Brexit: European Investment Bank (European Union Committee Report)

Lord Young of Cookham Excerpts

Tuesday 16th July 2019 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I begin by thanking the noble Baroness, Lady Falkner, for selecting this important topic for debate, for her speech in introducing it, and all noble Lords who have participated in our discussion this evening. I am grateful to the noble Lord, Lord Vaux, for his good wishes on my birthday. I am not sure I wanted to spend it taking a supply and appropriation Bill through the House of Lords, then answering an Urgent Question on rendition, then listening to 90 minutes of trenchant criticism from a Select Committee—but at my age, it is nice that anyone wants to employ me.

I join other noble Lords in thanking the noble Baroness for her work as chair of the EU Financial Affairs Sub-Committee, which is a particularly important role in recent years, providing detailed, expert scrutiny of key issues. She mentioned her five reports and an excellent example of her work is the report before us this evening. I enjoyed reading it, raising, as it does, a number of important issues regarding the EIB, SME finance and infrastructure. I have also read the Government’s response to the consultation paper on infrastructure finance.

One theme running through our debate has been the uncertainty about the future, mentioned by the noble Baroness at the beginning. What is to replace the EIB? Others have been the disappointment at the outcome of negotiations on capital and concern about the drop-off of investment by the EIB, although we remain members of the European Union. There is concern about a shortfall in infrastructure investment. Finally, there are the Government’s proposals for replacement, or the suggestion that the Government should replace the EIB with a national infrastructure bank. I shall try to cover as many of those issues as I can.

I begin by saying that we recognise the role that the EIB has played in providing access to finance in the UK. That is outlined in the committee’s report. We joined the EIB in 1973. We have contributed to its capital and have maintained a callable guarantee of €36 billion. The EIB and its sister organisation—again mentioned by the noble Baroness—the EIF, have operated in two critical areas, with the EIB lending for infrastructure projects and the EIF providing finance for high-growth firms. As the noble Baroness said, the EIB has cumulatively lent approximately €118 billion to UK infrastructure projects. Noble Lords mentioned a range of those investments. Higher education was mentioned by the noble Lord, Lord Giddens, while High Speed 1 and Crossrail were mentioned by others, as was investment in hospitals and schools.

In recent years, preceding the triggering of Article 50, the EIB lent an average of €6 billion per annum to UK projects alongside private investors. Compared to those private investors, the EIB typically offers competitive rates, as the noble Baroness mentioned, as well as support to projects through technical assistance. Another theme running through the debate has been the stamp of approval—the term used, I think, by the noble Baroness —or crowding in, mentioned by the noble Baroness, Lady Liddell, as the influence of the EIB in attracting other investments. I was impressed, as were other noble Lords, by the fact that it employs 3,000 full-time staff, many of them experts, providing the reassurance that other investors might need that these are worthwhile projects to support. Looking at SME finance, the EIB has been particularly important in funding regional SME funds, such as the Midlands engine and the northern powerhouse investment funds.

As we leave the EU, our relationship with the EIB will change. The EIB was established under the treaties, which state that only member states can be members of the EIB, so when we cease to be a member of the EU, we have to leave the EIB. Without being party political, I understand that the Labour Party’s policy is to leave the EU. Therefore, it follows inevitably that we would have to leave the EIB.

Under the terms of the withdrawal agreement financial settlement, the UK has secured the return of its €3.5 billion paid-in capital in the EIB, with payments being made annually for 12 years following exit. That agreement has run into a heavy volley of criticism, led by my noble friend Lord Trenchard, but I say to all those who criticise it that the final agreement was an improvement on the original EU position, which was to return the capital at the end of the loan portfolio’s amortisation. In the final deal, the UK’s capital will now be fully returned by 2030—some 30 years earlier than originally proposed.

The Government’s view is that this represents a good deal for the UK taxpayer, particularly by ensuring that there is no disruption to existing projects as a result of the UK’s departure from the EIB. We will of course continue to be able to draw down funds agreed prior to our departure.

There has been much comment about the future relationship with the EIB once we have left. The Chancellor has made it clear that we are open to the prospect of a future relationship and that discussions on a mutually beneficial relationship with the EIB group will take place during the next phase of the negotiations. The noble Viscount, Lord Waverley, talked about some of the options. We will look at the existing precedents and more bespoke options will be considered and explored as part of the next phase of the negotiations, as the Government have made clear.

The €3.5 billion represents the return of our full paid-in capital. As was mentioned in the debate, the EIB is not a typical commercial bank in that it does not pay dividends from its reserves to EIB members, and nor does the statute provide a precedent or a clear path for anyone to leave. It is important to recognise that the statute does not give members an automatic right to recover either capital or reserves—and, as I have just explained, the negotiated position was a significant improvement on the EU’s opening position. One cannot draw parallels with shareholders in conventional companies. Shareholders in a conventional company cannot expect the company to give their money back when they exit their shareholdings. Rather, they sell their shareholding in the market. However, given the nature of the EIB, that option is not available.

The noble Viscount, Lord Waverley, mentioned the Commission’s original investment, which was financed by member states through the EU budget contribution. The total value of the Commission investment based on the latest EU accounts is €581 million. The UK will receive a share of that proportionate to its budget contribution which, using an estimate of 12.4%, gives an estimated UK figure of €72 million—I think that that was the figure mentioned by the noble Baroness—or €14.4 million each year for five years. The repatriated amount will form part of the overall Article 141 process, so it is likely to be netted off UK contributions for that period.

The noble Viscount also asked whether we have a contingent liability of €36 billion. The answer is that we will maintain a declining financial commitment to the bank in order continually to financially back loans, including those given to projects in the UK granted by the bank during our period of membership—that seems to be fair. However, the commitment will decrease as the existing loans run down. This means that we could be called on to contribute further amounts to the bank, but this financial support will be called on only in very exceptional circumstances, and it is a matter of public record that the bank has never made a call on its callable capital.

Considerable concern was expressed that the EIB has reduced its funding for UK projects although we are still a member. We are aware that the EIB and the EIF are undertaking extra due diligence on UK projects in relation to the UK’s exit from the EU. We have been clear that while we remain a member of the EU, we enjoy the same rights as other member states to access EIB funding. More recently, good progress has been made with several UK projects receiving broad approval over the past year. There has been a loan of €350 million for the UK windfarm project. Triton Knoll was approved in April, while a loan of €1.65 million was approved for the Trafford Park tramline extension in June. In addition, in December last year two loans of €126 million each were approved for the UK companies South West Water and Stonewater social housing. Most recently, the Luton mass transport project had €120 million approved in February.

As the Chancellor has stated, we need to be prepared for all scenarios. We have taken action already by providing additional funding to support SMEs and we have launched a comprehensive consultation process on infrastructure finance to ensure that good infrastructure projects can raise the finance they need. We are determined to make the UK one of the best places in the world to start and grow a business. This means keeping taxes low and ensuring that businesses can access the finance and support they need. We have a comprehensive programme of activity to support businesses. The British Business Bank, which was announced in 2012 and became fully operational in 2014, aims to make finance markets work better for smaller businesses in the UK. British Business Bank programmes are supporting more than £5.9 billion of finance to over 82,000 smaller businesses, as of September last year.

In recent years, as I have just mentioned, the activity of the EIF has declined. We have taken action to address the gaps left by it. At Budget 2018 the Chancellor announced that, as the UK leaves the EU,

“the government will provide the British Business Bank with the resources to enable it to make up to £200 million of additional investment in UK venture capital and growth finance in 2019-20”.

That initiative was welcomed by many noble Lords who spoke in the debate, including the noble Baroness, Lady Falkner, and my noble friend Lord Trenchard. The Government made this funding available on 17 April to ensure that smaller businesses can access the funding they need.

Since the Autumn Budget that year, the bank has been a key partner in implementing the 10-year patient capital action plan announced by the Chancellor, which will unlock over £20 billion to finance growth in innovative firms. In addition, at the 2018 Autumn Budget the Chancellor announced new measures towards ensuring that defined contribution pension schemes can invest in patient capital.

The increased support through the Patient Capital Review means that UK government support for venture capital is now at a record high. Even before the announcement of the additional £200 million of funding for this year, the British Business Bank had the capacity this year to make commitments exceeding the combined average annual commitments from the EIF and the British Business Bank in the three years preceding the referendum.

Creating high-quality infrastructure—mentioned by many noble Lords—is critical. That is why we are increasing infrastructure investment, with the national roads fund reaching £28.8 billion and the biggest investment in the railway since Victorian times. Overall public investment is set to reach levels not sustained in 40 years.

The noble Lord, Lord Giddens, was concerned that the taxpayer would have to fund this investment in infrastructure, but it is not just the public sector that has this role. The private sector has a critical role to play, with around 50% of the £600 billion infrastructure pipeline due to be met by the private sector.

[Lord Bruce of Bennachie]

Will the Minister comment on the committee’s recommendation that the Government consider setting up a national infrastructure bank? That is exactly the mixture of private and public funds.

[Lord Young of Cookham]

Yes, I will come to that. That is one of the most important themes that has run through this debate.

Many noble Lords mentioned investment in decarbonisation and in green projects. We have a suite of tools to support private investment in infrastructure. The contracts for difference scheme has made the UK a world leader in offshore wind. The world’s largest offshore wind farm, the Walney extension, opened off the coast of Cumbria in September last year. Elsewhere, the offshore transmission owner regime has brought down the cost of connecting offshore wind farms to the grid, and we have reached 96% superfast broadband coverage.

Also relevant to the debate on infrastructure is the UK Guarantees Scheme, delivered by commercial experts in the Infrastructure and Projects Authority, which has £40 billion of capacity to ensure that good projects can raise the finance they need. We have given the UKGS additional flexibility to offer construction guarantees.

So while the EIB has been active in the UK market, it has worked within a successful and road-tested framework that supports investment. There is a strong appetite from the market to lend to UK infrastructure projects. Untypically injecting a note of party-political asperity, I mention that threats of renationalisation might constitute a threat to inward investment in UK infrastructure projects. We need to be absolutely clear that we do not frighten off the private sector from investing in infrastructure.

We recognise that there are still some challenges in financing infrastructure; for example, in how we respond to new technologies that carry higher risk and how we raise finance for very large projects. That is why at the Spring Statement earlier this year the Chancellor launched the Infrastructure Finance Review. This is looking at the strengths and weaknesses of the market, the role of the EIB, the Government’s existing tools and the institutional structures needed to deliver them. The review also explores a recommendation from the National Infrastructure Commission that if the Government do not maintain a relationship with the EIB, we should consult on establishing a new, operationally independent UK infrastructure finance institution. As the noble Lord, Lord Bruce, has just said, this links to the committee’s recommendation on consulting on a new UK infrastructure bank through the Government’s national infrastructure strategy.

This was one of the themes that I heard running through the debate: that this is something that the Government should consider very seriously. It was mentioned by the noble Baroness, Lady Bowles, the noble Lords, Lord Butler and Lord Bruce, the noble Viscount, Lord Waverley, and many others. The Government should reflect seriously on the points made not just by the committee in the report but during our debate about the need to try to replicate the characteristics of the EIB in generating crowding in of other investment, creating loans at a lower rate of interest and creating the stamp of approval, which was referred to earlier.

The formal consultation period closed in June, and while it is too early for me to share with noble Lords the formal results of the consultation, I can say that we have engaged widely and heard a range of views on the EIB, which we will consider when negotiating any future relationship. The Government have set out our intention to publish a national infrastructure strategy in the autumn. The results of the Infrastructure Finance Review will form part of that strategy, and there will also be a formal response to the consultation.

The noble Lord, Lord Giddens, asked whether UK business would be able to participate in Galileo post Brexit. In a no-deal scenario, future EU programme participation, including in Galileo, will need to be determined as part of any future relationship.

I am conscious that I may not have covered all the points raised in our debate and I will write to noble Lords on those that I have not dealt with. I cannot pre-empt the Government’s spending review at this stage. Obviously, that will be important when it comes to investing in infrastructure, but the Infrastructure Finance Review consultation shows that the Government are taking this issue very seriously.

The noble Baroness, Lady Bowles, and the noble Lord, Lord Butler, asked about debt management, the ONS and definitions. That is venturing into almost theological territory as the noble Lord, Lord Butler, will remember the Ryrie rules and the unending debate about whether or not something scored as public expenditure. It says in my brief that we will leave questions on the interpretation of the guidance to the experts at the ONS, which is an independent body. It is highly likely that a UK bank would fall within the PSND measure. However, the Government will take the views that we have heard on board as we develop our policy following the Infrastructure Finance Review.

[Baroness Bowles of Berkhamsted]

The point that I was trying to make with regard to ESA 2010 is that it should be in our laws because it was from the EU and we have actually now transposed it into our Brexit preparation legislation. It is not a question of us running on our own version of what we think national accounts are: we should be running on the version that we are supposed to have in our law. That is why there was ultimately the change with regard to student loans. I feel the urge coming upon me now to suggest that this must be looked at formally, because it appears that we have been doing it wrong. The response that the Minister just gave appears to be wrong. I have the advantage of having been chair of the Economic and Monetary Affairs Committee at the time of ESA 2010 and, even more, I had to be the rapporteur because it was so complex that nobody else would do it. I have a reasonably good vision of this point because it was very important.

[Lord Young of Cookham]

I have in front of me the relevant paragraph in the Select Committee report, which states that:

“The EIB’s liabilities do not feature on the national balance sheets of EU Member States”—


which was the point that the noble Baroness was just making—

“but we were told that a similar UK institution would almost certainly feature within the Government’s measure of public sector net debt. While such an institution would also have assets and would probably be able to fund the interest on its paid-in capital, this could have significant implications for the Government’s commitment to reduce public debt as a proportion of GDP”.

The report went on to say:

“The measure of Government debt does not fall within the scope of this inquiry”,


and that it,

“is for the Government to choose the best way to calculate public sector debt”.

The report then continued with the point made by the noble Lord, Lord Butler, that,

“such accounting decisions should not determine economic decisions about the optimal form of support for long-term infrastructure investment in the UK”.

That is a proposition with which I broadly agree. At the end of the day, we have an independent ONS that resolves these theological decisions as to what does and does not score as public expenditure.

[Baroness Bowles of Berkhamsted]

I must come back very briefly. I was not saying where the EIB should or should not be; the point is that national investment banks should also not be within the public sector accounts. It is clearly made in The Role of National Promotional Banks (NPBs) in Supporting the Investment Plan for Europe, which was issued by the Commission on 22 July 2015.

[Lord Young of Cookham]

I hope the eloquence of the noble Baroness will be heard by the ONS, which is at the moment the arbiter of what does and does not score. I have almost overrun my time. I thank once again all those who have participated in this debate. No doubt the committee will want to pursue this subject later this year when we have announced our conclusions on the consultation and have published our national infrastructure strategy and we have the result of the spending review. I hope that on that occasion the exchange may be more cordial.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Lord Young of Cookham Excerpts

Order of Commitment discharged (Hansard): House of Lords
Wednesday 10th July 2019 Lords Chamber

Moved by

[Lord Young of Cookham]

That the order of commitment be discharged.

[Lord Young of Cookham (Con)]

My Lords, I understand that no amendments have been set down to this Bill, and that no noble Lord has indicated a wish to move a manuscript amendment, or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.

Motion agreed.

G20 Summit

Lord Young of Cookham Excerpts

Monday 8th July 2019 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I begin by thanking my noble friend Lord Howell for securing this debate on an issue most critical to our national interest, and for his speech introducing it. I join others in paying tribute to his chairmanship over many years of the International Affairs Committee, which has produced a number of influential and at times challenging reports for the Government. He managed to hold his committee together to produce them and has always introduced them with the eloquence and perception we have grown accustomed to. We thank him for his work on that committee and wish his successor, my noble friend Lady Anelay, all the best.

My noble friend raised a number of issues that were not raised at the summit, and I propose to stick strictly to the Question that he asked, which focuses on the,

“outcomes they judge to be of most importance for the safeguarding and furtherance of Britain’s national interests”.

Perhaps I could write to him about the opportunity to raise issues about China and Japan, which he mentioned in his opening remarks.

Several noble Lords were critical of the language used in the communiqué and about the whole structure of the G20, and I understand that, but one needs to put this in perspective, as did my noble friend Lady Anelay and the noble Lord, Lord Judd. The UK has always understood that our security can be upheld only by collective endeavour, our prosperity can only be advanced by co-operation across borders, and our success as a nation depends not just on a stronger economy at home but our role in the world and the partnerships we build. That is why we are members of a number of multilateral organisations, including the UN, the G7, the G20, NATO, the Commonwealth—in which my noble friend has played such a prominent part—and the international financial institutions. They are all crucial to our ability to maintain and extend our reach and influence in the world.

I think it was the noble Lord, Lord Purvis, who referred to the fine words in the communiqué: fine words, yes, but very worthwhile objectives. We can reach such objectives only if we work with colleagues in other parts of the world through the sorts of institutions we have been talking about this evening. Of course, they need to be improved, targeted and focused and I hope to say something in a moment about monitoring, a theme that has emerged from our debate this evening.

In Osaka, the Prime Minister worked hard to bridge the differences between the G20 countries on some of the biggest challenges facing our nation: international trade, climate change, global health and preventing terrorist use of the internet. Discussions in Osaka were not always easy, but the UK made progress on each of these issues, which are important for safeguarding and furthering our national interest. I shall touch on some of them in a moment.

The Prime Minister welcomed the committee’s letter, which provided important perspectives ahead of the G20. She is in the process of responding to the questions it posed, building on her reflections from Osaka and previous summits; I have been assured that a reply is imminent.

As the noble Lord, Lord Hannay, said, the G20 leaders summit was formed to respond to the 2008 financial crisis. The rejection of protectionism and a commitment to an open global economy were key elements of the G20’s response. Yet, as noble Lords explained, trade tensions have escalated and trade restrictions and distortions are now in place, affecting hundreds of billions of dollars of trade. The WTO has forecast that the effects of a trade war could exceed even those of the financial crisis. So, my noble friend Lord Howell was right to raise in his letter these critical issues as areas of concern, especially at a time when we are negotiating our exit from the EU trading bloc, as the noble Baroness, Lady Northover, said.

We believe in open, free and rules-based international trade, as the noble Lord, Lord Hannay, mentioned. All nations must be encouraged to uphold these rules and open their markets if we are to build economies that truly work for everyone. That is why the Prime Minister made it clear that there are no winners in a trade war. We all stand to lose, and those on the lowest incomes stand to lose the most. We believe that any solution to the current tensions must have the multilateral system at its core. The system is not perfect and is in urgent need of reform; a number of G20 members, including the EU and Japan, have put forward credible proposals.

My noble friend’s letter mentioned concerns about the US Administration’s approach to the WTO. Working with like-minded partners, the UK will continue to encourage WTO members to engage constructively in the reform debate. In that regard, we welcome the United States’ submission of various proposals to strengthen the system and make sure that it is equipped with the tools needed to tackle present challenges, as well as its involvement in initiatives such as the EU-US-Japan trilateral group.

The G20 also expressed support for action to improve the functioning of the WTO’s dispute settlement system, which the noble Lord, Lord Hannay, mentioned, while the crucial issue of industrial subsidies is now firmly on the G20 agenda. On the dispute settlement system, we strongly support the informal process launched by the General Council at the WTO to seek a resolution to the appellate body issues. The proposals put forward so far by WTO members bring the right ingredients to many of the concerns raised. We urge all WTO members to engage constructively in the ongoing discussions.

Looking beyond the WTO, the G20 reaffirmed its commitment to strengthening further the global financial safety net with the IMF at its centre.

The noble Lord, Lord O’Neill, referred to the progress made on global health, particularly on AMR. I welcome the pioneering work of the noble Lord and Dame Sally Davies, as well as their continued efforts to keep this on the agenda for the G20. As the noble Lord mentioned, the latest estimates are that AMR currently accounts for 700,000 deaths annually; if we do not increase action, this figure is predicted to rise to 10 million by 2050—more people than currently die from cancer. There is a significant economic cost. AMR impacts on the economy through not just mortality and knock-on effects but increased health care expenditures and decreased livestock production. I will write to the noble Lord with more about what we are doing about AMR and why we are dealing with the market failure, which does not produce the antibiotic drug developments, vaccines and diagnostic technologies that we need. We are looking at a new model that identifies the right market incentives for research and development.

The noble Baroness, Lady Greengross, mentioned some of the wider imperatives on healthcare. The Prime Minister announced the UK’s new three-year funding pledge, averaging £467 million a year for the Global Fund. This will provide medication for more than 3 million people living with HIV, treatment and care for more than 2 million people suffering from TB and 90 million mosquito nets to protect children and families from malaria.

On climate change—which the noble Lord, Lord McNicol, mentioned—G20 countries have seen heat waves, floods and hurricanes hit with unprecedented frequency and intensity, contributing to conflict, state failure and illegal migration. Some 100 million more people will be pushed into poverty by 2030. Meanwhile, global efforts are not on course to meet the Paris commitments. If we take no further action, we are headed for a three-degree, and possibly well over a four-degree, rise in global temperatures and the dangerous impacts that would bring.

The message from the public is clear. Our citizens—particularly our youth, whose lives will be shaped immeasurably by climate change—demand action. Following the example of Greta Thunberg, hundreds of thousands of young people around the world have come together to demand greater action. As we heard in our debate, the G20 accounts for 80% of global emissions; its leaders have a critical role to play in reversing the trend.

As my noble friend Lady Anelay mentioned, we legislated earlier this month to reduce our net emissions to zero by 2050. My noble friend asked what we had said to President Trump. The Prime Minister was one of the first to speak to President Trump after his announcement in 2017, and she has had a number of conversations with him about it since. She has encouraged him not to leave the Paris agreement and continues to hope that the United States will honour it. Of course, it remains a disappointment that the US continues to opt out in an area of such critical global importance.

I shall try to deal with some of the issues raised in the debate. We take seriously and routinely monitor implementation of the commitments the UK makes in the G20. There are various mechanisms for monitoring implementation, including the G20 working groups, international organisations and independent organisations such as the University of Toronto, which compiles an annual compliance report. I am not sure it is desirable for a single international organisation to take overall responsibility for monitoring G20 agreements—it is probably best if the members do it themselves—but I take seriously the point raised about monitoring and will share that with the Ministers concerned.

I was asked how the G20 enforces the foreign bribery rules. Representatives from G20 countries meet routinely to track implementation of commitments made, and the G20 Anti-Corruption Working Group is responsible for the implementation of foreign bribery rules.

My noble friend Lady Anelay asked whether climate change was discussed on 15 and 16 June and which Minister attended. My honourable friend Thérèse Coffey represented the UK at the first joint meeting of the G20 energy and environment Ministers.

There was a discussion about non-G20 member states, and it is worth making the point that there are permanently invited guests such as the African Union, APEC and ASEAN. It is not the case that only G20 members have an impact on the discussions.

The noble Lord, Lord McNicol, asked about Crown Prince Mohammed. The killing of Jamal Khashoggi was raised and the Prime Minister made clear the need to have an open judicial system. She also raised the need for a political solution in Yemen, supporting the work of the United Nations and the special envoy.

I am conscious that my time is up—the screen is flashing—and I have not dealt with all the issues raised. I will write to noble Lords.

I conclude by saying that we have always understood that our success as a nation is tied to our collaboration with other countries and the relationships we build. As we leave the EU, the United Kingdom will continue to strengthen and draw upon our world-class diplomatic network and retain the same strong spirit of international co-operation and compromise that has long characterised our engagement with the rest of the world. This is the only way we can protect and promote our interests and ensure the prosperity and security of our citizens for years to come.

Today, the global system is under real stress. We must be honest in identifying problems and do more to work together to fix them. The UK has never been afraid to stand up for the global rules that underpin our values and our way of life—rules that govern our collective security, as well as the global economy. We must work flexibly to ensure that multilateral forums such as the G7 and G20 continue to function in a way that promotes genuine collaboration and dialogue, in order to confront the serious threats to global stability that we have heard about this evening.

House adjourned at 8.09 pm.

Councils: Funding

Lord Young of Cookham Excerpts

Thursday 4th July 2019 Lords Chamber

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare my interest as a vice-president of the Local Government Association.

[Lord Young of Cookham (Con)]

My Lords, the Government recognise the vital work that councils do to support their communities. That is why the 2019-20 settlement confirmed that councils’ core spending power will increase by 2.8% in cash terms, including an additional £650 million for social care. This is a real-terms increase in resources to support critical services. The department is preparing actively for the spending review, which is the right place to take long-term funding decisions.

[Lord Kennedy of Southwark]

My Lords, the research just published by the Conservative-led Local Government Association—referred to in my Question—shows that one-third of local authorities fear they are going to run out of funds by 2022-23, rising to two-thirds of councils by 2024-25. In the light of this disturbing and sombre news, does the Minister have any words of encouragement, hope—something—for hard-pressed local councils and their civic leaderships as they end their conference today in Bournemouth?

[Lord Young of Cookham]

Local councillors and local government officials have done remarkably well to maintain, and in some cases improve, the quality of the services they provide despite, since 2010, a reduction in grant until recently, which was necessary to balance the national accounts. I recognise that they have done that without excessive rate increases. Looking forward, I have seen the report to which the noble Lord refers and welcome the Local Government Association’s attempt to quantify the pressure on resources. That information will be used by Ministers to feed into the spending review to make the case for a proper settlement for local government.

[Lord Shipley (LD)]

My Lords, I also remind the House of my vice-presidency of the Local Government Association. Local government will be pleased that the Minister thinks that the sector is doing “remarkably well”. Indeed it is, but does he accept that local government is facing ever-rising costs in service provision at the same time as increasing pressure on income, not least from business rates in the retail sector? Do the Government accept that this situation is turning into a crisis and would benefit from urgent cross-party discussions across national and local government, looking forward to the spending review but also examining fair funding, assumptions about council tax levels and the future of business rates?

[Lord Young of Cookham]

I say to the noble Lord that I was a vice-president of the Local Government Association—until I was expelled for introducing rate-capping in the 1980s. On the serious issue he raises, extra funding announced in last year’s Budget means that the Government will have given councils access to £10 billion of dedicated funding that can be used for adult social care, which is the real pressure point, in the three-year period to 2019-20. That is a combination of the adult social care precept and the better care fund. As for his invitation to cross-party discussions, those are always welcome: it is always helpful to have consensus on how local government is funded. Announcements on fair funding and the business rates retention scheme will be made alongside the decisions of the spending review.

[Baroness Neville-Rolfe (Con)]

What can be done to ensure adequate funding for trading standards officers, who do such an important job on product safety? Fake airbags, dangerous tumble dryers: this disturbing list could get longer unless priority is given to this work in the spending review. It does not require huge sums of money, but it does require better resourcing.

[Lord Young of Cookham]

I pay tribute to the work done by trading standards officers, whose case is championed by my noble friend. As she will know, local government does not like funding that is ring-fenced, so the resources for trading standards are included in the block grant. As I said a few moments ago, there has been a real increase in the funding for this year’s settlement; I hope that when we get next year’s settlement, there will also be a useful increase. It is then up to local government to give priority to the services my noble friend referred to.

[The Earl of Listowel (CB)]

My Lords, has the Minister read the report by the Children’s Commissioner for England, an in-depth study of spending by local authorities on children’s services? It highlights that 2.32 million children in this country are suffering from significant risk factors and that by 2025 we will need to spend £10 billion a year to meet these children’s needs. Does he agree that we need to fund local authorities better so that they can provide the essential early support to families, so that children at risk do not need to be taken into care, foster care or residential care?

[Lord Young of Cookham]

The noble Earl makes a powerful point. In the Budget last year, £410 million was added to the social care support grant for adults and children. The case he has just made, reinforced by the report he refers to, will reinforce the case to be made by Ministers at MHCLG in their discussions with the Treasury about future funding.

[Lord Grocott (Lab)]

My Lords, given the Government’s advocacy and indeed imposition in many parts of the country of directly elected mayoral systems, and given the enormous pressure on local government finance, will the Minister tell us whether these new systems represent good value for money in comparison with more traditional methods of local government administration? If he does not have precise figures to hand, is it not worth at least examining the comparative costs of the two systems of local government?

[Lord Young of Cookham]

The Government have not imposed mayors on parts of the country; they have elected to have mayors. There has been no imposition. In all the cases involving combined authorities and local mayors, local government has come to the Government and asked that these powers be given to them. I think the noble Lord will find that he is misinformed that we have imposed this structure on local government.

[Lord Forsyth of Drumlean (Con)]

My Lords, has my noble friend had an opportunity to read the report today on social care from the Economic Affairs Committee? Will he note that social care and local authorities have seen a real-terms cut in resources and that 1.4 million elderly people are not receiving the care they need? Does he not recognise that shifting the burden on to local government and relying on business rates results in postcode inequality, as different local authorities have different demands and different abilities to raise resources? Should this not be funded centrally, and done urgently?

[Lord Young of Cookham]

I took the precaution of getting a copy of my noble friend’s report, which was published this morning. For the last 30 or 40 years, Governments have been trying to bring together health and social care. If you are an elderly person in need, you are not interested in a bureaucratic argument as to whether yours is a health or a social care problem; you want the support that you need. The dilemma my noble friend’s report addresses is that health is provided by national government and is free at the point of use, while social care is provided by local government and is means-tested. He addresses that problem by suggesting that local government should provide social care but it should be free and be funded by central government—that is the nub of the report. It is a hard-hitting report that expresses noble Lords’ frustration at the delay to the publication of the social care Green Paper. I very much hope that his report will accelerate a solution to this long-standing problem.

Affordable Housing

Lord Young of Cookham Excerpts

Wednesday 3rd July 2019 Lords Chamber

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper, and in doing so refer the House to my relevant registered interest.

[Lord Young of Cookham (Con)]

My Lords, it is government policy to increase the number of homes being built, including affordable homes. As far as possible, any impediments to selling government land and accelerating new house-building have been—and are being—removed. Guidance issued by the Treasury indicates that decisions should take account of wider social costs and benefits in the public interest, and it may be appropriate to choose an option that does not generate the highest Exchequer receipt.

[Lord Kennedy of Southwark]

I thank the noble Lord for that response. Making publicly held land available for the provision of social housing, encouraging below-value sales, would go a long way towards delivering on the Government’s pledges to fix our broken housing market, and have many other benefits. Can he tell us the likelihood of that happening?

[Lord Young of Cookham]

I agree. Until quite recently the policy on the disposal of government surplus land was that the best price should be secured—in the interests of the taxpayer, who is the ultimate owner. That money went into a central coffer and was then disposed of according to the Government’s priorities. There was a presumption against short-circuiting that process and disposing of land at less than best value. Two years ago that policy was amended, following a meeting of the housing implementation task force and, as I said in my reply, it is now possible to take the wider social costs and benefits and the public interest into account and to make the housing land available directly. A recent example of that was a site that was made available to the Government, initially to the homes agency—the Housing Corporation as was—and then passed on to Wolverhampton Council for £1. Now, 450 homes are being built on that land. That is a good example of what the noble Lord has asked for, and I hope that we see much more of it.

[Lord Naseby (Con)]

Is it not extraordinary that the Labour Party should remind us of the poor position of social housing? After all, the Blair Government had a very low quantum of building, the Brown Government followed suit and, I am sorry to say, the Cameron Government acted similarly. Against that background, is the example that my noble friend gave today not encouraging: that for a particular need the local authority is getting land at below cost price? Should that be the policy—for social housing only, where there is currently demand in some of our great cities?

[Lord Young of Cookham]

I agree with the thrust of my noble friend’s question. The other thing that we have done is that when surplus land becomes available from any government department it is put on a website, and the homes agency has the opportunity to acquire it before anybody else. It can put in a bid and do what he and the noble Lord suggested: to make the land available for housing. We are seeing more such transactions where the land is made available to local authorities or housing associations, and the Government are committed to providing 160,000 homes, I think, by March next year on land that was in government ownership in 2015.

[Lord Shipley (LD)]

My Lords, I refer the House to my interests in the register. A few days ago, at the Housing 2019 conference, the Prime Minister said that,

“we are delivering a whole new approach to social housing … Because this is a Government with a bold vision for housing and a willingness to act on it”.

Can the Minister can tell the House what that bold vision is for social housing?

[Lord Young of Cookham]

Yes, indeed. We announced that we would abolish the cap on the housing revenue account, to enable local authorities to build up to £4 billion- worth of new homes and introduce a new generation of council housing.

[Lord Dykes (CB)]

Since the Minister has conceded the need for government intervention against excessive free market distortion effects, particularly from overseas buyers, will the Government now take more action to ensure that empty properties are dealt with energetically and not left unoccupied, as are so many owned by overseas buyers, who pay just over £1,000 or £2,000 on council tax?

[Lord Young of Cookham]

Again, it is sad that any property is left empty for a substantial length of time, given the number of people in housing need. As the noble Lord will know, a premium rate of council tax is paid on properties left empty for more than a certain time. In certain parts of the country, additional council tax is levied on owners of second homes. I will, however, reflect on his question to see whether there is any further action we can take to make sure that houses are occupied by people who need them.

[Lord Hamilton of Epsom (Con)]

My Lords, I refer to my interests in the register. The Ministry of Defence is one of the main landowners in this country, and some of its land gets sold off for development. If it is sold below market price, the Ministry of Defence is effectively subsidising low-cost housing across the country. Is it right for that to happen?

[Lord Young of Cookham]

The Ministry of Defence had a target of disposing of land in 2015 that would provide 55,000 homes. In my initial reply, I said that the Government could take into account the wider social costs and benefits and the public interest. That is a good reason for not going through the whole process of putting the land on the open market and trying to get the best price but instead trying to do a quick deal that provides affordable homes, which may be more broadly in the public interest than the process initially followed.

[The Earl of Listowel (CB)]

This policy is particularly welcome when we think about “just managing” families and especially their children. As Baroness Farrington of Ribbleton reminded us, when children continually have to move home, their education is often disrupted. Is this policy not therefore particularly welcome for young people in such families?

[Lord Young of Cookham]

I agree that we should do all we can to increase the number of social homes that are rented. A £9 billion affordable homes programme is targeted on areas where affordability is a real issue. Within that, there is an opportunity for homes for social rent, which I know is of particular interest to the noble Earl.

Brexit: Other Policy Areas

Lord Young of Cookham Excerpts

Tuesday 2nd July 2019 Lords Chamber

[Baroness Massey of Darwen]

To ask Her Majesty’s Government what steps they are taking to ensure that appropriate consideration is being given by all departments to other policy areas alongside the preparations for the United Kingdom’s departure from the European Union.

[Lord Young of Cookham (Con)]

My Lords, the Civil Service has the capacity to deliver policies as prioritised by the Government and to deploy resources appropriately. We are ensuring that we properly resource and deliver on these priorities, such as backing the long-term plan for the NHS with an extra £33.9 billion a year in cash terms by 2023-24, creating record high employment, building more new homes, developing fresh policies to protect the environment and investing record sums in infrastructure.

[Baroness Massey of Darwen (Lab)]

I thank the Minister for that response. However, is he aware of the frustration within and outside Parliament about the number of key social issues that are being ignored or deferred because of the emphasis placed on Brexit? I am thinking of Bills on such issues as domestic violence, mental health and social care. When is the Government going to catch up?

[Lord Young of Cookham]

On the issue of social care, the noble Baroness will have heard responses from my noble friend who was pressed on the progress of the Green Paper on social care. I cannot add to what she said. As regards Brexit squeezing out legislation, we made it clear at the beginning of the session—which we knew would last slightly longer than usual—that Brexit would be a priority. However, we have so far introduced 63 government Bills, 44 of which have received Royal Assent, and, in addition to the European Union (Withdrawal) Act, 10 exit-related Bills are in Parliament or have received Royal Assent. So we have introduced 52 Bills that are not related to exit. It is not the case that Brexit has squeezed out all relevant social legislation.

[Lord Wallace of Saltaire (LD)]

My Lords, the Minister referred to the capacity of the Civil Service. The Conservatives were keen to reduce Civil Service numbers, did so in 2016 and planned to in 2017. Since then, I understand that they have had to go through some emergency recruiting to bring numbers up to what is needed to handle preparations for Brexit—and in particular a no-deal Brexit—and have not yet started on the number of extra civil servants we will need to staff all the agencies that will have to be created to replace those EU agencies that provided us with shared services. Can he give us some estimate of the additional number of civil servants who have already been recruited and the extra numbers we will need if and when we leave?

[Lord Young of Cookham]

I wish I could, but I honestly do not have those figures in front of me. The Civil Service has always had the flexibility to reflect government priorities and move people around from one department to another. At the beginning of the Blair Government, when constitutional reform was a priority—with the Scottish Parliament, the Welsh Assembly and reform of your Lordships’ House—resources were pushed into that. In the 1980s, when we had nationalisation, resources went there. So the Civil Service has the capacity to respond to challenges and, in my view, has always risen to that challenge.

[Lord Cormack (Con)]

My Lords, does the Civil Service have the capacity to respond to all the pledges that are currently being made?

[Lord Young of Cookham]

It would be premature at this stage to cost all the promises that are being made by the two contenders for the leadership of my party. When one of them becomes leader and Prime Minister, no doubt the Civil Service will then present him with a bill. Reality will then move in and difficult choices will have to be made about priorities.

[Baroness Lister of Burtersett (Lab)]

My Lords, the Secretary of State has acknowledged that the Government do not have what they call the “bandwidth” to deal with social care alongside Brexit. The Association of Directors of Adult Social Services has described social care in England as adrift on a “sea of inertia”. Is it not time that the Government did something to put an end to this inertia? I am afraid that the Minister’s response on social care was a bit dismissive in this context.

[Lord Young of Cookham]

I genuinely regret it if I sounded dismissive. I have sat through many exchanges on social care and the undertakings given to produce it by a given date. I understand the disappointment of noble Lords that that date has not been arrived at. There was an exchange with my noble friend relatively recently. I understand the urgency. We will produce the social care Green Paper as soon as we possibly can.

[Lord Dobbs (Con)]

My Lords, am I the only one to suspect that the complaints about Brexit dragging on, and the damaging implications of that, come from the very same sources as those designed to prevent Brexit ever being brought about? Would the logic of all this not be to get on with Brexit, get it finished and done, close down the Brexit department and get on with the rest of our lives?

[Lord Young of Cookham]

Yes. The Government plan to leave the European Union by the end of October and then we will indeed be able to get on with some of the other pressing issues. But I make the point that the Government have been taking action that does not require legislation. We had the Statement yesterday repeated by my noble friend about the 10-year NHS implementation plan. We have had Statements about zero carbon and about a breathing space for those in debt. We have announced 22 new free schools. So it is not the case that pressure on legislation is crowding out important initiatives that drive up the quality of life in this country.

[Lord West of Spithead (Lab)]

My Lords, the right reverend Prelate the Bishop of Derby has just taken her oath, in which defence was twice mentioned. Of course, defence and the security of the realm are the absolute highest priorities of any Government. Yet we are stumbling towards a comprehensive spending review with Armed Forces that everyone accepts are underfunded, and there seems to be almost no debate about it. Does the Minister agree that the amount of time this House has spent debating the most serious matter for any Government is rather small?

[Lord Young of Cookham]

If the noble Lord had joined my party three months ago, he would have been able to vote for one of the candidates who has made a specific pledge on defence expenditure. No doubt he is regretting that he did not take that step.

[Lord Harris of Haringey (Lab)]

My Lords, one of the candidates for the leadership of the Conservative Party has suggested that Civil Service leave during August should be cancelled. What impact does the Minister think that will have on Civil Service recruitment?

--- Later in debate ---

[Lord Young of Cookham]

If my party has any members who are civil servants, I think they would be unlikely to vote for that candidate. But the statement was qualified by saying that this would happen only if the Permanent Secretary was unable to give an assurance that all the Brexit preparations had been done; only if that assurance was not given would the threat be implemented. I am sure that the Permanent Secretaries will rise to the challenge.

Inflation

Lord Young of Cookham Excerpts

Monday 1st July 2019 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I thank my noble friend Lord Forsyth for introducing this and all noble Lords who have taken part in an exceptionally well-informed debate on a rather specialised, but none the less important, topic which impacts directly on all of us—as the noble Lord, Lord Darling, and my noble friends Lord Tugendhat and Lady Browning, explained. I also thank noble Lords for their detailed report, for which the Government are grateful; I thank, too, the departing members of the committee for their work.

Normally, I look forward to debates on my noble friend’s reports, but on this occasion it cast a small cloud over my weekend, as I realised that what I have to say may leave my noble friend and his committee less than satisfied. However, I hope to persuade him that there are good reasons for that. In fact, much of the debate focused not exclusively on the Government but on the role of the UKSA—particularly the speeches from the noble Lords, Lord Burns and Lord Turnbull. I am sure that they will read with interest what we have said today.

As a former Treasury Minister, albeit some 25 years ago, I took a deep personal interest in the Government’s response, possibly straying from my advertised role as a spokesman for the Treasury. I have read the report, which raises a number of complex and wide-ranging issues on the RPI, the Government’s use of inflation statistics, and the future of measuring inflation.

Before I continue, may I first pay tribute to John Pullinger, who recently retired as National Statistician? He had a distinguished term in that post. To mention but a few of his achievements in the role, he led the ONS strategy entitled Better Statistics, Better Decisions, headed the newly created analysis function, and worked alongside the UKSA to, in his own words, make it,

“unacceptable for people to either not use evidence, or to misuse it”,

a sentiment with which I am sure this House concurs—and relevant in view of the exchange earlier today in the Oral Question from the noble Lord, Lord Foulkes.

I should like to address the concerns of my noble friend Lord Forsyth, and the other noble Lords who sit on the Economic Affairs Committee, on the lack of a government response to their report, which was published in January—an issue raised by many noble Lords, including the noble Lord, Lord Sharkey.

The Government appreciate the amount of work and the level of scrutiny that go into all the committee’s inquiries; we understand its frustration. I regret that there is yet to be a government response and understand the difficulties in debating a Select Committee report without one being available. This delay is not driven by inaction. The issues that the report raises are complex and wide-ranging. Measures of inflation are embedded across the economy and affect the lives of almost everyone in the country. They include rental agreements, mobile phone contracts, financial instruments, government debt, pensions and rail fares, to name but a few.

[Lord Lea of Crondall]

Will the Minister take this opportunity to include wage and salary increases in that list? It seems quite extraordinary that the main quantitative use of the RPI does not get a mention, even now.

[Lord Young of Cookham]

I said, “to name but a few”, but I will gladly add the issue raised by the noble Lord to the list. Some, but not all, wage increases are linked to RPI.

Some uses of the measures are interlinked; for example, for pension schemes whose members, many of whom are in private sector defined benefit schemes, have pension payments that increase by RPI. This means that, in turn, those schemes seek RPI-linked assets to hedge those liabilities. As a result, a large share of the Government’s outstanding RPI-linked debt is held by those pension schemes. The Pension Protection Fund estimates that almost 90% of outstanding index-linked gilts are held by UK defined benefit pension schemes and UK insurance companies.

The breadth, complexity, and importance of these issues mean that the committee’s report requires further careful consideration. Given the complexities of the issue, it is sensible that the Government and the UKSA produce a well-considered response—while respecting the UKSA’s independence, of course.

[Lord Forsyth of Drumlean]

A very kind and polite person from the Chancellor’s office rang me to say that there would not be a response. I said that I was not sure that the House would like that very much, but he said, “Don’t worry, Lord Young will be able to deal with the debate”. The Minister gave a reason for the complexities of the system: that so many things rely on the RPI. If that is so, is that not a reason to make sure that the RPI is accurate? I cannot get my head around it.

[Lord Young of Cookham]

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

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

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

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

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

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

[Lord Tunnicliffe]

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

[Lord Young of Cookham]

One of the locks is CPI.

[Lord Tunnicliffe]

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

[Lord Young of Cookham]

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

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

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

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

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

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

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

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

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

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

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

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

Statistics: Accuracy

Lord Young of Cookham Excerpts

Monday 1st July 2019 Lords Chamber

[Lord Foulkes of Cumnock]

To ask Her Majesty’s Government what procedures they follow to ensure the accuracy of any statistics used by ministers in parliamentary proceedings.

[Lord Young of Cookham (Con)]

My Lords, the independent UK Statistics Authority’s Code of Practice for Statistics details the practices to which departments must commit when producing and releasing official statistics and of which Ministers must be mindful under the Ministerial Code. Upholding the code of practice in each department is the responsibility of that department’s head of profession for statistics, who is professionally accountable to the National Statistician. This will be reflected in the arrangements of individual departments for ensuring that parliamentary statements are accurate.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, we know that the Government are worried when this Minister is put up to answer the Question. Is he aware that: on 10 January, the noble Baroness, Lady Buscombe, misled the House on benefit statistics; on 1 April, the noble Lord, Lord Bourne, did the same on rough sleepers; and, on 4 April, the noble Lord, Lord Henley, gave false statistics on fuel poverty? For these breaches, should not these Minister be referred to paragraph 8.15 of the Ministerial Code, to which the Minister referred, for breaking the UK Statistics Authority’s code of practice? This House is fed up with being given false statistics by government Ministers to cover up the misery caused by their austerity.

[Lord Young of Cookham]

If the noble Lord looks at the website of the UK Statistics Authority, he will see when Sir David has intervened since August 2017. Counting the interventions when he has written directly to a parliamentarian, raising issues with their presentation of statistics, four are Conservatives and five are Labour. However—to avoid accusations of misuse of statistics—if one then looks at the indirectly critical letters, where Sir David has written to a third party, agreeing with them and copying the letter to the parliamentarian, my party is the worst offender.

[Lord Tyler (LD)]

My Lords, does the Minister recall occasions in the other place where, immediately when it was pointed out that statistics or other information given to that House was misleading, Ministers immediately came to the House—not waiting for somebody dealing with statistics in their department or whatever—to make an apology and clear up the matter? Is it not much better to own up? Do Ministers not get more respect from their respective House if they are prepared to accept that what has happened is not right? I recall such an occasion, when a statement was made and an apology was made to me. Does he not recall that too?

[Lord Young of Cookham]

Under the Ministerial Code, if a Minister misleads the House, he or she is obliged to put it right. So far as Ministers doing the right thing, a year ago the Home Secretary resigned after inadvertently misleading the House. I say in passing that when it comes to the creative use of figures, none of us can lay a glove on the Liberal Democrats, with their use of bar charts—“Only the Lib Dems can win here”. These multicoloured instruments of fantasy now have a website all of their own on Buzzfeed.

[Lord Forsyth of Drumlean (Con)]

My Lords, does my noble friend not think it wrong that the official statistics body has openly admitted that there is an error in the retail prices index which results in commuters, students and other groups being short-changed? Should not a body responsible for the integrity of our statistics resile from its current position, where it refuses to adjust the error?

[Lord Young of Cookham]

My noble friend tempts me to reach for my folder which has a 20-minute speech in response to his debate, which is shortly to begin, on the use of the retail prices index and the role of the UK Statistics Authority. If he can contain himself until then, he will get a very full reply.

[Lord Watson of Invergowrie (Lab)]

My Lords, “lies, damned lies and statistics” is a phrase generally accepted to have been coined by a former Tory Prime Minister. Modern Tory Ministers seem to have misinterpreted it, because Benjamin Disraeli was not advocating it as party policy. The UK Statistics Authority’s latest rebuke of the Department for Education over misleading statistics to support claims of generous funding for schools is the fifth since the Secretary of State for Education took up his post in January 2018. The facts are that £2.8 billion has been cut from school budgets since 2015, leading to 91% of schools having less per pupil in terms of funding. Can the Minister say what it will take for the Government to heed the advice of the UK Statistics Authority that, for a “meaningful debate” on any aspect of public policy to take place, there is a requirement for trustworthy data?

[Lord Young of Cookham]

I agree with that. If any Minister misuses statistics then, under the Ministerial Code, as I said, he should put the record right as soon as possible. As I also said, the UKSA covers not just Ministers but all those in public life. We all have a duty to use statistics responsibly, because if we do not, it just debases public confidence in our profession.

[Lord Hunt of Kings Heath (Lab)]

In that regard, has the Minister been following the promises made by Mr Johnson and Mr Hunt over the weekend of low taxation and a massive increase in public expenditure? Does he think that those promises should be subject to the Statistics Authority’s considerations?

[Lord Young of Cookham]

As a former Treasury Minister, I view with alarm the weeks that are passing during the contest which is under way, where increasingly generous commitments are being made from the headroom which lasts, I think, for only one year. I hope that, in due course, there will be costings for all these commitments so that the members of my party who are choosing which is the most responsible leader can see which one has the most credible economic policy.

[Lord Cormack (Con)]

My Lords, are statistics written on the side of a bus subject to these strictures?

[Lord Young of Cookham]

I believe my noble friend is referring to the £350 million figure produced during the referendum. That was not a government statistic or a Conservative Party statistic. It was a Vote Leave statistic, which was criticised at the time by Sir Andrew Dilnot, who made it clear that the £350 million was a gross figure that did not take into account the rebate or other flows from the EU to the UK. The gross annual figure of £19.1 billion—the basis of the Vote Leave claim—reduced to £7.1 billion after these factors were taken into account. Sir Andrew concluded, in what might be considered an understatement, that the £350 million figure was “potentially misleading”.

Small and Medium-sized Enterprises: Mistreatment

Lord Young of Cookham Excerpts

Thursday 27th June 2019 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I commend the noble Baroness, Lady Bowles, on her choice of subject and the speech she made in introducing it. As the noble Viscount, Lord Chandos, and the noble Lord, Lord Davies, said, it was forensic, well-informed and critically focused.

The Government want a strong, diverse and dynamic economy in which small businesses are respected and valued. As we have consistently said, the mistreatment of businesses by the Royal Bank of Scotland’s GRG from 2008 to 2013 was unacceptable and clearly at odds with that ambition. When discussing circumstances such as these, we should always remember the human element to each case. As the backbone of our economy, small businesses must be able to trust that their financial service providers will support them as they strive to meet their ambitions. The real distress that has been felt by GRG customers must be heard, acknowledged and referred to during our debate. It is vital that lessons are learnt from these events, which has been the theme running through the debate today.

I was shocked to read that 86% of SMEs in RBS GRG suffered inappropriate treatment, a point made by the noble Baroness. RBS has rightly apologised for these mistakes and has set up a scheme to compensate victims, overseen, as the noble Viscount, Lord Hanworth, said, by the independent reviewer, Sir William Blackburne. This scheme has paid out more than £150 million in redress so far, comprising both automatic refunds of complex fees and then payments for direct loss. Approximately two-thirds of complaints have been addressed so far and the Government are closely monitoring the progress of the scheme.

On the Financial Conduct Authority’s investigation—again one of the issues raised during our debate—let me set out the steps it has taken. First, it used its statutory powers to commission a skilled person’s report of how GRG treated its customers. This report identified that there was widespread inappropriate treatment of SME customers by RBS but concluded that,

“there was no widespread or systematic inappropriate treatment”,

of SME customers by RBS in a number of areas. This includes allegations that RBS artificially engineered a position to cause the transfer of an SME into GRG, although the report found isolated examples of serious malpractice.

The skilled person’s report also made findings which indicated that GRG’s senior management were aware, or should have been, of some of the issues identified. The FCA therefore opened an enforcement investigation to understand senior management’s knowledge of the issues in GRG and whether there was any basis for enforcement action. The FCA announced on 31 July last year that it had completed its investigation and concluded that any further action against senior management at RBS GRG,

“would not have a reasonable chance of success”.

I think it was the noble Lord, Lord Sharkey, who asked what the Government’s view was of that. The FCA is an independent non-government body and it would be inappropriate for the Government to comment on its conclusions on that case.

Following this, the Government appreciate that those businesses affected by the actions of RBS GRG would have expected to understand exactly how the FCA came to that conclusion, especially as it would have been viewed as a disappointing outcome by many. The FCA’s final report published on 13 June therefore supplies this clarity, and the Government welcome this transparency.

The noble Baroness, Lady Bowles, wanted more information about exactly how the FCA came to this conclusion. I encourage her to contact the FCA directly on this point. I will make it aware of her request.

Businesses affected by events at RBS GRG, as well as by other historic issues in business banking that have dominated public discourse in this area over the past few years, will rightly ask what has changed to prevent such circumstances arising again. That has been a theme of this debate, particularly in the contribution of the noble Lord, Lord Davies.

First, in future the senior managers and certification regime will allow the FCA to hold managers to account for the way they treat their SME customers. The Government expect the highest standards of behaviour across all financial services firms and believe that this is an important step in restoring public trust in the sector. The SMCR strengthens the regulatory toolkit by promoting individual responsibility for misconduct, holding senior managers to account for misconduct that occurs under their watch and ensuring that individuals at all levels can be held to appropriate standards of conduct. I was asked by the noble Lord, Lord Sharkey, I think, whether the SMCR would prevent such issues happening again. It is a good question. Andrew Bailey was clear in front of the Treasury Select Committee yesterday that the SMCR gives the FCA the ability to act, should circumstances similar to GRG ever occur again.

The second change that has taken place is that all major lenders have signed up to the standards of lending practice. Overseen by the independent Lending Standards Board, the standards for business customers set the benchmark for good lending practice in the UK, including when business customers experience financial difficulty, and contain clear guidance on best practice. If a lender breaches the standards, it may be warned, issued directions as to future conduct and possibly publicly censured by the Lending Standards Board.

The third change is that as of 1 April this year more than 99% of all UK businesses now have access to fast, free and fair dispute resolution in the form of the Financial Ombudsman Service. In response to the point raised by the noble Lord, Lord Davies, I say that the Government’s position is that an ombudsman-style approach is preferable to the tribunal that he suggested as it does not require the regulation of SME lending, it can apply a fair and reasonable test, it does not require legal representation and it has the potential to resolve disputes swiftly and efficiently.

We have been clear that where there has been inappropriate treatment of SMEs by their bank, it is vital that those businesses can resolve these disputes and obtain fair redress. That is why we supported the FCA’s recent expansion of eligibility to complain to the FOS to include small businesses as well as micro-enterprises.

A question that has been raised consistently by the noble Baroness, Lady Bowles, the noble Viscounts, Lord Chandos and Lord Hanworth, and the noble Lord, Lord Sharkey, is why the regulation does not apply across the board. In other words, why do only three of the 11 principles apply, not all of them, and should we not therefore extend the scope of regulation? As I just said, the financial services industry has changed significantly since the very challenging period following the financial crisis. Given the factors that I have just set out, the Government do not believe there is a clear case for bringing SME lending into regulation as there would be a number of direct and indirect costs associated with such a move. Direct costs would include annual FCA fees, product reviews and increased compliance and monitoring costs while indirect costs could include stifled product innovation, a narrower product choice for SMEs, and higher barriers to entry leading to reduced competition in the SME lending market. These changes could in turn impact on the price and availability of credit for small businesses, which would not be a desirable outcome. Having said that, I detect a very strong view from all those who have spoken that there might be a case for looking at this again and that if the principles are good principles, why should they constrained in the way that they are? That is a message that I will certainly send back to my seniors.

I shall try to deal with some of the other points that were made. The noble Baroness, Lady Bowles, asked whether the asset protection scheme has had an impact. As the FCA report makes clear, no evidence was found that the RBS’s participation in the APS made any difference to the way in which customers were treated. The FCA-commissioned skilled persons review of RBS noted that, in relation to the sample of cases it had reviewed, it has,

“not seen evidence … where the existence of the APS had an effect on how RBS approached the customer”.

Picking up a point made by the noble Viscount, Lord Chandos, I say that we have been clear that banks need to work hard to restore businesses’ trust in the institutions of banks. I am sure RBS will have noted the specific criticism that he made about it in particular. We have welcomed the banking industry’s commitment to establish a voluntary dispute resolution service. Having these standing dispute resolution mechanisms available for SMEs is an important part of restoring businesses’ trust in the sector.

The shareholding which the noble Viscount raised is managed by UK Government Investments on an arm’s-length and commercial basis. Commercial and operational decisions are for the RBS board to make. That said, of course the Government expect the highest standards of conduct from all businesses.

The noble Baroness, Lady Kramer, asked why the FCA did not go to phase 2 of the report. The FCA decided it was more appropriate to undertake a focused investigation itself than to progress to the so-called phase 2, which would be led by an independent third party. This allowed it to proceed straight to consideration of enforcement action, if it were deemed necessary, and ensured that the FCA was able to conclude any investigation more quickly. I need to write to the noble Baronesses, Lady Bowles and Lady Kramer, on some of the issues and questions they raised.

I assure noble Lords that we have taken the matters relating to the RBS GRG seriously and I have taken on board the comments, criticisms and suggestions that have been made during this debate. While we acknowledge the disappointment that many will feel at the conclusions of the FCA’s investigation—a theme running through our debate—lessons have been learned. We have the senior managers regime in place, firms have signed up to the standards of lending practice, and there is a permanent dispute resolution mechanism through extended access to the FOS. We are not complacent. We will continue to remind banks of the importance of earning the trust and faith of small businesses and will continue to monitor progress of the compensation scheme under Sir William Blackburne. With seconds to spare, I thank noble Lords again for their contributions to this debate.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Lord Young of Cookham Excerpts

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

Moved by

[Lord Young of Cookham]

That the Bill be now read a second time.

[Lord Young of Cookham (Con)]

My Lords, it is a pleasure to open this short Second Reading debate on the National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill. This is a small but important Bill that aims to bring the national insurance contributions, NICs, and tax treatment of termination awards and sporting testimonials into closer alignment. The rules determining the income tax treatment of termination awards and sporting testimonials were legislated for in the Finance Acts 2016 and 2017. Implementation of the measures in this Bill, announced at Budget 2018, will replicate these rules in NICs legislation.

The Bill has been expected for some time. Both measures were first announced at the Budget 2015, consulted on and published in draft in 2016. They were subsequently confirmed at Budget 2018, so they are expected by those affected and have been subject to much scrutiny. Together, they mean that a 13.8% class 1A employer NICs charge will be applied to income derived from any termination award over £30,000 or sporting testimonial over £100,000 that is already subject to income tax.

Let me give more detail on termination awards. Between 2013 and 2014, the Office of Tax Simplification reviewed the tax treatment of employee benefits and expenses. The OTS published an interim report in August 2013 identifying termination awards as a priority area. It found that relatively few employers and employees properly understood the regime and it recommended reform. The Government announced at Budget 2016 that they would implement the reforms of the tax and NICs treatment of termination awards and, shortly after this, they published draft legislation.

The reforms to the income tax treatment of termination awards were legislated for in the Finance (No. 2) Act 2017 and took effect from April 2018. The Government confirmed at Budget 2018 that the associated reforms to NICs legislation would be in place for April 2020. However, the fact that termination awards are currently subject to different income tax and NICs treatment has created confusion. Moreover, the current misalignment incentivises well-advised employers to disguise final payments as compensatory termination awards that benefit from a NICs exemption.

The Bill will place a 13.8% class 1A employer NICs charge on income derived from termination awards on amounts over £30,000. However, I assure noble Lords that employee NICs payments will remain entirely exempt. Employees will not face any additional liability as a result of these changes. Only around 1% of the workforce will receive a termination award in any given year, and of these around 80% will be unaffected by the Bill. This measure will raise around £200 million per annum for the Exchequer and make a useful contribution to public finances.

Finally on termination awards, it might be helpful if I address one of the main points raised during Report in the other place. Opposition Members proposed a new clause that would have required the Government to report every two years on the impact of the changes to termination awards on the number and size of awards, as well as any effect on specified groups with protected characteristics. As the Exchequer Secretary explained, the Government had already assessed the impact of the policy in compliance with our duties under the Equality Act 2010 and the conclusions were published as part of the tax information and impact note. No groups are explicitly targeted by the policy, which affects all groups identically in legal terms. Our assessment found no disproportionate impact on any of the groups specified in the proposed new clause. It is also worth noting that since 2017, if not further back, the Government have received no representations from stakeholders regarding any disproportionate impact on protected groups, despite our consulting extensively in 2015 and legislating for changes to the income tax treatment of termination awards in 2017.

I turn to the second measure in the Bill: aligning the class 1A employer NICs treatment of income from sporting testimonials with the income tax treatment. A sporting testimonial is a one-off event, or a series of related events, held on behalf of sportspersons who have played for a certain club for a long time. This often takes the form of an exhibition match involving famous players from the past and present. The testimonial can be used to raise money for the sportsperson before retirement, or sometimes to raise money for charity.

The relevant income tax changes came into force from April 2017. The rules governing sporting testimonials are now changing to give clarity to the NICs treatment. Currently, where a sporting testimonial is non-contractual or non-customary, it can be organised by a third party rather than the employer, to raise money without it being subject to NICs. Where the employer arranges the testimonial, if it is part of the contract or there was an expectation that the sportsperson would be entitled to one, the testimonial is already subject to income tax and NICs.

From April 2020, any income derived from non-contractual and non-customary testimonials arranged by third parties exceeding the £100,000 threshold will be subject to a class 1A employer NICs charge of 13.8%. I will say a few words about the £100,000 threshold. Some noble Lords may be aware that the Government consulted extensively on the proposals for reform, the draft legislation, guidance, and the threshold. Following this consultation, the Government increased the tax-free threshold from £50,000 to a very generous £100,000.

These types of testimonials will not be subject to employee NICs to ensure that the sportsperson is not adversely affected. I also emphasise that the Government expect the impact on charitable donations to be minimal, since donations made from sporting testimonials via payroll giving, operated by independent sporting testimonial committees, will not be subject to any income tax or NICs at all. I also reassure noble Lords that the vast majority of sporting testimonials will be unaffected by the Bill. HMRC estimates that there are only around 220 testimonials each year, with an average taking of around £72,000.

In conclusion, although this is a small Bill, it is nevertheless important and necessary. By bringing the national insurance and tax treatment of termination awards and sporting testimonials into closer alignment, the Bill simplifies the tax system, reduces the incentives for manipulation and raises important revenue for our public services. I commend it to the House.

--- Later in debate ---

[Lord Young of Cookham]

My Lords, this has been a short but interesting debate, and I am grateful for all the contributions made. The noble Lord, Lord Macpherson, claimed paternity for this reform and emphasised the logic of what is contained in the Bill. He reminded us of the different characteristics of national insurance and income tax and raised some broader issues about alignment. I can confirm that we will continue to look for opportunities for alignment, as he suggested. He wanted to extend the measure to employee NICs, which I think would qualify as mission creep in the vocabulary of the noble Baroness, Lady Kramer. We have no plans to charge employee NICs on termination awards, or indeed on testimonials. We think that the changes in the Bill strike the right balance between simplification and keeping taxes associated with redundancy at a reasonable level.

The noble Baroness asked about abuse. HMRC has evidence that a minority of well-advised employers have been manipulating the rules to minimise their NICs liability, which is a further reason for seeking to bring in this alignment. She made an interesting point about averaging: namely, that if you get a lump-sum redundancy or testimonial and no other income for a period, you should be allowed to spread it over a number of years. I would be misleading her if I said that that was likely to happen, but it is an interesting suggestion which we shall take on board and see whether there is an opportunity to spread the receipts.

I am grateful for the kind words of the noble Lord, Lord Tunnicliffe, about Treasury officials. He raised concerns that the Bill would result in smaller termination awards being made to employees unfortunate enough to lose their jobs. Noble Lords will know that no individual, on termination of his or her employment, will face an additional NICs liability as a result of the Bill. The class 1A employer NICs liability is a liability on the employer. On his question, as I think I said earlier, only 1% of employees receive a termination award each year, and of these only 20% will be affected by the Bill—but it is entirely up to businesses how any additional NICs liability is accounted for.

The noble Lord asked for reassurance that responsibility for any miscalculations of class 1A employer NICs or income tax will lie with the employer. I am happy to confirm that position for national insurance. In the case of any underdeduction or underpayment of PAYE income tax by an employer, HMRC is obliged to recover in the first instance from the employer. However, in some circumstances, for example where the employer made an innocent error or the employee knew that insufficient tax had been paid, HMRC may transfer the PAYE income tax to the employee at a later point.

The noble Lord asked how different forms of termination payment were treated for the purpose of determining eligibility for, and the calculation of, social security benefits such as universal credit. I can reassure him that the changes being introduced in the Bill do not affect the interaction of termination payments and universal credit. Termination payments in the form of redundancy pay are treated as capital rather than earnings and are therefore disregarded as income for universal credit purposes. However, if that payment results in someone having more than £16,000 in savings, they would no longer be eligible for universal credit. Termination payments in the form of payments in lieu of notice—PILONs—are treated as earnings for universal credit.

None the less, the Bill will not negatively affect a household’s universal credit entitlement, because earnings for universal credit are considered net of income tax and NICs. This is fair, as the purpose of a termination award or sporting testimonial is to ensure that the individual unfortunate enough to lose their job receives a lump sum, a large part of which is tax free, to cover the costs associated with retraining and finding a new job.

With regard to sporting testimonials, the noble Lord raised a concern that the new NICs charge could reduce donations to charitable organisations. I am happy to reassure him that, because testimonial committees are required to operate PAYE on income from testimonials in excess of £100,000, any charitable donations can be made through payroll giving without incurring any income tax or NICs liability at all. HMRC will ensure that the published guidance will make this clear prior to implementation.

I also assure the noble Lord that, although we have received no indication that the current guidance is causing any practical difficulties and this Bill does not make any changes that would supersede it, we will continually update our guidance in response to the issues raised during the passage of the Bill. This will include some practical examples of non-contractual and non-customary sporting testimonials to ease understanding, in response to the issue just raised by the noble Lord.

The noble Lord also asked what steps the Treasury would take to review the impact of the measures in the Bill. Again, I reassure him that the Treasury will continue to keep these issues under review once the measures in the Bill are in force. In the published tax information and impact notes for the measures in the Bill, the Government set out their commitment to review the policy through communication with taxpayer groups affected by the measure. We are also committed to carrying out post-legislative scrutiny three to five years after the Bill becomes an Act.

I say to the noble Lord and to all other noble Lords who have taken part in this debate that we are of course happy to have further informal discussions before the remaining stages of the Bill if any noble Lords would find that helpful. I am grateful for the opportunity to explain the issues that have arisen today and for the support of noble Lords for the Bill, and I am delighted to commend it to the House.

Bill read a second time and committed to a Committee of the Whole House.