Loans to Ireland Bill
Lord Tyrie Excerpts(13 years, 9 months ago)
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Mr Andrew Tyrie (Chichester) (Con)
Until the shadow Chancellor’s last few words, I was looking forward to saying that I agree with just about everything that has been said from both Front Benches. None the less, there is a good deal of cross-party consensus about what is being discussed.
The Chancellor is faced with a difficult situation: a regional currency crisis that is largely not of his making, a close neighbour with strong historical ties in the eye of the storm and an inherited financial commitment to assistance at the European level.
The Treasury Committee took advantage of the Chancellor’s appearance before us last week to cross-examine him on these matters in some detail. That appearance, his speech today and particularly the terms sheet, which we have just received, have given us a good deal of information, and I am grateful to him. I am relieved, according to that information, that any increase in the loan, which is permitted by the legislation, will be debated on the Floor of the House.
We now know the price of the loan for the first time, broadly speaking. It looks sensible, although I notice that it can be varied under the enabling legislation. As my hon. Friend the Member for Rochester and Strood (Mark Reckless) has pointed out, we have discovered from the terms sheet that the loan is junior in the debt hierarchy to support through the EU mechanism. It would be useful if the Minister, in the winding-up speech, told us whether the Irish can repay the loan early without penalty. I do not think that that is what is stated in paragraph 5(c) of “Other Terms” in the loan agreement—I have obviously had very little time to read it—but there is also a reference to “exceptions” in the bracketed part of the sentence.
A number of hon. Members and I would like to know whether the Government have considered purchasing assets held by the National Asset Management Agency, as an alternative to part or all of the loan.
As far as I know, this bilateral loan has no direct precedent. The UK has gone further than was needed to fulfil its legal obligations. The Chancellor made a strong and persuasive case, which was supported by the Opposition. However, I think that that decision needs close scrutiny, as does the decision, which straddled the previous Government’s tenure, that left the UK with extra contingent liabilities as a result of the mechanism. We may have been put in the unsatisfactory position of making EU budget payments to bail out the eurozone, even though we are not a member of it.
It is important to bear in mind that demand for a bail-out originated not with a request from Ireland, but from the fear among eurozone members of contagion spreading from Ireland to Portugal and Spain. Most hon. Members agree that bailing out the eurozone is primarily its business and not ours. It is true that the collapse of the zone would generate shockwaves throughout the region, and possibly the world. However, the eurozone does have the capacity to bail out weaker members and, to the extent that the stability of the whole financial system is at stake, our contribution should usually be made via the International Monetary Fund. It is for those reasons that I was relieved when the Chancellor confirmed before the Select Committee that the legislation will be unique to Ireland and does not contain enabling powers for further bilateral eurozone bail-outs.
Mr Tyrie
I appreciate that. The Chancellor has referred to 2013 on a number of occasions, and my hon. Friend has referred to the possible unlawfulness of the mechanism on a number of occasions, including in private discussions.
This is a crisis of the eurozone, for which UK taxpayers are footing part of the bill. The UK will have to engage with members of the eurozone to limit the damage now and to construct something better for the future. I will touch on a few of those points in the moments that remain. I recognise that the problems to which I refer may be intractable. First, as the Chancellor has said, the senior creditors have been exempted from a haircut. The Chancellor told us that this was because of the risk of contagion. He is probably right, but the resulting moral hazard is large and will have to be addressed.
The second issue that I wish to raise, which naturally none of the authorities wants to talk about, is the fact that even the measures for Ireland and for Greece may not prevent default. The crisis may be one of solvency, not liquidity. That has a bearing on the lender of last resort provisions for the eurozone. It is possible that a sovereign default could trigger a banking crisis and even failure in parts of the eurozone, because banks hold a large amount of sovereign debt on their balance sheets. Such a bank failure could be highly toxic.
It is worth bearing in mind that the great depression of the 1930s was triggered as much by bank failures after 1931 as it was by the stock market collapse of 1929. I do not want to play the role of Cassandra, but I plead that contingency planning at European level be done now for the risk of such a bank failure. On the basis of the eurozone’s responses to the crisis so far, I am not optimistic that that planning is being done. The eurozone is fearful of leaks, and those doing the work would be terrified of that possibility. I have no doubt that that would inhibit their work. In addition, pessimism on such issues in European circles does not exactly make such work a career-enhancing prospect for the eurocrats who would have to do it. Let us just hope that they are doing that work.
The third problem that I wish to refer to—I shall leave it at that given the time available—is the long-term future of the eurozone itself in a world in which the bond markets have discovered that the no bail-out clause is toothless. I should say at this point that I have never opposed the eurozone on ideological grounds or on grounds of principle, but I have been wary on practical grounds, particularly the ground that the no bail-out clause may turn out to have no clothes. That is exactly what has happened.
Mr Jenkin
Does my hon. Friend share the concern that because we are taking part in the Irish bail-out on equal terms with the euro members, we are setting a precedent that will put political pressure on the Government to take part in other bail-outs? Does he believe that the Government will be in a position to resist that pressure?
Mr Tyrie
I have no doubt that the Government are listening to my hon. Friend and others, who will put pressure on them to resist the pressure from other quarters. I agree with his point.
It seems to me that very little work is being done on the possibility of the euro crisis leading to more general examples of the no bail-out clause’s bluff being called. I would be surprised if there had been any such work. I cannot be sure, but it strikes me as highly unlikely. It is the Ark of the Covenant that the eurozone will continue indefinitely.
When the Chancellor came before the Treasury Committee, he assured us that eurozone members were
“having a discussion about the permanent eurozone bail-out mechanism.”
Mr Tyrie
I will not, because I am about to conclude.
Any new bail-out mechanism, however, may itself lack credibility in the absence of a common European fiscal policy. That is why the discovery that the no bail-out clause is a paper tiger will remain an enduring problem for the eurozone’s stability, a problem from whose consequences the UK will certainly not be immune.
Autumn Forecast
Lord Tyrie Excerpts(13 years, 10 months ago)
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Mr Speaker
A lot of Back Benchers want to say something and I would like to accommodate them, but there is important business to follow in the form of Backbench-led debates, so brevity is of the essence from the Back Benches and the Front Benches alike.
Mr Andrew Tyrie (Chichester) (Con)
In June, the Red Book was forecasting that the savings ratio would remain broadly steady at about 6% for the next five years, which is quite near its long-run average for the previous 40 years. On page 67 of the most recent document however, the new forecast assumes a fall in the savings ratio to just over half that, and for the remainder of the Parliament, at only 3%. Is the Chancellor worried about that fall in the savings ratio, and will he consider measures to address it?
Mr Osborne
Yes, I have, of course, seen the forecast for the savings ratio and we will want to address it. It has the savings ratio returning to its average of before the recession, and I think all parties in this House, and certainly the Government, will want to find ways of encouraging saving more effectively than was the case in the past, and to address that particular problem.
Banking Reform
Lord Tyrie Excerpts(13 years, 10 months ago)
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Mr Meacher
The hon. Gentleman makes a good point of which we need to take account, but I still think that the credit rating agencies potentially have an important role. They are listened to in the market, are the basis on which financial transactions take place, and should be trusted, but in the present circumstances they are certainly not. However, I am grateful for his question.
On bonuses, there is outrage among not just Opposition Members but, for example, right-wing Governments in Germany, France and Sweden, that a banking system that owes its continued existence to massive Government intervention should pay itself mega salaries and bonuses entirely out of line with the top of business, let alone ordinary taxpayers. There is outrage especially because those gigantic bonuses often drove the recklessness in the first place. The overweening power of the banks attracts almost universal hostility, especially given that 90% of investment bank profits, in an era of austerity, are directed not at strengthening balance sheets, at shareholders through dividends, at customers through lower fees or at taxpayers, but at bonuses.
France, among several others, has demanded a mandatory cap and that there should be no guaranteeing of bonuses, but Whitehall, as usual of course, argues that it would not be practical. However, if the G20 Governments insisted on limits and made continued liquidity provisions dependent on compliance, no bank could refuse. I believe that Her Majesty’s Government should now be taking the lead in the G20 not in succumbing to lobbying from the City of London and the British Bankers Association, but in reining back bonuses on a much greater scale than we have so far seen, and to much lower levels, and in ensuring that they be paid only in exceptional circumstances.
On the broader question of averting future financial crises, attention has so far largely focused on enhancing capital control, but that does not actually have a good record in this regard. At the outset of this latest crisis, virtually all financial institutions across the globe had capital adequacy of between one and two times the minimum Basel regulatory requirements—at least at that level, and in some cases twice as much. Basel III, which has just reached its provisional conclusions, is scarcely any improvement. The core top-tier capital requirement is only 4.5%, and the contingency capital requirement is only 2.5%. Of the EU’s top-50 banks, 45 already meet that standard, and Basel III is actually proposing that the requirement not be introduced until 2019. This is simply nowhere near good enough. A much better possibility might be counter-cyclical capital controls, enforcing different levels of bank capital at different stages in the economic cycle. I can see the point of that, but I suspect that it would leave open the problem of the degree of ratchet and the timing of it. I suspect that that would be far too problematic.
An alternative approach—many have talked about this—is the introduction in Britain of something like the Volcker rule, restricting banks from undertaking certain kinds of speculative trading, notably proprietary trading. Of course that would certainly stop banks doing what they are doing at the moment, which is trading on their own books with the money of depositors. The key point, however, is that it would not overcome the too big to fail problem when applied to investment banks. For example, I do not think it would prevent a repetition of the collapse of Lehman Brothers; neither would it address the interconnectedness—the Chancellor was speaking about this a few moments ago—of today’s banks, with counter-party relationships and exposure between commercial and investment banks, and insurance companies. That is the problem. I say this with regret, but any rule-based reform is almost certain to face the risk of regulatory arbitrage, because financial institutions invent ever more sophisticated products that are simply aimed at getting around regulatory controls. I therefore do not think that what I have described is an adequate answer. For all those reasons, the force of argument and the balance of advantage point strongly towards separating retail from investment banks, in establishing distinct, narrow banks that are conservative, transparent institutions with no financial instruments or incomprehensible balance sheets.
Mr Meacher
I am being intervened on by someone whom I cannot resist. I am only too glad to give way to the Chairman of the Treasury Select Committee.
Mr Tyrie
I am grateful to the right hon. Gentleman. On that point, does he agree that the Government have done the right thing by creating the Vickers review? The review will examine, in depth and carefully, without rushing a reform, whether structural reform of the banks is required, and will give us guidance on how to protect ourselves from the too big to fail problem.
Mr Meacher
I entirely agree with that, and I was just about to make the same point myself. I hope I can also take the hon. Gentleman with me when I say that Parliament should have the opportunity to express its views to the Vickers commission before it reports, rather than simply making comments when its work is virtually a fait accompli. Indeed, that is one of the purposes of this debate.
The key advantage claimed for the model that I am describing is that it would remove the implicit taxpayer guarantee—that is, the capacity of the financial conglomerates to use retail deposits, which are implicitly guaranteed by Government, as collateral for proprietary trading; or, as the Treasury Committee put it, I think rather nicely, banks playing
“at a high-stakes casino table with…taxpayers’ chips.”
I have a lot of respect for this model, but the crux of it is that the withdrawal of the taxpayer guarantee would be a sufficient deterrent to prevent investment banks from engaging in highly risky investments that might collapse, with serious and far-reaching consequences for the national economy. The real question—which I do not think enough people have asked—is whether that is likely to be true. The fact is that if a financial institution outside the protected narrow banking boundary threatened systemic contagion, it is difficult to believe that the Government would not attempt some form of bail-out. I therefore have to say, regrettably, that I doubt whether the narrow banking model could, by itself alone, be relied on to overcome the problem of moral hazard and too big to fail.
Does that mean that there is no solution to the too big to fail problem? Not necessarily. There is an alternative to narrow banking as a means of preventing a bank from gambling away other people’s money, which is the recent Kotlikoff proposal in the US. It is a proposal that deserves serious consideration—consideration that I hope the Vickers commission will give it. In the US context, it is proposed that all financial companies become pass-through mutual funds. They would have a 100% equity ratio, to ensure bank solvency, and the payments function of banks would be performed by cash funds that would be 100% reserve—for example, through Treasury bonds. Such banks could, of course, still initiate new mortgages and new loans, but these would not be funded through deposit accounts until they had been sold to a mutual fund. The key point is that the bank would never hold them; in other words, the bank would never have an open position. Banks would not own assets—apart, of course, from their offices and so on—and they would not then be in a position to fail or trigger a bank run. That is a significant proposal.
For those—and there are plenty of them—who want to take greater risks beyond a cash-based mutual fund, there are already hundreds of investment avenues that would continue to be available, such as foreign exchange, derivatives, real estate, hedge funds and all the rest. The key difference with this limited-purpose banking would be that any failure in such investments would be incurred by the investor, not by the bank. That is the crucial point. There would be no problem with the banks being too big to fail or trying to insure the uninsurable risk of financial contagion. Critically, there would be no future claims on the taxpayer.
This reform would overcome a critical market failure without the need for any vast new complex regulation. I say that for the benefit of those on the Government Benches. It is, in effect, a market solution. It is true that it would not necessarily prevent asset bubbles—I do not think that anything can do that, certainly not in this area—but under limited-purpose banking, such bubbles would not threaten the entire financial system. Anyway, there would be nothing to preclude some form of macro-prudential authority from having oversight in this area. I think that that would be a very good idea.
I am not suggesting that this reform would be a panacea, because I do not believe that a panacea exists in this area. It should, however, be thoroughly investigated by the Vickers commission and, I hope, by the Government. I do not think it is an exaggeration to say that at present Britain has the most profoundly dysfunctional banking system of any G7 country. It came nearer to collapse than any other in the autumn of 2008. I believe that we need to break up the mega-banks, with their addiction to mortgage lending. We need smaller banks and, in particular, specialist business banks such as infrastructure banks, housing banks, green banks, creative industries banks and knowledge economy banks. Only that kind of fundamental reform of the banking system, involving all the elements that I have described, can provide the foundation for the economic and social transformation of this country that we all want. I commend the motion to the house.
Independent Financial Advisers (Regulation)
Lord Tyrie Excerpts(13 years, 10 months ago)
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Mr Andrew Tyrie (Chichester) (Con)
I apologise for breaking up my hon. Friend’s excellent speech. Does he agree that a crucial point that we must get across to the FSA tonight is that the increase in these compliance burdens will be paid for by the consumer who will therefore lose out? The loss of perspective from the FSA and the inflexibility of its approach in implementing the changes are reflected in the large number of people here today.
Mark Garnier
Absolutely, and I am very grateful to my hon. Friend the Chairman of the Treasury Committee for bringing that up.
The £1.7 billion costs being pushed on to the consumer mean that £1.7 billion will be taken out of the savings pool. We simply cannot take that approach if we are trying to encourage people to save and to pay off their debts. That is why the changes are so fundamentally wrong. IFAs will have to bear the brunt of them, especially those with small operations where the requirement to sit exams, recapitalise and install new compliance systems, as well as all the other requirements of RDR, will often be handled by the same individual who is offering advice to the customer. Hector Sants estimated that implementation might mean a loss to the IFA community of 20% of the professionals who work in this arena today. Adair Turner has said that this is an acceptable cost, but I do not agree. It is unacceptable that up to 3,000 professionals according to the FSA’s figures, and more according to other research, will lose their livelihoods. Among those who stay, the cost will be passed on to the consumer, as my hon. Friend the Member for Chichester (Mr Tyrie) has said.
There are many questions to ask. Will the RDR deal with the cowboys? Will a reduction in the number of IFAs encourage a savings culture or detract from it? Is it right that when we are encouraging entrepreneurs to set up new businesses, the outgoing regulator should be bringing about such devastating change to this industry? My constituent Mike Jeacock is typical of the type of IFA who is threatened by the RDR. He runs a high street shop in Stourport-on-Severn and he networks for new business among his mates in the Stourport Workmen’s Club. These are not high-rolling wealth managers prowling family offices in Mayfair. We are talking about people who earn a living honestly servicing the financial interests of people who can afford little but who need financial advice.
The retail distribution review is a significant market intervention, and market interventions, particularly of such a fundamental and far-reaching nature, require overwhelming evidence of consumer detriment and the appropriateness of the solution. In addition, any solution needs to meet cost-benefit requirements. Does the RDR satisfy these tests? It appears to be based on a combination of unfounded assertions, limited and contradictory research and, as regards some of its solutions, little more than a hunch that the outcome will somehow be better than the present system.
It is estimated that up to 10,000 experienced IFAs of good standing will be forced to retire for no valid reason.
National Insurance Contributions Bill
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Mr Gauke
If we were to choose precisely where the policy applied on a much more closely defined geographical basis, we would have difficulties such as distortive behaviour, problems in enforcing the policy, the bureaucracy that may be involved, the need to establish where a company’s principal place of business was, and the difficulty of policing the scheme. Also, labour markets tend to be somewhat larger than constituency or even local authority areas. My hon. Friend is right to highlight the circumstances in Portsmouth, but there are neighbouring seats with a very low level of public sector employment and quite a high level of private sector employment. Such labour market flexibility can exist.
Mr Andrew Tyrie (Chichester) (Con)
I take my hon. Friend’s points about the limited resources, the risk of bureaucracy and the difficulty of policing the scheme, but Robert Chote, while he was still at the Institute for Fiscal Studies, described the regional relief scheme as
“complicated…prone to avoidance and oddly targeted.”
I have had a number of representations to that effect. What assurance can my hon. Friend give that the scheme will not be accompanied by an enormous amount of extra regulation and a much higher compliance burden?
Mr Gauke
My hon. Friend raises a fair point. We are determined that in administering the scheme, Her Majesty’s Revenue and Customs will adopt a light touch as much as possible. The problems of bureaucracy and avoidance would be much greater if we tried to drill down to constituency or local authority level as opposed to regional level. I assure him that our assessment is that gains for participating businesses will greatly outweigh any administrative costs that they may face.
Financial Assistance (Ireland)
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Mr Speaker
Order. There is enormous interest but some pressure on time, so brevity from Back Benchers and Front Benchers alike is vital.
Mr Andrew Tyrie (Chichester) (Con)
I think that the public were shocked to discover that the UK was going to be bailing out a eurozone member, not just through the IMF or bilateral loans, but through the European stabilisation mechanism—that is, through the EU budget. Will the Chancellor reassure the House that he will seek to block British participation in any replenishment of the €60 billion mechanism?
Mr Osborne
Let me first say that it is our intention not to be part of the permanent eurozone bail-out mechanism, which of course is the subject of discussion, not least at the December Council. It would be our intention that that mechanism should return to what it was designed for in article 122, which is dealing with natural disasters. There has been a balance of payments support mechanism in the European Union for many years to deal with the accession of the central and eastern European countries. Both that mechanism and that balance of payments support drew from the same €60 billion, and we would certainly not be in favour of somehow replenishing it to make good the amount of money that, potentially, will be committed to Ireland.
Oral Answers to Questions
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Mr Andrew Tyrie (Chichester) (Con)
The CSR is virtually silent on privatisation’s contribution to reducing the deficit. Will the Chief Secretary confirm that those receipts, which normally score in the accounts as negative spending, as he knows, will, when they come, be additional to and not a substitute for the spending reductions already announced in the CSR?
Comprehensive Spending Review
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Mr Andrew Tyrie (Chichester) (Con)
Six minutes is not a long time in which to respond to such high-octane exchanges. I do not intend to add to the highly partisan exchanges that we have just heard, but given that the Treasury Committee is currently undertaking an inquiry into the CSR—the largest that has ever been undertaken—I want to make a few observations about what is in the document. I shall see how far I can get.
I am not sure that everyone will like my first observation. Indeed, I am not sure that anyone will like it. But the truth is that beneath all the political noise there is quite a wide range of cross-party agreement about the need for sharp action to tackle the deficit. At least two thirds of the correction to the deficit, or perhaps more, would have taken place whoever had won the election. That is clear from table 1.1 of the Red Book.
My second observation is that there is also a substantial consensus about overall economic strategy in the United Kingdom. That is in complete contrast to the position in the 1980s, when there were rival economic strategies. There is a consensus not just on deficit reduction, but on the need in principle to reform welfare, the need to sort out the banking system and to bring more competitiveness to it, and the need for some industrial support for biosciences and for some energy production, for example.
The third observation is that these cuts are not unprecedentedly large, as Lord Turnbull, who gave evidence to us this morning, said. The plans to cut public expenditure in the period ahead will keep it broadly steady in real terms for five years. Spending was kept broadly steady in real terms between 1984 and 1990.
Mr David Ruffley
I wonder whether that is right, because I have looked at the numbers and it would be appear that, over the period of the CSR, we will see the share of national income accounted for by public spending fall by about 6%, to 41%. That is exactly the same fall as was achieved during the first, and the start of the second, Thatcher Administrations.
Mr Tyrie
Yes, and public expenditure will be back broadly speaking to the level under the last Labour Government prior to the financial crisis.
My fourth observation is that the major parties were right to conclude that large cuts in public spending were going to be necessary to stabilise the public finances. One way of looking at this, which Lord Turnbull alluded to this morning, is to work out how much tax has been forgone as a result of the output lost during the recession. If one does that calculation, one sees that, broadly speaking, around £80 billion of tax has been forgone. The total GDP loss is around £200 billion, of which about 40% would have flowed into tax. That suggests that cuts in spending of about £80 billion are probably required.
My fifth observation is that the scope for cuts is probably better now than it was in the 1980s. That retrenchment took place not, as this one is going to, after the longest period of continuous growth for a very long time in British history, but after the doleful years of the 1970s, when there was no growth at all, which made spending cuts difficult. In addition, absolute levels of income are much higher now than they were then, meaning that absolute levels of pain will also be reduced if these cuts are targeted effectively.
My sixth observation is that some, but certainly not all, of these cuts are the result of careful longer-term planning. For example, quite a lot of thought seems to have gone into welfare reform and education. This has been planned for some years and it probably draws on quite a lot of work that was already done in Whitehall for whoever won the election.
However, if I look at defence, I find it difficult to believe that much long-term planning has been done. It is extraordinary. We are going to build two aircraft carriers which for a decade will not carry any aircraft. I am reminded of an episode of “Yes Minister” in which Jim Hacker discovers that a hospital does not have any patients. In fact it is worse than “Yes Minister”, because Sir Humphrey pointed out in that episode, which I looked up, that some patients were about to be brought in. However, one of the carriers is even going to be mothballed. We would not start from here. I hope that the Public Accounts Committee will look vigorously at how the UK—and I see the Chairman nodding her head—came to sign those contracts for the carriers without any exit clauses. I also hope that we get to the bottom of whether there was scope for renegotiation of the contracts, which after all were taken out between a monopoly supplier and a monopoly demander. That should have created some scope for renegotiation.
My seventh observation is that some of the ring-fencing of public expenditure—we have quite a bit of ring-fencing—will be difficult to justify in the years ahead. I refer particularly to aid. To increase the aid budget by 37% in real terms while the justice budget is cut by a quarter in real terms takes quite a bit of justifying.
My final observation is very much a personal one: that the level of public expenditure matters irrespective of the deficit, and that it is too high. Even if there were no deficit, my own view is that having public expenditure as a proportion of GDP standing at 50% is not good for this country. It reduces choice and freedom for millions of individuals and it burdens enterprise with unacceptable levels of taxation. That is perhaps why for a large proportion of Labour’s period in office they held it at about 40%, and why the Government now intend to bring it back towards that level—the level at which Labour had it in 2008.
Comprehensive Spending Review
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Mr Osborne
He’s a nice guy, but he’s in the wrong job. The truth is this: frankly, either member of the Balls family would have done a lot better than that, and they might even have asked me a question or two, but let me try to respond to what he said.
The right hon. Gentleman keeps talking about a plan B, but he has not even got a plan A. There was a complete denial of the fact that this country has the largest budget deficit in the G20. He made no acknowledgement of the fact that the credit rating agencies were looking at this country when he was in the Cabinet and no acknowledgement of the fact that our market interest rates were the same as Spain rather than others. Frankly, he spent half his statement defending the economic policy of the last Labour Prime Minister—who perhaps could have turned up to hear it—but that is totally irrelevant to the questions put before the House today and the proposals that we have set out.
The right hon. Gentleman kept saying, “We want to reduce the deficit.” As far as I could tell, he did not agree with a single measure that I set out. He did not propose a single saving. He is a deficit denier, and the truth is this. We have been told for a whole year that we would get Labour’s deficit reduction plan. Before the election, let us remember, we were told in the debates, “Don’t worry, it’ll come after the election.” During the leadership contest, we were told that it would come after the leadership contest. After the leadership contest, we were told that it would come before the spending review, and then this morning, a member of the shadow Cabinet said on the radio, “We are not going to do an alternative to the spending review.” I then got this message in the Chamber that said that at eight minutes past 1 this afternoon, when the shadow Chancellor was actually in the Chamber, he sent an e-mail to members of the public saying:
“I’m going to be honest with you, being in opposition does mean”
we have to set out “a clear alternative”, and he then said, “Please share your thoughts with us.” Labour Members were in government until six months ago. They sat round the Cabinet table as the deficit increased. Six months later, they have not put forward a single idea for reducing the budget deficit. It is absolutely pathetic.
Despite the fact that the right hon. Gentleman says that he is relatively new to the subject, he dismisses, with a sweep of the hand, the verdict of the IMF, the OECD, the CBI, the chambers of commerce, the European Commission and everyone else who has looked at the British economy. I do not know whether he saw the letter from 35 leading employers in this country, but they included people such as the leaders of Asda and Microsoft—I know that the business community of this country is totally irrelevant to Labour now—and the person who founded the Carphone Warehouse, who I think used to be a supporter of the Labour party. All those people wrote to the national newspapers saying:
“Addressing the debt problem in a decisive way will improve business and consumer confidence.”
If the right hon. Gentleman wants to ignore all those people, what about Tony Blair? There is total silence on the Labour Benches for the man who won Labour three general elections. I think that the right hon. Gentleman was in the Cabinet when Tony Blair was Prime Minister, and he has said:
“The danger now is this: if governments don’t tackle deficits, the bill is footed by taxpayers, who fear that big deficits now mean big taxes in the future, the prospect of which reduces confidence, investment and purchasing power. This then increases the risk of prolonged slump”.
The right hon. Gentleman used to be a Blairite—[Interruption.] Well, at least the right hon. Member for Morley and Outwood (Ed Balls) has been fighting Tony Blair all his career and says he is wrong, but the shadow Chancellor used to be a supporter.
The right hon. Gentleman has dismissed all the leading businesses of Britain, all the international organisations and Tony Blair, but let me answer a couple of his specific questions—[Interruption.] Well, to be fair, in the space of about 10 minutes he asked three, so I will answer them. First, he asked about police numbers. Of course this is a challenge for the Home Office, but we believe that with the advice from the inspectorate of constabulary and Tom Winsor’s report, there will be no reduction in the availability and visibility of policing. However, the right hon. Gentleman was asked during the election—[Interruption.] He was the Home Secretary. [Interruption.] The new Leader of the Opposition asks—[Interruption.] This is what the man who was Home Secretary before the election said in the election, when he was asked a question on the “Daily Politics” show:
“Can you guarantee if you form...the next government that police numbers won’t fall?
Johnson: No”.
So what is the basis on which he makes his argument?
The right hon. Gentleman talks about the national health service, and he said that he agreed with our decision to ring-fence it. Presumably this is the same shadow Chancellor who said recently, “There is no logic, sense or rationality to this policy.” He has done a complete U-turn.
The right hon. Gentleman says that he rejects the minus 20% definition of the Labour cuts. At the same time, he began his statement by praising the Institute for Fiscal Studies, but that number comes from the IFS. He suggests that I have not paid attention to the announcements that he has been making this week. Well, it is true that I have been quite busy, but I have paid attention to what he has said. I understand that not many people got a chance to question him about his policies, but he said that taxes needed to be increased. However, when he was asked which taxes, he said that he was open-minded about it. That is a polite way of saying he hasn’t got a clue.
The right hon. Gentleman was once the great force of modernisation in the Labour party, and he has now ended up reading out the policies dreamed up by the new Leader of the Opposition. He said in that press conference earlier this week that being in opposition was not about “pretending to be in government.” Now we know how right he was.
Mr Andrew Tyrie (Chichester) (Con)
This is undoubtedly one of the most radical and—I think most people in all parts of the House would agree—necessary shake-ups of the public sector, whatever the scale of shake-up people wanted. Personally, I particularly welcome the cull of quangos, the re-examination of the private finance initiative, the efficiency drive in Whitehall, and the announcements on Equitable Life and the BBC. The Select Committee on Treasury will be looking in far greater detail than in the past at the Treasury’s decisions, and particularly at the way that it has prioritised between Departments and at the ring-fencing. We will also examine them for fairness. The Chancellor’s analysis in the June Budget presented that Budget as progressive. I would be grateful if he could confirm that this CSR is also progressive. I would also be grateful if he could say something about his plans to denationalise the banks.
Mr Osborne
First, let me thank my hon. Friend for the welcome that he gave—to repeat what I said —to what I implied about PFI, the contribution that the BBC will make and the very difficult choice that we all have to make in this Parliament about what is a fair settlement on Equitable Life. In particular, helping the trapped annuitants is an absolute priority and it is a good thing and, as I said, we found three times as much money as John Chadwick recommended.
My hon. Friend raised two particular points. First, he mentioned ring fences, and although we call them ring fences, in the end they are about priorities. We have made a choice. As a coalition Government, we have chosen certain things that we are going to cut—obviously we have made some difficult decisions on welfare—but we have also chosen to spend more money on health care and the resources going into schools. Those are choices, and in the end that is what politics in a democratic country is about. We have made those choices, so I would not regard them particularly as ring fences, more as democratic choices.
Finally, on the distributional impact, we have published distributional analyses in the book that I have published today—my hon. Friend will know that we are the first Government to attempt to do this—and I will very much welcome the Treasury Committee’s inquiry on the spending review, which I know he will conduct. We have used the methodology that is used in many other countries to try to allocate the benefit in kind of public expenditure, as well as the direct income effect of some of the benefit changes. We believe that that shows this is broadly progressive, in that the top quintile pays the most and it is broadly flat across the other quintiles. The same is true of some of the annually managed expenditure decisions as well, on which we have also published tables.
I very much welcome the Treasury Select Committee’s inquiry and its work on this matter. As I have said, this is the first time the British Treasury has attempted to do this, and we very much welcome the Committee’s input.
Draft EU Budget 2011
Lord Tyrie Excerpts(13 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Justine Greening
In fact, we are doing just that. I will come on to more detail about what we are doing now and what we plan to do, clarifying the arguments that we are putting to the European Commission.
Let me be clear that the Government will support the amendment tabled by my hon. Friend the Member for Stone. We very much welcome the pressure applied to the European Parliament to reject the proposed rise. We will do our bit as Ministers and as a Government to put pressure on that Parliament, and particularly on our MEPs, to reject any proposed rise. When the shadow Minister, the hon. Member for Bristol East (Kerry McCarthy) makes her speech following mine, I very much hope that she will confirm that the Opposition will press their MEPs to oppose any rises in the EU budget. Perhaps my hon. Friend the Member for Stone will want to press her further on that.
Amendment (b) was tabled by my hon. Friend the Member for Clacton (Mr Carswell) who, despite spending less time in this House than my hon. Friend the Member for Stone, has also clearly established his role as one of those MPs who scrutinises all EU matters carefully in a way that adds quality to our debates. I want to make it clear to him that we absolutely agree with the sentiments behind his amendment. We want to see the 2011 budget cut. The problem with the amendment is that if we withdrew our money from the EU, under its terms that would be illegal. We cannot support an amendment that would make our action illegal, so we will have to reject it, but I can tell my hon. Friend that if he had worded the provision slightly differently, we might well have been able to support both amendments. It is with regret that we have to reject his amendment, despite agreeing with its sentiments.
Let us talk about our concerns over the EU budget. It is not just the size of the draft EU budget but its effectiveness that is an important matter of concern.
Mr Andrew Tyrie (Chichester) (Con)
Many aspects of the EU budget are, of course, deeply pernicious. Does the Minister agree that a particular shocker is the fact that the original budget had written into its baseline a 4.4% increase in administration costs alone? It would be utterly appalling if we found increases in administration budgets taking place at a time when economies are having to be found right across Europe. What proposals do the Government have to get that increase down substantially? Will we be able to make a saving and secure a reduction in administration budgets as a result of the negotiations?
Justine Greening
My hon. Friend is absolutely right that it is shocking and untenable for the EU to propose a 4.4% rise in heading 5 administration at a time when countries across the EU are struggling with extremely difficult and challenging fiscal deficit reduction plans. We have already voted against that rise and we will continue to take the opportunity to vote against it. More than that, I will explain what we are doing to ensure that the next time we have the chance to vote against it in Council, rather than have a minority of countries with us that is just short of a blocking minority, we can actually achieve a majority and make a difference.
If we look at the size of the EU budget, we see that there is a marked disparity between the Commission’s proposed budget increase and the substantial reductions in public spending that countries across the EU are having to make. The Governments of, among others, France, Germany, Greece, Spain and Romania, as well as our own, have all announced sizeable austerity measures¸ and the EU as a whole has taken unprecedented action to secure economic stability. Yet the Commission has proposed that the EU budget should increase by nearly 6% in 2011. The Commission’s draft budget explains that the proposed increase is driven primarily by pre-planned rises in the financial framework, and by large spending programmes such as the research framework programme. As we have heard, however, it is impossible to ignore other elements, such as the startling 4.4% increase in the cost of running the EU institutions themselves.
I think all Members are aware that, arguably, the level of the EU annual budget is to some extent already determined by the overall financial framework, but the Government firmly believe that 2011 cannot be a “business as usual” year for the EU budget. That is simply no longer tenable. As a result of the global financial crisis, Governments across the EU have had to reassess their spending plans, and the EU budget should not be immune to the same pressures. My right hon. Friend the Chancellor of the Exchequer has been very clear about that. We are committed to securing a cut in the 2011 budget. Indeed, at a meeting of EU Finance Ministers on 18 May, my right hon. Friend the Chancellor proposed a freeze in the budget at 2010 levels. He said:
“I put to Ecofin that there should be a cash freeze in the budget. It is not acceptable to have an increase in the budget.”
That was in marked contrast to the previous Government’s approach, which saw year-on-year rises effectively unchallenged, and, most damagingly, saw Britain lose part of our valuable rebate—a rebate that had been won by a Conservative Government. This is not strictly within the scope of today’s debate, but as we turn our attention later to the next financial framework, we will do so with our UK contribution rising purely as a result of the previous Government’s catastrophic decision to give away part of our rebate. That amounts to a £2 billion a year hit for taxpayers—£10 billion over the course of a Parliament—and for what? A reform of the common agricultural policy that has simply never taken place.