Budget Resolutions and Economic Situation

Lord Walney Excerpts

Friday 23rd March 2012 Commons Chamber

[Miss Smith]

That is right, and the word I would use is “churlish.” Perhaps the hon. Member for Barrow and Furness (John Woodcock) will justify now why he does not welcome that type of investment.

[John Woodcock]

I am delighted to get the chance to address the Minister on this, as I was delighted to welcome the Prime Minister to our patch. But will the Minister agree with Opposition Members, and in fact with GlaxoSmithKline, that it was the patent box legislation that Labour put forward that, as Andrew Witty said before the last election, would transform the life sciences sector? Will the Minister say thank you to us for putting that forward? We are glad that she has taken it on.

[Miss Smith]

If only they had been so full of good ideas in the last 13 years. It is absolutely clear from the timing of GSK’s announcement, the day after the Budget, that it is responding to the actions that we took to put this economy back on track. We will not return to growth through unsustainable debt, irresponsible spending and over-reliance on any one sector or any one region. Nor will we jeopardise the progress that we have made in tackling our debts. That is why, as the Chancellor said, this Budget will have a neutral impact on public finances and implements fiscal consolidation as planned. I could refer here to the CBI, for example, which says that there were many calls on the Chancellor to spend money he did not have.

Opposition Members have made interesting contributions to today’s debate. The hon. Member for City of Durham (Roberta Blackman-Woods) suggests that the coalition is unaware of the global crisis around us. I think the IMF knows that Britain is no longer in the fantasy land of Europe, and I think householders also know that we are in the very real land of securing the future for our children—of spending what we have and of taking this country away from the turmoil in the euro area and back to a strong foundation for private sector growth.

This Budget is

“one of the best ever for UK GDP growth”,

says the Centre for Economics and Business Research, but perhaps the hon. Lady disagrees.

Youth Unemployment and Bank Bonuses

Lord Walney Excerpts

Monday 23rd January 2012 Commons Chamber

[Danny Alexander]

I will give way to the hon. Member for Barrow and Furness (John Woodcock), who has not intervened before.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

The Chief Secretary is being very up-front with the House about the fact that he believes that he is doing everything in his power to tackle youth unemployment—yet according to the Office for Budget Responsibility’s own figures, unemployment is scheduled to rise in the coming period. Does he think that that rise is inevitable?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I call Douglas Alexander.

Finance (No. 3) Bill

Lord Walney Excerpts

Monday 4th July 2011 Commons Chamber

[Stella Creasy]

I would be interested to hear the hon. Gentleman’s advice to the nearly 500,000 Londoners who are having to use their credit cards to pay their mortgage or their rent. Right now, people are borrowing to pay for everyday essentials, and I fear that he sounds a bit like Marie Antoinette saying that people should just eat cake. That is very misplaced, given the dire financial situation that many people are finding themselves in, certainly in my constituency and, I will wager, in his as well.

Indeed, Shelter’s research shows that it is not only people in London who are using their credit cards to pay their mortgages. There are 2 million people in this country who are doing it. It is horrifying to think of the situation that those people are getting themselves into, given the interest rates that they are paying on their mortgages, let alone the rates that they are paying on their credit cards.

We also know that changes in the cost of living affect some more than others. The Resolution Foundation points out in its low earners audit that those on low to middle incomes spend a higher proportion of their incomes on the goods and services that are hard to cut back, such as their housing, their fuel, their transport to work or the food that they put on their children’s plates. That is what the hon. Gentleman is talking about. Those low to middle income earners spend 40% of their spending on those everyday essentials, compared with the 26% spent by higher earners. One in five pensioners have had to cut back on essentials such as food because of the rising cost of living.

This is not just a demand-side issue; it is also about the way in which the high-cost credit market is stacked against the consumer. That is why I believe that the market merits regulation. In order to make its profits, the high-cost credit market makes use of a number of the attributes of the people who have to borrow from it and of the way in which the market is structured. As has been mentioned, a quarter of the customers of high-cost credit companies cannot access any other form of credit. Indeed, Consumer Focus’s research shows that many users of payday loans are unable to access mainstream credit such as overdrafts because they have already maxed them out. That means that they have no choice; they have no power to shop around for a cheaper loan. Also, they cannot build up a credit history that would show a mainstream lender, who might lend at a lower rate, that they could be trusted to pay a loan back.

Because high-cost credit companies have fixed costs, they make their money by repeatedly lending to people. That means that their business strategy is geared towards encouraging repeat borrowing and the rolling over of loans. Friends Provident has found that 29% of payday loans are refinanced, with the refinancing rolling over on an average of two occasions. Some 15% of home credit loans are refinanced and rolled over into a new loan before the end of their term. It is worth explaining what that means for the cost of borrowing from these high-cost credit companies.

One person who got in touch with me took out a loan of £650 with Wonga, in two instalments, to be paid back within a month. When the repayment date arrived, he found that he could afford to pay only the interest that had accrued on the £650, which was £163. The original £650 loan was then rolled over for another month. At the end of that month, he paid off the loan, which cost him another £858. That was the original £650, plus interest of £208 accrued in the second month. The clock starts ticking in the first month of these interest payments, which is how 4,500% interest rates are reached. The longer a loan is rolled over, the closer it can get to the 4,500% APR that Wonga charges. The process of rolling over meant that he had paid £1,021 for borrowing £650 over two months. It is difficult to see what level of cap on the number of roll-overs would make a difference in this market, because the industry consistently refuses to release information about its business model. We can therefore only guess at the impact that the number of roll-overs has on people’s debts.

Furthermore, we know that the rates charged by high-cost credit companies often do not reflect an economic rate, due to a lack of competition in the market, a lack of regulation to drive down costs, and the absence of any ceiling being set. I recognise that using APR is problematic in understanding the cost of borrowing, especially in the payday loans industry, but as a yardstick it can help us to illustrate the issue. We know that payday loans can cost 4,500% from Wonga. They can cost 2,100% from Uncle Buck, 1,200% from Payday UK, and 1,700% from KwikCash.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

I apologise for coming in late to the debate. My hon. Friend uses the same tube line as I do. Did she notice on the way in that one company was advertising on the tube, offering a decision by text within a minute for a loan at an APR of 1,734%. That cannot be right; we have to do something to crack down on it.

[Stella Creasy]

I agree absolutely with my hon. Friend. There is no ceiling on this market, which means that company rates are going up, not down. We also know about the lack of competition with other sections of the market. Provident owns 6% of the market. In 2004, the Office of Fair Trading referred the doorstep lending industry to the Competition Commission and, in 2006, its report confirmed the lack of competition. As Citizens Advice argues, however, the fact that these problems are getting worse, not better shows that the measures suggested in 2006 have not worked and that it is time to strengthen the intervention we make in this market.

Although I am an avid supporter of the credit union movement, it cannot at this moment present any kind of alternative to this market within any relevant timetable. Credit union membership is growing by 8% a year, but the payday lending industry alone is three times as big as it was two years ago. Credit union lending therefore remains relatively small scale, equivalent to just 5.9% in value terms of the high-cost commercial sector. As a consequence, it is unlikely to exercise any real competitive restraints on the prices in the high-cost credit sector.

With all the signs that this market is growing exponentially, this new clause and the review it recommends would allow us to look at a number of issues on how to tackle it effectively. First, it could consider excess profits—

Mortgage Regulation

Lord Walney Excerpts

Monday 17th January 2011 Commons Chamber

[Mr Robert Syms (Poole) (Con)]

I intend to speak about the future of the mortgage market and, in particular, the current proposals by the Financial Services Authority in its “Mortgage Market Review”. When it was announced, Lord Turner said that it was a “major shift” in the FSA’s “willingness to intervene”. It is a serious review. If it listens to representations, as I hope it will, and is light touch, it will improve the market, but if it goes the way of some of the proposals that are being consulted on, it could have a profound and bad effect not only on the economy, but on the prospects for many of our constituents. I shall touch on those issues today and canter round some of the concerns.

The Council of Mortgage Lenders, the Building Societies Association and many other organisations are very worried about what the FSA is consulting on. We must therefore treat seriously the prospects and the proposals put forward. I support the objectives of the FSA, which are to create a mortgage market that is sustainable for all participants, and a flexible market that works better for consumers. However, it is crucial that the FSA recognises that in the context of the current financial crisis, problems in the European and UK economies today are primarily the result of liquidity and structural issues arising from global financial markets. They are not a result of a dysfunctional and widely irresponsible residential mortgage market. The FSA should be mindful not to focus its attention on fixing the wrong problem.

Despite the economic slowdown, FSA arrears statistics show that the overwhelming majority of mortgage borrowers in the UK are able to continue to make their mortgage repayments. The current low level of interest rates is a major help in this, but the statistics demonstrate that the vast majority of lenders have acted responsibly and have been positive and sympathetic to customers in difficulty. In a sense, the mortgage rescue scheme introduced by the previous Government towards the end of their term of office did not help many people, but it pointed many people with difficulties to their lender. That meant that their lender could deal with the problems. One of the good things emerging from the difficulties that we face is that a far more responsible attitude is being taken by many lenders.

I believe that it is desirable to have a market based on consistent, responsible lending and borrowing. However, the market failures that the MMR is designed to address affects only a small number of lenders that were in the market. Some of those are no longer active.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

Does the hon. Gentleman recognise that some of the smaller lenders, such as the Furness building society based in my constituency—lenders who were not rogues, did not play fast and loose, and were always responsible—feel disproportionately penalised by the proposals currently on the table?

[Mr Syms]

I agree. One of the important things about the proposals is not always to focus on the five big banks but to ensure that there is a diverse mortgage market that includes many smaller building societies. I shall touch on that issue in a moment.

A measured and well-considered response from the Government, the regulators and the lenders is necessary to prevent an inefficient and unsustainable mortgage market. The current proposals will have a far-reaching effect on the wider economy, but the FSA’s impact assessment does not consider those wider consequences. They should be considered, because housing is an important component of our economy.

There are also fundamental concerns about many proposals that transfer responsibility away from the consumer and to the lender. We appreciate the lender’s responsibilities to verify application information and to have appropriate controls in place, but that must be balanced with the capability of customers to make sound financial decisions for themselves. The proposals do not achieve a balance; they take the very patronising view that customers need protecting from themselves—a view that could be insulting to many mortgage borrowers. In my experience, the people who get most upset are those who are refused a mortgage, a loan or some help from a bank. People take that personally, and if we are not careful, we will exclude many people from gaining access to finance.

Independent Financial Advisers (Regulation)

Lord Walney Excerpts

Monday 29th November 2010 Commons Chamber

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

Does the hon. Gentleman not agree that this issue is not clear cut? Surely it is right that there is some concern about the idea of a commission. Is it not the case that the concern over not wanting to pay fees is about paying a fee up front? Could the fees not be back-ended in the way that commission effectively is, making it a flat rate?

[Mark Garnier]

The issue of commissions is complex and is surrounded by several other issues, one of the simplest of which is that the Office of Fair Trading has deemed it right that the providers of the products should be able to charge or incentivise IFAs and salespeople in a variety of ways. The difficulty with allowing different levels of remuneration to IFAs is that it creates some of the problems we have talked about, but the OFT will not allow a flat rate of commission, which is one solution that could have dealt with this issue.

The risk in being an IFA is a major issue. All professions carry an element of professional risk, which is covered by professional indemnity insurance. In pricing that risk, underwriters take into account the fact that there is a so-called long-stop of liability, which is usually about 15 years, but that is not the case for IFAs. It has been deemed fair for IFAs to have an unlimited period of liability, such that an 80-year-old retired sole trading IFA might be liable for a product sold half a century earlier. It might be that the claimant has a legitimate claim, but in our compensation culture it might be that he does not feel satisfied with what he has got and is just having a go.

In practical terms, for a limited liability company, as the business gets older it becomes less saleable as it accrues a large pool of risk on the products it has sold since it opened its door to trading. Is it fair that an IFA could be chased to the grave in a manner that no other profession allows? Will that indefinite level of risk be an incentive to newcomers coming into the profession? I think that the answer to both those questions is no.

The cost of implementing the RDR is high. Currently, a firm of IFAs with up to 25 advisers is required to put aside only £10,000 by way of regulatory capital. That minimum will double under the RDR, but there is a new element to come in. Under the new rules, firms may be required to put aside 90 days’ worth of operating costs. For the better-run firms with sophisticated systems and offices that could be a significant increase. It is not inconceivable that a firm employing 10 qualified IFAs supported by high-quality support staff could see its regulatory capital rise from £10,000 to £200,000, £300,000, £400,000 or even £500,000. That rule alone is an incentive for firms to go from providing a high-level service to a cut-price one.

But what does all this mean for the cost of the RDR to the consumer? The original estimates for the cost-benefit analysis of the RDR gave a net present value of £600 million for the first five years including one-off costs. That has now risen to a truly staggering £1.7 billion in order to address an unsubstantiated cost of mis-selling £250 million. Moreover, it is by no means the responsibility of the IFA community alone. In 2009, according to the financial ombudsman, just 2% of complaints in this area related to the activity of IFAs, while 61% related to banks, but 65% of the market share is held by IFAs.

Financial Assistance (Ireland)

Lord Walney Excerpts

Monday 22nd November 2010 Commons Chamber

[Mr Osborne]

Ireland had over-leveraged banks, and they were poorly regulated. We are all picking up the pieces of something similar in the UK.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

Given the stark consequences of Ireland’s failure to grow, will the Chancellor assure the House that he has not downgraded his commitment to a White Paper on growth in Britain?

[Mr Osborne]

I am absolutely committed to setting out our growth policies—[Interruption.] Perhaps I could make the observation that I did not think that today, given the other things that are going on, would be a particularly good day for the House to discuss an economic paper from the Government. I thought it better to take the time to explain what is happening in Ireland and what we are doing to assist it.

Comprehensive Spending Review

Lord Walney Excerpts

Thursday 28th October 2010 Commons Chamber

[Danny Alexander]

I will not give way at the moment.

We are a Government with fairness at our core, and a reforming Government who leave no stone unturned in the search for waste, while devolving power and funding away from Whitehall. In answer to the hon. Member for Ochil and South Perthshire (Gordon Banks), I will address our priorities in turn, and the first is growth.

It is growth that will deliver additional jobs in the economy across England, Scotland, Wales and Northern Ireland. I have said that our plan as a whole will deliver macro-economic stability, which is crucial to restore growth and increase confidence to invest. We are not standing on the sidelines waiting for growth to happen. We have prioritised spending on the areas that can deliver the best return to growth. Over the spending review period, capital spending will be slightly higher than the previous Government planned, with significant investment in transport capital across the country and more cash being spent on transport over the next four years than in the past four. We will maintain in cash terms resource spending on science, and a new green investment bank will lead the way in the economy of the future. Today we published our local growth White Paper, which includes a regional growth fund of £1.4 billion over three years and announces new local enterprise partnerships. Those actions and many others are major parts of our strategy to secure and support sustainable economic growth.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

The right hon. Gentleman’s speech so far has shown that he is sticking to the outlandish predictions of growth levels that he has made, and of unemployment falling year on year as a result. Will he reassure the House and the country that if they prove wrong, he will change course, and quickly?

[Danny Alexander]

Outlandish predictions by politicians were the prerogative of the previous Government. We have established an independent Office for Budget Responsibility to make forecasts. We do not make the forecasts, and I am merely quoting what the OBR had to say.

Finance Bill

Lord Walney Excerpts

Tuesday 6th July 2010 Commons Chamber

[Barry Gardiner]

Thank you, Mr Speaker. I am tempted to take up the length of time that the hon. Lady mentioned, but I fear that the House needs to come to a close. A clear choice has been made by the Conservatives to cut an extra £40 billion on top of the £78 billion announced in March. They have made a clear choice to cut £11 billion out of tax credits and benefits. A clear choice has been made by the Liberal Democrats not just to drop the VAT bombshell that they warned of, but to act as navigators and pathfinders for the Conservatives to deliver it perfectly targeted. That regressive tax does the most damage to the poorest. It is regressive, not progressive.

“We will not have to raise VAT to deliver our promises”,

said the Deputy Prime Minister before the election. Indeed not—the Liberal Democrats will have to raise VAT to deliver the Tories’ promises. What an apology for a fig leaf.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

With regard to my hon. Friend's list of all the people who will not be able to avoid paying the increase in VAT, is he aware that many community halls in my constituency and across the country will also be forced to pay it as they are not able to claim exemption from VAT owing to the arrangements that they face?

[Barry Gardiner]

My hon. Friend is entirely right. That is a real problem for clubs and small businesses that are not able to reclaim VAT back. It is yet another tax on business.

--- Later in debate ---

[Chris Williamson]

I am very proud to have Rolls-Royce in the constituency adjacent to mine, Derby South. Indeed, many of my constituents work at Rolls-Royce, a company renowned for its excellence. My hon. Friend is right: the insurance tax rise is bound to have an impact. The cancellation of the loan to Sheffield Forgemasters will also have a big impact, because Rolls-Royce is seeking to diversify into the nuclear industry—to expand its operations in that regard—and was hoping to purchase equipment from Sheffield Forgemasters, but it will now be forced to look abroad. That is a direct result of the policies of Con-Dem Members, who should hang their heads in shame.

[John Woodcock]

Does my hon. Friend agree that this is not just about the double whammy facing Rolls-Royce? I agree with him wholeheartedly about the potentially catastrophic effect on the civil nuclear supply chain of cancelling the loan to Sheffield Forgemasters, but there is also the restriction on capital allowances, which will hit Rolls-Royce as it will hit BAE Systems in my constituency and many other manufacturers across the north of England and the whole country who will be affected through the potential loss of jobs and loss of ability to export.

[Chris Williamson]

My hon. Friend is right. Conservative Members are reverting to type. We saw what they did—I have outlined some of the implications—when they were last in power. The policies that they are pursuing now will have exactly the effect that he describes in undermining manufacturing, because they are the enemy of manufacturing industry in this country.

There is an alternative. Historical precedent proves that investing in the economy at a time of economic fragility is absolutely the right course of action. Government Members should look at their history books. We had a lecture from the hon. Member for North East Somerset (Jacob Rees-Mogg), who referred to the 1930s. I refer him and other Government Members to Roosevelt’s new deal. Roosevelt demonstrated that by using the power and instruments of the state to invest in the economy, Government could get the economy moving again and put people back to work. Do not forget that when Roosevelt came to power, 25% of the American people were out of work, and his new deal put them back into work. By contrast, in this country we were pursuing a deflationary policy that resulted in millions of people losing their jobs and remaining unemployed for many years.

Indeed, President Obama agrees. He wrote to all the G20 leaders—