Revised Draft Airports National Policy Statement
Lord Tunnicliffe Excerpts(6 years, 9 months ago)
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Lord Tunnicliffe (Lab)
My Lords, it is with some trepidation that I rise to participate in this debate, partly because of the passions that have been expressed and partly because I have a bit of a ragged speech having had some trouble working out what this document does. I thank the noble Baroness the Minister for her explanation, but can the Minister who is responding further clarify the legal structure that we are debating a part of here? There must be some primary legislation somewhere that allows the Secretary of State to consent to the demolition of 783 houses; he cannot be doing it on his executive privilege. I assume that this document, along with the Planning Act 2008 and some other Act fit together in a way that gives him that power. It is important to understand how that power is exercised because I think that Minister said, albeit not in so many words, that in the final analysis it was at the Secretary of State’s discretion, because he receives a report and then makes a decision. I think I heard her say that we would get a second bite of this cherry in the autumn. By then, I would like to be fully up to speed—I have to say that chasing it up through Google has consumed many hours of my time to no great effect.
The Labour Party’s position on Heathrow needs to be stated without too much comment. My noble friend Lord McKenzie has already done it, but it has to come from the party spokesman from the Front Bench so I will read it out. The Labour Party supports the expansion of airport capacity in the south-east subject to our four tests being met. Is there robust and convincing evidence that the required increased aviation capacity will be delivered with Sir Howard Davies’ recommendation? Can the recommended expansion in capacity go hand-in-hand with efforts to reduce CO2 emissions from aviation and allow us to meet our legal climate change obligations? Have local noise and environmental impacts been adequately considered and will they be managed and minimised? Will the benefits of expansion be felt in every corner of the country, not just the South East of England, and will regional airports be supported too? It is against those tests that we will comment in greater depth when we get our second bite. I must apologise to my noble friend Lord McKenzie that, as far as I know, the Labour Party does not have four similar tests for the expansion of London Luton.
I should like to make two or three small points about the document. I start with paragraph 1.15:
“The policies in the Airports NPS will have effect in relation to the Government’s preferred scheme, having a runway length of at least 3,500m and enabling at least 260,000 additional air transport movements per annum”.
There is a certain nostalgia for me in this part of the document, because for eight years I flew as a co-pilot operating jet aeroplanes off the two runways at Heathrow. I looked up how long they were, and they were surprisingly long: 3,900 metres for one and 3,655 metres for the other. They always seemed a great deal too long, because I spent so much time taxiing down the parallel taxiways to get to the end.
Heathrow is now consulting on a scheme with the third runway being 3,200 metres long. That is all over the web. If it presents a scheme for 3,200 metres, does paragraph 1.15 mean that the document is invalid? It seems to say that the only scheme that the Government will consider is one for 3,500 metres. My personal experience is that 3,000 metres is more than enough for virtually all modern jet aeroplanes. Have the Government got themselves in a trap where their provisions and the newly preferred scheme by Heathrow are incompatible?
My next detailed point, which has been referred to by several noble Lords, especially my noble friend Lord Berkeley and the noble Baroness, Lady Kramer, concerns paragraph 5.18:
“Where a surface transport scheme is not solely required to deliver airport capacity and has a wider range of beneficiaries, the Government, along with relevant stakeholders, will consider the need for a public funding contribution alongside an appropriate contribution from the airport on a case by case basis”.
That would seem to me to be a promise of public money. Because the Government have examined the Davies report and said that they broadly support it, they must at some point have evaluated how much public money that paragraph commits them to spending. It is a surprisingly light amount of text for what I should have thought could be a substantial amount of money. I never got that sort of money out of the Government with so little text.
The general tone of the document seems to be, “Obey all these different laws about all these different things but, if it is all too difficult, ask the Secretary of State for discretion”. In a lot of places, it is not very tight. One paragraph that is pretty tight—I should like to know if the Minister agrees—is paragraph 5.41:
“The Secretary of State will consider air quality impacts over the wider area likely to be affected, as well as in the vicinity of the scheme. In order to grant development consent, the Secretary of State will need to be satisfied that, with mitigation, the scheme would be compliant with legal obligations”.
That would seem to me to say that, if it does not meet the air quality requirements, the scheme is dead. Can the Minister confirm that? He will know that, in many parts of the capital, we do not meet air quality requirements, and many people are sceptical that this can be achieved at Heathrow. The key question is: is this an area where the Secretary of State would not have discretion? Would it in fact kill the scheme dead?
My final point is on the important area of community engagement. It is referred to in the document on page 84. I have nothing against page numbers, but it feels as though it is a bit of an afterthought. It states:
“The applicant must engage constructively with the community engagement board throughout the planning process, with its membership (including an independent chair), and with any programme(s) of work the community engagement board agrees to take forward”.
This seems very narrow and very soft. Can the Minister say anything to firm up this commitment and make it broader, because the key stakeholders who must be drawn into the scheme as much as is reasonably practical are the local communities, and particular emphasis should be placed on community engagement?
Lord Young of Cookham (Con)
My Lords, it falls to me as co-pilot to land this debate, which had a smooth take-off with my noble friend Lady Chisholm at the controls. I hope to land on schedule. During the flight, we had in the cockpit two qualified pilots, two former Transport Ministers and a number of aviation experts. All said that they had been on this flight before several times and were used to being stacked for long periods. The journey was smooth, but with some turbulence as we flew over Richmond and Moulsecoomb, and there was a request to divert to Luton.
This has been an excellent debate, and I welcome the informed scrutiny that this House has, as usual, provided. I will try to answer the many questions raised; if I cannot, I will write. As I said, the speakers have been well qualified. For my part, I was Secretary of State for Transport for two years, with responsibility for airport policy, but my recollection is that I was constrained from articulating it for fear of prejudicing the inquiry into Terminal 5, which was under way at the time. At the time, I was Member of Parliament for Ealing Acton, so the future of Heathrow has always been an interest that has generated concern: concern about noise from some constituents but, I must say, counterbalanced by the employment generated for others, either those directly working at Heathrow or those working for businesses whose success depended on proximity to Heathrow. I suspect that there is that same tension in many other parts of west and south-west London.
There is a wide range of views on this subject. That is why we have undertaken one of the largest consultations ever and were keen to ensure that all the consultations were full and fair, giving everyone an opportunity to have their say. In response to the final point made by the noble Lord, Lord Tunnicliffe, I hope that that engagement with the community will continue as we move to the next stage in the planning process.
I was asked about consultation by the noble Lord, Lord McKenzie. I should like to write to him about the timings, but we are carefully considering the responses to the consultations—both the one under way and the separate one undertaken by Heathrow. We do not expect any further contributions to the Government’s consultation, but that is dependent on our analysis of consultation responses. We anticipate a debate in both Houses ahead of the Summer Recess, and the Government are committed to a vote in the other place.
The noble Lord, Lord McKenzie, asked me about the EU safety agencies, which is an important issue. We want to explore with the EU the terms on which the UK could remain part of the EU agencies that he mentions, such as the European Aviation Safety Agency.
The process of parliamentary review that we are participating in is a vast improvement on the years of public inquiry into the need for schemes that bogged down infrastructure before the Planning Act was introduced, and I shall say a word about that in a moment. My noble friends Lord Spicer and Lord Naseby made it clear at the outset that we have delayed far too long in resolving the calls for additional runway capacity in the south-east. The Government are anxious to bring this decades-long debate to a satisfactory conclusion. The revised aviation passenger demand forecasts show the need for additional capacity in the south-east is even greater than previously thought.
The opportunities and challenges that Brexit brings only strengthen the need for investment to improve links with the rest of the world. Across the economy our national infrastructure needs modernisation. That is why we are pressing ahead with the delivery of HS2, rail investment, broadband, road schemes, energy infrastructure and this proposal for a 3.5 kilometre additional runway. The noble Lord, Lord Tunnicliffe, asked me whether anything less than that would invalidate the NPS, and the answer is, yes, it would.
The noble Lord also asked under what powers the Secretary of State could acquire the properties he referred to. The answer is that the Planning Act 2008 enables compulsory purchase, but the draft NPS rightly holds Heathrow to its public commitment to provide 125% of unblighted market value for the homes of those subject to compulsory purchase.
The Government are clear that they expect the number of domestic airports with connections to Heathrow to increase. Heathrow Airport Limited has set out a number of pledges to help strengthen existing routes and deliver new routes to the regions and nations of the UK. These include discounted charges for domestic passengers. Air routes in the first instance are a commercial decision for airlines and are not in the gift of an airport operator. The aviation strategy—I will say a word about that in a moment—will consider the level of connectivity our nations and regions require to support economic growth, whether the market is able to provide this and what the role is for Government support.
There was a lot of interest in surface access and who pays for what. Heathrow is already well connected, with links to the M4 and M25, access to the Tube via the Piccadilly Line, and rail services from Paddington. In addition, later in 2018 Crossrail services will start to the airport, replacing the existing two-train-per-hour Heathrow Connect service. From December 2019, six Crossrail trains per hour will run from the airport directly to central London. TfL plans to upgrade the Piccadilly Line with new trains, more capacity and a faster, more frequent service. From 2026, HS2 will connect to the airport via an interchange at Old Oak Common, providing an express route to the Midlands and the north. A western rail link is planned to allow passengers to travel directly to the airport from Reading and Slough. The scheme is currently being designed in detail before seeking its own planning powers. Building is underway to upgrade the M4 to a smart motorway between junctions 3 and 12 to provide additional capacity.
As my right honourable friend the Secretary of State for Transport has said, we can see great potential in a southern rail connection to the airport, which would enable journeys via Woking, Waterloo and Clapham Junction. That would be of great benefit to those coming up from the south-west. We have already had initial approaches from a number of would-be private sector promoters that are interested in developing this.
On the question of Transport for London, we do not agree that airport expansion would require £15 billion to £20 billion of new infrastructure improvements on top of the billions we are already investing in improved transport. TfL’s number includes a range of other projects in London, which may or may not be needed in the future to deal with general population growth unrelated to airport expansion. The revised draft airports NPS sets out targets for the public transport modal share of journeys made to and from the airport by both passengers and staff.
HAL has pledged to meet the costs of any surface access proposals that are essential to deliver airport expansion. This would include works on the M25, A4 and A3044, as well as a contribution to the cost of the rail schemes. The plans for the runway to cross the M25 would be subject to the proper planning process and would be designed to minimise disruption to other users during construction.
On the question of the Government’s contribution, which was raised by a number of noble Lords, the Government would only consider contributing to surface access costs where they were not needed purely for airport expansion and they benefited non-airport users, as may be the case for the proposed western and southern rail access schemes, for example. The CAA will decide how the costs of any capacity-related surface access schemes will be treated as part of the regulatory settlement, including which of these costs would be recoverable from airport users.
Moving on to some of the other issues, the noble Baroness, Lady Jones, asked about car parking. Heathrow is currently consulting on its proposed plans. Any application for development consent must include details of how the applicant will increase the proportion of journeys made to the airport by public transport, walking and cycling to achieve a public transport modal share of at least 50% by 2030 and at least 55% by 2040.
The noble Baroness also raised an issue regarding the Environmental Audit Committee. By ending the sale of conventional new diesel and petrol cars and vans from 2040, the UK is going further than almost every other European nation. Air pollution has improved significantly since 2010, but we recognise that there is more to do, which is why we have a £3.5 billion plan to reduce harmful emissions. We will carefully consider the Joint Committee’s report and respond in due course.
Environmental and health impacts were again mentioned by a number of noble Lords. The Government take account of the WHO guidelines in developing policy. It is important to note that they refer to noise from all sources, not just aviation. The draft airports NPS makes clear that the Government would expect noise mitigation measures to limit, and where possible reduce, the impact of aircraft noise compared to the 2013 baseline assessed by the Airports Commission. The details around the operation of any scheduled night flight ban, including the exact timings, would be determined at a later stage in consultation with local communities and relevant stakeholders, in line with the requirements of the International Civil Aviation Organization’s balanced approach to noise management. I will ensure that they take on board the point made by the noble Baroness, Lady Kramer, on behalf of those who live in and around Richmond.
It is the Government’s view, based on expert analysis, that the Heathrow north-west runway scheme can be delivered in compliance with legal air quality obligations, with a suitable package of policy and mitigation measures. To answer the question of the noble Lord, Lord Tunnicliffe, and to be absolutely clear, expansion will be allowed to go ahead at Heathrow only if it can be delivered within air quality obligations.
I turn to the impact of noise for those living underneath the flight paths. Airspace modernisation will give the opportunity to make the most of quieter modern aircraft, referred to by my noble friend Lord Naseby, and will also provide more predictable periods of relief from noise, as well as reducing the need for stacking. The CAA has introduced a new and more rigorous process from 2 January this year. Looking ahead, the design of new flight paths is technical and can take some time. Again, I will ensure that the comments made in this debate are taken on board.
On the question of benefits and economics raised by the noble Baroness, Lady Kramer, the Heathrow north-west runway is expected to deliver the greatest benefits to the UK economy, because it will deliver the largest increase in connectivity, particularly long-haul flights. This gives UK firms the opportunity to access markets around the world. International transfer passengers make this connectivity increase possible by supplementing local demand to make more flights viable. More flights means more capacity to carry goods to markets around the world. Details around the operation of the night flights ban will, as I said a moment ago, be determined at a later stage in close consultation with local communities. Once a ban is in place, compliance with the rules will be mandatory and not discretionary.
On the question of costs raised by the noble Baroness, Lady Kramer, and the noble Lord, Lord Berkeley, the revised draft airports NPS requires the promoter to demonstrate that the scheme is cost efficient and sustainable, and seeks to minimise costs to airlines, passengers and freight owners over its lifetime. The Government have set out a clear expectation for HAL to work with airlines and the CAA to drive down the costs for the benefit of passengers, with the aim of keeping landing charges as close as possible to current levels. Beyond landing charges, the increased competition between airlines operating at the airport is expected to result in lower ticket prices for passengers.
HAL has already identified options for expansion, which it says have the potential to reduce the overall cost of expansion by £2.5 billion. On deliverability—or whether or not this can be done—Heathrow Airport is privately owned and any expansion will be privately financed and must be delivered without hitting passengers in the pocket. The Airports Commission concluded that the north-west runway scheme at Heathrow was commercially viable and financeable without government support, including where an additional 10% capital expenditure was required. The Government have considered this analysis and are content that the scheme is viable.
On the other points made by the noble Lord, Lord Berkeley, we are aware of the alternative proposals for expansion at Heathrow which he mentioned. We would encourage any third parties to engage with the economic regulator, the CAA and HAL with a view to reaching a possible commercial agreement. He also touched on the broader issue of the aviation strategy, looking beyond Heathrow. Our new aviation strategy will indeed look beyond the current debate on a new runway at Heathrow. It will set out an ambitious long-term vision for the sector which will support economic growth across the whole of the UK. It will consider how we can make best use of existing capacity at all airports around the country, including Luton, looking at any future need for new capacity away from Heathrow while tackling environmental impacts.
Going through the hundreds of pages of briefing that I was generously given, I was struck by one reply from Caroline Low, who gave evidence to the Transport Select Committee on 4 December last year. It concisely explains the reasons for the Government’s preference: “In terms of maintaining a global hub, regional connectivity, the number of flights and destinations, and passenger benefits, where Heathrow sits in the country it comes out every time on top”.
The Government are still considering the responses they have received and parliamentary scrutiny is ongoing. We will take on board all the comments made during this debate, and I will write to any noble Lord whose queries I have not answered.
Lord Tunnicliffe
Will the noble Lord be kind enough to send me a letter telling me which section of that very long Act relates to the compulsory purchase?
Lord Young of Cookham
It is an Act that his Government generously put on the statute book, but I will of course write to him with details of the section that gives the Secretary of State those powers.
Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2018
Lord Tunnicliffe Excerpts(6 years, 9 months ago)
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Lord Tunnicliffe (Lab)
My Lords, I am not having a good afternoon. The Minister stole my speech on the previous set of regulations and my noble friend on the Back Benches has stolen most of my speech on these regulations, so I will not repeat her remarks.
I largely agree with the general point made by the noble Lord, Lord Kirkwood, that these regulations, together with the measures we discussed last week, are part of a very big debate. We should have that debate. I shall certainly press through my channels for a day’s debate in government time on the whole issue of the charges, the uprating and the overall problems. As the Minister well knows, there is not the slightest chance of this Front Bench opposing these regulations because, if we did so, we could win a vote. That would produce a constitutional crisis for which I would be drummed out of the House of Lords so, of course, we will not object. However, I have a technical question: to what extent are any of these regulations, and the parts thereof, anything more than a formality, because as far as I can see they simply approve measures that have already been announced and do not include any discretionary decisions that would alter previous government statements.
These regulations are, of course, a small part of the total picture and a small part of a massive and highly successful programme, to which I think the Minister referred as fiscal discipline and I refer to as a programme to take from the poor and give to the rich. As the noble Lord, Lord Kirkwood, said, the four-year freeze has not been debated: that is, the four-year freeze on child benefit, jobseeker’s allowance, employment and support allowance, income support, housing benefit, women’s state pension age, local housing allowance rates, child tax credit, working tax credit and universal credit. These regulations contain only one substantive element—namely, that CPI inflation is 3%, which is a great deal higher than the 1.7% figure which I believe was envisaged when the freeze was first introduced. Indeed, for the people concerned, for whom food is a very high proportion of their expenditure, food inflation was 4.1% over the period when CPI inflation was 3%. Therefore, the people in the freeze zone are getting substantially poorer. Indeed, the Resolution Foundation takes the view that the freeze will save the Government some £4.7 billion by 2020, and this saving will fund tax cuts for middle and higher-income earners. Austerity has not worked. The Government—be it the coalition Government or the present Conservative Government—have missed every fiscal target they have set. In fact, I am not quite sure where we are now; it is possible that the Government have given up setting targets, which at least aligns with reality. Our failure to oppose these regulations does not mean that we in any way support the evil policy of which they are part.
Lord Young of Cookham
My Lords, I am genuinely grateful to all noble Lords who have taken part. We have had a thoughtful debate, with no specific objections —on the contrary, with welcome for the measures in the regulations before us. However, noble Lords have pegged on to that some broader issues which deserve a response, and I will do my best to address them.
The noble Baroness, Lady Primarolo, and I have been debating these matters for over 20 years. Sometimes she has been the Minister and I have been in opposition, and sometimes the roles have been reversed. However, it is good to see that dialogue being maintained in this House, in the same cordial way that it was in the other place.
It may be helpful if I first put in the broader context the reasons for the freeze on certain benefits, because that is the backdrop, then address specifically the points that fall within that of the impact on child poverty, and then address some of the issues that have been raised during the debate.
First, I quite understand the points noble Lords made about the impact of the freeze of in-work benefits on families now that inflation is higher than it was, although I note that it is predicted to fall back to 2% next year, having peaked at 3% in the final quarter of last year. However, just to put that decision in context, spending on welfare had trebled in real terms between 1980 and 2014, and had contributed to a record level of debt: 83.7% of GDP in 2015-16. This was unsustainable. Also, in 2013, the UK had the highest spending on the family out of all OECD countries as a percentage of GDP. That is the backdrop.
Secondly, between 2008 and 2015, average earnings went up by 12%, whereas most working-age benefits, such as JSA, increased by 21%, and child tax credit rose by 33%. A four-year freeze helped to reverse that trend and reinforce the incentives to work.
Thirdly—this has not been mentioned during the debate—the Government have taken steps elsewhere to help the incomes of those in work by raising the national living wage to £7.83 per hour and by making progress on the manifesto commitment to raise the personal allowance to £12,500. Put in that overall context, and with the exemptions we are debating today, the policy is defensible.
I will address some of the issues raised during our debate. Real household disposable income grew at its fastest rate in 2015 to reach its highest-ever level. On the specific issues around child poverty, the noble Baroness quoted the Resolution Foundation; other reports by the Institute for Fiscal Studies and the Child Poverty Action Group focused on the issues raised by the noble Baroness. Since 2010, there are 200,000 fewer children in absolute poverty, before housing costs, and 608,000 fewer children living in workless households, which is a record low. We are committed to taking action to help the most disadvantaged, with a focus on tackling the root causes of poverty in workless households. As the noble Baroness anticipated, it is indeed our view that work remains the best route out of poverty. In 2015-16, 9% of children were in households where all adults were working with relative low income before household costs, compared with 48% in workless households. Since 2010, there are over 3 million more people in work and 954,000 fewer workless households. Therefore we are taking action to ensure that work always pays.
The noble Baroness asked whether we could publish an assessment of the benefits freeze. I understand that it is quite difficult to isolate its impact but, when the freeze was announced, an impact assessment was published, and the Treasury publishes a wider distribution analysis at the Budget.
It seemed to me that some of the strategic issues that the noble Lord, Lord Kirkwood, raised could be dealt with by the Select Committee in the other place that he chaired so ably. In another place one could have Opposition day debates on the more strategic issues, but I take his point, which was raised by others in the debate, that there might be value in a broader debate about social security. I am more than happy to raise that issue with the business managers to see whether that might take place.
We do not consult on the specific measures. They are routine and everybody expects them. I am not sure that it would be a tremendously valuable exercise to consult on the rather narrow annual uprating each year.
The noble Lord, Lord Kirkwood, said that the whole range of benefits is subject to the freeze. However, I am sure that he knows that pensioner benefits and benefits for the additional costs of disability and care are exempt from the freeze and continue to be uprated as part of our commitment to protect the most vulnerable.
He mentioned the quinquennial GAD report, which estimates that the NIF will run out of money in the 2030s. Looking to the foreseeable future—to 2024-25—we expect the fund to have a surplus. However, in the long run he is right: life expectancy and other demographic trends will continue to pose a challenge for the public finances. He mentioned my noble friend Lord Willetts, who came up with his own solutions to how those challenges might be responded to. Again, that is the sort of issue that might be raised in the broader debate that he would like to get under way.
We are committed to the triple lock for the duration of this Parliament. It has been an invaluable element in addressing the issue of pensioners living in low-income households. That peaked in the late 1980s at over 40% but the proportion of pensioners living in low-income households is now down to 16%.
Finally, the noble Lord, Lord Tunnicliffe, complained that he had been robbed by the first-class speeches from those on the Opposition Benches. He asked whether there was an element of discretion in the measures before us. The Explanatory Memorandum says that Section 41 of the Tax Credits Act 2002 requires a review of certain monetary amounts in each tax year to determine whether they have retained their value in relation to prices. Therefore, we have to do that. We discovered that they have not retained their value, so the Government have taken the action that they have. In one year, we did not uprate because inflation at the time was negative. It is government policy to uprate in line with the regulations before us, and I suspect that if we did not, we would be before the courts.
I have tried to answer all the points raised and commend the regulations to the House.
Andrey Lugovoy and Dmitri Kovtun Freezing Order 2018
Lord Tunnicliffe Excerpts(6 years, 10 months ago)
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Lord Hylton (CB)
My Lords, I welcome this order but I think it would be helpful to the House if the Minister could tell us how many persons are subject to orders similar to this one and what the approximate total of the now-frozen assets is. I apologise to him for not warning him of these two points but I hope he can deal with them.
Lord Tunnicliffe (Lab)
My Lords, we on these Benches accept and believe that the order is an appropriate, commensurate and proportionate response in relation to the specified persons. In coming to that conclusion, we have of course looked at the order with care. I also looked up the time when the first order was initiated—two years ago—only to discover that I was in fact the Opposition spokesman then. Time has not changed much.
The noble Lord, Lord Ashton of Hyde, answered all my questions at that time, except one. I quote him:
“As the noble Lord may know, Mrs Litvinenko’s lawyers provided a list of people who she felt should have further action taken against them. Some are members of the Russian authorities who are already under sanctions relating to Crimea and activities in Ukraine. The rest of the list is being considered by the Home Secretary, but so far no action has been decided upon”.—[Official Report, 10/2/16; col. GC 228.]
Has any further action been decided upon for individuals on that list?
Lord Young of Cookham
My Lords, I am grateful to all noble Lords who have taken part in this debate for their broad support for the order. I will try to deal with the points that have been raised, but I may have to write in respect of some of them.
To the noble Viscount, Lord Waverley, I say that the Russian authorities should be in no doubt about the position the Government have taken in relation to Litvinenko. We have reinforced our message several times: we have made very clear our profound concerns to the Russian Government in Moscow, we have summoned the Russian ambassador to the Foreign Office in London and we continue to demand that the Russian Government do more to co-operate with the investigation into Mr Litvinenko’s death, including extraditing the main suspects, providing satisfactory answers and accounting for the role of their security service. The noble Viscount raised the issue of the ICJ. I think that is probably a matter for the ICJ but I will make further inquiries.
Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017
Lord Tunnicliffe Excerpts(6 years, 10 months ago)
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Lord Tunnicliffe (Lab)
My Lords, I congratulate the noble Baroness, Lady Kramer, for finding so much to say about these three orders. On the first order about equality with private limited companies, I have no comment. On the order relating to Northern Ireland mutuals moving under the control of the FCA, I was curious about why it took so long. The consultation started in 2010 and is only now coming into action. Were there some complications that were not brought out in the Explanatory Memorandum or was it just slowness of pens?
Finally, on derivatives trading, we have the same general concern as the noble Baroness, Lady Kramer, that we do not want to make building societies any less safe through the application of this order. Membership of a clearing house, at least at a theoretical level, has some risks—but, as I understand it, the building societies see this as a very positive thing, so I am hoping that the consensus that this makes sense is right. I would like an assurance that the extension of a building society’s right to trade in derivatives in order to be a member of the clearing house is so worded that it applies solely to that and does not in any way allow further extension of the building society’s right to trade in derivatives beyond that which is already exercised.
Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018
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Baroness Kramer (LD)
My Lords, I may have been the first person in this House to use the phrase peer-to-peer lending, to the enormous amusement of Lord Peston, who misunderstood it as “pier to pier”, which, as he said, was impossible. It is now a widely accepted, very successful strategy. I am not sure if this is officially a conflict of interest, but I declare that one of my children is an employee of a peer-to-peer lending platform. Back in the old days—and certainly before my son was involved—my noble friend Lord Sharkey and I helped to construct the framework that sits behind the regulations. We obviously missed a trick in allowing this discrepancy to enter the regulation, and for that, I—also on behalf of my noble friend—apologise. I am very glad that the Government are clearing up this misconception.
Lord Tunnicliffe (Lab)
My Lords, I came to the order in a state of almost complete ignorance, having never been involved in peer-to-peer activity in my life and not entirely understanding what it was. I did some research, and it seems that through peer-to-peer lending, the lender can get a better rate of return and the borrower has to pay less. I am reminded of the advice I would give anyone when it comes to financial affairs: “If it is too good to be true, it is too good to be true”. It is too good to be true in the sense that, in a peer-to-peer environment, one can lose one’s total investment and one is not covered by the FSCS guarantee.
I then did a bit more googling, and picked up an article from Which?, which stated:
“Two of the biggest peer-to-peer (P2P) lenders in the UK have been beset by problems over the past month, with RateSetter forced to make up a near £9m loan-deal gone sour and Zopa customers experiencing a severe cut in returns. So, is the market for peer-to-peer lending headed for trouble? RateSetter has announced that it had to intervene to protect investors from losing money in struggling wholesale loans. The company, which lent £664m last year, has now confirmed it has left a peer-to-peer lending trade body for breaching transparency rules”.
I say that because, with no experience, you have to turn to Google, but it does not look as though the peer-to-peer environment is entirely without problems.
I then read the order and the Explanatory Memorandum and it seemed to me in some way deregulatory. The last thing I naturally want when I read about this is for peer-to-peer lending to be deregulated. I then tried to understand the situation more carefully, and I concluded that peer-to-peer lending activity involves three parties: investors, platforms and borrowers. It is important to be absolutely clear what the order does to each of those groups. In my understanding, investors are in no way regulated and therefore the order has no impact on them, except where the investor is a company or firm involved in financial services.
My question to myself, which I have partly answered, is: are the platforms regulated? As has already been said, they are. Perhaps the Minister would enlarge slightly on his brief reference to the regulation of the platforms. The key question is: is the regulation of platforms in any way impacted on by the order?
Finally, under the present regulations, are borrowers regulated? Clearly they are if they are in the financial services business, but if they are ordinary firms, are they in any way regulated? I think that that is what the order seeks to address. The final question that sums up everything is: is the SI in practice solely related to borrowers? Does it leave the protection of customers using the platform in its present regulated state?
Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2017
Lord Tunnicliffe Excerpts(7 years ago)
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Lord Jones (Lab)
My Lords, I thank the Minister for his exposition. I shall be very brief. Ebbsfleet Development Corporation figures largely in the draft order. Can he say in some detail what it is, what it does, who leads it and what is its budget?
Lord Tunnicliffe (Lab)
My Lords, I am sorry to be a bit picky, but I hope that the Minister has not moved the order; I hope that what he has in fact moved is that the Grand Committee do consider the order. The order itself, whatever his Treasury-produced paper says, will be taken on the Floor of the House after consideration by the Committee. I note the Minister nodding in agreement. I hope that his authors will get that little bit right in future.
I thank the Minister for introducing the order to the Committee this afternoon. The order provides for certain public bodies to be audited by the Comptroller and Auditor-General. In addition, the scope of audit is removed from the Comptroller and Auditor-General for a number of public bodies and companies that are no longer in operation, no longer exist or no longer meet the criteria for public sector audit. It is on the whole concept of criteria that I wish to ask one or two questions.
First, does the primary legislation that established these bodies have Henry VIII clauses that allow the changes to be made by delegated legislation? Secondly, with reference to those bodies being omitted from the scope of National Audit Office audit, why are they being omitted and against what criteria? Will the Minister outline the criteria to the Committee? Thirdly, why are the specific eight bodies being added, under what criteria are they being added and why are the Government adding them at this specific moment? Lastly, what other bodies are either waiting to or likely to be added to the list of bodies to be audited by the National Audit Office? Is there a question about the quality of the bodies waiting to be added?
Although I understand that the order is largely procedural, I would welcome a response from the Minister on those questions to give greater clarity to those who are affected by the order about why they are affected. In very simple terms, the Minister gave us an overall view that it was to add consistency, but I should have thought that that consistency must be against a general view of what should or should not be audited by the National Audit Office.
Lord Young of Cookham
My Lords, I am grateful to both noble Lords who have spoken in the debate and will try to respond as best I can.
In answer to the last point made by the noble Lord, Lord Tunnicliffe—he asked: what is the big picture?—the big picture goes back to the year 2000 and Lord Sharman’s report, which recommended that all public bodies should have as a statutory auditor the C&AG. Since then, most new bodies that have been set up have had the C&AG as their auditor, and most existing bodies have been swept up and are now caught by the C&AG. One or two have slipped through the net, which is why we need the order to capture them. That is the basic principle—that the C&AG should be the statutory auditor of all public bodies in the interests of transparency and other broad goals.
The noble Lord, Lord Jones, asked about the Ebbsfleet Development Corporation and, in particular, I think, who reads its report and what the whole development corporation costs. I would like to write to him as I do not have those figures at my fingertips. The responsibility for the development corporations rests with the Department for Communities and Local Government, and I will contact it to pass on the noble Lord’s concerns and make sure that he gets the information that he has rightly asked for. The Ebbsfleet Development Corporation is delivering 15,000 homes and creating a 21st-century garden city in north Kent, taking advantage of HS1.
Turning to the questions asked by the noble Lord, Lord Tunnicliffe, I think I have explained the broad context of audit and accountability and where central government believes responsibilities should rest. The first statutory instruments under Section 25(6) of the Government Resources and Accounts Act 2000 made the C&AG the auditor of certain non-departmental public bodies. The C&AG was also given greater powers of access to documents held by persons in receipt of grants from, or in relation to contracts with, bodies audited by the C&AG. Under the Companies Act 2006, the C&AG was given power to audit companies and specific provision was made for the auditing of non-profit-making companies. This order continues the long-standing approach of implementing Lord Sharman’s recommendations, which I mentioned at the beginning, and which have been adopted by different Governments.
I shall address the specific points raised by the noble Lord, Lord Tunnicliffe. On whether the primary legislation that established these bodies has Henry VIII clauses that allow these changes to be made by delegated legislation, for the bodies included in the scope of C&AG audit by this order, I can advise that no such provisions are available. For the bodies that are removed from that scope, the order amends provisions previously made by earlier GRAA orders and there are no other legislative provisions which would enable all the necessary changes to be made.
Regarding the bodies that are being omitted from the scope of the NAO audit, as I said in my opening remarks, these 61 bodies have ceased operation and there is therefore nothing left to audit and they are being removed. They are listed in one of the schedules to the order. Regarding the addition of the eight bodies, again, in my opening remarks I tried to outline the criteria. To address the noble Lord’s question on why this is presented now, the Treasury originally laid the order in March 2017. However, debates were not possible as a result of the election and so the order was re-laid in September, in slightly amended form, with the Commons debate scheduled for 12 December, and was presented to the Lords today. Lastly, the noble Lord raised a question on future GRAA orders. The Treasury has informed me that no further affirmative orders are planned, which I think is good news for both of us. The last affirmative GRAA order was in 2012.
We support the policy that all public bodies should be subject to C&AG audit to increase parliamentary accountability. We are now implementing that policy, bringing full accountability to Parliament for public bodies and other central government bodies that are consolidated within a department’s accounts. The draft order before us today is an important step to realising that ambition.
Lord Tunnicliffe
Will the Minister forgive my unreasonable curiosity and tell me what GRAA stands for?
Lord Young of Cookham
Government Resources and Accounts—Act. I got three out of four off the cuff. That was a very fast ball the noble Lord bowled me right at the end, and I got three out of four.
Motion agreed.
Banking Act 2009 (Service Providers to Payment Systems) Order 2017
Lord Tunnicliffe Excerpts(7 years, 1 month ago)
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Lord Tunnicliffe (Lab)
My Lords, I thank the Minister for introducing the orders and regulations this afternoon. Both instruments amend the Banking Act 2009. The first, the Banking Act 2009 (Service Providers to Payment Systems) Order 2017, extends the Bank of England’s formal powers of oversight to service providers to recognised payment systems. The 2009 Act enabled the Bank to supervise interbank payment systems. However, Part 5 was extended to all payment systems by the Digital Economy Act 2017. The second instrument, the Scottish Banknote (Designation of Authorised Bank) Regulations 2017, will ensure that once the Royal Bank of Scotland has separated its core retail banking from its investment banking, the “new” ring-fenced RBS can continue to issue Scottish banknotes. We support both measures but I have a number of questions for the Minister.
First, on the extension of Bank of England supervision to all service providers, the Explanatory Memorandum states that in this context a service provider,
“may be an organisation that designs, builds or operates a payment system’s infrastructure”.
It goes on to say that,
“only service providers that are considered systematically important”,
to the UK,
“would be considered for supervision”.
In these circumstances it seems entirely appropriate that the Bank of England has oversight and regulatory powers as it relates to financial stability. But who in the Bank of England will have specific responsibility for this? Many of our discussions during the passage of the Bank of England and Financial Services Act 2016 came back to this exact point: what constituted “the Bank” and where did power, responsibility and, ultimately, accountability lie? I will be interested to hear what the Minister has to say on this point.
As the Minister stated in his opening remarks, this is just an enabling piece of secondary legislation. As the Explanatory Memorandum outlines:
“This instrument does not automatically bring any service providers into scope of supervision by the Bank”.
The Treasury needs to specify the service provider by including it in the “recognition order”. How many service providers does the Treasury intend to recommend to the Bank of England for supervision, and will these recommendations be subject to parliamentary scrutiny?
The order is surprisingly vague about what the process of being included in the recognition order would entail. What criteria are used to determine whether the Treasury recommends that the Bank of England supervises a service provider? What does this oversight entail in practical terms? Given that it will be for the Treasury to initiate the proceedings, I would have expected it to produce guidance regarding this instrument. However, the Explanatory Note suggests that it will be for the Bank itself to provide information to service providers.
When the Bank of England supervises banks, it has considerable powers of insight into those banks and has rights to alter structures and to constrain their behaviours. Will the Bank have the same powers when it comes to these service providers? I recognise that the Government say that they have consulted with industry. However, this was not a formal process, therefore I would be grateful for some more details. The Explanatory Memorandum states that the industry was “broadly supportive” of the measures that were bought forward. What elements were there disagreements about, and were amendments made to the draft regulations accordingly?
Finally, on this order, what has spurred the Government to act now? Was it the industry, the Bank of England or the Treasury that requested an extension in scope of the regulations? Closing a gap in supervision is an important step, which we support. However, I remain unclear as to why this change was deemed necessary, how many service providers will be affected and what the supervisory and regulatory framework will look like in practice. I look forward to the Minister’s response.
On the second instrument, which relates to the issuance of Scottish banknotes, page 2 of the regulations states that,
“the Treasury must determine the designation date for the purposes of these Regulations”.
Can the Noble Lord give the House an idea of when this date could be? How much notice do the Government believe is required before the ring-fencing deadline of 1 January 2019?
Lord Young of Cookham
My Lords, I am grateful to the noble Lord, Lord Tunnicliffe, for his broad support for the regulations in front of us, his courteous response and for the questions he has asked, most of which I hope to be able to address; if I am not, I will write to him.
The noble Lord started by asking who in the Bank of England had the responsibilities set out in the regulations. The answer is that the Bank’s Financial Market Infrastructure Directorate is responsible for carrying out the supervision of FMIs, which includes the systemic payment systems that we are dealing with in these regulations. That directorate reports to the Bank’s FMI board, which is an executive committee constituted by the governor and chaired by the Bank’s deputy governor for financial stability. It exercises the Bank’s powers and, in turn, escalates issues to the Bank’s governors when appropriate. The Bank publishes an annual report on supervision of market infrastructure, which is laid before Parliament, and of course the governor and other officials of the Bank of England are regularly summoned to give evidence before the Treasury Select Committee.
The noble Lord asked how many service providers might be recommended to the Bank of England for supervision and whether these recommendations would be subjected to parliamentary scrutiny. To specify a service provider, the Treasury has to go through the process which I outlined of consulting the PRA and the FCA, and notifying the service provider and the payments system to which it provides services, after which it considers any representations made. The Treasury then specifies a service provider for recognition by an order, which is published on its website. The order is not subject to further parliamentary scrutiny or published as legislation because the process and criteria for making the orders specifying the service providers are already set out in the Act.
The noble Lord asked what sort of issues might trigger the Treasury into notifying a service provider. The answer is that it will look at: the size and systemic importance of the payment system to which the service provider provides the service; how critical that service is to the payments system; the substitutability of both the service provider and the payment system; and the changing payments market. It will consider the representations made by the Bank and others before finally making the appropriate designation.
Under the Act, the Bank has a power to publish the principles and code of practice to be followed. It can require rule changes, give directions to require or prohibit particular actions, set standards to be met and impose penalties for failures to comply. The Bank will publish its approach to the supervision of critical service providers shortly, to ensure that the approach is as transparent as possible.
Lord Tunnicliffe
I am not looking for an answer now but can the Minister check whether the powers will be similar to those that the Bank has with other banks, to intervene and require changes in their management and boards? Will those powers be paralleled under this order? I do not expect an answer now but would be grateful if he would write to me.
Lord Young of Cookham
I am grateful for the noble Lord’s recognition that that information may not immediately be at my fingertips. It would be much safer to get an authoritative reply, rather than an off-the-cuff one. He asked what had spurred the Government to action now. Basically, the Treasury has identified the increasing importance of electronic payment systems and therefore of service providers to payment systems. We have done this as part of making sure that our payment system has robustness and can cope with risks and changes.
We did consult industry but it was not a formal process. As the noble Lord said, the industry was broadly supportive of the measures brought forward. In late 2016, the Treasury notified supervised payment systems and major service providers of its intention to lay this order and concluded that these stakeholders were broadly supportive, as no objections were raised.
I am conscious that I have not answered the noble Lord’s specific question about timing, relating to the second of these SIs. If he would agree, I would like to write to him when I have an authoritative answer to that question. In the meantime, I ask that the Motion be agreed.
Risk Transformation Regulations 2017
Lord Tunnicliffe Excerpts(7 years, 1 month ago)
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Lord Tunnicliffe (Lab)
My Lords, I thank the Minister for introducing the order so thoroughly. As he outlined, the Risk Transformation (Tax) Regulations 2017 create the regulatory and supervisory framework for insurance-linked securities. ILSs allow companies to obtain reinsurance protection from a new pool of capital separate from traditional reinsurance, meaning the direct transfer of reinsurance risk to the capital market. The proposed framework is composed of three elements: the corporate structure for insurance special purpose vehicles or ISPVs, called protected cell companies or PCCs; an authorisation procedure for the PRA and the FCA; and the specific tax arrangements for ILSs.
Before I turn to some specific questions which arose from my reading of the regulations, impact assessment and consultations, I will say something about ILSs in general. The assumption—I use that word deliberately—is that they ought to have little or no correlation with the wider financial markets as their value is linked to non-financial risks such as natural disasters, and therein lies my concern. The Government have made no attempt to conceal the fact that the UK will be venturing into the unknown. Indeed, on the first page of the impact assessment the Treasury states:
“London would be the first major financial centre to offer ILS solutions and we think that a major and well trusted financial centre can help grow the global ILS market”.
This is not a statement of certainty. Given the admission that the UK is breaking new ground, I would have expected the Government to have been keen to assess the impact that the introduction of more risk to the market could have on the financial sector as a whole. An IMF working paper puts it well, stating:
“The growth in recent years of Insurance-Linked Securities has widened the exposure of investors (mostly hedge funds and specialist investment vehicles) to insurance risks originated and managed by insurance companies ... But the effect is that catastrophic insurance losses can now be transmitted directly to investors without the cushion of the insurance company's balance sheet”.
There seems to be an untested assumption, throughout the Government’s proceedings, that there is no correlation between ILSs and economic stability. Am I wrong? Have the Government carried out such risk assessments? If they have, I would be grateful if the Minister could publish them. If not, will he go back to his department and urge it to produce them? It is this lack of inquiry which makes me doubly concerned about the lack of a requirement for a formal review to take place.
The Government have stated that there are a number of issues they intend to review periodically, including whether protected cell companies could be used for other purposes and the untested authorisation and supervision of ISPVs and MISPVs. How did they arrive at the view that a formal review, perhaps within a year of these regulations coming into force, was not necessary? I suggest that there are plenty of measures which would merit review: the extent to which ILS shares are traded on a secondary market, the usage and impact of PCC gateways and the tax treatment. The noble Lord knows that conventions dictate that we do not test the opinion of the House on such matters, but let that not undermine the importance that I place on these questions.
I have a few specific points. The first relates to the tax measures. This third component is in separate regulations —the Risk Transformation (Tax) Regulations 2017 — which are not being debated today. Surely it would have made more sense for the two instruments to be debated alongside each other? Can the framework come into force without the tax elements in place? When does the Minister expect this House to debate the tax treatment for ILSs?
Moving to the insurance mechanisms, a PCC will comprise a core— which is the legal entity—and a number of cells. Will there be a limit to the number of cells each ISPV will be authorised to have? Has the department carried out any analysis on the estimated number of cells each company will run? I ask with particular concerns that an unlimited number of cells would increase the risk of instability in the market, especially if cells are grouped. I understand that this grouping of cells will be allowed in limited circumstances. The Government consulted on how the PRA may impose limitations on how PCCs use these gateways, so as to ensure that cells are used with care and are consistent with the EU Solvency II directive. Will the Minister outline the circumstances in which the PRA would enforce such restrictions?
My final point is about the Government’s decision, as a result of listening to consultation feedback, to change from a pre to a post-transaction notification period to the PRA for new multi-arrangement insurance special purpose vehicle cells, or any assumption of new risk. Why the change? What objections were raised to what sounds like a perfectly reasonable suggestion? As a result of this shift in approach, the Government have stated that the necessary safeguards are in place. Will the Minister outline what these are? The consultation response goes on to say that,
“it will be proportionate for the PRA to give permission to mISPVs to enter into specified kinds of risk transfer deals in the future without the need for further authorisation, provided that those future deals are in accordance with the limitations as set out in the mISPVs permission”.
Is it the PRA’s responsibility to monitor whether deals are in line with expectations or is the onus on the company to report it?
As I have made clear, although we will not vote against this order, I am deeply concerned that the Government are inviting further risk into an already unstable and uncertain market without fully considering the consequences. I hope that the noble Lord can relieve some of my worries in his response.
Lord Young of Cookham
My Lords, I am very grateful to the noble Earl, Lord Kinnoull, and the noble Lord, Tunnicliffe, for their comments on these regulations, the light they have shed on them and the perceptive questions they have raised. I am grateful to the noble Earl for identifying that his company—clearly in the forefront of developing this market—has been dealing with these securities for some time. He made the point that the infrastructure needs improving if we are to capitalise on our strengths, and that developing these vehicles in London means that they can then utilise some of the other strengths of the London capital market, such as fund management. He raised issues about the costs. I understand that the PRA and FCA have both set out the costs of authorising ILS vehicles. The proposed costs are already known to the market and so far the industry has not expressed any concern about them. Indeed, the fact that we are developing a fit-for-purpose regulatory structure has been welcomed.
The PRA is aware of the concerns about timing and has said that it aims to improve straightforward ILSs within a six to eight-week timeframe. Given that this is a new activity for it, I expect there will be a learning curve. As time progresses, this may be less steep and it may be able to turn applications round more quickly. However, once the initial authorisation of a vehicle has taken place—this is the protected cell company—each ILS deal can then be added, without having to be approved by the PRA, so long as it complies, as the noble Lord, Lord Tunnicliffe, has just said, with the vehicle’s overall business plan. This will allow ILS deals to be conducted at speed within an authorised vehicle.
On the question of these instruments being listed on the stock exchange, the regulations do not prevent the trading of these instruments on a secondary market. However, as I said when I introduced the regulations, if trading of these instruments is to occur, the secondary marketplace should be accessible only to sophisticated or institutional investors, and this will be regulated by the FCA. We do not want retail investors to be able to purchase these securities as they are clearly unsuitable for retail investment.
On the important issue raised by the noble Lord, Lord Tunnicliffe, the Government’s view is not that we are entering into the unknown by seeking to attract this business to the UK because, as we heard from the noble Earl, ILS is now a well-established and well-understood industry that has been part of the global reinsurance market for some 25 years. Therefore, the ILS business model and the contribution it makes to increasing capacity is well understood and it is clear that ILS has made a positive contribution to global reinsurance capacity. The ability to conduct ILS business in the UK, or indeed across the EU, is not new. Indeed, under the EU’s Solvency II Directive, the UK is obligated to permit and regulate this business. What is new is the regulatory fit-for-purpose framework we are introducing through these regulations, which will ensure not only that we remain a competitive market but that ILS business is conducted to high prudential standards.
The noble Lord referred to impact assessments. As he will know, government departments are required to produce impact assessments for any new regulations they seek to introduce. One such assessment was submitted for the Risk Transformation Regulations and cleared by the Regulatory Policy Committee. As ILS is already possible in the UK, the purpose of that impact assessment was to determine whether the new framework would increase costs for business or the regulators. The conclusion, consistent with the objective to make the UK a competitive environment, is that it would not. What is difficult to estimate is how much ILS might be attracted to the UK.
The noble Lord also raised the important issue of the impact that developing this market might have on overall financial stability. This will not be the case. Unlike conventional reinsurers, ILS transactions do not pool risk, as I explained. Deals must be fully collateralised—the transformer vehicle must raise and hold collateral which is sufficient to meet its reinsurance obligations. These deals are not a way for insurance companies to leverage or hedge their risk or avoid the proper capitalisation of risk that is required under the Solvency II directive, so each risk is in a sense insulated within its own cell. Indeed, I would argue that if these transactions are arranged prudently, they can contribute to financial stability because of the way they are composed. The noble Lord may be interested to know that Hiscox carried out an insurance sector stress test in January of this year which underlined the importance of ILS in providing an alternative source of capital for insurers to draw on in times of crisis.
The noble Lord addressed the point that I made that this market was not correlated with general financial markets. A range of publicly available studies has looked at this issue, so again, we are not dealing with the unknown. For example, one report published in 2016 by the Chartered Financial Analysts Institute concluded that:
“ILS products allocate capital efficiently while providing positive returns for investors—returns that offer true diversification because they are not correlated with returns of the traditional asset classes”.
The clearest evidence of this view being reliable is the performance of ILS investments during the financial crisis. While financial markets in general were hit by the crisis, ILS instruments continued to perform well.
The noble Lord asked about the tax regulations. The Risk Transformation (Tax) Regulations, which set out the tax treatment for these vehicles, are made under the Finance Act 2016 and will be considered in another place. I will write to the noble Lord on the question he raised about the timing and why they are not being introduced simultaneously.
The noble Lord asked about the number of cells that a protected cell company will be able to use. This is not limited by legislation but will be a matter of interest to the PRA, the regulatory body. The PRA will judge what scale of business, including the number of deals, is prudent if individual transformer vehicle applications go down this route. Protected cell companies are designed so that the number of deals should have no impact on the stability of the market as a whole because each cell, as I said, is self-financed.
The noble Lord may have raised other issues and I apologise if I have not addressed them. He asked if we would keep the regulations under review: I think he put that in a slightly more direct way. The Government will, of course, keep these regulations under review to ensure that they are working for both the consumer and the industry.
In conclusion, I am grateful to the noble Earl and the noble Lord for their contributions. I will write to pick up the points that I have not dealt with. I commend these regulations to the House.
Brexit and the EU Budget (EUC Report)
Lord Tunnicliffe Excerpts(7 years, 8 months ago)
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Lord Tunnicliffe (Lab)
My Lords, I thank the noble Baroness, Lady Falkner, for opening this debate and for the work that she and other members of the committee have done to produce this report. The House has benefited enormously from the broad range of EU Committee reports produced over recent months, each highlighting the complex challenges that we face in dealing with Brexit. Last weekend, I was in the pub relaxing with my neighbour, who said, “How’s life?”. I said that my aspiration to die before understanding the structure of the EU budget had been somewhat frustrated by my nomination to this role today. So I thank the noble Baroness, Lady Falkner, and the committee for producing what is an excellent primer to anybody coming to the question for the first time. I have found the report very useful in setting out the structure of the budget and the different dilemmas.
I know that noble Lords on all sides of the House have taken great pleasure in and placed great importance on contributing to these debates. However, today I have been somewhat surprised by the balance of the discussion. The noble Baroness, Lady Falkner, set out the legal issues in a reasonably straightforward way. The best interpretation of that part of the report is that if one fails to agree, one does not need to pay. As most noble Lords who talked about the realities of the situation recognised that no agreement is pretty well unacceptable, I shall focus rather more on what might be reasonable, as I believe that an agreement is essential to the future of our nation and how it lives with Europe.
Of course, this is the first EU Committee report to be debated after invoking Article 50. This only serves to focus our minds on the importance of this issue, and on the need for the negotiations to be conducted in a positive spirit. As we have heard during this debate, the report focuses on the UK’s current role as a net contributor to the EU and outlines some of the potential financial implications of our upcoming withdrawal. As I say, it concludes that there is a technical possibility of our walking away without agreeing a financial settlement. However, as the report acknowledges, there are clearly other forces at play. I will return to this later.
We do not know what the EU 27 will ask of us. We have heard speculation of between €50 billion and €60 billion, but talks have not yet formally begun and there are, as the report outlines, many factors to be considered. What we know is this: both the draft guidelines published by the European Council and the resolution adopted by the European Parliament refer to some form of exit payment. The committee’s report notes three headings under which the EU may carry out its calculations. The multiannual financial framework runs to the end of 2020. As a nation, we signed up to contribute for the entire period. It is not yet clear whether we will be asked to pay until the end of this period and, if so, whether we will receive the same benefits. Clarifying these points must be a priority for our negotiation.
The second heading—the UK’s liability for RAL—is just as difficult to predict. We do not know at which rate the EU would have us contribute, nor for how long. As with the MFF, these are commitments that the UK has already made and we must show maturity in our discussions.
Member states guarantee the pension entitlements of EU staff. The EU has benefited from the expertise of thousands of officials from the UK. We are grateful to them, and to those of other nationalities, for their work during the period of our membership. While we should not pay more than is necessary, we have a duty to pay our way.
Clearly, demands under these headings will need to be subject to detailed scrutiny and appropriate challenge. Nevertheless, the Government and the EU seem to be in agreement on the need to establish the general principles on which the final sum will be calculated early on. In the light of this, could the Minister confirm that the Government expect a claim from the EU for an exit payment? If they do, could he confirm whether the Government accept the three headings identified in the report as the likely basis on which the EU will calculate the amount? Lastly, could the Minister shed any light on what consideration his department has given to how it will assess the accuracy of the final claim, and how it will develop arguments to contest and scrutinise it? Labour is clear that the UK is a responsible partner. We have made commitments to our European colleagues and, while we will need to look at the figures in detail, it is only right that this country recognises and meets its obligations.
I return to my earlier remarks on the other forces at play. Following the handing over of the Prime Minister’s letter, the country will now engage in the most serious political negotiations it has undertaken since the Second World War. Decisions taken in the next two years will have a profound impact on our country’s future. After some hesitation, the Prime Minister and Secretary of State have now acknowledged the point I made earlier—that the UK is a law-abiding nation that meets its obligations.
The Government have also accepted that we may continue to contribute to the EU budget on a case-by-case basis. There is a clear national interest in maintaining co-operation with the EU in some areas. As we all know, nothing in life is for free. However, we remain disappointed that the Government and some noble Lords who have spoken today would be prepared to walk away with no deal. I was very seized by the comments of noble Lords who, like me, feel that this would be very unwise, particularly the noble Lords, Lord Hannay, Lord Haskins and Lord Jay, who I think all came to the same conclusion from different directions. The description of the negotiations mentioned by the noble Lord, Lord Hannay, has particular resonance for me. I spent part of my career negotiating in fractions of billions rather than multiple billions, but I think the experience is very much the same. He brought out the importance of painfully going through the detail. To that I add the next step of painfully going through the detail to find areas of common interest, and building on that common interest for the future of the United Kingdom and of Europe. Failure to agree a relationship with the EU that supports our economy and protects vital social and environmental rights could be “very destructive”. That is not just my view but the view of the Commons Foreign Affairs Committee.
Labour has laid out six tests for the Government, and my noble friend Lady Smith of Basildon has added a seventh: honesty. This test is just as vital for this issue as for any other. While the report stresses the legal point, we will struggle to strike deals with new partners if the UK is viewed as unreliable and untrustworthy. In this sense, the legal reality is secondary to the political and economic reality.
I once again thank the committee for this report. I hope that the Minister has listened carefully to this debate and that the Government will continue to engage as negotiations progress.
Tax Havens
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Lord Young of Cookham
My understanding is that in order to be a Member of your Lordships’ House you have to be registered as a UK taxpayer. My own view is that everybody should pay the tax which is due to them, and I agree with what the former Prime Minister said about the morality of tax avoidance.
Lord Tunnicliffe (Lab)
My Lords, the noble Lord has given his usual charming and reasonable answers, if somewhat unconvincingly in some cases. However, I wonder whether the truth of the matter is displayed by his boss, Philip Hammond, who in an interview with a German newspaper in January said:
“I personally hope we will be able to remain in the mainstream of European economic and social thinking. But … We could be forced to change our economic model, and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do”.
Is his boss threatening to turn Britain into a Cayman Islands-like tax haven?
Lord Young of Cookham
My Lords, we want to remain competitive in a world economy and to attract inward investment. Although we have reduced corporation tax since 2010, onshore corporation tax receipts have gone up by 50% since that date, despite the reduction in the rate. Reducing corporation tax encourages business investment and growth, and one estimate has shown that the cuts announced since 2010 amount to an estimated increase in GDP of 1.3%.