Independent Banking Commission Report

Steve Baker Excerpts

Monday 12th September 2011 Commons Chamber

[Mr Osborne]

I, too, used the phrase “back-stop” in the statement. Vickers recommends that the changes be completed by 2019, but also recommended in his press conference that they be legislated for in this Parliament and that some of the changes might take place before that. We need to consider all these issues, but I think we need to pay attention to the 2019 date that Vickers sets out in his report.

[Steve Baker (Wycombe) (Con)]

I congratulate the Chancellor on this report, but I believe it takes for granted the adequacy of accounting standards. Will he look again at the incentives and risks inherent in the international financial reporting standard?

[Mr Osborne]

Yes, I will certainly do that. One of the discussions going on in international circles at the moment is how to make all the various standard-setting bodies more accountable. They are very powerful institutions now and they are not really accountable to national Parliaments or international bodies that represent national Governments. Discussion is going on about how the Financial Stability Board, which is the organisation that brings together different banking areas and different countries to discuss regulation, might be able to make the international accounting standards more accountable.

Finance (No. 3) Bill

Steve Baker Excerpts

Monday 4th July 2011 Commons Chamber

There is huge uncertainty because of the damage caused by the initial tax imposition and the tax system proposed in the Bill, but discussions about what is to happen in 2013-14 are taking place now. The sooner the Government can give us an indication of what they intend to offer in field allowances the better it will be, not just for the individual companies involved but for the country, because investment from abroad is desperately needed.

[Steve Baker (Wycombe) (Con)]

As I listened to the hon. Member for Hayes and Harlington (John McDonnell) speak to amendment 15, I thought that my ears were deceiving me because I felt so much sympathy for what he was saying. Indeed, he put me in mind of a book by a reformed Trotskyite, James Burnham, who predicted in “The Managerial Revolution” the system of capitalism—the set of structures—that we now recognise in publicly listed companies. My discomfort evaporated, however, when I realised that the hon. Gentleman was defending the interests of the owners of capital.

[John McDonnell]

Some of us are not completely reformed.

[Steve Baker]

In that case, I am delighted that we are on opposite sides of the Chamber.

It is strange that capitalism has come to this: that, nowadays, the owners of capital need to be defended by the House from their own directors. If I have understood the amendment correctly, it would mean that the change in the main rate for 2011 would not come into force until legislation had provided arrangements for shareholders to approve their directors’ remuneration. It is almost incredible that such an arrangement does not already exist.

We must reunite ownership control and the risk taken with capital, and I believe that the amendment goes to the heart of one of the problems of our capitalist system. I am not sure that it would achieve the aim that the hon. Gentleman has set out because it might not affect the rate for 2011, and I therefore cannot support it. Nevertheless, I think it is an extremely good idea, and I urge the Government to consider it.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

I support amendment 51, tabled by my right hon. Friend the Member for Gordon (Malcolm Bruce). I remind the House of my entry in the Register of Members’ Financial Interests as a shareholder in Shell and a vice-chair of the British offshore oil and gas industry all-party parliamentary group.

The key aim of the amendment is to introduce damage limitation and to rebuild the confidence and trust among investors that the country needs if we are to maximise the benefits of our own oil and gas. The oil and gas under the ground does not provide us with any jobs, tax or security of supply. Those are produced only when it comes out of the ground, and, although it belongs to the nation, we can get it out of the ground only through the expertise and skill of people from my constituency and throughout the country. They apply their knowledge by way of the investment provided by risk capital, and the investors must know, as far as possible, in what climate they are operating and what returns they will obtain. The kind of risk that we rely on their taking is illustrated by a field in the North sea where the geology suggested that three platforms would be enough to sustain production and provide all the necessary equipment. Only when they started extracting the oil did they discover that there was much more sulphur in some parts of the field than in others and that they needed to build a fourth platform at a cost of £1 billion. Such extra risk taken by investors—not by the Government or the taxpayer—must be recognised as being of great importance to our country’s success in this regard.

Last week, we held a reception in Parliament for Subsea UK to highlight an industry that has developed into a jewel in the crown of this country, yielding £6 billion in production from under the sea through engineering skill, half of which is exported from this country. The United Kingdom is responsible for one third of the world’s subsea engineering; we therefore have something very important to nurture and build on.

The field allowance discussions are an important means of trying to unlock some of the fields that will be negatively affected by what has been proposed. The hon. Member for Aberdeen North (Mr Doran) and my right hon. Friend the Member for Gordon emphasised a longer term risk that needs to be addressed: the risk not to the projects that are unwinding now and in the next two years, which already had the momentum of contracts signed and delivered before the tax was changed, but to those that will be decided in the culture and investment climate prevailing in the aftermath of the tax. That is why these talks are so important in rebuilding trust and a constructive engagement.

I welcome the fact that industry and Government appear to be addressing the need for constructive engagement, and any updates from Ministers as to how we are progressing in rebuilding trust will be very important. We must remember that the reputations of the country managers—the people in this country who work for the multinational companies and the investors abroad—has been damaged by what happened. They have been encouraging their investors to invest in this country in one set of circumstances, only for the goalposts to be shifted. They need trust and confidence in them to be restored if they are going to persuade their investors abroad—in Calgary and elsewhere—to invest again in our country so we can build on the potential that exists.

--- Later in debate ---

[Mr Gauke]

I know that my ministerial colleagues in the Department for Business, Innovation and Skills are watching this debate very closely and will have listened to the hon. Gentleman’s representations. I noticed that when he referred to the House as a whole, he gestured to my hon. Friend the Member for Wycombe. Whether the hon. Gentleman and my hon. Friend necessarily represent the views of the House as a whole on all issues I am not sure, but the hon. Gentleman raises a fair point.

[Steve Baker]

May I say that I think the reason for this unlikely alliance is that the workers now are the capitalists through their pension funds and other investments? I remember a trade unionist explaining to me with some care the new movement for workers’ capital and I think we will be missing a trick as a free-market Government, if indeed we are a free-market Government, if we do not recognise that the workers now are the owners and that we need to help them take control of what they own.

[Mr Gauke]

I do not know whether my hon. Friend is trying to lose the support of the hon. Member for Hayes and Harlington on this, but I fully take his point on board and I shall ensure that BIS is aware of this debate. My right hon. Friend the Business Secretary has said that shareholder accountability is an area that his Department will be looking into in the autumn.

Private Finance Initiative

Steve Baker Excerpts

Thursday 23rd June 2011 Westminster Hall

[Neil Carmichael]

Devon: it gets better! My hon. Friend made that point rather well. It certainly needs to be considered, as specifying and procurement are critical.

We also need to understand value for money. Most PFI schemes under the previous Government did not seem to do so. The next big task is to define value for money. That will be helped if we get the data right and if we understand the systems in each project. Many people talk about the difficulties of PFI schemes in hospitals. I am not surprised, given that many hospitals cannot even tell you the cost of an operation. We need more data. If we have much more information about what is happening, it will inform the debate about value for money.

Another big problem is the lack of accountability in the decision-making process. I said that it is important to specify and procure properly, but if we do not hold those who do the specifying or procuring properly to account we will have only ourselves to blame. We need systems to ensure that specifications are clear and all-inclusive and produce the right procurement. We then need to ensure the right attitude to procurement, a point made by my hon. Friend the Member for Warrington South (David Mowat).

[Steve Baker (Wycombe) (Con)]

I hope that my hon. Friend will forgive me telling a small anecdote. I remember being told a story by one of the famous bomber command air officers. When talking about procurement, he said, “The thing to do is not to make a small mistake, because if you do they can pursue you for it. The thing to do is to make an enormous mistake.” Is that not part of the problem? Enormous mistakes are being made, and we cannot possibly hold individual officials or politicians to account for such giant sums.

[Neil Carmichael]

I thank my hon. Friend for that. I do not like any mistakes; I do not like small ones, but I especially dislike big ones. We need a system that allows fewer of both, but particularly large ones.

--- Later in debate ---

[Steve Baker (Wycombe) (Con)]

It is a pleasure to serve under your chairmanship, Mrs Main, and I will try not to attribute too many of the flaws in PFI to you.

[Mrs Anne Main (in the Chair)]

I would be grateful.

[Steve Baker]

I, too, would like to congratulate my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) on securing the debate, and to pay tribute to his leadership, his courage and his intellect. As I listened to the debate, I noticed a strange thing: Conservatives verging on sounding like anti-capitalists.

[Lorely Burt]

Never!

[Steve Baker]

And indeed Liberals seem to have spoken as anti-liberals. I am perplexed by that. I would like to develop one point: how PFI fits into the nature of our society. I am reminded of something that Churchill said, which I think speaks to the third way. He said:

“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk.”

I will come back to how he finished the quote at the end. It strikes me that the third way seems to have turned private enterprise into a vampire squid to be suckered on to the faces of people on normal and low incomes.

I am pleased that my hon. Friend wishes to respect contract. Given that the world contains imperfect self-interested people, and given that we have imperfect knowledge of the world, it is important that we are secure in the institutions that we create and in which we operate. Therefore, I am delighted that my hon. Friend emphasised the need to respect contract and to seek voluntary renegotiation. I was particularly impressed that my hon. Friend the Member for Suffolk Coastal (Dr Coffey) hinted at the need for a moral basis on which to operate in capitalism and society. It is necessary that people do not simply blame procurement processes—much as they are an institutional factor—but look to themselves to behave decently.

There are many questions that we could discuss: who provides, who pays, where risk lies. However, I would just like to develop one point made by my hon. Friend the Member for South Norfolk (Mr Bacon), who said that fat cats are getting fatter at public expense. I believe that is broadly his remark. That reminded me of an old picture of the ancien régime in France, where the bureaucrats and princelings were riding on the backs of the poor. From what we have heard from Members of all parties, it seems that today we have a regime where the state and the clients of the state ride on the backs of everybody else.

It is strange that so much money is being funnelled to firms whose commercial risks are being underwritten by the power to tax. Far from protecting the poor, the state now seems to be an institution for protecting the rich from the risks they take with their own investments. I am a capitalist, and I believe that capitalism requires entrepreneurs and investors to bear their own risks. Somehow, through all this mire and mess that we find ourselves in, we need to recover the principles of a free society and a vision of a capitalism that works, and works for everybody.

The state has become an enormous player in society. It spends about half of national income, and we have ended up with far too many investors and companies looking to the state for its decisions. Where will it spend? What will it spend that money on? Whose risks will it underwrite? And so on and so on. It really is no good. If we wish to call this a free society—one in which people make their own way and flourish—we really do have to end the notion of the state as a giant player in society. My right hon. Friend the Prime Minister, at different times, has declared that the era of big government is over. I think that he is absolutely right, and I am delighted that that is the thrust of the Government’s direction of travel.

I think that the British public have a fantastic sense of fair play—that is one reason why Private Eye sells so well. I would like to share with the Government the final line of Churchill’s quote:

“Not enough people see it”—

capitalism—

“as a healthy horse, pulling a sturdy wagon”.

I congratulate the Government on bringing forward their paper, “Making Savings in Operational PFI Contracts”, but I urge them to go further, to try to recover that sense of fair play and regenerate those institutions of a free and fair society which support capitalism and support human flourishing, but above all, pass that Private Eye test.

Regulatory and Banking Reform

Steve Baker Excerpts

Thursday 16th June 2011 Commons Chamber

[Mr Hoban]

The reforms we have set out are proportionate, and the recognition of the need to strengthen the banking sector through structural reform is a significant move. We, unlike many other economies, were exposed to a financial sector challenge of some scale, and it is right to respond to that. We have ensured a proper debate about those issues, which the Independent Commission on Banking has led, and the reforms announced in its interim report have been widely welcomed. That gets the balance right. It is not about being tough or about being light touch; it is about getting things right.

[Steve Baker (Wycombe) (Con)]

Do the Government agree that the best form of regulation is exit from the market? Does the Financial Secretary agree with me and my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) that there should be a primary duty on the regulator to promote competition?

[Mr Hoban]

My hon. Friend makes an important point about exit. One area on which we are all working, not just in the UK but elsewhere, is to ensure that, when an institution fails, the matter can be resolved and that the resolution can take place without an impact on the taxpayer. That will help with competition and to tackle the broader issues, whereby taxpayers have to stand behind banks. We need to get that right.

On competition, we need to recognise that the role of regulation in financial services is quite broad. Some of it is about promoting competition, and some of it is about consumer protection when there are asymmetries of information. In the blueprint that we have published today, we see an acknowledgement of the role that competition will play, and that is why we have given the Financial Conduct Authority a primary duty to use competition in pursuit of its regulatory objectives. That gets the balance right between the different roles that the FCA has to play.

Charter for Budget Responsibility

Steve Baker Excerpts

Wednesday 11th May 2011 Commons Chamber

[Kerry McCarthy]

The Bank of England’s forecasts have not always been as accurate as one might have hoped, but that proves my point: there could well be conflict between the Bank’s forecasts and the OBR’s forecasts. It is therefore right to ask what the Government would do in such circumstances. Would such a disagreement discredit the Bank of England’s forecasts? Will the OBR be seen as the ultimate arbiter on such matters, or will the Government be able to pick and choose whichever forecast suits their purposes?

Chapter 3 of the charter and the Government’s objectives for fiscal policy are obviously at the core of the document. Some of the provisions in the charter might not be entirely necessary, however. For example, it places the Treasury under a duty to prepare a Budget report for each financial year, which one would hope would happen without it being told to do so. We acknowledge, however, that including the Government’s fiscal mandate in the charter and consequently requiring any modifications to be laid before the House is a welcome step. We hope that it will enhance Government accountability, although that should not be taken as an endorsement of the Government’s economic policy or of their fiscal policy objectives.

Regrettably, given that economic growth has flat-lined under this Government and that forecasts have repeatedly had to be downgraded, it remains to be seen whether the Government are meeting their stated objectives—particularly that of supporting confidence in the economy. Nevertheless, we approve of the idea of working towards maintaining confidence in the economy. The charter rightly acknowledges that achieving that must be the responsibility of the Government and not of the OBR.

The second objective, that of promoting inter-generational fairness, is much more contentious, and it has been challenged here and in the other place. It is not at all clear from the document what the Government mean by the term, although from the Minister’s comments tonight and on previous occasions, I assume that it refers to passing debt from one generation to another, rather than to passing on wealth, advantage and opportunity from one generation to another. If that is indeed the case, and the objective refers simply to inherited debt, it would appear that the Government under this Chancellor’s leadership have an exceptionally narrow conception of fairness which does not chime with most people’s understanding of the world.

We should not be surprised by that, however, given the Government’s record on fairness to date. A Government who choose to take £7 billion of much-needed support from children in their first Budget and comprehensive spending review—three times the amount that they thought appropriate for bankers to pay—who choose to target women for spending cuts, who choose to penalise people on lower incomes, and who choose the regressive measure of increasing VAT can hardly be considered fair.

Earlier today, many of us met constituents supporting the Hardest Hit campaign for people with severe disabilities and chronic illnesses, and I would ask the Government to explain to them how making people with disabilities and chronic illnesses pay the price for the financial crisis is fair. One of the constituents I met today is registered blind and has a guide dog, but she has been told that she is not eligible for the higher rate of disability living allowance. She used to work for a bank, and she wants to know why she is paying a bigger price for the financial crisis than her former bosses in that industry.

[Steve Baker (Wycombe) (Con)]

I am surprised that the hon. Lady does not realise that the financial crisis is the product of deficit, debt and debasement—in other words, Government policy.

[Kerry McCarthy]

The financial crisis was global and it started in the US. Is the hon. Gentleman suggesting that the banks did not play a role in creating that financial crisis and that people such as my constituent, who are struggling to get by on disability living allowance and a modest income, were responsible for it?

[Steve Baker]

I know that the crisis originated in the banks, but it did so because of currency debasement, which was a result of deficit spending—a Government policy.

[Kerry McCarthy]

We cannot get into a whole debate about macro-economic policy. Needless to say, I disagree with the hon. Gentleman’s analysis of how the financial crisis occurred. The point I was making—the intervention was not particularly relevant to it—was that this Government’s action in reducing the deficit too far and too fast is hitting people at the bottom end of the income scale far harder than it is hitting people such as bankers. If the Government were to adopt our suggestion of introducing a banking bonus tax again this year, as we did last year, they would not have to make cuts that hit people at the bottom so hard.

Common Consolidated Corporate Tax Base

Steve Baker Excerpts

Wednesday 11th May 2011 Commons Chamber

[Mr Redwood]

My hon. Friend is quite right. That also explains why the European Union is so keen to try to get the Irish rate up, because if it is to have a common system such as this, it would not want a weak link. The EU would see a weak link as a state that dared to set a more realistic and lower rate in order to attract business.

[Steve Baker (Wycombe) (Con)]

As ever, my right hon. Friend makes his points with incredible force. Does he agree if the European Union follows the policies of bail-outs and political interference with business all the time, we will keep seeing measures like this one again and again until we head towards a single centralised economic system of government?

[Mr Redwood]

My hon. Friend is right. The EU believes that imposing more complex and higher taxes is the answer to the deficit problem, whereas the answer to the deficit problem is growth, more business, more activity and more jobs. Everything the EU does by way of higher tax rates, more regulation, more interference and more layers of government prevents that from happening. That is the Greek tragedy that we are witnessing as we debate today.

The latest figures on the Greek Government website imply that the Greek deficit got a lot bigger in the first part of this year because tax revenues plummeted, because the economy is in worse recession, and because spending has gone up, both because they are not controlling it and because spending goes up in a recession. That is the tragedy of the European model—of the bail-out model and of “extend and pretend”, whereby we extend the credit and pretend it will be all right. It is not going to be all right and that approach is causing disaster, unemployment and tragedy.

Section 5 of the European Communities (Amendment) Act 1993

Steve Baker Excerpts

Wednesday 27th April 2011 Commons Chamber

[Kelvin Hopkins]

In the end Governments can print money if they wish to, but the idea that we can squeeze those economies into growth is complete nonsense. We could debate these matters at great length—I would be happy to do so on another occasion—but that is not what this debate is about. I want to focus on the Government’s economic policy, which I think is profoundly mistaken.

Another point in the document is the emphasis on fiscal neutrality. The Government do not seem to appreciate that fiscal neutrality can be achieved in various ways. If we cut public spending and taxation at the same time, that is, in a sense, fiscally neutral. If we raise public spending and taxation, that is also fiscally neutral. We can also achieve fiscal neutrality by raising taxes on the rich and reducing them on the poor. Fiscal neutrality can have all sorts of different effects. If we cut taxes on the rich and raise them on the less well-off, we will drive the economy into recession, because poor people will spend less money. The marginal propensity of the poor to consume is higher, so if we tax the rich and give more to the poor, they will spend. If we give pensioners a rise in their pensions, for example, they will spend more, but if we give a wealthy person a tax cut, they will not spend.

Those are marginal changes, but my general point is that fiscal neutrality can be achieved in various ways. In fact, it is nonsense to have fiscal neutrality when growth is flatlining. We ought to have an expansionary fiscal strategy, not a neutral fiscal strategy. I might add that this is my view, not necessarily the view of my hon. Friends on the Opposition Front Bench. They are perhaps more cautious than me, but in the end I would like to think that I and others will be proved right. We have to generate growth, but it will not happen if the Government continue to operate in the way that they are at the moment.

[Steve Baker (Wycombe) (Con)]

As the hon. Gentleman knows, I have great admiration for him on many subjects, but does he realise that when Keynes was suggesting those fiscal stimulus packages, the state accounted for only about a quarter of GDP, whereas now the figure is up to 45% and getting on for 50%? The capacity is just not there. I would suggest to the hon. Gentleman that even Keynes would be horrified at the notion of Governments spending more from present levels?

[Kelvin Hopkins]

The role of the state is much larger than it was even in Keynes’s day; therefore, the state has to generate more demand. The state has a bigger role in the economy—I think that is a good thing—but we cannot withdraw from the idea of managing economies in the way that we did after the second world war. Between 1945 and the 1970s, we had a world that actually worked. We had rising living standards and the highest rate of growth in our history. We had full employment, we developed a welfare state and the national health service, and we had free tuition at universities. Since then, the neo-liberals and the monetarists have got hold of economic policy again and we have gone back to something like the early 1930s, albeit with higher living standards, at the moment, but that could so easily be destroyed if the current mistakes continue to be made.

--- Later in debate ---

[Steve Baker (Wycombe) (Con)]

I shall try to confine my remarks to three points on the report. First, the report rightly talks about imbalances in the economy. The hon. Member for Nottingham East (Chris Leslie) talked about serious systemic problems in the economy, and I agree that there are such serious systemic problems, albeit not, perhaps, those that the hon. Gentleman thinks there are.

On the first page of section 2, the report talks about debt and unsustainable levels of private sector debt. It is estimated that the UK has become the most indebted country in the world, and one sentence stands out:

“the spending plans set out in the 2007 Comprehensive Spending Review were based on unsustainable revenue streams from the property boom and the financial sector.”

The report also talks about geographical and sectoral imbalances. Given the limited time available, I will be very brief, but let me say that I feel that far too little effort has been made to explain some of these imbalances through monetary factors. Printing money has been mentioned. The problem with printing money is that it creates patterns of economic activity that can last only as long as that supply of new money. When the new money comes to an end—[Interruption.] From a sedentary position, the hon. Member for Luton North (Kelvin Hopkins) talks about the multiplier effect, and, again, he has appealed to Keynes. I have to say to him that one thing I have learned over the past few years in setting up a think-tank and talking to economists is that it is really no good at all appealing to the authority of economists. There are always several schools of thought, and one of the things they are no good at is making accurate predictions—or, indeed, agreeing with one another. I am therefore afraid that that leads us to thinking for ourselves.

One of the most important factors to do with money is something long known, called the Cantillon effect: the fact that when money is created, it always arrives in one place in the economy first. So when banks are lending money into existence and into the housing sector, of course house prices rise, the financial sector is better off and the economy reorients itself to the south-east, where the banking sector is based. Although the report diagnoses the problem very satisfactorily, I am disappointed that the monetary policy framework consists of one short paragraph. We have learned tonight that there is an appetite in this House for a serious debate about monetary policy, and the monetary framework and how it has an impact on the real economy.

Secondly, and further to my point about new money creating unsustainable patterns of economic activity, sustainable investment requires prior production and real saving. That involves individuals, families and businesses consuming less than they produce to make real savings and invest them. Easy money will not create sustainable development and sustainable growth.

I wish to allow other hon. Members to speak, so I shall make one final point. I must ask to what end we are making this report. The lexicon has suddenly developed the term “convergence programme” and I am not sure where it came from. We have talked about Maastricht, but the term has certainly only just emerged into the public debate today. Why are we converging? With whom? To what end? I would be grateful for an answer.

Finance (No. 3) Bill

Steve Baker Excerpts

Tuesday 26th April 2011 Commons Chamber

[Jacob Rees-Mogg (North East Somerset) (Con)]

There is more rejoicing in heaven over one sinner who repenteth than over the 99 who are not in need of repentance, and it has been wonderful to listen to the hon. Member for Linlithgow and East Falkirk (Michael Connarty), because he made a wonderfully Conservative speech, saying that taxation and over-regulation are fundamentally bad things—bad for the economy, bad for business, and bad for Britain. That is absolutely true, but unfortunately it misses the point that when this Government came into office, the coffers were bare. There was no money left, and therefore tough action has needed to be taken on both spending and taxation. I want to see taxes fall in every possible area—I want taxes on income, capital gains, companies and oil companies all to be reduced—but I only want Her Majesty’s Government to do that when it can be afforded.

We need to look back at the seriousness of the situation we inherited, and at what this Government are doing. Gross debt issuance from 2008-09 to 2010-11 is £540.5 billion. That is money that has to come from savers and from foreigners, and a good chunk of it actually came from the Bank of England: some £205.9 billion—getting on for half the total—was just printed by the Bank of England. That is not a way in which any responsible Government could ever have carried on; to have done so would have been desperately inflationary.

I want to come back to the point made so eloquently by the shadow Chief Secretary about Ricardian equivalence, because that is relevant. No one is saying that every £1 in debt is necessarily going to relate to £1 in future taxation, but the broad principle is right. The electorate understand this; they understand it from their own financial affairs and they see it from the Government’s. They understand that if a huge debt is built up, it has to be repaid, and it will be repaid by them out of their earnings or their assets. We already see not far short of £50 billion a year being spent on interest payments. The British electorate know that that £50 billion is coming out of their taxes, as will the repayments. Indeed, as we get on to the repayments and refinancing, we will have a further gilt issuance of £578 billion between now and 2015. Enormous amounts of money are still being raised on the debt markets even when the Government are implementing a programme of tough cuts and some tax rises, which people do not like, but that is because of the severity of the situation the Government inherited, and if they had not implemented that programme, the confidence of the markets would have evaporated.

That confidence is what allows the Government to finance themselves. This is where the gilt market is so important. The five-year gilt is trading 5% away from its historical real average; that is 500 basis points, which is a gigantic amount in gilt market terms. The five-year gilt is usually at a 2% premium to the retail price index, but it is currently at a 3% discount to RPI. That shows that the financial markets believe that the Government have got it right.

Most economic decision making takes some years to come into effect, and I must confess that in this regard we have heard a lot of nonsense about quarterly growth figures relating to decisions on cuts taken before any of their consequences had actually come through. It takes much longer than that for economic results to happen, and I would therefore say that the figures for this quarter, the last quarter and the one before that are to the credit of the Opposition, and not as yet to Her Majesty’s Government; it will be to the credit of Her Majesty’s Government when we have got 2.5%-plus growth. The gilt market and the currency market are, however, immediate responders to Government policy, and the response that they have given is a vote of confidence. They know that the Government have broadly got it right. The currency has strengthened, and is continuing to strengthen, against the dollar—an indication, perhaps, that the United States has not got its fiscal situation as well sorted out as we have here.

Let us consider some of the specific things that the Government are doing in this Bill. I particularly welcome, as does my hon. Friend the Member for Bristol West (Stephen Williams), the increase in the tax threshold. A wonderful pamphlet produced by Lord Saatchi and Peter Warburton a few years ago asked why poor people pay tax and why we have this merry-go-round whereby we take money out of someone’s pocket and put it back into their other pocket having taken some element of it to finance our bureaucracy along the way. The more the Government can raise the tax threshold, the less of that money will be wasted as the machine churns through and the more people will be taken out of tax.

I will add one point that may not be deemed helpful. My hon. Friend mentioned that over a couple of years 2 million people are to be taken out of tax, but Her Majesty’s Government might like to know that the Chinese Government have just succeeded, by increasing the income tax threshold from 2,000 renminbi a month to 3,000 renminbi a month, in taking 76 million people out of tax. That is something for the Treasury to aim for, because that number exceeds the entire population of the United Kingdom.

The increase in the tax threshold is extremely welcome, as is the reduction in corporation tax. Being competitive on corporation tax is something that the Irish were so clever about, and may we wish them well in their fight against the European Union’s attempts to make them increase it. By reducing corporation tax we attract businesses that could otherwise go anywhere in the world. We know that businesses can move and that WPP is thinking of moving back to the United Kingdom because of the right trend in taxation. In that regard, I encourage Her Majesty’s Government to avoid any of this nonsense about a Robin Hood tax. Robin Hood was not as good as he was made out to be—particularly for the sheriff of Nottingham—but even if such a tax were as heroic as the late Robin Hood, it would still be a very bad tax for this country.

[Steve Baker (Wycombe) (Con)]

I was just wondering whether my hon. Friend would agree that Robin Hood actually took from the state to give back to the people.

[Jacob Rees-Mogg]

I am not entirely sure that that is what he did. I think he also stole from the Church, which is why I have my doubts about him; I am not really in favour of people pinching things from holy mother Church.

The other great thing about this Budget—this is why it should be welcome—is that it recognises the limitations of governmental power. Let us consider what has happened in Japan since 1990. The Japanese Government have tried loose monetary policy and loose fiscal policy, sometimes at the same time and sometimes at different times, and they have managed to take the fiscal debt to 200% of GDP without managing to achieve any growth in this period. Governments cannot command economies in the way that some socialists think that they ought to be able to do. Governments can only set the right terms for business to be done, and that is where the deregulation programme is so important.

If the Government can follow through on that programme and sweep away the burdens that stop business doing business, that is how we will be able to get economic growth. It will not be Government expenditure that leads to the economy recovering rapidly because—let us return to Ricardian equivalence—people will recognise that there is great waste in Government expenditure. It will not necessarily even be very low interest rates that will do that, although I am in favour of a loose monetary policy, because eventually we reach the point where there are no borrowers there to borrow—we may be in that position. The Red Book points out that total private sector debt is 450% of GDP. If that does not make your blood run cold, Mr Deputy Speaker, I do not know what will, because that is an extraordinary level of private sector debt and it is very hard to pretend that an economy can grow by further private sector debt being taken on. So we are back with the real opportunity being a deregulatory one for the Government to push that agenda as hard as they possibly can so that businesses can do business, investors can invest and people can work. That will then lead to the tax coming through at lower tax rates and the expenditure being made that the Government wish to make, and we will be back to the glorious time that we had when Nigel Lawson was Chancellor of the Exchequer.

Amendment of the Law

Steve Baker Excerpts

Wednesday 23rd March 2011 Commons Chamber

[Mr Tyrie]

I note what my hon. Friend says and think that careful account needs to be taken of those points.

Another area in which it is important to have coherent policy is on the cost of fuel. This Budget gives some relief on fuel duty rises, with the cancellation of the fuel duty escalator, among other things. However, while motoring bills are being reduced, other Government policies are putting up the cost of energy for a lot for businesses and home owners in other ways, not least through the price of electricity, and the cost of rail travel is also increasing. Does all this—a reduction for motorists, but an increase for rail users and much higher energy bills—form a coherent policy? I do not know, but that needs to be carefully examined, particularly in the light of the Chancellor’s announcement of a floor price for carbon. All these issues need to be carefully examined, because a distortive energy policy will make Britain less competitive, particularly in our export markets.

In our efforts to return to sustained growth, we need to make the best use of every pound invested in our public services. Another example of the need to make sure we have coherence in growth policy has been put to me by colleagues on both sides of the House. They have asked whether spending £17 billion on a high-speed rail link is better use of the money than investing in modern rolling stock and improving the existing tracks. I suspect that millions of rail commuters who cannot currently get a seat and whose trains are unreliable and relatively slow will be interested in the answer to that question. I am very pleased that the Select Committee on Transport has just announced an inquiry into that matter, as a lot of people will await its outcome.

[Steve Baker (Wycombe) (Con)]

Does my hon. Friend agree that high-speed rail has the potential to be a profoundly bad economic decision for the whole country?

[Mr Tyrie]

What I am trying to do is not answer the questions, but pose them for Select Committees and others to try to answer. I am trying to point out that in order to generate a coherent growth strategy, a large number of policies need to be looked at in the round to ensure that we are not wasting public resources.

Court of Auditors 2009 Report

Steve Baker Excerpts

Wednesday 2nd February 2011 Commons Chamber

[Justine Greening]

I can see why the hon. Gentleman says that, and there is always a risk that that might be the case. Interestingly, when I met the Bulgarian Minister in charge of EU funds, that was precisely not his attitude, because clearly there is a debate about what will happen to structural and cohesion funds in future, given that new member states are now involved and want to see investment to help grow their economies. They also want value for money; they do not want billions of pounds handed over if it makes no difference on the ground. As member states, we need to drive that agenda and point out that it is unacceptable for a 16th audit report not to be given the statement of assurance. At the same time, we must have a positive agenda to work with member states to improve not only our own ability to control the finances and funds that come from the EU, but the ability of other member states to do so.

[Steve Baker (Wycombe) (Con)]

Does the Minister accept that even when the EU controls its money within its rules, it still manages to waste it? I am thinking in particular of a beautiful hotel I visited in Spain that was in the middle of nowhere—unless one was a skydiver, there was no reason to visit the local village. It seemed a total waste of public money.

[Justine Greening]

My hon. Friend demonstrates exactly why there is a far broader debate to be had on the EU budget and how the money is spent. Tonight we are debating whether the money has been spent in the way that member states agreed when they negotiated how and on what basis the investment would be split between different countries and what the priorities would be for our individual taxpayers.

The Government are determined to bear down on the size of the budget as a priority. We led the debate on limiting the EU 2011 budget in a way that other member states, at the time when we began to gather support, perhaps thought was ambitious. In fact, it worked. My hon. Friend will be aware that, as we go into the fundamental debate about the financial perspective and the longer-term budget, we will also set the parameters—with countries such as France and Germany, which, alongside us, are net contributors and, therefore, absolutely want to see that money spent effectively—within which that debate can take place.

Having led the debate on the amount, there is then a need to start leading the debate within that about priorities and ensuring, as my hon. Friend says, that we do not have wasteful spending on administration or, as the hon. Member for Luton North said, by individual member states. We have to drive out waste at the EU level. That is what we are trying to do at the national level, and it is unacceptable not to go through the same process at the EU level, too.

--- Later in debate ---

[Steve Baker (Wycombe) (Con)]

It is a huge privilege and tremendous pleasure to speak in support of the Government in relation to the European Union. My only regret is that my Whip is not here to see the day.

I pay tribute to my hon. Friend the Member for Stone (Mr Cash) and the hon. Member for Luton North (Kelvin Hopkins), who have seen this farce go on for year after sorry year with these accounts failing to be signed off. I also pay tribute to the Minister, with whom I spoke briefly before the debate. She obviously brings to this matter great sincerity, professionalism and obvious expertise, and she has my full confidence in bringing the right approach to it. Having confirmed the information, I know that this is a boilerplate motion, and I say to her that it fails robustly and resolutely to condemn fraud and error in the EU. In fact, now that I know that these are not necessarily her chosen words, I might say that the motion is dreary jibberish and seems wholly futile.

A total of £11.8 billion went into this budget and only 8.3% of EU spending was given a clean bill of health. Apparently, the rest was materially affected by error. In other words, 91.7% of this public money was given out inappropriately.

I want to share with the House three instances in which public money was given out within the rules. According to Open Europe, an EU subsidy of €500,000 was given to two Swedish fishermen to scrap their fishing vessel. The subsidy was given by the Commission and the Swedish Government as part of the EU’s effort to reduce the size of Europe’s fishing fleet to address the region’s huge problems with overfishing. The subsidy was enough to pay off the fishermen’s debts and left them with a substantial amount of money to spare, according to their accounts.

Instead of winding down the business, the two fishermen bought a new boat with this EU money—taxpayers’ money—and continued just as before. Extraordinarily, the owners were open with their plans all along and did not break any rules. That is because their new boat is less than 10 metres long, which means that different rules apply and they can continue to fish in the North sea. “We said exactly what we were going to do when we applied for the scrapping subsidy,” one of the fishermen said.

We mentioned sums that are too large to imagine. A total of €8.5 billion was spent failing to improve infrastructure in Sicily. Given the lack of time, I shall not trouble the House with too much of the detail. Suffice it to say that €700 million was spent to improve water supply throughout the island, but the percentage of families who experienced patchy “stop-and-flow” supply of water increased from 33% in 2000 to 38.7% in 2008. I point out the fact that Sicily has a population of only 5 million people. The subsidy amounted to £1,700 per head—clearly not enough to rebuild Sicily, but enough, I would have thought, to rebuild its infrastructure.

Finally, an example that I hesitate to bring to the House in the present circumstances—€2.5 million was spent on an Austrian nomadic contemporary dance troupe. My hon. Friends know that I am a great fan of Austria, but I am not sure that my hard-pressed taxpayers in Micklefield, Oakridge and Castlefield, and indeed in Disraeli, where they are particularly hard pressed, should be paying tax in order to fund a group that travels around Europe meeting and dancing with other dance troupes to contribute to the development of dance. I am sure none of us would condemn the funding of culture, but nomadic contemporary dance troupes should fund themselves.

This is the 16th time that the statement has not been signed off. We should condemn this showcase of fraud, incompetence and, where not fraudulent or incompetent, inappropriate spending. We are told that we cannot withhold our money. What a preposterous situation we have reached when our constituents are being taxed and we cannot withhold money from these ridiculous projects. I hope that next year the Government will bring before the House a motion that much more strongly condemns such waste and fraud. Unless we deal with the problem, the next important question on the EU will be simple—in or out?

--- Later in debate ---

[Justine Greening]

May I say how much I appreciate the contributions made by all hon. Members across the House this evening? They were made with passion and frustration at the continued unacceptable situation of the European Court of Auditors persistently not being able to sign off the statement of assurance that we want signed off to give us the kind of confidence that my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) was just speaking about. I can tell hon. Members that I share their frustration. My task is to channel that deep frustration into positive steps to address some of our concerns.

In the short time that is left, I shall try to respond to Members on some of the points that they have raised. The hon. Member for Bristol East (Kerry McCarthy) is absolutely right to say that the procurement rules need to be simplified. The recovery rate is moving in the wrong direction, but we want to see it start moving in the right direction.

My hon. Friend the Member for Stone (Mr Cash) is absolutely right to talk about the need for improved standards. We want to work with other member states to improve the ability of the European Court of Auditor to perform its role. I absolutely agree with the hon. Member for Luton North (Kelvin Hopkins) on his frustration with the poor value for money that the common agricultural policy represents. The Government are making the case, as the previous Government started to make, that the fund must become better value for money for taxpayers. His other point about flexibility for member states to make their own decisions on how they spend the money and meet their own priorities was quite right.

My hon. Friend the Member for Daventry (Chris Heaton-Harris) is right that one part of the debate that we did not have tonight, and which I thought might have come up more, was the discharge process. He is right to point out that we have not used that process to challenge the poor financial management. I think that previous Governments have just signed that off and said that there was no need for discussion. That is not the position of this Government. We will start using the discharge process and having a discussion at the senior level, because we do not believe that we can afford not to.

[Steve Baker]

I welcome the Minister’s remarks, but given the figures that my hon. Friend the Member for Daventry (Chris Heaton-Harris) quoted on the European Parliament’s voting record, does she not agree that it seems rather futile to expect that the European Parliament might fail to discharge?

[Justine Greening]

Clearly, the European Parliament will take its decisions. I am talking about our role within the European Council and the discussions that we will have as a member state there. I can assure Members that we are talking with other member states about why we find this position unacceptable and to see what support there is for having that proper debate at the European Council meeting on 15 February so that we can resolve some of those outstanding questions and ensure that financial management becomes a priority in a way that it has not been in the past.

Question put and agreed to.

Resolved,

That this House takes note of the Unnumbered Explanatory Memorandum dated 25 November 2010 submitted by HM Treasury on the implementation of the 2009 EU budget, the Unnumbered Explanatory Memorandum dated 24 November 2010 submitted by the Department for International Development on the activities funded by the Eighth, Ninth and Tenth European Development Funds in the financial year 2009, European Union Document No. 12393/10 and Addenda 1 and 2 on Protection of the European Union’s financial interests, European Union Document No. 13075/10 and Addendum, relating to an annual report to the discharge authority on internal audits carried out in 2009, the Unnumbered Explanatory Memorandum dated 22 October 2010 submitted by HM Treasury on the European Anti-Fraud Office’s tenth activity report for the period 1 January to 31 December 2009, and European Union Document No. 16662/10 and Addenda 1 and 2, Commission Report to the European Parliament and the Council on the follow-up to 2008 Discharge; and supports the Government’s continued engagement with its EU partners to improve financial management of the EU budget.