Amendment of the Law

Alun Cairns Excerpts

Monday 26th March 2012 Commons Chamber

[Mr Vaizey]

I first need to get the hon. Gentleman an iPad—[Interruption.] He has one. At last he has an iPad! We have given £10 million to north Wales to put in place superfast broadband. As he well knows, we will get superfast broadband to 90% of the country two years before the Labour Government promised. We are not going to impose Labour’s telephone tax, which would have hit consumers and businesses. We will have the best superfast broadband in Europe by 2015—[Interruption.] My colleagues are saying from sedentary positions that that sounds excellent; it is excellent.

Having praised Virgin Media, let me also say that BT is investing £2.5 billion in rolling out broadband. Indeed, it has accelerated its plans so that it will deliver fibre to two thirds of the UK by 2014, a year ahead of schedule. It has already delivered to 7 million premises, and is currently adding an additional 1 million premises—the equivalent of the number in Singapore—every three months.

[Alun Cairns (Vale of Glamorgan) (Con)]

Following the point made by the hon. Member for Wrexham (Ian Lucas), does my hon. Friend the Minister recognise the added complication because of the delays that the Welsh Government have introduced in the roll-out of superfast broadband, despite the money being made available swiftly by the UK Government?

[Mr Vaizey]

My hon. Friend makes a very good point. Because we believe in devolution and localism, the implementation of the plans is down to the Welsh and Scottish Governments. It is therefore up to them to roll them out as quickly as possible. I am sure the hon. Member for Wrexham (Ian Lucas) will send an e-mail from his iPad to the leader of the Welsh Assembly Government to tell him to pull his finger out.

Ten million premises will be covered by BT by the end of the year in one of the largest engineering projects the country has ever seen. Those areas will get speeds of up to 80 megabits a second.

Mobile broadband is becoming increasingly important, with more people purchasing smartphones. Last year, the Chancellor announced an additional £150 million to help with mobile broadband coverage. By 2015, that will extend mobile coverage to 60,000 rural homes that have no mobile connection whatever, including, perhaps, villages in the constituency of the right hon. Member for Stirling (Mrs McGuire), as well as along at least 10 key roads. We will also continue to look at how we can improve coverage on our railways.

At the end of this year, we will auction spectrum that will allow mobile companies significantly to increase their capacity, as well as offer faster speeds to their customers, and we continue to make progress on our plans to release some 500 MHz of the public sector spectrum.

World-leading digital infrastructure is the cornerstone of economic growth in the 21st century. Some estimates show that a 10% increase in broadband penetration can deliver a boost of up to 1.4% of gross domestic product. By the end of this Parliament, at least 90% of the country will have superfast broadband; our great cities will have ultrafast broadband; and 60,000 rural homes and businesses will have mobile coverage for the first time.

As the House knows, the UK has some of the most successful creative industries in the world. I know the whole House will wish to congratulate One Direction on topping the US charts with their debut album—a feat not matched by either the Rolling Stones or the Beatles. Adele’s “21” is the best-selling digital album of all time, and for the first time in 25 years, UK acts were at Nos. 1, 2 and 3 in the US charts. We have the second- biggest music exporting industry in the world, and our UK animation industry has a huge impact worldwide. In 2010, Peppa Pig’s UK licensing and merchandising sales were £200 million alone.

Last year saw the most UK film production activity ever—it grew by 7% to £1.16 billion. UK television formats dominate television schedules all across the globe, accounting for two in every five global programmes, and of course “Downton Abbey” has continued UK success at the Globes. Exports of UK television content are the second highest in the world, worth more than £1.3 billion per year, having grown by more than 20% a year for about the last decade. [Interruption.] The right hon. Member for South Shields (David Miliband) looks astounded by this success. I urge him to get out more and see what some of our successful creative industries are doing.

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[Ms Harman]

But it needs to be implemented now, with a clear timetable and a code of conduct so that notification letters can be issued. We want the Government to show leadership by ensuring that search engines such as Google play their part, and, if there is no agreement, to carry on and legislate in the forthcoming communications Bill.

Where is the action on young people and skills in the creative industries? The future of our creative economy is built on our young people—young people who are consumers, and many of whom want to work in those industries. We must ensure that there are opportunities for creative development from primary school to the workplace, but the signs are not good. Creativity is being stifled in schools, and since last year the number of applications for degree courses in creative arts and design has fallen by 27%. We all know why that is: it is because of the Liberal Democrats’ shameful betrayal on tuition fees. The Liberal Democrats were meant to be a brake on the Government—remember that?—but it is obvious that they have zero influence on policy. Perhaps they just did not have enough money to buy dinner with the Prime Minister.

Where is the action on access to finance for the creative industries? London is a global financial capital and Britain’s creative industries are world leaders, yet they struggle to obtain the finance they need to grow. Most creative businesses are small or medium-sized, and they need the banks to lend to them to help them get started and grow. However, as has been pointed out by the British Chambers of Commerce, credit easing

“will not help the smaller, younger, and high-growth firms that have trouble getting credit in the first place.”

Operation Merlin figures show that banks are still failing to meet their lending targets. Net lending to small businesses fell by £10 billion last year. Banks must start lending to creative businesses rather than throwing money away in bankers’ bonuses, and the Government must start making that happen rather than throwing money away on tax cuts for rich bankers.

[Alun Cairns (Vale of Glamorgan) (Con)]

The right hon. and learned Lady says that creative industries are struggling to gain access to capital. Will she give us a specific example?

[Ms Harman]

There are many. We need only listen to all the arguments throughout the industry, whether they concern films, video games or music. If the hon. Gentleman does not realise that small and medium-sized businesses are having trouble obtaining loans so that they can start up and grow, he does not realise what is going on in the real world.

Where is the regional strategy that supports the creative industries all over the country, not just in London? The Government have abolished the regional development agencies, they have cut local government, and they have squeezed the BBC, which is bound to hit the independent sector that it supports. The Culture Secretary says that philanthropy will make up for his cuts. If that is his policy, how does it accord with the announcement in the Budget of a cap on tax relief for charitable donations? Was the Secretary of State consulted? Did he even know about it?

There is even more bad news for the arts. Not only have the Government cut the Arts Council’s budget by 29%, but they have now sacked its chair, Liz Forgan. That was a petty political act, and I am disappointed that the Minister did not take the opportunity to pay tribute to Liz Forgan. Those in the arts sector feel that she was doing a tremendous job for them, particularly in managing incredibly difficult cuts, and I want to pay tribute to her today.

Key to a regional strategy is a truly national broadband infrastructure. A digital economy needs digital infrastructure—

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[Alun Cairns (Vale of Glamorgan) (Con)]

It is a pleasure to follow the right hon. Member for Stirling (Mrs McGuire) and, I hope, to support my hon. Friends in introducing an element of reality, bearing in mind the financial situation we face. I pay tribute to the Chancellor and to the Treasury team, and to the Under-Secretary of State for Culture, Olympics, Media and Sport, my hon. Friend the Member for Wantage (Mr Vaizey), for the way in which he introduced the debate. I shall come to the Budget’s focus on the creative industries shortly.

The starting point of such a debate must be the state of the nation’s finances. We must consider the debt of the nation and the deficit of the nation, as well as the structural deficit and the interest on that debt. As we know, £120 million a day is paid from the public purse to service the nation’s debt. I have heard the groans that come from the Labour Benches when we repeat these figures time after time, but they are still true, and that is the context in which the Chancellor and the Treasury team have to work. It has been said before and needs to be said again that the financial position is unprecedented, and any tax cuts in any Budget have to be funded. It is simply not an option to continue to borrow money time after time as the previous Administration did.

[Karl Turner (Kingston upon Hull East) (Lab)]

If the hon. Gentleman believes that his Government’s policy is working, why has the Chancellor borrowed a further £147 billion?

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[Alun Cairns]

I cannot believe that the hon. Gentleman asks that question, bearing in mind the scale of the debt that was left, which is the reason for the borrowing. When this Government came into office, a quarter of all spending—a quarter of every teacher’s, doctor’s and nurse’s salary—was being borrowed. Any individual, business or family knows that one cannot continue to spend and spend when the income is not coming in.

There are also economic uncertainties on the European scale, as the right hon. Member for Edinburgh South West (Mr Darling) underlined, as well as global uncertainties. I fail to understand the logic of Labour Members who have called for tax cuts without saying from where they should be funded. We cannot spend our way out of a debt crisis, which would risk the triple A rating that the Government have managed to maintain and increase the interest rates not only paid by individuals and home owners with mortgages, but that the Government have to pay on the scale of the debt that was inherited. In the next five years, almost £700 billion has to be rescheduled, so the risk to the triple A rating cannot be overstated given the cost that could be added to the nation’s inherited borrowing. Those are the parameters within which the Chancellor has had to work.

Let me turn to some of the specifics in the Budget. Initially, Labour Members focused on the reduction of the top rate of tax from 50p to 45p, and one could ask why they have now changed tack to focus on the age-related allowance. Some might say that they missed it previously, or that they know about their record in that regard. Labour Members are the masters of freezing allowances. The personal allowance was frozen in 2000-01, in 2003-04 and in 2010-11, so the arguments they made last week about the age allowance being frozen would apply to taxation for all workers when the rates were frozen at those times.

Labour Members are showing rank inconsistency. I appreciate that it would be wrong of me to call them hypocritical—I would not be able to do that under the rules of this House—but people outside may well draw their own conclusions. Perhaps the right hon. Member for Edinburgh South West did not mention the age-related allowance because when he was Chancellor of the Exchequer at the time of the last Budget of the previous Administration, he froze the age-related allowance. All Labour Members’ criticisms of the Budget could equally be made against themselves and the right hon. Gentleman. [Interruption.] I will happily take an intervention if any Labour Member wants to make a point about the freezing of the age-related allowance at that time. I think the silence speaks for itself.

In the time remaining to me, I underline and welcome the pro-growth Budget, the pro-growth approach to the creative industries and the allowances that have been introduced. I only wish that there was more time to underline the strong message that has been sent out to the whole world: “Britain is open for business. Britain is a place to invest and to work, and you will be rewarded.”

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[Rachel Reeves]

I said earlier that the big story about the Budget was what was missing from it rather than what was in it. My hon. Friend has identified another thing that is missing, namely an explanation of how the Government will balance the books after the last two years of the current Parliament. We all know that the Government are now borrowing £150 billion more because of the failure of their policies and their decision to cut too far and too fast, which choked off the economic recovery. As a result, deficit reduction will have to continue well into the next Parliament, but we have not heard how.

The Chancellor said that the Budget was about rewarding work. A Budget that takes tax credits from low-paid working couples with children, plunges them into poverty and leaves them better off if they leave their jobs is not a Budget for work, is it? As for the notorious hit on pensioners with modest incomes, springing it on people with no notice and then dressing it up as a simplification was not only ill-judged, but profoundly disrespectful to the millions of pensioners who made sacrifices to save during their working lives.

[Alun Cairns]

Did the hon. Lady make the same protests when her right hon. Friend the Member for Edinburgh South West (Mr Darling) introduced a granny tax in preparation for the financial year 2010-11?

[Rachel Reeves]

This is not just about freezing an allowance; it is about freezing an allowance this year, next year and the year after, and for many years to come. It is also about getting rid of the allowance, because it is disappearing for people who will retire next year. Next year people will receive not a reduced allowance but no additional allowance at all, and as a result they will be £323 worse off because of the choices that this Government have made.

I am sure that in a moment we will hear protestations from the Chief Secretary about his great triumph in raising the personal tax allowance for working-age people, but families with children have already lost £450 on average from the VAT increase, and another £530, starting on 6 April, through cuts to tax credits and the freezing of child benefit. Does the Chief Secretary really expect families to be thankful to be getting less than half this back in 2013? Is it not more likely that they will see this for what it is?

Budget Leak Inquiry

Alun Cairns Excerpts

Thursday 22nd March 2012 Commons Chamber

[Mr Gauke]

I am sure that my hon. Friend is absolutely right. My only query is that I thought it might have been on the television; but if he says it was in a newspaper, I am sure that he is right.

[Alun Cairns (Vale of Glamorgan) (Con)]

In 2005, the Evening Standard covered details of the entire Budget; in 2008, the Daily Mail covered the details of VAT and The Daily Telegraph had details on fuel; in 2009, The Observer covered details on youth jobs; in 2010, there were details on the green investment bank. Would my hon. Friend welcome at least some consistency in policy and practice rather than the lack of constructive opposition that comes from Labour Members?

[Mr Gauke]

I would welcome that consistency, but I do not expect it.

Financial Services Bill

Alun Cairns Excerpts

Monday 6th February 2012 Commons Chamber

[Alun Cairns (Vale of Glamorgan) (Con)]

Is the shadow Chancellor telling us that he accepts absolutely no part, bearing in mind his key role in the Treasury at the time, in the failure of the financial structures in the banking sector in recent years?

[Ed Balls]

I have apologised to the country and have asked the Chancellor of the Exchequer to do the same. Did this Chancellor ring the alarm bell in the crisis? No, he did not. Did he worry that regulation was insufficiently tough? No; he said in 2006 that financial regulation was

“burdensome, complex and makes cross-border market penetration more difficult”

and that it

“threatens the global competitiveness of the City of London.”

If the hon. Gentleman wants to have a debate about who should apologise and who should accept responsibility, he should look at the evidence and the judgments of the past 10 years. Let us not forget that it was the Conservative party that voted against Bank of England independence and the move from self-regulation of the City by the City to statutory regulation for the first time in this country. It was this Chancellor who personally opposed the rescue of Northern Rock, saying:

“I am not in favour of nationalisation, full stop.”—[Official Report, 19 February 2008; Vol. 472, c. 186.]

It was this Chancellor who opposed the rescue of RBS; who negotiated the flawed and foolish Merlin deal; who refuses to enact proposals on transparency for bonuses of more than £1 million; who resists the reform of remuneration committees; who is selling off Northern Rock at a loss, prompting a National Audit Office investigation; and whose decision to cut the deficit too far and too fast has choked off the recovery and led to us borrowing £158 billion more. We will take no lectures on judgment from this Chancellor of the Exchequer.

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[Stella Creasy]

I have answered this question in previous debates. I do not think that we should set a single rate of APR and I do not think we should have an interest rate cap: I believe we should have a total cost cap. In the absence of the Government making progress on such a cap, however, I view the FCA as offering an opportunity to start the more effective regulation of this industry. I hope that the hon. Gentleman would agree that the opportunity to have the industry and consumers setting rates and clarifying what is excessive and what counts as consumer detriment in the listing of these products represents a way forward. That is the argument of Labour Members, and we shall seek to table amendments on that basis. It is no wonder that the number of complaints about these companies and these loans is sky-rocketing in the UK.

[Alun Cairns]

Will the hon. Lady give way?

[Stella Creasy]

I am sorry, but I will not, as I do not have much time left and I have already taken some interventions.

Between October and December last year, there was a 25% increase in the number of people complaining about these companies, and three quarters of those complaints were upheld by the financial services ombudsman. Demand for these products will only get stronger. Two in five people are expecting a pay freeze this year, and one in five expect to lose their job. Inflation rates might slow, but that will only slow the pace of the cost of living, especially in the capital city. Six million people are already considered financially fragile; if one more bill goes up—their mortgage, transport costs or even their food bills—they will be pushed further and further into debt. With banks not lending to these people, it is these legal loan sharks who will pick up the pieces.

We should reflect on the fact that the one industry growing in this country is these legal loan sharks. Cash Converters proudly says it is going to open another 40 new shops—at 1,413% APR; while Albemarle is opening 300 new shops, charging 853% APR. This is also a serious issue for our economy. If millions of families have thousands of pounds worth of debt that they cannot escape, it is clearly going to impact on consumer confidence. This will be the new economic crisis that will come to Britain in the years to come if we do not deal with this problem, as we have concentrations of communities with thousands of pounds of debt hanging around their necks, limiting the choices they can make for their futures and limiting the kind of lives they can lead. The failure to tackle these issues will leave millions of people with unmanageable debt, yet we have an opportunity to make progress through this Bill.

This problem is not going to go away. It is right to look at the industry and for consumers to be involved in setting the rates and determining what is consumer detriment. Let me tell the Minister that the public clearly want action on legal loan sharks. His own Back Benchers want action on them. I welcome the conversion of Government Members to this cause. I just hope that it is a conversion that will continue all the way through to voting in favour of our amendments. Even the industry wants action. It does not want the current uncertainty.

My simple question to Ministers, if they will not accept our amendments, will not send out the message and will not finally tackle legal loan sharking is this: how much worse does it have to get for the people affected in our communities? We know that 4 million people in Britain are already borrowing from these companies, and there could be as many as 10 million if we do not deal with these problems within the next year. That will be 10 million people stuck in a cycle of toxic debt that will damage them and their families for years to come.

I therefore ask the Minister to take on board the suggested amendments and to take account of the desire of Members on both sides of the House for action on legal loan sharking. Let us finally make the third time a charm.

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[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

I wish to make a relatively brief contribution. I do so without the degree of expertise that has been exhibited by a number of right hon. and hon. Members who have spoken, particularly those who have served on the Joint Committee and on the Treasury Committee. I know that they have examined the detail of this Bill and have taken evidence on it over a period of time. My expertise on and knowledge of financial services has largely come about as a result of issues raised by constituents since my election to this House. That is why I wish to spend a little time discussing part 2 of the Bill, which creates the Financial Conduct Authority, which we have heard referred to as one of the successor bodies to the Financial Services Authority, and part 5, which deals with independent inquiries into investment schemes, among other things.

I come to those parts of the Bill as a result of what I suspect will become known soon enough as the latest in a long line of mis-selling episodes, to which the Chancellor and shadow Chancellor referred. My right hon. Friend reminded the House that there have been a number of these episodes over the course of 30 years and under various different regulatory regimes and set-ups. The issue that I refer to is the collapse of the Arch Cru investment vehicle in 2009 and the interests of the 20,000 individuals who have, almost certainly, been adversely affected by it. As many hon. Members will be aware, Arch Cru was established in 2006 and was sold as a vehicle to provide low-risk, cautiously managed funds that were sold through independent financial advisers and, like all investment funds in the UK, were regulated by the FSA. The authorised corporate director was Capita Financial Managers, part of the Capita group, and the two depositories of the fund were the Bank of New York Mellon and HSBC, whose activities were, again, regulated by the FSA. Many of those who invested in Arch Cru did so on the basis that it was managed cautiously, and the use of those household names gave people comfort that the regulator was overseeing those bodies and that people’s money was indeed being invested cautiously and wisely.

As many hon. Members will know, the fund was suspended in March 2009. At the time, it was worth £363 million but by March 2011 its value was estimated at £148.8 million, which means that many people have suffered losses as a result. Far from being cautiously managed, funds were invested in cells registered in Guernsey in a cavalier manner. Investments were made in off-plan property, in real estate in Dubai, and in Greek shipping and ferries. It remains highly dubious as to what level of recompense investors are likely to receive.

The collapse of a supposedly low-risk collective investment scheme such as Arch Cru has caused a high degree of anxiety. Although we accept that no regulatory system can provide absolute protection, the failures of the FSA, in many respects, in this case mean that it is important that the measures being put in place give consumers the right amount of protection. That is why I particularly welcome clauses 64 to 68, which deal with independent inquiries into regulatory failures in respect of collective investment schemes. However, clause 64(5) has the effect of meaning that events occurring before 1 December 2011 will not be subject to the power of inquiry, and Arch Cru’s collapse occurred well before that cut-off date. The Government have the power under section 14 of the Financial Services and Markets Act 2000 to institute an inquiry, and I hope that they will still make use of that power.

Clause 67 deals with the conclusion of an inquiry, noting that the person holding that inquiry must

“make a written report to the Treasury”.

The existing legislation contains a provision stating that the Treasury may publish the whole or any part of a report and, should it decide to do so, the report should be laid before Parliament. However, a similar provision appears to be missing from the Bill, so perhaps the Financial Secretary will enlighten the House on whether I have missed it or whether we will need to make an amendment in Committee to ensure that that degree of transparency is in place for such inquiries.

If we are to minimise the chances of another episode such as the Arch Cru collapse happening again, the people who invest their retirement nest eggs on the basis of being told that a fund is cautiously invested need to be adequately protected by the regulatory regime. There should be some governance over the terms used to describe investment vehicles, especially where, as in this case, the reality turns out to be very different from the description.

[Alun Cairns]

I pay tribute to the work that the hon. Gentleman has done on Arch Cru. Does he share my concern that the risk category of any financial product is assessed by the Investment Managers Association and that there is no regulatory framework or matrix by which such an organisation conducts its work on assessing the risk of a product?

[Tom Greatrex]

I thank the hon. Gentleman for his intervention. I do not wish it to appear as if we are just congratulating each other, but I want to place on the record my appreciation of all the work that he has done on Arch Cru as co-chair of the all-party group on Arch Cru. It is my pleasure to co-chair that group with him and he makes an important and significant point.

As the Bill goes through Committee, we need to consider that issue in detail as it relates to the set-up of the FCA, to ensure that we are never again in a position in which descriptors with no value are attached to investment opportunities, almost as a marketing exercise, with nothing behind them. I hope that the Financial Secretary hears the hon. Gentleman’s important point, and that we can return to it in more detail.

One way in which to prevent a repeat of the experience is fully to learn the lessons of the Arch Cru collapse, and to ensure that, as a result, the consumer is protected by a more robust regime. The Financial Secretary will no doubt recall that in a Westminster Hall debate on Arch Cru last October, many Members on both sides of the House asked the Government to instigate a section 14 inquiry. The Financial Secretary replied that he did not think such an inquiry appropriate at that point and he continued:

“The powers are available where it appears that significant damage has been done to the interests of consumers that might not have occurred but for a serious failure of regulation. It is worth pointing out that the power has never been used.”—[Official Report, 19 October 2011; Vol. 533, c. 285WH.]

First, I am not quite as convinced as the Financial Secretary is that the fact that the power has never been used means that it should not be used. Secondly, to my mind, Arch Cru is an example of regulatory failure. The FSA failed properly to regulate the fund, and let down my constituents and thousands of others across the country by not stepping in earlier. The FSA was statutorily responsible for regulating Capita Financial Managers, which was the authorised corporate director for Arch Cru, yet Capita failed to see what was going on until it was far too late.

As the intervention by the hon. Member for Vale of Glamorgan (Alun Cairns) illustrated, there is cross-party consensus on the issue, and the all-party group extends across the whole House, with members from every party other than the Scottish National party—that might be pertinent. When answering questions in December, the Prime Minister was receptive to the idea of considering what more the Government could do to address this important issue. One course of action could, and I would argue should, be to establish a section 14 inquiry, the findings of which could be used to inform a detailed discussion of the proposed FCA, and to ensure that the body is established with the resources, expertise and powers necessary to minimise the opportunity of anything like the Arch Cru failure happening again.

Even at this late stage, I ask Ministers—the Economic Secretary is now on the Front Bench and might be less familiar with the issue than the Financial Secretary, who was there when I started speaking—to reconsider the position on a section 14 inquiry, so that this part of the Bill can be as robust as possible. When the current regulator admits that it did not know what was happening, because of the structure of an investment vehicle and the nature of some of the investments in Guernsey and elsewhere, in my mind it becomes the responsibility of the Government to minimise the risks of the same thing happening again. The Government have an opportunity, as do we, through the Bill, to ensure that the successor body is better placed to ensure such a result.

It is sometimes easy, when getting into the weeds of an issue such as Arch Cru—as I and others have done over recent months—to forget that ultimately this is about people. It is about my constituents and others who deserve the right consumer protection, and we must be confident that in dealing with the consumer aspects of regulation, the successor body does not fail in the way its predecessor did. To ensure that, we need to know what did not work under that predecessor regime, so that there is confidence in the successor body and people are protected in the right way. That is why it is still relevant and important that the Government consider a section 14 inquiry into Arch Cru under the current legislation, and I hope that Treasury Ministers understand that this point is being made in the best interests of scrutiny, of effective regulation and of the consumers who expect, and deserve, to be protected when purchasing financial services products.

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[Alun Cairns (Vale of Glamorgan) (Con)]

I will endeavour to say as much of what I planned to say as I can in the existing time frame.

There is no doubt that the Bill should be welcomed and that it will help right the wrongs of the former tripartite structure that contributed to the banking collapse. The tone of this debate is important. It would be easy to labour the failures of the previous Administration and highlight why Opposition Members, particularly those on the Front Bench, must accept their part in the financial crisis of 2007 onwards and the subsequent fallout. It is all too easy to use the banks as whipping boys, but in reality it was politicians and Governments who allowed many questionable practices to go on.

I regret the tone of some recent news stories about bankers, whether they relate to bonuses or to other controversial issues. We must consider how such matters destabilise an extremely valuable sector that employs more than 1 million people across the United Kingdom, amounts to 10% of our GDP and contributes between £35 billion and £63 billion to the Treasury every year.

I do not seek to defend the indefensible, but let us at least consider the longer-term consequences of what is said and done, and the tone in which it is said. In considering last week’s debate on bonuses, for example, I hope that Stephen Hester does not choose to leave RBS any time soon, as it could cost a significantly greater sum to attract someone to fill the post, particularly in this difficult public climate. A mature debate is needed on remuneration, which many in this debate have mentioned, but we should be level-headed and remember that how we conduct the debate, as well as its outcome, will affect our economy and growth prospects.

To the Minister’s credit, a huge amount of work has been done on the Bill. Not only have there been several opportunities to pursue the matter here in the Chamber, but the pre-legislative scrutiny Committee chaired by my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) developed the Bill further, as did the Vickers report and the scrutiny of the Treasury Committee.

My first substantive point relates to structure and culture. The tripartite structure had to end; we are all aware of its deficiencies. The twin-peaks approach and the establishment of the FPC, the PRA and the FCA also make sense, but it is important to recognise the need for the legislation to be forward-looking rather than focused on the mistakes of the past.

It was interesting to read evidence from a number of witnesses who supported the proposals but still refused to commit to saying that if the new structure had been in place in 2007-08 or before, the banking collapse would not have happened. It is important that we seek to develop a regulatory framework that can adapt. A simple tick-box approach—we have heard much about that—or an isolated approach set up to prevent the recurrence of the last crisis will do nothing for a dynamic industry always seeking to evolve, to be innovative and to generate income for the country and its shareholders.

The Minister is taking the right decision to set up those bodies, but much will depend on the leadership that their members will offer. Several times in the past the House has been involved in the establishment of new agencies only to have to return to their shortcomings within a year or two.

The culture that each chairman or chief executive develops with the Governor will be crucial to the success of this legislation. The relationship between each organisation is also important and, as ever, will inevitably depend on the Governor, chairmen and chief executives. Such relationships need to be open, and there needs to be a clear understanding of the part that each person plays. They should not operate in isolation, and there needs to be clear accountability, with the ultimate test of knowing who should get fired.

I want to highlight the issue of concentration risk or groupthink, given the huge emphasis that is placed on the Governor. In that respect, amendments suggested by the Joint Committee to strengthen ties with the Treasury and Parliament are welcome. I am grateful that the Minister has accepted some of them.

It is clear that, within the proposed structures, the judgments of individuals will ultimately make the difference. The Bill provides the FPC with considerable powers of direction, but the levers generally used by the PRA or FCA will also determine the fate and future of the industry. That is the area of greatest concern across all three bodies, yet there is no alternative if we are opposed to the inflexible tick-box approach criticised tonight. Regular parliamentary scrutiny will be essential, and the role of Treasury officials on many of these bodies will be crucial for feedback to the Treasury and parliamentary scrutiny.

In making their judgments, the PRA and the FPC will need to respond to the evidence. A one-size-fits-all approach will not serve the economy or the financial services sector well. Their engagement with the organisations that they regulate will need to be risk-based, but that flexibility, which is needed, must not lead to inconsistent actions. Sir Mervyn King stated that judgments are undermined when we end up with a game in which regulators are continuously rewriting the rules as firms devise new products to get around the detailed legal rules in place before. A tiered approach is needed, therefore, to allow certainty and due process that also reflects the risk and culture of the organisation.

The FPC and regulators do not operate in isolation, and international factors need to be considered. It is fair to be concerned, therefore, that UK authorities could seek to raise the bar, and the risk of super-equivalence is real and always worries the leaders of many of these organisation.

Mr Deputy Speaker, I am sorry that time does not allow me to complete my remarks about the FPC.

Tax Avoidance (Public Servants)

Alun Cairns Excerpts

Thursday 2nd February 2012 Commons Chamber

[Danny Alexander]

As was revealed on “Newsnight”, and as I have said, a number of Departments were involved in this—the Cabinet Office, and so on. What I am trying to do now, through the review that I have put in place, is to ensure that these arrangements are not repeated in the future, and that any existing arrangements approved by this Government or the previous one are dealt with.

[Alun Cairns (Vale of Glamorgan) (Con)]

Is not the root of this issue based in the complex tax structure that has grown up over the past 15 years or so? What reassurance can the Chief Secretary to the Treasury give the House that such issues will be rooted out during the tax simplification review?

[Danny Alexander]

My hon. Friend makes an important point. It is precisely the complexity of the tax system that creates some of the opportunities of which many people take advantage. That is why we have created the Office of Tax Simplification, which continually makes recommendations for ways in which we could simplify the tax system and tackle some of the avoidance schemes. The very complicated tax arrangements that we inherited are gradually being changed by this process, which is in the best interests of the country.

Autumn Statement

Alun Cairns Excerpts

Tuesday 29th November 2011 Commons Chamber

[Mr Osborne]

Yes, I think that we all want to see a move to a banking system that is more responsive to local businesses and local people and that is not just based on a computer model that allocates credit and the computer says no. We want to return to having local bank managers empowered to make decisions, and a number of banks are doing this. One of the notable successes at the moment is Handelsbanken, which is out there lending money to small businesses and taking more of this local approach.

[Alun Cairns (Vale of Glamorgan) (Con)]

The Chancellor’s statements of support in favour of energy-intensive industries will be welcomed in south Wales, the midlands and the north, which are areas that have seen a particular decline in manufacturing over the past decade. The statements will be particularly welcomed by Dow Corning, a chemical manufacturing company in Barry in my constituency. How will they work in practice in order to support these companies in reducing their energy bills?

[Mr Osborne]

We are going to provide specific compensation for electricity-intensive businesses affected by the EU trading system and by the carbon price floor. We are also going to increase the climate change levy relief and work to make sure that those businesses are not adversely impacted by the electricity market reforms. We have a suite of measures, but the overall intention is clear: we want to help businesses such as the one in my hon. Friend’s constituency. I should say that I was first alerted to what we can do by a visit before the election to the steel works in Port Talbot, where I was very struck with the argument made there that the business could simply be moved to Holland if we did not act. We have been able to come forward with help that I think is going to support industries in south Wales.

Northern Rock

Alun Cairns Excerpts

Monday 21st November 2011 Commons Chamber

[Alun Cairns (Vale of Glamorgan) (Con)]

Does the Minister agree that this could be seen as the first step in returning normality to the banking high street after regulatory failure over the past 10 years? Does he accept that by doing that he is bringing a new, welcome innovator to the marketplace that will have a positive impact on competition?

[Mr Hoban]

My hon. Friend is absolutely right. We want to see new competitors in the market—people who can challenge the incumbents and offer a better service, better rates and better products—and that is to the advantage of consumers. That is a trend we are seeing across the banking sector as a whole, with new entrants coming into the market, and we should be encouraging it so that we have a more competitive financial services marketplace with better outcomes for consumers, whether they are business or personal.

Oral Answers to Questions

Alun Cairns Excerpts

Tuesday 1st November 2011 Commons Chamber

[Mr Osborne]

In his pitch for a job, the hon. Gentleman failed to mention that youth unemployment rose by more than 40% under the Labour Government. There is complete amnesia about the fact that 16 months ago they left this country with high unemployment, a high budget deficit, the deepest recession this country has seen in the last 100 years, and the biggest banking crisis in our history.

[Alun Cairns (Vale of Glamorgan) (Con)]

T7. Some of the most needy children in the Vale of Glamorgan and across the UK will benefit from today onwards from the Government’s junior ISA. That presents an opportunity to return to a culture of savings among families. What plans have the Government to develop that further?

[Mr Osborne]

We have indeed announced today the launch of the junior ISA, which will enable many millions of parents to save for their children up to £3,600 a year tax free. It should help more than 6 million children who will be eligible for it immediately and many more as they are born and grow up. It is all about trying to foster a savings culture after the age of irresponsibility and the culture of debt that we saw over the past decade.

Arch Cru Compensation Scheme

Alun Cairns Excerpts

Wednesday 19th October 2011 Westminster Hall

[Alun Cairns (Vale of Glamorgan) (Con)]

It is a pleasure to serve under your chairmanship, Mr Owen. I want to congratulate and pay tribute to the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) on securing the debate and on the way in which he introduced it. He set an absolutely right tone to try to uncover the scandal and seek justice for many innocent investors.

This debate is the first opportunity to air serious issues that have cost some 20,000 people significant sums in respect of a fund once valued at £400 million. The title of the debate relates to the compensation scheme, which is the obvious priority of investors. However, there is also a need to interrogate the background, which raises questions about the scale, source, timing and conditions of the scheme.

The investors’ starting point in the financial scandal was to receive and consider advice from their independent financial adviser. As the hon. Gentleman suggested, the funds were clearly advertised and marketed as cautious managed. That would have sounded reasonable and fitted the risk profile of many private investors across the country.

[Jonathan Evans (Cardiff North) (Con)]

May I be the first on this side of the Chamber to pay credit to my hon. Friend for his tenacity in assisting people in bringing this matter before the House?

The point that my hon. Friend is making specifically relates to the decision made by investors. I have constituents who have invested, including one who wrote to me only yesterday to tell me that he invested £120,000—the totality of his pensions and savings—primarily because he wanted to be in cautious-managed funds that were safe. That highlights the regulatory failure to which my hon. Friend is alluding.

[Alun Cairns]

The cautious-managed issue is a common theme throughout regarding the Arch Cru funds. Cautious managed, from my time in financial services, would be argued as an investment category that fits the majority of people across the United Kingdom. However, investigation shows that the Financial Services Authority does not regulate the risk classification of funds, which is assessed by the Investment Management Association. I find that staggering, considering that that is a fundamental element in the decision-making process of any investor. The IMA is merely an industry managers’ representative body. The FSA has told me that classification is not a regulated activity, so it does not have the powers to amend the classification of funds. However, the FSA needs to be reminded of its statutory objectives, specifically the one relating to maintaining market confidence.

The reality of the investment was that it was not cautious managed. The open-ended investment company invested in unconventional investments, as we have heard. Cell companies were formed and floated on the Guernsey stock exchange, investing in private equity and shipping loans, among other high-risk transactions. As that was a recognised exchange, it circumvented the FSA radar, although FSA rules banned such illiquid investments in open-ended funds. Therefore, it was no surprise that in March 2009, almost three years after they were launched, the funds were suspended.

However, the situation is not that simple. The FSA identified issues with the funds in October and November 2008, but the funds were permitted to continue to trade. It conducted an advanced risk responsive operating framework test at the time, which should have highlighted the issues, particularly pricing concerns. Yet, the funds were only suspended four months later.

Capita became the authorised corporate director, and had failed to act. It had responsibility for corporate governance and daily pricing, and control over the underlying assets. It initially denied having control of the underlying assets, but the auditors’ report from Ernst and Young showed that it held more than 75% of the shares. I suggest that Capita mispriced the funds before suspension due to its failure to exercise control to value the underlying assets accurately. There was a breach of the investment mandate and a pursuit of a reckless investment strategy by Capita’s designated fund manager.

Clearly, that negligence led to Capita’s £54 million compensation offer—70% of the value of the funds at the time of suspension, together with the remaining assets from the valuation on 31 March. That has been criticised as unlikely to hold up. Investors are being asked to accept an offer without knowing what they will receive, as that depends on the value secured on the sale of the remaining assets, which will take years. That is an obvious disparity and injustice.

The auditor was Moore Stephens. It surely should have identified the issues, but it has still yet to offer any form of explanation, let alone compensation. The Guernsey regulators also have some explaining to do and have to accept their part of the responsibility and liability.

[Sir Alan Beith]

Does my hon. Friend know whether the FSA consulted the Guernsey authorities or sought their assistance at any stage?

[Alun Cairns]

My right hon. Friend raises a good point. I have raised that issue with the FSA, which said that it was beyond its jurisdiction. However, to my mind, protecting UK investors is certainly its priority and should fall within its jurisdiction.

To date, there has been no explanation of the logic behind the £54 million offered, and the conditions are somewhat restrictive. Having recently met with the FSA, I know that the reasons behind the current delay concern third-party rights, which I understand. However, it has taken more than two and a half years from suspension to get to the current stage.

I have a constituent who invested several hundred thousand pounds of his retirement money into the funds, but there will be constituents of other hon. Members present who had invested far smaller sums, and which may be even more significant to them individually. A figure of 70% of the valuation at suspension is completely inappropriate, given that all that our constituents had done was to invest in a regulated, cautious-managed fund with a regulated, authorised corporate director and approved auditors. The delay conflicts with the timing of a possible legal challenge. Investors need to act soon to fall within the legal time frame set out by the courts.

In considering criticism of the FSA, it seems hardly just that, having failed in its responsibility to regulate, it has the responsibility to investigate and negotiate a compensation package for the people whom it failed in the first place.

[Mark Durkan (Foyle) (SDLP)]

The debate shows that we have a fund that was a scam and regulation that was a sham. We have a problem not just with the FSA’s dereliction of regulatory oversight, but with its deviance and connivance in the deed with Capita. This debate is an opportunity for Parliament to blow the whistle. The FSA is now blatantly offside, and surely it is up to the Minister and the Treasury to make it clear that the deed cannot stand and the deadline must not stand.

[Alun Cairns]

The hon. Gentleman has made an extremely powerful point. This is the first debate on Arch Cru, and certainly on the FSA and its change to the successor bodies. Those who have responsibility for this matter need to bear in mind the strength of feeling among investors and the number of people who have turned up to this debate. This issue will not go away until investors feel that they have received justice.

The regulator, the Financial Services Authority, arguably failed in its duty as did the investigators and negotiators. Clearly, there was a position of conflict. It angers me that at every meeting and in every communication, the FSA points its finger at the independent financial advisers. In view of the FSA’s four strategy objectives, passing the buck to the IFAs is wholly inadequate. The pricing and fund performance would have been integral to the advice provided by any independent financial adviser.

In a meeting last week, the FSA told me that the obligation of suitability lies with the IFA. It is unrealistic for IFAs to have the capacity to interrogate individually all marketed funds, products and pricing strategies, or to speak to the financial directors and auditors of every firm on which they advise, when the FSA, with all its resources, failed to protect investors from wrongdoing in this respect.

[Guy Opperman (Hexham) (Con)]

Independent financial advisers may be being criticised, but is my hon. Friend not surprised that the Serious Fraud Office has not been more involved in this patently criminal investigation?

[Alun Cairns]

I pay tribute to my hon. Friend for the role he has played in uncovering many of these issues. I will come on to the Serious Fraud Office in a moment.

[Sammy Wilson]

I accept the hon. Gentleman’s defence of the independent financial advisers. None the less, the only interface that many investors have is with an independent financial adviser. Is there not an obligation upon them at least to check out the funds on which they advise? Is there not some responsibility there?

[Alun Cairns]

I am grateful for that valid point. Clearly, IFAs cannot be excluded from all responsibility, but we need to bear in mind the context in which they are working. If they are looking at the strategy and pricing of a fund classified as cautious managed, we need to recognise the context in which that advice is being given. Therefore, the failure of the FSA to set the right context in which an IFA can make recommendations is fundamental to the issue.

There is another conflict. The FSA regulates the authorised corporate directors and Capita acts as the authorised corporate director for more than 300 firms. Taking action against Capita could create difficulties, leading to panic in the marketplace. The FSA has powers under section 166 of the Financial Service and Markets Act 2000 to instigate an independent investigation into organisations that take such responsibilities. Will the Minister tell us whether any such action has been taken by the FSA?

The Arch Cru affair is a minefield of accusation and counter-claim. My hon. Friend the Member for Hexham (Guy Opperman) referred to the Serious Fraud Office. I was alarmed to discover that two of the three main directors or partners who established the Arch Cru funds—Robin Farrel1 and Robert Addison—are still operating, albeit under a new name of Arch Global. Allegations have been made to the Serious Fraud Office about how Arch funds were invested in a property company with common directors. Student accommodation was bought on the open market at one price, only to be sold to the Arch investors shortly afterwards for an inflated sum. I have no knowledge of whether or not those points are true, but they clearly need to be investigated.

As for compensation issues, the auditors and the Guernsey Financial Services Commission certainly need to be pursued by some authority, be it the FSA, the Minister or other parties.

Finally, in view of the FSA’s actions and the associated conflicts, I am troubled that section 404 of the 2000 Act can bind the financial services ombudsman to the FSA’s judgment on the level of compensation. The FSA has made its view of the 70% figure quite obvious in its statement. Therefore, even if investors seek to make a claim involving the financial services ombudsman, or if they follow other routes, the FSA can limit the compensation to 70% at a later stage.

[Duncan Hames (Chippenham) (LD)]

Clearly, my constituents will wonder what the point of a financial services ombudsman is if they cannot seek redress through it to get a better deal than Capita is already offering.

[Alun Cairns]

I am grateful to the hon. Gentleman. He underlines the power of the FSA to limit compensation, rather than to uncover and to provide just compensation for people who have been ill-advised and ill-treated throughout this whole process.

These issues need to be reconsidered in an equitable way and without conflict.

[Sir Peter Bottomley (Worthing West) (Con)]

Will my hon. Friend confirm that the vital thing that needs to be done straight away is to lift the deadline so that people can make decisions, knowing that they are not throwing away some future interest? Will he also join me in saying to the Minister that, whatever direct powers the Government may or may not have, they do have the opportunity to call people together to say that the present situation is unfair and not right for investors? They need to find a way to make it possible for MPs, financial advisers and everyone else to say to investors, “This is what you should do now.”

[Alun Cairns]

That pragmatic and practical intervention would certainly set us on the right road to gaining justice for investors. The issue needs to be reconsidered in an equitable way and without conflict. The Minister and the Government should have the responsibility to bring together the various parties. Under section 14 of the 2000 Act, the Minister also has the power to launch a formal investigation, so that those with conflict are removed and the situation is judged objectively and properly. That will be the first step towards achieving justice for investors.

[Mr Robin Walker (Worcester) (Con)]

I congratulate my hon. Friend on the points he is making. On the section 14 inquiry, does he not agree that one of the most important things is for investors and their financial advisers to be able to make an informed decision? An informed decision cannot be made until that inquiry has happened and the real bases of the problems and of any compensation have been set out in detail.

[Alun Cairns]

My hon. Friend makes a valid point. When such problems are combined with questions about the legal time frame, investors who have experienced wrongdoing are in the unenviable position of making decisions about receiving compensation or pursuing it through the courts, without there being a thorough investigation of who is responsible.

I thank hon. Members for their support, and the hon. Member for Rutherglen and Hamilton West for securing this debate. There will be many more such debates until justice is achieved for investors.

--- Later in debate ---

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I congratulate the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) on securing this debate and on how he introduced it. Despite a barrage of interventions, he managed to maintain his pace and tone and set out a clear narrative of what happened to Arch Cru. I also congratulate my hon. Friend the Member for Vale of Glamorgan (Alun Cairns) on his tenacious pursuit of the matter, as well as the other hon. Members who have taken part in the debate.

I express my sympathy to the many Arch Cru investors who have lost a significant proportion of their savings as a consequence of the events that we are discussing. Regardless of how large or small the investment was, and whether they have lost all their savings or a fraction, they have lost out. It is important to think carefully about the cause and what lessons need to be learned.

As my hon. Friend the Member for Chippenham (Duncan Hames) rightly predicted, I must add a note of caution about Treasury responsibilities in the matter. We do not have investigative or prosecuting powers of our own. The Financial Services Authority is the independent regulator. I have spoken to its chief executive about Arch Cru and sought further information about the FSA’s investigations and the voluntary compensation package, and I will respond as fully as I can to the points made today. Hon. Members clearly have an appetite for a lot more detail. I understand, as I have the same appetite, but enforcement action is ongoing, so there is a limit to what can be disclosed in the House.

As the hon. Gentleman and others have said, the case is complex and involves multiple layers of responsibility. Many investors will initially have engaged with Arch Cru’s UK open-ended investment companies, or OEICs, through their independent financial advisers, with Cru Investment Management conducting the marketing of the OEICs. The management of the OEICs was then the responsibility of Capita Financial Managers Ltd as authorised corporate directors and of BNY Mellon Trust & Depositary (UK) Ltd and HSBC Bank plc as depositaries. Although the legal form is that Arch Financial Products acted as the delegated investment manager, in substance, it approached Capita and proposed that fund structure.

The OEICs invested principally in more than 22 Guernsey- domiciled incorporated cell companies, which were listed on the Channel Island stock exchange and required to comply with Guernsey regulations. The cell companies had two independent directors. The administrator of the cell companies was regulated by the Guernsey Financial Services Commission and was responsible, among other tasks, for producing valuations for the cell companies, which were made available to the Channel Island stock exchange. Arch was the investment manager for the cell companies and, of course, the OEICs themselves. Both the OEICs and the Guernsey cell companies were independently audited. That complex structure should make it clear that it is not easy to apportion full responsibility to any single player in the matter.

As part of the authorisation process for UK OEICs, the FSA assesses a fund’s proposition before launch and decides whether it complies with the rules. The FSA then reviews the fund’s prospectus and, after authorisation, continues its normal supervisory activity, which includes visits to authorised corporate directors and depositaries and thematic work such as the monitoring of financial promotions. As hon. Members have identified, the FSA does not regulate descriptions of funds, such as “cautious managed”. It is worth reflecting on what “cautious managed” means. It means that a fund invests in a range of assets with a set maximum equity exposure and a minimum exposure to fixed interests and cash. A minimum percentage of assets must also be held in sterling or euro-denominated assets. That describes what such funds should be.

The FSA is not an auditor and does not check underlying investments or the veracity of share prices. That is the responsibility of others. The regulatory regime is not a zero-failure regime, and the FSA conducts risk-based supervision. It does not visit every firm every year; the frequency of visits depends on firms’ risk and impact. If hon. Members reflect on that for a moment, they will expect more resources to be devoted to a big insurer than to an insurance broker on the high street. However, it is ultimately the responsibility of the firms involved to ensure that they comply with all the relevant rules.

What did the FSA do in this situation? It has been suggested that the FSA let down investors, but its financial promotions monitoring activity picked up some of the issues with Arch Cru OEICs, which were raised with the parties involved. Crucially, in October 2008, during the course of an ARROW inspection visit, the FSA identified issues with the funds, including the fulfilment of the OEICs’ investment objectives. Those issues were raised with Capita Financial Managers, the authorised corporate director, leading to the suspension of the OEICs in March 2009.

On the payment scheme, it should be clear from my opening remarks that the structure underpinning investment in an Arch Cru fund was complex and multi-layered. The FSA could have pursued a comprehensive package of redress, which would have needed agreement from all the parties involved, some of which were responsible for the management of the funds and some for their sale or promotion. Not all those parties are regulated by the FSA or based in the UK. To have put together such a package would have been time-consuming and complex. The FSA has reached agreement with the three parties responsible for the management of the UK OEICs: Capita, BNY Mellon and HSBC. The package was announced in June 2011, and will pay up to £54 million to investors. The amount of compensation takes into account distributions already made to investors and the remaining value of the funds.

The compensation amount also has an element of proportionality, taking into account the fact that while those three parties share some of the responsibility for the losses, they are not solely responsible. Other parties contributed to the failure, and the FSA is currently considering the positions of those other parties. The pursuit of a voluntary settlement with the three parties allows investors to opt to receive payments by the end of this year rather than having to wait several years for the uncertain outcome of a more complex process, which would include enforcement action against the relevant parties. It is a trade-off. Do we want investors, some of whom invested all their funds in Arch Cru, to receive money sooner or later? A question was asked about time scales. People have until the end of next year to decide whether to opt for the package.

The FSA has required the Financial Ombudsman Service to apply the payment scheme to complaints that it receives, under the provisions of the Financial Services Act 2010, which was introduced by the previous Government and supported by us. The provisions ensure certainty to investors and a consistent regulatory approach between the FOS and the FSA. Without them, the FOS would have to consider individual cases on their own merit rather than applying the same principle to every investor. I will explain what the FOS is bound to.

[Alun Cairns]

Will the Minister give way?

[Mr Hoban]

No, I will continue. I have three minutes left and more points to make.

The FOS is bound only in respect of complaints made against Capita, HSBC and BNY Mellon. Complaints made to the FOS about other parties to the investment chain, including independent financial advisers, can still be heard by the FOS. The limitation on the FOS applies only to complaints made about the three parties. That is a clear signal to investors that they can make further complaints about other parties. Investors are free to pursue action through the courts and to challenge the IFA who advised them to invest in Arch Cru funds over whether that advice was appropriate. Numerous people have already done so. If they are not satisfied with the IFA’s response, they can go to the FOS. If a complaint has been upheld but the adviser is no longer in business, investors can also complain to the Financial Services Compensation Scheme and apply for compensation.

Global Economy

Alun Cairns Excerpts

Thursday 11th August 2011 Commons Chamber

[Mr Osborne]

We abandoned the Bretton Woods arrangements in the early 1970s, so it has been a while since we have operated under those international arrangements. Let me, however, make a few observations, because the hon. Gentleman has made a serious point about the eurozone.

I think that it would be disastrous for Britain’s economy if the eurozone were to break up, and I think that it would also be disastrous for the economies of the eurozone themselves. It would lead immediately to a balance of payments crisis in many European countries. That is why it is in our interests for the eurozone to work. Some of us questioned whether it was right to go ahead with it 15 years ago—we certainly did not want Britain to be part of it—but it exists now, and, as I have said before, “I told you so” is not an economic policy for today.

I agree with the hon. Gentleman that we need better international arrangements to monitor and deal with global imbalances. For instance, there are currently huge creditor countries such as China, and big debtor countries such as the United Kingdom and the United States. I am afraid that progress on that at the G20 and the International Monetary Fund is painfully slow. At some of the meetings, it has not even been possible to agree on the definitions. I hope that, if there is a silver lining to the present black cloud of the financial market crisis, we will see at the autumn meetings of the various institutions much more progress towards the arrangements that I think everyone accepts should be in place.

[Alun Cairns (Vale of Glamorgan) (Con)]

I congratulate the Chancellor on the deficit reduction programme that has secured the United Kingdom’s triple A rating, but can he tell us what analysis he has made of the rising price of gold, and how much better off the UK economy would be if the last Government had not sold off our gold in the same way?

[Mr Osborne]

I expected that that question might arise, as it often does at Treasury events. As people will have seen, the price of gold has hit a record high of $1,800. It was $300 when the shadow Chancellor sold our gold stocks. As a result of that action, this country has lost £12 billion.

Finance Bill

Alun Cairns Excerpts

Tuesday 28th June 2011 Commons Chamber

[Kerry McCarthy]

My hon. Friend makes a good point as always. That is the crucial thing. Under the Conservative Government, the increased take-up in medical insurance from 500,000 to 600,000 did not necessarily have anything to do with the tax relief that was introduced; it happened because the NHS was in absolute crisis. Waiting lists were going through the roof under the last Conservative Government. People were terribly scared and did not feel confident that the NHS would look after them in their ill health. There were significant improvements under the Labour Government, which meant that fewer people felt the need to take out private health care.

Let me turn to the fairness argument. It remains to be seen how much the Health Secretary’s experiment through the measures in the Health and Social Care Bill—driven once again by a preoccupation with private sector involvement in health care—will eventually take from health care budgets. We know that £850 million will be spent on redundancies alone, and the estimates are that £2 billion of PCTs’ budgets are earmarked for what can only be described as—in those infamous words of the coalition agreement—a “top-down reorganisation”. Despite the Prime Minister’s promise of real-terms increases, NHS expenditure is falling in real terms. The King’s Fund has calculated that the NHS will have £910 million less to spend over the spending review period. Patients and staff know all too well that front-line services are being affected, but tax relief for private patients will not help them.

[Alun Cairns (Vale of Glamorgan) (Con)]

Do I take it from the hon. Lady’s comments on health spending that she is condemning her colleagues in Wales, who are cutting health spending by £1 billion over the next three years?

[Kerry McCarthy]

I am sorry, I did not quite catch the end of that because a colleague was talking to me. I do not know whether the hon. Gentleman wants to make that intervention again.

[Alun Cairns]

I will happily repeat the point. Do I take it from the hon. Lady’s earlier comments about growth in health spending that she condemns her colleagues in Wales, which is the only place where Labour is in power? They are cutting health spending by £1 billion over the next three years.

[Kerry McCarthy]

The Government are here to answer for the activities for which they are responsible in the English health service—it is one of those things that goes with devolution. We have heard from Government Members in this debate that the Government are increasing spending on the NHS. They have trumpeted that over and over again—it was meant to be a platform on which the Conservatives sought election—but the truth is that there is not a real-terms increase in spending on the NHS. When inflation is taken into account, there is actually a cut in NHS spending, and it is time that the Government owned up to that.

I am under pressure to finish my speech and allow those on the Government Front Bench to come in. [Interruption.] As hon. Members can see from the fact that not one but two Opposition Whips are sitting behind me, shouting at me to hurry up, I am indeed under pressure.

How can Conservative MPs tell the hundreds of thousands of people who have signed up to the “Save our NHS” campaign that a spending commitment priority for this Government should be subsidies for private medical insurance? The coalition has tried to deny that it is creating a market in the NHS, but now Conservative MPs do not even want it to be a fair one, by creating incentives for the private sector. If the Treasury thinks it wise to spend such considerable sums, I hope that it is clear by now that they could be much more wisely and fairly spent on the NHS for the benefit of everyone, not the few who need it least. Why not invest in the NHS as a universal service of which we should all be proud, rather than sending the clear message to patients and enormously dedicated NHS staff that private health care is better? Is the coalition planning to run down the NHS to such an extent that people will need to resort to private insurance?

As my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) knew when the relief was withdrawn in 1997, not only could those funds be of great value to the NHS, but ending the relief could fund a reduction in the VAT charged on domestic energy supplies to 5%—a rate that the Conservative Government had increased to 8%, and which they would have increased still further to 17.5%, had they not been defeated by Opposition MPs. The Labour Government at the time made clear their priorities. Rather than giving a tax break to older people who could already afford health insurance, they chose a tax cut that benefited everyone, but made the most significant difference to older people on low incomes who were struggling to heat their homes.

It is worth reminding the House that the Conservatives wanted to reverse that policy and reinstate the relief in 2001. Now, 10 years later, they still have the wrong priorities —priorities that will quite simply be incomprehensible to the average person feeling the effects of this Government’s reckless spending cuts. It is estimated that 4.5 million families in the UK are living in fuel poverty, while people are facing 10% increases in their electricity bills, which are likely to increase still further as a result of the coalition’s poorly thought out plans for a carbon floor price, which we will debate perhaps in the early hours of tomorrow morning or next week. Moreover, this Government have decided to cut the winter fuel payment for pensioners.

Faced with individuals and families who will struggle to heat their homes this winter, are the Government taking positive, responsible action to help them? No; instead, they have already hiked up the VAT bills of a couple with children by £450, and those of a pensioner couple by £275, and their Back Benchers think that it is more important to reverse a decision taken to help with fuel costs and instead give tax relief to the minority who can already afford the luxury of private health insurance.

The Labour Government lifted 1.1 million pensioners out of poverty, but there is a continuing need to support those on the lowest incomes. I fear that these proposals betray how some Conservative Members neglect the needs of the poorest pensioners. With the new clauses, they want to add insult to injury by giving tax breaks to the richest to buy private medical insurance, while poorer pensioners have no option but to rely on the NHS—a service that the coalition seems determined to decimate. New clause 1 explains that the relief would apply to people over 65 but, as we all know, the coalition is planning rapidly to increase the state pension age, which will affect the associated support for older people. Does the hon. Member for Mole Valley therefore envisage the age limit increasing with the state pension age, or does he disagree with the Government’s timetable?

In 2006, 10.6% of the population were covered by private medical insurance, and only 3% by personal private medical insurance. The latest figures that I have seen indicate that just 7% of people over 65 have private medical insurance, so the clear motivation behind new clause 1 is the choice to prioritise a very small percentage of the population at a time when the country and the NHS cannot afford it. Inflation is running at more than double the target rate thanks to the Chancellor’s decision to increase VAT, growth is flat-lining, the jobseeker’s allowance claimant count is increasing and more than 80 claimants are applying for each vacancy in some areas. That all means that the Government will have borrow £46 billion more than they planned last autumn, so how on earth can this measure be a priority?

I urge the Government to reject these new clauses, to consider how the money could be much better spent and to secure the future of the NHS as a high-quality service that everyone can access and trust. Instead of an unfair income tax cut for the few, we need a temporary emergency VAT cut that will benefit everyone, particularly those on low and middle incomes, and that will give a much-needed boost to the economy to reduce the deficit over the long term in a fair and balanced way. I conclude by asking the hon. Members who tabled the new clause what their priority is. Is it a tax cut for the minority who can afford private health insurance, which would undermine and undervalue the NHS, or a tax cut that would help everyone at a time when the economy needs it most?

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The UK economy is not growing and people’s standards of living are being compromised. Confidence amongst individuals and families is falling—that is key when we are looking at future economic growth prospects. Economic growth forecasts are being downgraded by all around except the Government and the unanimous response to today’s revised figures is that we are in for a period of subdued growth at best. As I say, the situation now is different from that of nearly three years ago when the VAT cut was first used as a part of fiscal policy. Back then, we were preventing the situation from getting worse and the recession from deepening; now we are looking at how we can generate growth. Part of the Institute for Fiscal Studies’ reason for backing policies such as a temporary VAT cut is that there is a time frame—people can see an end and know that they must spend to take advantage of it, as advocated by my new clause 9.

[Alun Cairns]

I give the hon. Gentleman and his party credit for having had consistent policy on this matter, but has he had any indication about where the official Opposition stand on his amendment? There has been some indecision within the official Opposition, with policies being announced without the shadow Cabinet knowing about them.

[Jonathan Edwards]

We will have to wait and see. I just hope that my words are powerful enough to entice them to come through the Lobby with us, but I am afraid we will have to wait until a little later in the evening.

I was talking about one positive reason for a temporary VAT cut, but that would not be my main, or only, consideration. The purpose behind the cut would be to help the millions of ordinary people who would benefit from not having to pay those extra pennies and pounds every day to the Government, which they could then use to spend or save elsewhere as they saw fit. They could spend them on other goods and stimulate the economy in that way or they could keep them to pay off their debts. At the moment, many costs have been factored into the margins of businesses and many businesses have not yet raised their prices to meet this new inflation from both VAT and other spending increases. If we can keep prices down through the use of a temporary VAT cut and keep high street prices down with it, we will help families. On the other hand, if we can secure the margins for shops and companies, we will help business. I hope that Government Members will agree with that point. Either scenario would be a win-win situation for families and business. Negating a key element of inflationary pressure would also enable monetary policy to be kept loose for longer, which I would imagine is a key objective for the Treasury and the Monetary Policy Committee.

In closing last year’s debate on the effect that the VAT increase would have on the budgets of public sector organisations, the devolved Governments and charities, I asked the Government what analysis they had made of the impact that increasing VAT would have on the operating costs of those bodies, as one study had estimated that increasing VAT would cost charities alone an extra £150 million per annum. I would be grateful if the Minister addressed that specific point in winding up. We will be pushing for a division on new clause 9, as it would introduce a temporary reduction and is more likely to generate support across the House. New clause 6 would be our preferred solution in the long term, but I will not push it to a vote tonight.

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[Mr Hanson]

The policy is clear. If the Exchequer Secretary looks at new clause 10, he will see that we want an assessment of the impact of VAT that looks at how we should deal with the question of VAT across the whole UK. Let me start by saying that we have a deficit reduction plan, as he knows, and a plan to save resources to tackle the deficit, and we have a plan to ensure that we meet the needs of this country. He will know that we have consistently supported opposition to the Government’s VAT rise since they brought it forward.

[Alun Cairns]

I note that the right hon. Gentleman is speaking to new clause 10, which is very different from the proposal made to the House only a week ago. Is this yet another shift in official Opposition policy?

[Mr Hanson]

The hon. Gentleman cannot get away from the fact that he has imposed a VAT rise on businesses, families and hard-working people in Vale of Glamorgan and elsewhere in the UK, and he could have avoided that tax in different ways. On the same evening that the Conservative party has proposed tax relief on support for private medical insurance—[Interruption.] Well, I may be mistaken, but I believe that the hon. Members for Christchurch (Mr Chope) and for North East Hertfordshire (Oliver Heald) are Conservative Members of Parliament. The hon. Member for Vale of Glamorgan (Alun Cairns) has imposed a VAT rise on his constituents that is unfair, damaging business and will damage the UK economy.

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[Mr Hanson]

I remember that very well. The Conservatives said at that general election that they would not double VAT. They did not double it, but they increased it by 7%. Perhaps the Liberal Democrats have learned some lessons about breaking election promises.

[Alun Cairns]

I seem to remember that Labour opposed all those increases in VAT, but not once did it reverse them. Is that true?

[Mr Hanson]

No, I think we did. I have been here quite a few years now, and I recall that in 1993 the Conservative Government increased VAT on fuel and had to reduce it because of measures supported by the Labour party in opposition. The hon. Gentleman may not remember that.