the Secondary Legislation Scrutiny Committee offices to seek guidance. I was once on that committee when it had a much grander title, the Merits Committee, and the staff there were always helpful and competent. I asked, “What is the guidance on the creation of SIs?” They said there were two pieces of guidance: that given by the committee itself and the Government’s guidance, which—for reasons I do not understand—is actually issued by the National Archives. The guidance from the committee itself is some 17 pages long. The latest version is from July 2016. Its objectives are caught in one particular paragraph:

“The purpose of the EM is to provide members of Parliament and the public with a plain English, free-standing, explanation of the effect of the instrument and why it is necessary. It is not meant for lawyers, but to help people who may know nothing about the subject quickly to gain an understanding of the SI’s intent and purpose. Legal explanations of the changes are already given in the Explanatory Note which form part of the actual instrument”.


The latest government guidance from the National Archives, the fifth edition on statutory instruments, dated 27 November, states at paragraph 2.9.2:

“The purpose of an EM is to provide the public with an easy-to-understand explanation of the legislation’s intent and purpose—why the legislation is necessary. Avoid repeating content you have included in the Explanatory Note. Your explanation should be concise but comprehensive, and should not generally exceed four to six pages. Use plain English and avoid … jargon”.


I put it to noble Lords that this document fails.

I then turned to the EM itself, which at paragraph 15.2 states:

“Katie Fisher, Deputy Director for Financial Services EU Exit Domestic Preparation at HM Treasury, can confirm that this Explanatory Memorandum meets the required standard”.


She is wrong. It does not.

However, in my frustration, I rang the number given at paragraph 15.1 to try to understand a little more and my conversation resulted in an email from Richard Lowe-Lauri. At long last, after much toil, I feel that I do largely understand the Explanatory Memorandum, as prompted and helped by that useful email. What did I find? I found at the end of this exciting process that the issues tackled in this SI are technical, consequential or merely corrective. Therefore, I have nothing to object to, except for one very minor question about paragraph 2.4, the last sentence, which happens to be about five lines long. It states:

“It also inserts provisions into other temporary regimes, allowing EEA financial services firms to continue to service existing contracts with their UK customers post-exit, and mitigating risks faced by UK firms using services provided by non-UK central counterparties and trade repositories”.


I could not find anywhere how and what the risks were that we were mitigating and how they were being mitigated. Otherwise, I have no objection to the SI.

[Lord Young of Cookham]

My Lords, I am grateful to both noble Lords who have taken part in this debate. I agree with the noble Baroness, Lady Kramer. I do not want a no-deal scenario any more than she does. The Explanatory Memorandum at paragraph 7.2 explains all that we are doing to move away from no deal by seeking a,

“deep and special future partnership with the EU … greater in scope and ambition than any such agreement before and”,

that encompasses “financial services”.

[Lord Tunnicliffe]

On that point, the Minister should realise that that paragraph has been repeated 65 times, so we all know it well.

[Lord Young of Cookham]

That is why I knew exactly where to find it. I am sure that the noble Lord had no difficulty with that particular paragraph as he has had an opportunity to reflect on it many times. But I am grateful to the noble Baroness, Lady Kramer, for her broad support for the SI before us.

I note from the noble Lord, Lord Tunnicliffe, that we have tested his patience. He made that abundantly clear and he has awarded the wooden spoon to this particular Explanatory Memorandum. If he ever wants a different job, perhaps he could be recruited to draft Explanatory Memorandums for the Government. He clearly has high standards, and he is capable of turning the documents in front of him into something which he understands, which is a valuable skill.

I shall deal with the specific point he raised about paragraph 2.4 of the Explanatory Memorandum. The Financial Service Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019 inserted provisions into the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 and the Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018; I hope the noble Lord is still with me. These amendments established a run-off regime for central counterparties, allowing UK firms time to wind down relevant contracts and business with non-UK CCPs in an orderly manner. They also established a run-off regime for trade repositories giving UK firms time to make alternative arrangements with another registered or recognised TR to satisfy the reporting obligations set out in the European Market Infrastructure Regulation—EMIR. In a nutshell, without these run-off provisions, UK firms would face cliff-edge risks, and that is the risk that we seek to mitigate, including disruption to services from non-UK CCPs and TRs introducing operational, legal and stability risks. I hope I have dealt with that point.

On the noble Lord’s valid final point—that an Explanatory Memorandum should be a stand-alone document which is readily understood—the Treasury has endeavoured to ensure that all its Explanatory Memoranda provide a full and clear explanation of how and why each exit instrument laid under the Act is intended to operate, so that we can scrutinise the legislation as effectively as possible. However, in the light of his comments, we will have another look at this Explanatory Memorandum and consider whether the document should be revised and relaid to ensure that its explanations are as clear as possible.