EU: Money-laundering Directive
Lord Willoughby de Broke Excerpts(10 years, 2 months ago)
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Lord Willoughby de Broke
To ask Her Majesty’s Government whether they support the inclusion of private trusts in the draft provisions of the Fourth Money Laundering Directive.
Lord Willoughby de Broke (UKIP)
My Lords, I am grateful for the opportunity to draw this matter to the attention of the Committee. I must start by declaring an interest. My farm, on which I scratch a living, is run under a parliamentary trust with trustees who are properly named and all the accounts are in order, as far as I know.
Having got that out of the way, I should say that this debate is about the amendment which the European Parliament recently passed in plenary session to support the amendments to the fourth money-laundering directive inserted by the European Parliament’s Economic and Monetary Affairs Committee. This recent amendment means that companies and, crucially, trusts will have to be listed in public registers in EU countries. This amendment goes well beyond the scope of the original draft directive published by the European Commission last year. That required privately owned companies and trustees of express trusts to maintain records of the identities of their beneficial owners. However, at that stage, the directive required the information to be made available to competent authorities and obliged entities only—that is, law enforcement bodies and persons conducting due diligence. The original draft did not envisage public registers and did not even mention trusts.
The important point to underline is that under the third money-laundering directive, which was implemented in UK law by the Money Laundering Regulations 2007, there is already a legal requirement to identify the beneficial owners of trusts, companies and foundations and their trustees. Indeed, HMRC already requires that any person concerned with the making of a settlement must make a return under declaration S218 stating the names and addresses of the settlor and the trustees of the settlement. The tax authorities already have all the tools they need to ensure compliance with those money-laundering regulations.
Individuals at law firms to whom I have spoken in preparing for this debate have repeatedly made the same point. The existing “know your client” rules—noble Lords will be familiar with the tedious requirement to produce your passport and utility bills when you do business with a company with which you have done business for 30 or 40 years—already make that point. All intermediaries, whether financial or solicitors, already have a legal duty to report to the authorities anyone attempting to use a trust for illegal purposes or they face a fine and even imprisonment. Those rules have been deemed completely adequate by successive British Governments who have never attempted to introduce this sort of intrusive law which is being put forward by the European Parliament.
Why are we now faced with this wholly unnecessary and intrusive directive? It is principally, I think, because of the ignorance and misconception about trusts in the rest of the member states of the EU whose legal systems are based on civil law, not common law. That encompasses 26 of the 28 members of the EU. Civil law countries do not have trusts in their legal systems, so they do not understand the centrality of trusts in English law. Oddly enough, it was a French legalist, Monsieur Pierre Lepaulle who, talking of trusts, wrote:
“The trust is the guardian angel of the Anglo-Saxon, who accompanies him everywhere, impassively, from the cradle to the grave”.
In the EU, there is a complete misconception of the use of trusts, evidenced by the very strong support in the European Parliament for this amendment. Trusts are seen as vehicles for tax fraud—corporate or individual—and as the preserve of the rich, thus a higher risk to Governments in terms of tax evasion.
The truth could not be more different. Trusts in England and Wales are mostly used in mundane and practical situations. Let me give some examples: the co-ownership of land, the administration of deceased estates, the protection of children during minority, the protection of vulnerable and handicapped people, retirement pension schemes and employee share-ownership schemes. Most UK charities are structures as trusts. According to the Law Society, there are well over 1.5 million trusts in Britain, so the requirement of this amendment for a national public register of trusts, their beneficiaries and trustees will have far-reaching and potentially damaging consequences.
The Englishman’s home has traditionally been his castle. This will no longer be true. This proposal will threaten individuals’ and families’ basic rights to confidentiality in their private affairs. Publicly accessible registers of private individual’s affairs can well present risks for those who are named in them, for example by being targeted by financial criminals. On that, I want to draw noble Lords’ attention to the “Panorama” programme on 28 February, called “Kidnapped, Betrayed by Britain”, in which the journalists on the programme investigated the disappearance in Dubai of a British businessman. According to that investigation the British authorities handed over thousands of pages of confidential documents to the Iranian authorities without informing the British businessman involved and ignoring the warnings that their actions posed a risk to his safety. He was kidnapped, disappeared and is presumed dead. Now, that is probably a little extreme but it shows that there are risks in making these registers public to anyone at all. The Latvian rapporteur who introduced this amendment said after the vote in the European Parliament that it was,
“a good day for law-abiding citizens, but a bad day for criminals”.
No, it was a bad day for individual freedom and a good day for Governments with their insatiable appetite for intruding into the private affairs of their citizens.
I understand that the Government oppose this amendment. Indeed, the Prime Minister wrote a letter on 13 November last year to—wait for it—his Excellency Herman Van Rompuy, President of the European Council, informing him that:
“It is clearly important we recognise the important differences between companies and trusts”.
He went on to say:
“I look forward to looking properly at the arguments around trusts and other legal arrangements”.
Judging from the vote in the European Parliament, that letter had about as much success as John Major’s letter to Jacques Santer’s Commission in 2000 on the working time directive. Both letters were instantly consigned to the waste paper basket. So much for our strong voice in Europe—more a muffled squeak—and our seat at the top table.
Could the Minister tell the House how the Government will deal with this matter when it comes to the Council of Ministers in May? Is he able to give some hope to the millions of people who will be affected by this measure, who use trusts routinely and legally, that their private affairs will not be open to any inquisitive individual at the click of a mouse? This amendment is unnecessary and intrusive. It should be consigned to the same WPB as our Prime Minister’s letters.
Lord Davies of Oldham (Lab)
My Lords, I congratulate the noble Lord, Lord Willoughby de Broke, on introducing this debate. The degree of sharp interest shown by all noble Lords in this issue may have surprised him. Passion has been aroused, and so it should be. It is interesting that it has been identified that the evils that the Government should address are tax avoidance and money laundering. We were also greatly concerned about money flowing towards terrorist activities. That agenda has come very much to the fore over the past decade. If we are not concerned about those issues and whether our law is adequate to control them as best as it can, we are clearly not playing our full role in the public interest.
I congratulate the Government on the work done last year. It is quite clear that they are already committed to creating a public register of the beneficial ownership of companies and therefore a substantial part of the issue is being tackled. I am quite sure that all parties subscribe to that position, with the notable exception of the party that is exceedingly well represented in this Room but is not normally well represented in Parliament by elected Members. Although this issue is complex, the Government have made some considerable strides, and it is clear that we have a slightly more difficult issue, which the noble Lord, Lord Dykes, identified, because of our common law than is the case with countries on the continent. We will wrestle with these issues.
Trusts fit into a very distinctive and different pattern compared with organisations elsewhere, but the point is obvious. If trusts are not included in the legislation, they will become the default mechanism whereby all miscreants will carry on their practices. We know that they go on to a significant extent and that the wider public out there expects Parliament to tackle these issues once they have been revealed. It is therefore of the greatest significance that we keep the momentum up. I understand entirely the anxieties of the noble Lord, Lord Willoughby de Broke, but they are overwhelmed by the need of our society for protection against proven misdemeanours in the use of companies and trusts.
I should emphasise that this is not a new issue. Some people will defend freedom to the nth degree and say that you should not intrude upon private arrangements. Between $8 million and $10 million was secreted away in trusts by an individual, General Pinochet. I doubt whether many people in our country think that he was entitled to the privacy vouchsafed to him at that time; nor should we underestimate the dangers that are implicit in defective and ineffective law. That is why we have to tackle these difficult issues, and I am glad that noble Lords today have pressed the Minister with clear questions about the difficulties that have to be overcome.
It is clearly the case that people enter trusts, particularly family trusts, on the basis of an understanding of privacy. It may therefore be necessary for the Government to tackle trusts in more than one category: those that are capable of being used for nefarious purposes and those that clearly come into the common category of a very large number of people who are merely seeking to safeguard relationships in their family and their resources. However, there is no alternative. We particularly need international action because, whatever we do, if it is not carried out by other advanced economies, all our efforts will be insignificant. Automatic exchange agreements, which would leave the miscreants concentrating on the weakest link in the chain, the country that they identify as being least able to enforce such agreements and implement them, would be used. Financial tax laws are all voluntary. We have nothing that is compulsory, which is what this directive and the amendments are directed at.
I recognise that this is a complex issue and that the Minister is bound to indicate that there are areas in which it is more straightforward to act than in others, but we should bear in mind the strength of the majority opinion in this debate, which has been very forcibly expressed, that we cannot have a situation where the significant holders of real wealth are able to avoid their obligations to the wider public and to the consumers and nations that they serve. It is important that we have legislation that carries out the action that we all regard as essential.
Lord Willoughby de Broke
My Lords, some noble Lords, including the noble Lord, Lord Watson, and to a certain extent the noble Lord, Lord Davies, have missed the point that I was trying to make. There are already, under the Money Laundering Regulations 2007, absolute requirements on financial intermediaries and lawyers to report to the relevant authorities if they suspect that there is any illegal use of trusts. They already have the weapons; the idea that there is absolutely no legislation to deal with trusts is entirely misplaced.
EU: Eurozone Financial Transaction Tax
Lord Willoughby de Broke Excerpts(11 years, 3 months ago)
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Lord Willoughby de Broke
To ask Her Majesty’s Government what assessment they have made of the effect on the United Kingdom financial services industry of the Eurozone financial transaction tax recently proposed by the European Commission.
Lord Newby
My Lords, on 14 February, the European Commission published a proposal for the implementation of a financial transaction tax through enhanced co-operation. The UK has the largest financial sector in the EU. The Government oppose the European Commission’s initial proposal for an EU-wide financial transaction tax and the UK will not be participating in an FTT introduced through enhanced co-operation by a group of member states. We are currently studying the draft proposal carefully to understand its impacts and will continue to engage fully in discussions going forward.
Lord Willoughby de Broke
My Lords, I am grateful to the Minister for that Answer as far as it goes, but, reading the newspapers and the Commission’s proposals, I believe that the United Kingdom will be affected. Can the Minister confirm that UK tax policy is made in Parliament and not by the European Commission and a gaggle of member states which are jealous of the City’s pre-eminence in financial services? What actions will the Government take to protect our special interests in this matter?
Lord Newby
My Lords, as I said in my original Answer, we are fully engaged in discussions going forward. If the FTT is introduced, it will have a number of impacts on the UK. The Government are in the process of assessing what those impacts might be.
Taxation: Avoidance
Lord Willoughby de Broke Excerpts(11 years, 11 months ago)
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Lord Sassoon
My Lords, the lowering of the top rate of tax, for example, makes my noble friend’s point very clearly. By putting the top rate of tax at 50%, the previous Government, as the analysis has now shown, delivered absolutely nothing—or very little at best—in terms of revenue, and made this country uncompetitive. So we need wherever possible lower and broader taxes. I agree with my noble friend on that.
Lord Willoughby de Broke
Could the Minister just remind the House, further to the question from the noble Lord, Lord Forsyth, that tax avoidance is not illegal—that it is legal to avoid taxes—and that when individuals see the Government wasting a lot of their hard-earned money, they have a duty to avoid those taxes?
Lord Sassoon
I can certainly confirm that tax avoidance is not illegal. I can also say, building on the figures that I gave before, that of the £35 billion tax gap, £30 billion is estimated to be evasion and a relatively small part, £5 billion, to be avoidance.
Euro Area Crisis: EUC Report
Lord Willoughby de Broke Excerpts(12 years, 1 month ago)
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Lord Willoughby de Broke
My Lords, like other speakers, I thank the noble Lord, Lord Harrison, for producing this useful report. I recognise, as the noble Lord, Lord Marlesford, said, that producing a report of this sort entails a lot of work: a lot of reading, many hours of listening to witnesses and probably a little bit of shut-eye, occasionally.
Having said that, I am slightly disappointed by the narrowness and rather blinkered focus of the report. I am disappointed but not entirely surprised because, as a paid-up anorak, when I knew that there would be an inquiry followed by a report, I wrote to the noble Lord, Lord Roper, who I congratulate on remaining in his place throughout this debate, suggesting that some of the witnesses were one-sided—what I call Europhile heavy. We had the foreign editor of the Economist, which is from the same stable as the FT, which has been wrong on just about everything for the past 20 years. We had Charles Grant of the Centre for European Reform, famously a Europhile think tank. We had Professor Willem Buiter, always pro-Euro, and Giuliano Amato.
They are all distinguished witnesses, but I wonder whether we should have had some more Euro-realistic views, which might have produced a greater balance to the report. Why not economics Professor Tim Congdon, Daniel Hannan MEP, Roger Bootle or Ambrose Evans-Pritchard? If they were too strong meat for the committee, perhaps it could have had Wolfgang Munchau from the FT. He has reinvented himself to what he would call a Euro-realist. We are left with a rather unbalanced and one-sided report, with statements of the blindingly obvious, as in paragraph 143, which states that,
“there remains an urgent need to establish a credible and well-financed system of rescue funding”.
Quite.
One point that I notice from reading through the report, which is symptomatic of the tone and why I am quoting it, is that right at the beginning in Chapter 2, Professor Buiter says:
“It is a sovereign liquidity crisis ... countries that one hopes and assumes are most likely solvent, as far as the sovereign is concerned … frozen out of the funding markets by markets panicking and refusing”,
credit. It is not the markets that are panicking; they are acting entirely rationally in refusing to lend to borrowers who they feel may not repay their loans. It is the eurozone Ministers, the European Central Bank and the European Commission that are panicking by using every sort of dodgy financial wheeze to keep the euro-zombie staggering along on ever-more expensive forms of life support.
The noble Lord, Lord Marlesford, mentioned the possible cost of this going forward, never mind the cost that has occurred so far. I have discovered a rather shocking fact, which I will share with the House: the bailout funds so far used to rescue the eurozone are larger in real terms than the reparation payments and reconstruction plans of the First and Second World Wars combined. The reference is David Marsh’s book, The Euro: The Politics of the New Global Currency. All that in the name of what? Solidarity, cohesion, European destiny, what the noble Baroness called vision. What a cruel joke that is.
How can anyone pretend any longer that the euro project is anything but a disastrous financial and social failure? Greece is in near revolt, Spain has 25% unemployment and over 50% youth unemployment, Ireland is in a double-dip recession, Italy is in turmoil, 11 Prime Ministers have been booted out since the euro crisis began—all this to keep the EU political bandwagon on the road and the euro delusion going, never mind the social and financial cost of doing so. I say to the noble Lord, Lord Davies, that if he is interested in a bet on the euro or the drachma, the biggest financial exchange dealers in the world—ICAP, at least—are all ready to deal in the drachma. He will be able to indulge his gambling whim with them any time now, I guess.
The best solution would surely be for Greece, and any other country that so wishes, to leave the eurozone. The noble Baroness, Lady Noakes, was absolutely right that that is their only chance of becoming competitive in a global economy. There is absolutely no hope for it at all in the eurozone. The report should have said that there is no hope for Greece and the other peripherals while Germany is master in the eurozone. The Greeks cannot become Germans. It occurred to me while reading the report that we could have had a monetary union of countries beginning with S, it would have been just as effective: Switzerland, Syria, Sweden, and Serbia. There is no reason why that should not have been as ineffective as the eurozone.
I agree with the noble Lord, Lord Monks, that Britain’s interest is in a Europe that is economically strong and vibrant. That is obvious. However, do the Government really believe that this can be achieved by propping up at ever greater expense the weapon of mass financial destruction that the euro has become? It is not the Government’s job and it is not in the country’s interests to encourage the EU elite any longer in its very damaging political illusion. I hope that the Minister and the Government will take with a heavy pinch of salt the blood-curdling threats that are already being issued by the Eurocrats should the eurozone break up. They should be heavily discounted.
After all, we have been here before. Twenty years ago, Britain went through precisely the same experience when it was stuck with an overvalued exchange rate in the exchange rate mechanism. As in Greece now, our leaders, all the main parties, the CBI, the TUC and the Bank of England assured us that leaving the ERM would be disastrous. On 11 September 1992, the Prime Minister John Major solemnly told us that withdrawal was:
“The soft option, the devaluer’s option, the inflationary option … a betrayal of our future”.
Four days later, we left the system. The noble Lord, Lord Lamont, who I am sorry is not here, was apparently singing in his bath at the time. Our recovery began immediately. Inflation, interest rates and unemployment started falling and we enjoyed 15 years of unbroken growth and prosperity.
That is what the Eurocrats really fear: that if Greece gets out it will be a success, and other countries will want to follow and also get out of the eurozone. Then the whole rotten house of cards will crumble. That is what they fear, and that is what will happen.
EU: Member States’ Budgets
Lord Willoughby de Broke Excerpts(12 years, 7 months ago)
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Lord Willoughby de Broke
To ask Her Majesty’s Government what is their assessment of the proposal by the European Commissioner for Economic and Financial Affairs that the European Commission should have the power to scrutinise member states’ budgets and impose such financial penalties as the Commission deems fit.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Government strongly support the recently agreed economic governance legislation to strengthen the stability and growth pact. This provides for stronger and more responsible economic governance across the European Union. Under the new legislation, a range of financial sanctions can be imposed by the Council within the euro area where member states are deemed not to have taken adequate action. Sanctions are set out under Article 136, which applies to the euro area only.
Lord Willoughby de Broke
My Lords, I am grateful to the Minister for that reply. However, the statement by Commissioner Olli Rehn applies not just to the eurozone but to the whole of the EU, including this country. Therefore, will the Minister confirm that today’s Autumn Statement by the Chancellor is nothing more than an aspiration—a wish list? Will he confirm to the House that this will have to be ticked off and agreed by the European Commission before it can take any effect?
Lord Sassoon
My Lords, this country has always been party to the stability and growth pact, but as I am sure the noble Lord knows, under Protocol 15 the UK has an opt-out, which means that we have to endeavour to avoid excessive deficits but are not subject to any sanctions such as members of the euro area are. Furthermore, the UK secured particular treatment that ensures—has ensured and will ensure—that Parliament will always be allowed to scrutinise the UK’s budget ahead of the European Commission.
European Union Membership (Economic Implications) Bill [HL]
Lord Willoughby de Broke Excerpts(12 years, 7 months ago)
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Lord Willoughby de Broke
My Lords, I join other noble Lords in thanking my noble friend Lord Pearson for introducing this debate. This is the fourth such inquiry that he has asked for and it seems perfectly reasonable to ask the Government to take a dispassionate look at the costs of our membership of the EU. The noble Lord, Lord Desai, described my noble friend as a maverick; others have sometimes been less generous, but events have shown that my noble friend the maverick has been right and the purveyors of the nonsense about our destiny being in the EU have been comprehensively shown to be wrong.
The arguments that some of us have been making over the years about the financial costs to this country of our membership remain as valid as ever. There is our annual cash tribute of £18 billion gross a year, which my noble friend mentioned, and there is the common agricultural policy. If the noble Lord, Lord Davies, were in his place, I would say that of course we would support our farmers in Britain. We did so before we joined the EU and we will do so when we leave. What we will not be doing if we leave the CAP is to support French, Italian and Greek farmers as well, and we should not do so. The common fisheries disaster and all the regulations that the noble Baroness, Lady Noakes, talked about that are hamstringing the City were deliberately introduced by Mr Barnier and the Commission, probably at the instigation of the French and the Germans, who are jealous of the preponderance of the City of London. Those are enormously damaging.
I would add one other thing which no noble Lord has mentioned yet and that is the extraordinary folly of our emissions policy as part of our renewable energy policy. It has meant that we are building an extraordinary number of very inefficient windmills over some of the most beautiful parts of the country with no benefit at all other than to the manufacturer of those windmills and with a great disbenefit to the taxpayers of this country. That is an EU-proposed measure.
Lord Lea of Crondall
I am grateful to the noble Lord for giving way. Is he not aware that it was Britain that at every stage pushed for tighter and tighter EU targets? It was not the other way round.
Lord Willoughby de Broke
I am not sure that is right. The target of 20 per cent of our energy from renewable sources by 2020 is entirely an EU target, so I cannot agree with the noble Lord on that.
I think that the penny has finally begun to drop in the City of London, and I hope that it is indeed not too late for something to be grabbed back from all this. I wonder sometimes what UKREP is doing in Brussels. This tide of regulations, directives and thousands of rules seems to come almost entirely unamended, but UKREP is supposed to be looking after our interests in Brussels. I should like to find out whether that is what it is doing. I had a quick look at its website and saw that the EU flag was right at the top, with the Union Jack being almost invisible right at the bottom. I hope that that is not a sign of its priorities.
Leaving that aside, recent events have brought this whole debate into very sharp focus. The Government must recognise, however reluctantly, that we should stand back coolly and look at the economic benefits and disbenefits of our membership. Things have gone completely pear-shaped in the euro. What was supposed to be the cement is not even holding together the tottering edifice of the EU, which seems to be falling apart by the day. It is rather a cruel spectator sport to watch the daily news bulletins to see which domino is to fall next. All that the European politburo—the so-called élite—seem to be able to do is stand on one leg and sing “Ode to Joy”. They do not seem to have an answer at all to what is happening. Surely we have now reached a tipping point. The Government must take up the challenge in this Bill and try to identify where our interests lie. As my noble friend said, it is no longer good enough to say that the benefits of our membership of the EU are self-evident. That is simply no longer the case.
Let us take a brief look at the economics. The euro, as the noble Lord, Lord Ryder, said, was always a badly flawed project. The eurozone has turned out to be an economic disaster for the weaker members. They can never compete with Germany in the same currency—there is no chance of that at all. Ireland, Greece, Portugal and Italy have gone down the pan and Spain seems to be on the brink. However, for them—this was presciently put by Mr William Hague—the euro is,
“a burning house with no exits”.
The euro has turned out to be an incendiary device—a weapon of mass economic destruction.
However, almost incredibly, there are still voices telling us that we should be in the euro. From a padded cell in Conservative Central Office just last week the noble Lord, Lord Heseltine, said that we should join the euro. Frankly, I suggest that they throw away the key. However, cheerleaders such as the noble Lord, Lord Heseltine, and others—of whom there are examples in this House—owe it to us to explain how a system that was supposed to engender prosperity and democracy has turned into the very opposite: a Caliban that is causing hatred and conflict, and turning people against their Governments and against each other. Already we have in Greece anti-German jokes, perhaps regrettably. When the EU economic task force imposed on Greece by the EU arrived, one Greek newspaper had the headline “The prison guards have arrived”. Unfortunately and unluckily, the head of that task force was a German called Mr Horst Reichenbach, who was instantly dubbed “Mr Horst Thirdreichenbach” by the Greeks. That sort of thing may be amusing to read about but it is actually a disaster when it comes to democracy and co-operation between member states and democracy in those countries.
The fact is that the economic cost is enormous, as my noble friend and others have pointed out, but the political cost also has to be looked at in this context. Do we need to be part of an organisation that is not only an economic failure but a political failure as well? Do we want to be a member of an organisation that usurps elected leaders in member states? Do we want to be in an EU that is so terrified of having a referendum that it took the elected Prime Minister of Greece behind the bike shed wherever the meeting was and forced him to resign? Do we want to be part of an organisation that hand-picks the leaders of democratic countries—the ones who can be relied on to toe the line—never mind that Monti and Papademos were willing parties to both Italy’s and Greece’s accession to the euro? Their hands are not clean on this, yet they are the people who have been put in place by the European Union. Above all, the Government need to carry out this analysis to nail, once and for all, the threats that, by disengaging from the EU, Britain will somehow be left in the slow lane and will lose its place at the top table. That is what they like to tell us. If the food at the top table is rancid—
Lord Willoughby de Broke
I shall finish very shortly. I am going to finish my speech. This is an important debate, as the noble Baroness, Lady Noakes, said. I intend to finish my speech in a minute.
Baroness Stowell of Beeston
My Lords, I would like to make the point that I understand that different views were expressed at the start of the debate. The noble Lord, Lord Campbell-Savours, asked the government Whip to intervene when noble Lords had exceeded six minutes, and the noble Lord has exceeded eight minutes.
Lord Willoughby de Broke
Yes, I shall be as brief as I possibly can be, but this is an important subject. I am sorry, but I do not feel that there is a time constraint in a Second Reading debate.
I was saying that we should not be told that we are going to be in the slow lane or removed from the top table if we are out of the EU. The noble Lord, Lord Howell, is not in his place—
Lord Lea of Crondall
Is it acceptable for the noble Lord to carry on speaking after that very clear advice from the government Whip, and after the position was made clear right at the start of the debate in response to the question from my noble friend, Lord Campbell-Savours?
Lord Pearson of Rannoch
Unless the government Whip’s advice is inadvisable.
Lord Willoughby de Broke
I shall finish now. The only club we need to be in is the world club and we are already members of that. The European dream has turned into a dangerous nightmare. We need to wake up.
European Financial Stability Mechanism
Lord Willoughby de Broke Excerpts(13 years, 1 month ago)
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Lord Willoughby de Broke
To ask Her Majesty’s Government whether, in the light of the constitutional convention that no Parliament may bind its successor, they will review the commitment made by the previous Government to participate in the European financial stability mechanism.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the constitutional question is a red herring in this case. The Government are focused on looking ahead. At the December European Council, the UK secured an agreement for the European stability mechanism to be replaced, by 2013 at the latest, with a permanent mechanism for assisting eurozone countries. The UK will not be participating in the permanent mechanism.
Lord Willoughby de Broke
My Lords, I am grateful to the Minister for that reply, and I am sorry that he thought that part of my Question was a red herring. I will try a fish of a slightly different colour. I remind him that at the Davos economic forum President Sarkozy of France said:
“To those who would bet against the euro, watch out for your money … Mrs Merkel and I will never—do you hear me, never—let the euro fall”.
Given that unambiguous recognition that the eurozone ought to be able to sort out its own problems, will the Government now stop pouring good money after bad and give notice that they will withdraw from the European financial stability mechanism?
EU: Financial Assistance
Lord Willoughby de Broke Excerpts(13 years, 6 months ago)
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Lord Willoughby de Broke
To ask Her Majesty’s Government whether the United Kingdom’s participation in the European Union stability mechanism, and the proposed loan to the Republic of Ireland, are in breach of the “no bailout” clauses enshrined in the Maastricht treaty.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, Article 125 of the treaty, on the so-called “no bailout” clause, states that a member state,
“shall not be liable for or assume the commitments”,
of another member state. Article 125 does not preclude member states from providing loans to one another. The European financial stability mechanism was established under Article 122.2, which allows the Union to lend to a member state that is in difficulties or,
“seriously threatened with severe difficulties … or exceptional occurrences beyond its control”.
Lord Willoughby de Broke
My Lords, I am grateful to the Minister for that slightly evasive Answer. The phrase about matters “beyond its control” simply cannot be the answer to the difficulties encountered by Greece, Ireland or other potential bailout candidates. Beyond that, could the Minister say whether it is right, when British taxpayers are facing cuts in services and higher taxes, that £7,000 million should be poured into the eurozone black hole in their name?
Lord Sassoon
My Lords, I did not intend to be evasive but to give a factually correct Answer in respect of Articles 125 and 122. I was not asked whether we thought it was proper to use Article 122 in this way. As to whether it is proper to extend loans, to answer a question that the noble Lord did ask, we have decided, in the exceptional case of Ireland, which is our fifth largest trading partner, that it is in the interests of the UK economy to extend a bilateral loan to it. That does not mean that we will participate in any other permanent arrangements that may be put in place for the eurozone.
Equitable Life (Payments) Bill
Lord Willoughby de Broke Excerpts(13 years, 7 months ago)
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Lord Willoughby de Broke
My Lords, I declare an interest as a trapped annuitant of Equitable Life, but I am one of the lucky ones who comes within the post-1991 provisions. According to the Bill and the Explanatory Notes, I will be compensated. I congratulate the Minister on dressing up a bare half loaf as a full and scented loaf of bread because a number of pensioners fall outwith the provisions of the Bill, in particular the trapped annuitants who are in the same position as those of us who are going to be compensated, but who took out their pensions before the end of 1991. I should like to speak up for those people.
These people are suffering in the same way as the post-1991 trapped annuitants, but they will not be compensated. It is worse for them because they are older and have no real means of support other than their pension payments, which have been greatly reduced. But for what I believe are spurious financial reasons, they have been excluded from the provisions of this Bill. I say that they are spurious because I read the debate in the other place in which Mr Mark Hoban set out the provisions of the Bill. The substance of his argument was that because of Equitable Life’s maladministration, the earlier pensioners were so-called “over-bonused” in the years before 1991. They had received more money than they should have and therefore they did not need any money after 1991. I do not think that stacks up either factually or morally.
It was not their fault that they were over-bonused, it was yet more poor regulation and mismanagement by the board of Equitable Life. Surely it cannot be right that because of so-called over-bonusing for a few years, these people are to be denied any compensation at all. At that point they had no way of knowing that they were being over-bonused, so are the Government really saying that because they were kept in the dark, they should not be entitled to any justice? I cannot believe that that is the Government’s intention. As I have said, they are just as disadvantaged as all the other trapped annuitants of Equitable Life. Moreover, they are older and therefore in more need. It is only right that they should be properly compensated.
Their pensions, as is the case for pensions such as my own, lost value and were significantly reduced after 2002 when the whole horror show became public following the case here in the House of Lords. Like the post-1991 annuitants, they were trapped as well. They were effectively in a house on fire with no escape. The post-1991 trapped annuitants are being offered an escape, but the pre-1991 people are not. I cannot believe that that is what the Government want.
The noble Lord, Lord Kirkwood, was absolutely right to point out that the pre-1991 annuitants did what successive Governments urged them to do. They took out pensions for their retirement so as not to be a burden and to enjoy a reasonable old age. However, they are now left with virtually nothing, with no chance of any compensation whatever. In his opening remarks the Minister quoted what the coalition Government said in May this year:
“We [will] implement the Parliamentary Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policy holders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure”.
But the ombudsman’s recommendation was that all policyholders should be restored to the position they would have been in had no maladministration occurred. That is patently not the case for the pre-1991 policyholders. I should say also that it is not the case either for the unlucky 1 million policyholders who are also, I believe, being unjustly treated: those who have not yet vested. Under the provisions of the Bill, they will receive only around 15 per cent of the compensation that they would otherwise have been entitled to. They will not be getting just a hair cut, but a crew cut, because a cut of 85 per cent is really savage. Of course, as the ombudsman said, public expenditure should be considered but it should be proportionate. Why not take the kind of percentage that government departments are being asked to implement—namely, 19 to 20 per cent—which would be fair? Eighty-five per cent is not at all equitable.
Can the Minister explain a little more fully why the Government first accepted £4,500 million as the amount due to the Equitable Life policyholders in compensation but have now reduced that to £1,500 million? The Chancellor has just tossed £7,000 million to the Irish Government to bail out their failing banks; surely pensions in this country deserve just as much as the bailing out of BIFFO’s banks in Ireland. There must be enough money to spare if we are sending £7 billion over there.
Equitable Life was nothing but a giant Ponzi scheme that slipped under the radar of three successive well-paid regulators. I hope the Government will listen to what the noble Lord, Lord Kirkwood, said about continuing some form of discussion with the Equitable Life Members Action Group to see if they can do a little better than this. I do not believe at the moment that all the pensioners who have suffered from misregulation have been properly compensated. This is not the justice envisaged by the ombudsman.
Lord Sassoon
My Lords, first, I thank noble Lords for their valuable contribution to this afternoon’s debate. It is clear that there is a depth of support for ending the plight of Equitable Life policyholders and that we all agree that this saga has gone on for far too long. I am particularly grateful to the noble and learned Lord, Lord Davidson of Glen Clova, and the noble Lord, Lord McKenzie of Luton, for making it clear at the outset that the Opposition support the Bill.
The matter of Equitable Life is very complex and continues to affect directly the lives of a very large number of people, both in Britain and abroad. There is a pressing need to get on and reach a resolution swiftly, as policyholders have already waited 10 years for the Government to address this long-standing issue. Many of those people are elderly, as we have been reminded, and should not have to wait a day longer than necessary for justice. I shall not repeat the steps that we have already taken since coming into office, but I am grateful to my noble friend Lord Kirkwood of Kirkhope for recognising the steps that the coalition Government have taken.
I am getting somewhat experienced in doing Second Readings and other readings in this House. A great number of technical questions were asked today in relation to the length of the debate. Noble Lords will perhaps forgive me if I inevitably have to leave a number of points on the table, but I will write to sweep up the points that I cannot answer now. I note that the Benches behind the opposition Front Bench are commendably empty of one or two of the usual suspects who tend to come in during my closing remarks, but I will deal with as much as I can.
First, I want to take the opportunity to recognise those who have continually fought in the interests of policyholders, going back to 2000. That point was first mentioned by my noble friend Lord Kirkwood of Kirkhope. Particular mention must go not only to the Parliamentary Ombudsman but to the Equitable Members Action Group and the Equitable Life Trapped Annuitants, who have been referred to already. The Government have held meetings with these parties on numerous occasions and I commend them for their commitment to this cause. Their views have helped us to shape our understanding of the issue and given us an insight into the views of the broader group of policyholders. Their insights have of course proven invaluable. We need to get this right. The best way to achieve that is to interact with the people directly affected and to gain a clear understanding of their position.
There has, of course, been disappointment from those policy action groups about the amount that we have made available for the scheme, but we have had to strike a difficult balance between the valid, deserving cause of policyholders and the wider interests of British taxpayers. It is important to remind the groups that the Parliamentary Ombudsman herself stated that it was appropriate to consider the potential impact on the public purse of any payment. I know, as has been recognised today, that there are many important conversations to be had about how the scheme will operate. It would be preferable to have had all those conversations before turning our attention to the Bill but, in the context of needing to get on and conclude this episode, we wanted to make sure that the process was not unnecessarily extended.
I shall address some other, specific points that came up. The noble and learned Lord, Lord Davidson of Glen Clova, and the noble Lords, Lord Willoughby de Broke and Lord McKenzie of Luton, in different ways, raised the question of the quantum of the pot and the size of the cut for non-WPAs. I can confirm that it is, on average, around 66 per cent. One question was how this compares with a spending review where the departmental cuts were, on average, around 20 per cent. First, the spending review was not a linear exercise; there were different cuts in different areas. Secondly, it has been a difficult balance between fairness to policyholders and fairness to the taxpayers. It is important that we have still managed to cover the costs of payments to the WPAs who purchased their policies after 1 September 1992. I will come back to that cut-off point in a moment, but it is important to recognise that we have covered those payments in full, because we believe that that is the hardest-hit group. It is also important that non-WPAs are still getting more than twice what they would have received with a scheme based on the loss figures produced by Sir John Chadwick’s methodology.
We accept that the relative loss figure is around £4.3 billion. At the end of the day, it has essentially been a matter of judgment as to what the appropriate number should be. Approximately £225 million of the initial £1 billion is for WPAs and their estates, leaving approximately £775 million for the lump-sum payments to non-WPAs. Based on the current Towers Watson estimate of WPA losses, that leaves approximately £395 million for the rest of the WPA losses from 2014-15 onwards.
There were questions from the noble and learned Lord, Lord Davidson, and the noble Baroness, Lady Drake, about an appeals process. There will indeed be means by which policyholders can raise concerns about any incorrect application of the scheme rules to individual cases. Full details of that will be included in the document setting out the scheme design, but I can say today that it will certainly include a process whereby, if a policyholder believes that the rules of the scheme have been incorrectly applied to his or her data, he or she will be able to raise a query with the delivery body stating the nature of the concern. The query will be pursued by the delivery body and, if there is merit in the challenge and the challenge is upheld, a recalculation will take place.
If the challenge is not agreed by the delivery body, the policyholder will have the option of taking the case to the review panel. The panel will consider the case in full and will be able to make a fresh decision based on the facts of the case. If a complainant’s case is upheld, again, a recalculation will be carried out. The review panel will be independent of the original decision-making process and will be suitably qualified to consider the complaint in full according to public law principles, although it is too early at this stage to state who might be on the panel.
On the question of why we are covering the cost of post-1992 WPA losses in full, throughout this process the policyholder groups have made it clear that, due to the nature of their policies, WPAs have been one of the hardest-hit groups. They were particularly vulnerable to losses because they were unable to move their funds elsewhere or to mitigate the impact of their losses through employment. They are also generally the oldest policyholders. In answer to the specific question from the noble and learned Lord, Lord Davidson, approximately 37,000 WPAs will be paid under the scheme.
The noble and learned Lord also asked about the role of reliance. Given the time that has elapsed and the almost impossibility of policyholders proving what they would have done in a counterfactual situation, faced with properly regulated returns, a truly reliance-based approach is impossible in this case. I have explained the approach that we have taken.
On the question of how fairness has been worked out within the compensation pot and the principles that applied, the independent commission is now considering the split of the pot. It has made an interim report and its final report will be published by the end of January. The noble Lord, Lord McKenzie, asked about public scrutiny of the commission’s report. At the time we publish the document, I anticipate that my honourable friend the Financial Secretary will want to make a Statement in another place. Before we get to that, there is a further round of consultation by the commission. Therefore, I believe not only that is there a full consultation process but that there will be appropriate opportunity for Parliament to consider the results of the commission’s work. The commission’s report will of course be made available to both Houses of Parliament.
My noble friend Lord Kirkwood of Kirkhope asked about the scheme paying out. I confirm that it is our ambition to make the first payments in the middle of 2011. This is a complicated scheme, and we must get the details right. We believe that starting to make the payments in the middle of next year is an ambitious but achievable target.
My noble friend also asked whether we might in any circumstances be able to pay out more than £1.5 billion. I should make it clear that £1.5 billion is the figure that we judged the British taxpayer can afford to pay, so I cannot hold out any hope of us finding more money at a future date. This process has dragged on too long already, and we need finality.
On capital thresholds and the way in which benefits operate, capital limits do not immediately cut off eligibility for benefits because they work on a sliding scale, gradually reducing support for individuals with larger assets. It is unlikely that many recipients who would otherwise have been eligible for means-tested benefits will receive large enough payments to affect their eligibility dramatically.
In answer to a couple of questions from the noble Baroness, Lady Drake, we have no plans to make interim payments. Again, they would introduce more complexity and could delay the set-up of the overall scheme. We want to focus on getting the main scheme up and running as quickly as possible.
There was a question about consistency with similar payment schemes. The independent commission will consider aspects of fairness that it deems appropriate and the Government will take its advice very seriously. However, it is important to remember that the specific features of the Equitable Life payment scheme make it very different from some other pension schemes, so there is no broad read-across.
There were a couple of questions, including from the noble Baroness, on the gross/net issue. The calculations for the WPA payments are being made on a gross basis. The noble Baroness asked a broad question about long-term savings, which links back to my noble friend’s question about different regulatory regimes. I think that in some ways she answered my noble friend’s question when she pointed out that we had been through one very significant change in the insurance regulatory regime a number of years ago and are about to go through another fundamental change to the overall regulatory set-up. Of course, there is never a no-failure regime in financial regulation, but the landscape will change significantly. In that context, we take the sustainable and healthy long-term savings market in the UK extremely seriously.
I am conscious that one very important question was asked by the noble Lord, Lord Willoughby de Broke, and was touched on by the noble Lord, Lord McKenzie of Luton. That is the question of the pre-1992 with-profit annuitants. The first issue here is that they took out policies before any maladministration could have affected their decisions. That is the first and principal reason why they have not been included in the Government’s proposed payment scheme. WPAs were affected by Equitable Life being run badly, in part as a result of the Government’s maladministration. Sir John Chadwick and Towers Watson looked into what these WPAs would have received had there been no maladministration. They concluded that the pre-1992 WPAs received more from Equitable Life than they would have if the society had been properly regulated. That is because Equitable Life paid out more to them in the early years than it would have done if there had been no maladministration. Even though it paid out less than it should have done in later years, the former overpayment outweighs the latter, so it is the Government’s view that no compensation is due to that category of annuitants.
Lord Willoughby de Broke
My Lords, I direct the noble Lord’s attention to paragraph 15 of the Explanatory Notes, which says:
“They are a group of policyholders who are ‘trapped’ in their policies, in receipt of a declining income in their retirement and generally the eldest”.
That is the absolute definition of the pre-1992 annuitants. Their income has gone down very significantly since 2002 and it was not, as I said, their fault that they did not know that there was maladministration. It is grossly inequitable that they are left out of this arrangement altogether and just abandoned to twist in the wind by the Government.
Lord Sassoon
My Lords, I am conscious of the time that we have got to. I can only repeat that, while I accept what the noble Lord reads out as factually correct, he omits to point out what I have said: it is nevertheless the fact that those pre-1992 annuitants could not have been affected by maladministration, which is the purpose of this compensation scheme. Although I entirely accept the analysis of what has happened to their income levels in recent years, the judgment is that, on balance, they were paid more in the early years than they should have been, and that exceeds the reduction in more recent years. It is a regrettable situation but not one that it would be proper to bring into the compensation scheme.