Public Sector Executive Pay and Governance

Andrea Leadsom Excerpts

Wednesday 15th October 2014 Commons Chamber

[The Economic Secretary to the Treasury (Andrea Leadsom)]

I sincerely congratulate my hon. Friend the Member for Southend West (Mr Amess) on securing this debate. He is clearly incredibly passionate about the subject and I agree with the quote he gave from Lady Thatcher at the start. In fact, I would add:

“The larger the slice taken by government, the smaller the cake available for everyone.”

My hon. Friend is right to highlight the important point that at a time of austerity the Government need to be committed to taking as small a slice as we can for ourselves.

As a Government we do, of course, greatly value the very important work that senior managers and executives perform in the public sector. I am sure my hon. Friend will agree that the rewards we give them should reflect the work they do, not least because we need talented individuals in those jobs. However, I am very sympathetic to his cause. The examples that he has given of high pay will lead many, including me, to question the fairness of so many in just one county earning as much or more than our own Prime Minister, who I am sure nobody in this House or, indeed, the country would argue does not do an extremely demanding job.

Of course, we live in difficult economic times. There are few households in the country that have not been affected by the financial crisis. Government absolutely cannot be profligate when our citizens are having to make difficult spending decisions themselves.

My hon. Friend has raised a number of important points, including pay in the public sector and its link to performance, especially in the NHS, and the excessive use of middle-management jobs and consultants. I want to address each of those, but before I do so, I want to say that I am aware that my hon. Friend has raised with Monitor, the regulator for health services in England, a number of issues relating to the South Essex Partnership University NHS Foundation Trust. I assure him that I will make sure that what he has said today is passed on to the Under-Secretary of State for Health, my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) to review. This Government take allegations of abuse of the system extremely seriously, so we will make sure that these matters are examined and that we get an answer.

Public sector pay restraint is one of the many difficult choices we had to make to help to put the UK’s public finances back on track. Of course, we expect senior public sector managers and executives to lead by example. For the senior civil service, pay is set by the Government within nationally determined pay scales following recommendations from the independent Review Body on Senior Salaries. Like all public sector workers, senior civil servants have therefore been subject to pay restraint. Their pay was frozen in 2010-11, 2011-12 and 2012-13, and it was subject to increases of just 1% in 2013-14 and 2014-15. The number of senior civil service bonuses has also been reduced by two thirds, cutting the bill by £15 million.

For all Departments and public bodies where appointments are made by Ministers, any salary over the Prime Minister’s salary of £142,500 and any bonus arrangement over £17,500 must be approved by the Chief Secretary to the Treasury. Those measures have reduced the number of individuals earning more than £150,000 from 372 in 2010 to 243 now, which is a 35% reduction. That has been accompanied by greater transparency, as the Government have increased public scrutiny of senior salaries. For executive pay in the wider public sector, the Review Body on Senior Salaries makes recommendations on the pay of judges, very senior managers in the NHS, senior members of the armed forces, and police and crime commissioners.

At this point, I will say a little more about NHS organisations. The position depends on whether such organisations are NHS or foundation trusts. NHS trusts are subject to supervision and performance management by the NHS Trust Development Authority, whose responsibilities include appointing chairmen and non-executive directors, agreeing their remuneration and influencing decisions on executive pay. Very senior managers in the Department of Health arm’s length bodies received no pay increase in 2014-15, and their pay will be frozen next year. NHS foundation trusts have greater autonomy over their affairs. They can make their own board appointments and determine their own pay, but they are expected to take full account of Treasury guidance, as well as the state of the trust and market pay for the role.

As part of its regulatory function, Monitor regularly assesses trusts’ governance and financial risk through its risk assessment framework. Where a foundation trust provides poor-quality care or fails to meet national waiting time requirements, it is likely to open an investigation into the trust. Specifically on pay, Monitor does not set executive or non-executive pay at foundation trusts—that is the role of the board remuneration committee—but it does have powers. For example, if it considers board remuneration to be excessive, the governors can remove the chair and/or the non-executive directors responsible. I understand that, to date, Monitor has yet to take serious action against any individual trust. I assure my hon. Friend that I will urge the health team to investigate exactly why that is, and that I will get an answer on that point.

Let me turn to the excessive use of middle-management jobs. Public service is an honourable activity—whether someone does it as a volunteer or a paid private sector employee, theirs is a high calling—but public service must at all times emphasise the service, not the bureaucracy, which means emphasising front-line staff, not the officials and managers. The Government have introduced significant reforms regarding the number of senior staff employed across the public sector and their pay. Since 2010, overall numbers of senior civil servants have been reduced by 13%, and the senior civil service pay bill has been reduced by 18.5%. Specifically, the NHS now has more than 7,400 fewer managers and more than 12,500 more clinicians than in 2010. All Members will be glad about that. The savings from administration costs arising from the reforms to the NHS from 2010-11 to 2014-15 are expected to free up at least £6.4 billion for patient care.

We have slashed the amount of money that is spent on central Government consultants from £1.2 billion in 2009-10 to £0.3 billion in 2013-14. At the same time, we have introduced a consultancy controls process, which ensures that any spend on a central Government consultant that exceeds £20,000 and lasts for longer than nine months is approved by the Minister for the Cabinet Office and the Chief Secretary to the Treasury. The amount of money that is spent on consultants in the NHS has also decreased during this Parliament from £636.9 million in 2009-10 to £584.7 million in 2013-14.

We are not complacent. I hope that I have illustrated to Members that we have taken enormous steps to improve the fiscal restraint among senior bodies. We have done what we can. The Government have in place effective controls over executive pay and governance. I hope that I have assured Members that we do not spend taxpayers’ money in an excessive or frivolous manner. Through our policies, we are ensuring that we protect taxpayers’ money, because we will never go back to the bad old days when money was no object.

Question put and agreed to.

Money Transfer Organisations

Andrea Leadsom Excerpts

Tuesday 9th September 2014 Westminster Hall

[The Economic Secretary to the Treasury (Andrea Leadsom)]

It is a great pleasure to serve under your chairmanship, Mr Streeter. I say first of all to the hon. Member for Bethnal Green and Bow (Rushanara Ali) that I completely understand how vital money service businesses are to the humanitarian effort. I assure her that the Government and I have been extremely focused on creating safe remittances for UK residents to post money to relatives and friends in developing countries. We are very much aware of that. We are particularly aware that annually, such remittances from the UK amount to more than £15 billion. It is a vital lifeline for many, and I assure her that we understand that. In the specific case of Somalia, remittances support 3.4 million people and account for approximately half of Somalia’s gross national income.

That is why, since I came into my new ministerial role earlier this year, I have made sure that the UK Government do everything that we can to ensure that remittances continue to flow through accessible and secure channels from the UK to all regions of the world. I am grateful to the hon. Lady and other hon. Members—I mention particularly my hon. Friend the Member for Ealing Central and Acton (Angie Bray)—who have explained their personal concerns and those of their constituents.

As many people will know, the context for this debate is growing concern among banks globally about money laundering and terrorist financing, and of course the real possibility of banks facing potentially crippling enforcement action for failing to protect properly against those risks. The money service business sector has been particularly affected by this trend, but it is not the only one.

Tackling organised crime and terrorism is quite rightly a priority for the UK and our international partners around the world, including the US. The Prime Minister took the lead in driving forward this agenda during our presidency of the G8 last year, and we are doing the same through the G20 this year. Our banks and regulators have a real responsibility to ensure that they are not supporting activities that could pose a threat to British citizens and undermine the progress that developing countries are making. I know that hon. Members will entirely agree that it is vital that, in ensuring remittances are safe, we do not encourage money laundering, financial crime and support for terrorism.

The right approach to tackling those threats should effectively deter, detect and deal with those who seek to use the financial system, including money remitters and banks, to launder money or fund terrorism; at the same time, it must support and protect legitimate businesses and the critical lifelines for countries such as Somalia. I wish to assure hon. Members today that the UK Government are fully committed to achieving that aim.

I also want to take the opportunity to provide an update on the state of the remittance market in the UK, and to set out the steps that the Government have taken, and are taking, to support it. First, the UK Government have been closely monitoring the UK remittance market, and we have been working with banks and businesses such as Dahabshiil and other MSBs to help them to understand and manage these risks, and to mitigate the impact on remittances to Somalia and elsewhere.

At this time it remains possible for Somali families in the UK, charities and others to continue to send money to Somalia. However, we recognise that the situation remains fragile. Since my predecessor—my right hon. Friend the Education Secretary—last addressed hon. Members, action to deal with this issue has remained an urgent priority for the Government, and for me personally.

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On resuming—

[Andrea Leadsom]

The action group on cross border remittances, led by Sir Brian Pomeroy, has made real progress on all fronts and regular updates on the work of the group have been published on gov.uk. As a result of the work of the group, which includes representatives from Government, regulators, law enforcement, banks and remittance firms, the following actions have been taken.

First, new guidance has been developed for MSBs and those banking MSBs, providing a legal safe harbour for regulated firms; that is to say that in the event of a prosecution, the firm or individual concerned could provide a defence by saying that they had followed the Treasury-approved guidance. Secondly, the National Crime Agency has worked collaboratively with banks and MSBs to share information about the risks and enable a better understanding of those and how they can be mitigated. Thirdly, Her Majesty’s Revenue and Customs has continued to strengthen its supervision of the remittances sector, including by taking an increasingly risk-based and intelligence-led approach to supervision, providing better support for firms to help them comply with their legal and regulatory requirements, and particularly by doubling the number of inspections of firms to 1,200 per year.

The progress of the Somalia-focused working group, led by the Department for International Development and the World Bank, is of particular interest to many. Through the safer corridor pilot, a series of co-ordinated interventions have been identified and are being developed to improve the transparency of remittance payments at each stage of the transaction chain from the UK to Somalia. The pilot is in the design and consultation phase and is expected to be tested in early 2015. We will continue to consult community representatives to make sure that proposals for the safer corridor are designed in a way that works for the Somali diaspora in the UK. I thank community representatives very much for their engagement with this whole process; they have certainly been willing and keen to help ensure that we find a resolution.

Over the past few months, the UK Government have worked particularly closely with the Somali community on the issue of remittances. Community representatives, the Government and money remitters have prepared a fact sheet, to ensure that those remitting funds to Somalia have clear information about how they can do so. Over the summer, a number of community events took place across the country. I particularly thank the hon. Lady and my hon. Friend the Member for Ealing Central and Acton for kindly hosting some of those community events. I was pleased that Treasury officials, as well as officials from DFID, HMRC and the National Crime Agency, were able to attend, listen to community concerns and share information on the action the Government have taken. I understand the events were well received, with the Somali diaspora appreciating the opportunity to convey their concerns.

I am sure that hon. Members present will want to know that we have been engaging closely with the banking industry, both through the British Bankers Association and directly with those banks involved in this issue. I have personally rung and written to a number of UK banks, asking them to provide support for the safer corridor pilot.

Of course, I recognise that the real threat of United States enforcement action is contributing to the de-risking activity that we are seeing. Treasury officials are working closely with their US Treasury counterparts and have established a US-UK bilateral banking group for the largest US and UK banks, to discuss the challenges they are facing in this area. In fact, the second meeting of this group is taking place today, with the issue of de-risking the highest priority on the agenda, and yesterday the Treasury hosted a meeting with US and UK banks and MSBs with the US Treasury to discuss that in particular.

The hon. Lady asked a couple of specific questions about the urgency of working with the Financial Conduct Authority to retain banking facilities. I reassure her that the Government have considered a wide range of options that could support the continued flow of remittances at current levels, prior to the safer corridor pilot’s being fully operational. We continue to encourage and facilitate engagement between relevant industry participants, to help banks engage with MSBs that are raising standards now, as well as through the longer-term solutions provided by the safer corridor pilot.

The hon. Lady also asked what engagement we have with the US on this point, and I think that I have just answered her. It is understandable that US regulators are very concerned about this issue, and that banks in the UK that provide banking services to MSBs are also concerned, but it is true to say—I have made the point to the UK banks—that fines levied by the US on UK banks have been for systematic failures in respect of anti-money laundering, counter-terrorism and financing programmes, rather than being cases where banks have made reasonable efforts to manage their risks.

Quite apart from the efforts by Her Majesty’s Treasury and the banks here in the UK to talk to US regulators, I have also found it encouraging to see public messages from US authorities, including in recent speeches, expressing confidence that banks do have the ability to manage higher-risk customer relationships, such as those with MSBs. Good steps are being taken and there is some reassurance there.

In conclusion, I reassure hon. Members and the Somali community that the UK Government are committed to working with the firms affected, and with regulators here and in the US, to promote and facilitate short and longer-term solutions that will enable remittances to continue to flow while protecting the financial system and our countries from organised criminal and terrorist activity.

Question put and agreed to.

Oral Answers to Questions

Andrea Leadsom Excerpts

Tuesday 2nd September 2014 Commons Chamber

[Nick Smith (Blaenau Gwent) (Lab)]

9. What recent representations he has made to institutions of the EU on the cap on bank bonuses.

[The Economic Secretary to the Treasury (Andrea Leadsom)]

The Government are challenging the bank bonus cap provisions under EU capital requirements directive IV. We think that those rules will undermine the progress that we have made to make sure that bankers’ pay is aligned with long-term performance and that there are no rewards for failure or wrongdoing.

[Nick Smith]

The Chancellor was much too complacent earlier. Youth unemployment in Blaenau Gwent is still way too high. Why do the Government refuse to repeat the tax on bank bonuses? That could fund guaranteed jobs for young people throughout the UK.

[Andrea Leadsom]

As the hon. Gentleman will know, the Government have instead introduced a permanent bank levy on bankers’ balance sheets, which, according to the Office for Budget Responsibility, will raise £8 billion during the life of this Parliament, and up to £18 billion by 2018-19, so they are paying a fair share towards our economic recovery.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

10. What recent estimate he has made of the difference between the rate of inflation and the rate of growth in average earnings since May 2010.

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[Mike Kane (Wythenshawe and Sale East) (Lab)]

13. What recent assessment he has made of the level of bank lending to businesses since May 2010.

[The Economic Secretary to the Treasury (Andrea Leadsom)]

Net bank lending to business in the UK fell sharply following the financial crisis. The Government have acted decisively to stimulate lending, introducing schemes such as funding for lending and the British business bank. Against that backdrop, the picture has now begun to improve and the most recent figures from the Bank of England show that gross lending to small businesses has increased steadily since 2012.

[Mike Kane]

Those were not the figures released last week, which show that net lending to small businesses in Britain fell by £435 million between April and June. That followed a decline of £720 million in the first quarter. Two years on, has not the funding for lending scheme failed Britain’s small businesses?

[Andrea Leadsom]

No. The hon. Gentleman is completely wrong. The funding for lending scheme has undoubtedly made more credit available than would otherwise have been the case. As I have said, gross lending to businesses has improved and the Federation of Small Businesses has said that the outlook for small and medium-sized enterprises is now better than it has been before. I remind the hon. Gentleman that the peak-to-trough drop in GDP between 2008 and 2009 was 7.2%. That is the cause of the disastrous drop in the availability of bank funding to businesses in this country.

[Simon Kirby (Brighton, Kemptown) (Con)]

Bank lending is particularly important for new businesses. Will my hon. Friend join me in congratulating the record number of business start-ups—a staggering 1,965—in Brighton and Hove last year?

[Andrea Leadsom]

I am grateful to my hon. Friend for his announcement of what is going on in his constituency. It is fantastic news that so many new businesses are starting up. As we know, that is creating millions of new private sector jobs, and that, of course, is the way for our economy to recover.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

19. I hate to contradict the Minister, but Ministers from the Department for Business, Innovation and Skills tell me that they do not think that banks are lending to small business. Could the Minister do even more—I know the Chancellor has done something on this—to encourage crowdfunding as a method of getting more money to start-ups countrywide?

[Andrea Leadsom]

The hon. Gentleman is quite right: more needs to be done. The problem is not solved. This Government are doing a great number of things to try to help facilitate not only bank lending, but crowdfunding and peer-to-peer lending. We are putting crowdfunding possibilities into individual savings accounts, as the Chancellor announced at Budget time. We are also taking great steps to improve the availability of new challenger banks, to ensure that banks provide postcode-level lending data so that new challengers can look for new opportunities and to ensure that banks share credit histories via credit reference agencies. All those measures are being taken to try to improve the availability of funding to small businesses. There is certainly more to be done and I would be happy to hear any ideas the hon. Gentleman has.

[Sir Peter Luff (Mid Worcestershire) (Con)]

15. What estimate he has made of the potential effect of a rise in national insurance on employment rates and take-home pay.

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[Nigel Adams (Selby and Ainsty) (Con)]

Constituents of mine have been targeted by phone fraudsters calling them at home pretending to be from their bank, and several have had their bank accounts emptied, leaving them devastated. Will the Minister meet me and other hon. Members whose constituents might have been affected to discuss a way forward to ensure that banks have in place proper, robust security measures to prevent that from happening again?

[The Economic Secretary to the Treasury (Andrea Leadsom)]

Yes, I would be happy to meet my hon. Friend to discuss that issue. I have been made aware of such cases. Of course, banks try to ensure that they have robust processes in place, but if anything else can be done, we are happy to look at it.

[Julie Hilling (Bolton West) (Lab)]

We now know that the Chancellor has had a letter from the head of the UK Statistics Authority, so when will he correct the record and apologise for giving the House—obviously inadvertently—incorrect information which inflated the success of his tax avoidance programme?

UK Remittance Market

Andrea Leadsom Excerpts

Tuesday 22nd July 2014 Written Statements

[The Economic Secretary to the Treasury (Andrea Leadsom)]

My predecessor last addressed the House on the issue of continued remittance flows to Somalia on 22 January 2014. Since that time significant progress has been made, but there is more to do by the Government and industry stakeholders.

As we have previously made clear, the UK Government recognise that remittances play a vital role in supporting developing countries, enabling them to move from dependence on aid to self sufficiency and growth. The World Bank reports that global remittance flows to developing countries are more than $400 billion, and are expected to reach $540 billion by 2016.

However, we also recognise that there are considerable difficulties for payment institutions providing services into countries where regulatory and supervisory frameworks are in development, to ensure that the UK financial system is not a conduit for terrorist financing or money laundering. It is important that we ensure remittances flow through secure and transparent channels to effectively detect and deal with those who seek to use remittances to launder money or fund terrorism; as well as protect the majority of remitters who are sending funds for legitimate purposes.

The remittance industry is adapting, with individual money service businesses (MSBs) taking steps to enhance their anti-money laundering compliance; especially within the Somalia corridor. Wholesale MSBs are developing and deploying new systems to improve transparency, operational efficiency, and security of remittance transactions; while other market players are using technology options, such as mobile payments, to improve transparency.

HM Revenue and Customs (HMRC) has strengthened its supervision of MSBs, including increasing the number of inspections, to provide greater assurance that they are meeting their anti-money laundering and counter financing of terrorism obligations. It is developing an e-learning package for MSBs to improve levels of compliance. HMRC is holding regular discussions with banks and MSBs to give banks greater confidence that MSBs are subject to the same standards they are and that they are being effectively supervised by HMRC.

The action group on cross-border remittances, which brings together representatives of the banking and money remittance industries, consumer groups and Government agencies, has made the following progress:

HMRC and the joint money laundering steering group have developed guidance for financial institutions providing banking facilities for MSBs and for MSBs themselves on complying with their anti-money laundering and counter financing of terrorism obligations. As part of the development of guidance, MSBs have committed to adopting best market practice, over and above meeting the minimum legal requirements;

the National Crime Agency have held workshops with banks and MSBs to help develop a better understanding of risk, to help them identify good practice and improve systems as well as detect warning signs and poor practice in the sector; and,

the safer corridor pilot for UK-Somalia remittances, led by the Department for International Development (DFID), is developing a series of co-ordinated interventions to address perceived risk at each stage of the remittance transaction and ensure remittances continue to flow through secure, accessible channels. The detailed design process has been initiated, supported by the World Bank, incorporating consultations with all relevant stakeholders in the UK and in Somalia. The pilot is steered by an advisory group composed of representatives from UK-Somali MSBs, UK-Somali community representatives, banks, NGOs and Government officials. More details on the pilot can be found here: https://www.gov.uk/government/policies/helping-developing-countries-economies-to-grow/supporting-pages/enabling-the-continued-flow-of-remittances

It is vital for the continued flow of remittances that the banking sector engage with individual MSBs who are raising standards now, as well as the longer-term solutions provided by the safer corridor pilot. The UK Government will continue to urgently encourage and facilitate engagement between the banking sector and MSBs on this issue in the coming weeks.

We appreciate that communication of our actions is important, especially within the Somali community, where there are concerns about the short-term viability of the remittance corridor and implications for the humanitarian situation in Somalia.

We have worked closely with community representatives to develop channels that support communication between the community and key stakeholders on this issue. Over the next six weeks a number of workshops will be held with the Somali community in the UK to share information on market developments and help address any community concerns. Details of these meetings can be found here:

https://www.gov.uk/government/policies/helping-developing-countries-economies-to-grow/supporting-pages/enabling-the-continued-flow-of-remittances

The community and the UK Government are determined to work urgently with industry representatives to ensure that up-to-date information is available about remittances and charitable transfers in this rapidly evolving market. At present, the Government understand that:

all members of the Somalia Money Services Association (SOMSA) are sending remittances to Somalia and have secure options for remitting cash deposits; and

a number of other MSBs are operating in the Somali corridor, some using technological solutions.

In order for community members to find a solution which works for their specific situation, the UK Government have ensured that more information about these options is available from Somali Matters and the International Association of Money Transmitter Networks (IAMTN). Both SOMSA and IAMTN have agreed to keep this information updated on the following websites: http://www.somalimatters.org/ and http://www.iamtn.org/

We also understand the community’s concerns about the current humanitarian situation in Somalia.

The UK is one of the largest and most active donors to the humanitarian response in Somalia. The UK has an agreed four-year £145 million humanitarian programme. UK funds are currently supporting emergency nutrition interventions, livelihoods and resilience building through a number of partners, including international and local NGOs, the International Committee of the Red Cross and UN agencies such as UNICEF, FAO and WFP.

As part of the existing humanitarian programme, an internal risk facility has been established to support partners in the unfortunate event of any crisis. We have approved £10 million per year contribution to the internal risk facility.

In conclusion, the money remittance sector provides important services to communities and businesses in the UK, and in some instances is the only means of sending money to vulnerable communities overseas. There are risks for the MSBs themselves and for banks operating in these remittance corridors. We are urgently working with service providers to provide an environment where these risks can be managed so that the flows of money continue.

Equitable Life Payment Scheme

Andrea Leadsom Excerpts

Tuesday 22nd July 2014 Written Statements

[The Economic Secretary to the Treasury (Andrea Leadsom)]

As of 30 June 2014, the scheme has now issued payments totalling £972.9 million to 877,414 policyholders. The scheme has published a further progress report, which can be found at: www.gov.uk/equitable-life-payment-scheme.

The scheme has gone to significant lengths to trace eligible policyholders. It remains committed to tracing and paying as many eligible policyholders as possible, and will continue to consider all proportionate actions it can take to do this.

The scheme encourages any policyholders who believe themselves to be eligible to call the scheme on: 0300 0200 150. The scheme can verify the identity of most policyholders on the telephone, which means any payment due can usually be received within two weeks.

Childcare Payments Bill

Andrea Leadsom Excerpts

Monday 14th July 2014 Commons Chamber

[The Economic Secretary to the Treasury (Andrea Leadsom)]

I thank all hon. Members who have spoken in the debate. Given the incredibly valuable contribution that this Bill makes to supporting working families, it is a great shame that no Opposition Back Benchers wanted to celebrate its arrival. It is fairly safe to say that the vast majority of Members who spoke agree that more needs to be done to support families with child care costs. It is also safe to say that the majority recognise not only the impact that an improvement in this area could have on millions of households but the impact it could have on the wider economy. We largely agree that more should be done to help more people, particularly more women, back into work. However, some Members described their concerns about the specifics of the scheme or the way in which it will be implemented, so I will do my best to respond to as many of those concerns as I can.

For most of us, having a baby is the most rewarding and challenging thing we ever do. It is incredibly hard to juggle home, children and a job, but whatever families choose to do, we recognise that they are best placed to make that choice. With three kids of my own, and having worked only part-time when they were small, I know I sometimes went to work for a rest, so I take my hat off to all the heroines, and some heroes, who choose to stay at home. This Government support you and salute you. Through this Bill, we want to provide more support for working families. That is why we are introducing tax-free child care to help families with the costs so that they can go out and work if they choose to or need to. They are the right people to make that decision, and we support them in that choice.

Some hon. Members implied that we may have over-consulted, but given the number of people this change will affect, and to help to ensure that the scheme works as well as possible, we have consulted very widely on its design over the past year and listened to the feedback we have received. We are considering the responses to our most recent consultation, which closed on 27 June, alongside those we received on the first one, and we will publish our response in due course. Whatever that response says, though, we are confident that the Bill has the necessary flexibility to allow for the delivery of child care accounts through the private sector or the public sector, and through a single provider or multiple providers.

The hon. Member for Manchester Central (Lucy Powell) made various points about who will benefit from the scheme. First, to qualify for tax-free child care, parents need earn only a little over £50 a week, so this is a boost to all families, whatever their earnings. Secondly, the overall system of child care support remains firmly focused on those on lower incomes. In just two months’ time, the Government will introduce a system that entitles 40% of two-year-olds from the lowest-income families to 15 hours of free education every week. In the Budget, we announced that all families eligible for universal credit will benefit from additional support, up to 85% of costs. We need to recognise that many families—not just the poorest but those across all income groups—are seriously struggling with the high costs of child care. While of course we want to focus our help on those with the lowest incomes, those in higher earnings brackets also warrant some support.

The Government recognise that child care costs have risen significantly over the past 20 years and are a huge issue for all working families. During the last eight years of the previous Government, child care costs increased by 50%, but they are now beginning to stabilise. Figures from the National Day Nurseries Association show that the average fee increase across all nurseries in the past year was just 1.5%, which is below inflation. Nevertheless, child care costs remain a massive problem for many parents who find that their income is eaten up by them. We need to extend free entitlement. That is why we are also increasing the supply of child care places and, ultimately, why we are introducing this Bill.

Government Members made some very good points. My hon. Friend the Member for Witham (Priti Patel) expressed her support for this much needed Bill. She said that flexibility in child care arrangements is absolutely vital to families, that child care costs are very high, that Labour’s economic legacy has significantly hurt families, and that it is important that we now provide support for those families in dealing with the costs of child care. My hon. Friend the Member for South Swindon (Mr Buckland), who speaks with such passion on this subject, welcomed the Government’s support for families with disabled children, who will benefit from this support up to the age of 17.

My hon. Friend the Member for Suffolk Coastal (Dr Coffey) welcomed the fact that more women are in work than ever before. She said that mothers often know best what is needed for child care; of course, we all recognise that. She talked about how to deal with the pipeline of talent and the barriers to working that women face. She highlighted support for carers and those on parental leave and welcomed the Bill’s offer of much more support to working women, in particular.

My hon. Friend the Member for Norwich North (Chloe Smith) explained that there is no household security without controlling public spending. She said that the measures in this Bill, while providing support for families, also ensure that we do not, as Labour Members suggest, just throw unfunded money at a project that could deliver more child care, but at an unknown cost to the public purse.

The hon. Members for Newcastle upon Tyne North (Catherine McKinnell) and for Manchester Central asked how many families will be better off and by how much. I assure them that well over 1 million families will be better off, by an average of £600 a year. It is important to note that the Government support provided through this Bill will be 20p in the pound up to a maximum of £2,000 per child per year. The amount of benefit depends on how much families are spending on child care.

Labour Members claimed that there are fewer child care places than there were at the time of the election, but that is simply not the case. In fact, as my hon. Friend the Member for Truro and Falmouth (Sarah Newton) pointed out, the latest figures show that there are about 100,000 more child care places than there were in 2009, and that represents a 5% increase. However, the Government are not complacent. We are working further to increase child care supply by providing start-up grants for new child care businesses, making good and outstanding childminders automatically eligible for early education funding, increasing the child care available in schools, introducing new childminder agencies, and creating simpler regulations allowing nurseries to expand more easily.

Labour Members questioned why parents cannot use the new scheme at the same time as tax credits and universal credit. Families in receipt of tax credits already receive more generous support with child care costs, and this is being extended in universal credit, where support towards the costs of child care will be available regardless of the number of hours worked and will provide support of up to 85% of the costs from April 2016.

The hon. Member for Manchester Central asked about parents who work on zero-hours contracts. The contractual position of parents will not determine whether they are eligible for the new scheme. The Government want to support all working families with their child care costs. Parents on zero-hours contracts will be eligible for the new scheme in the same way as anyone else, provided they meet the eligibility criteria, including the rules on qualifying employment. As I said, parents have to expect to earn a little over £50 a week, on average, during a quarter.

The hon. Lady asked about Sure Start. I would have hoped that Labour Members were delighted that 3,000 children’s centres are open and record numbers of parents and children are using them—over 1 million. It is up to local authorities to decide how to organise and commission services for children’s centres in their areas. Labour Members will know that I am passionate about children’s centres, as I know they are. However, I am extremely concerned when they talk about centres closing when they know full well that, in many cases, organisations have streamlined their administration by putting a number of centres under a hub system. In fact, only 1% of children’s centres have closed.

The hon. Lady asked how the Government will provide advice to enable parents to make calculations and choose between universal credit and tax-free child care. We recognise the importance of providing information and support to help parents make an informed choice about which scheme to access. Therefore, alongside wider guidance and information, we will provide support and online tools for parents choosing from tax credits, universal credit and the scheme under discussion.

The hon. Lady also asked what we are doing to improve the supply side. As I said earlier, we are taking a number of measures, including introducing new childminder agencies, which will help—

[Lucy Powell]

What will that do?

[Andrea Leadsom]

The idea is to promote more support for childminders. The hon. Lady will recognise that, under the previous Government, many childminders fell off the radar, because, as surveys showed, they felt under-supported, over-regulated and overburdened. The idea of childminder agencies is to provide the support, training and guidance that will enable them to go into business, and to support those that are good and outstanding to expand more rapidly.

As a result of the changes under discussion, more working families than ever before will be eligible for support with their child care costs. The Bill will introduce a less complex, more generous system of support, which should result in more parents being able to enter the work force with the confidence that quality, affordable child care is available for their children. The proposals have been welcomed by families and child care providers across the country and by many businesses that realise how important support for families can be in helping them to attract and retain good staff.

In short, this Bill will support the future of our economy and the well-being of our children. As such, I commend it wholeheartedly to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Childcare Payments Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Childcare Payments Bill:

Committal

1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 28 October 2014.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

4. Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Mr Gyimah.)

Question agreed to.

Childcare Payments Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Childcare Payments Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Mr Gyimah.)

Question agreed to.

Childcare Payments Bill (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Childcare Payments Bill, it is expedient to authorise the restriction of relief from income tax in respect of the provision for an employee of childcare, or vouchers for obtaining childcare, under a scheme operated by or on behalf of the employer.—(Mr Gyimah.)

Question agreed to.



Business of the House (Data Retention and Investigatory Powers)

Ordered,

That, in respect of the Data Retention and Investigatory Powers Bill, notices of Amendments, new Clauses and new Schedules to be moved in Committee may be accepted by the Clerks at the Table before the Bill has been read a second time.—(Tom Brake.)

VAT Relief (Talking Newspaper Associations)

Andrea Leadsom Excerpts

Monday 14th July 2014 Commons Chamber

[The Economic Secretary to the Treasury (Andrea Leadsom)]

I am grateful for the opportunity to speak in this debate. I would like to start by congratulating my hon. Friend the Member for Milton Keynes South (Iain Stewart) on his kindness and generosity in securing this Adjournment debate on a very important area of support for people who are vulnerable by virtue of being visually impaired. It is very important that we do all we can to support them. The Exchequer Secretary would normally respond to a debate on VAT. I am speaking on his behalf, but I will do my best to answer my hon. Friend’s questions.

The Government value the important contribution talking newspaper associations make to ensure that blind and severely disabled people can independently remain informed and up to date on current affairs. On the issue of tax itself, I reassure hon. Members that charities are at the heart of the Government’s ambition to build the big society, enabling people to play an active role in their community. To help support this, the Government provide support for charities primarily through more than £4 billion a year in tax reliefs, of which VAT relief makes up £300 million.

Reliefs from VAT are strictly limited under EU law. As hon. Members may know, when the UK joined the European Community in 1973 we successfully negotiated to keep our existing zero rates on items such as children’s clothing, most foods and physical books, newspapers and journals—a derogation from which most other member states do not benefit. Two zero rates of VAT are relevant to talking newspapers. First, a zero rate of VAT is applied to talking books and newspapers for the blind. However, this zero rate is limited strictly to specifically adapted magnetic tape and apparatus designed to reproduce speech for the blind and severely disabled people in our community. Many talking books and newspapers for the blind, as my hon. Friend pointed out, are no longer produced on magnetic tapes and so this relief cannot apply to them. EU VAT rules do not permit member states to extend the scope of existing VAT reliefs or to introduce new ones. As such, it is not possible to amend this zero rate to include talking newspapers that are not on magnetic tape.

My hon. Friend asked whether we can just change that. The European Commission is undertaking a review, including a public consultation, of member states’ application of reduced VAT rates. Among other matters, it is looking into the principle that similar goods and services should be subject to the same VAT rate, and that progress in technology should be taken into account in this respect so that the challenge of convergence between the online and the physical environment is addressed. This principle is regarded as an openness to consider a reduced rate for goods and services such as e-books and newspapers. However, if the Commission did decide to take this view, article 98(2) of the EU VAT directive, which currently excludes electronically supplied services from a reduced rate of VAT, would need to be removed. As most talking books and newspapers now use mainstream technology, I have to tell my hon. Friend that they cannot easily be distinguished from other sound reproduction equipment that is used by the general public. Talking books and newspapers for the general public do not benefit from a VAT relief and therefore attract the standard rate of VAT.

The EU has challenged and commenced infraction proceedings where it has identified member states that have allowed reduced rates, including zero rates, on general purpose products, or where they have extended existing reliefs to include them. However, the Government considered that it was important to ensure that talking books and newspapers for blind and disabled people continued to benefit from a VAT relief. Her Majesty’s Revenue and Customs therefore reviewed the legislation and considers that talking books for the blind could come under an alternative zero rate of VAT: group 12(2)(g) in schedule 8 to the UK Value Added Tax Act 1994, under relief for aids for the handicapped. The zero rate of VAT applies to talking newspapers and books if: they are supplied to a blind or disabled person for their personal or domestic use; or if they are supplied by a charity that makes them available for such use by blind or disabled people. This relief applies to items of equipment such as CDs and memory sticks for books and newspapers that are designed solely for use by a handicapped person. This relief is limited to supplies of physical goods and cannot be extended to downloaded newspapers where the supply is a digital service. This is, as I said, because article 98(2) of the EU VAT directive specifically excludes “electronically supplied services” from a reduced or zero rate of VAT.

Turning now to the progress in technology and electronic newspapers more broadly, EU VAT law does allow member states to implement reduced rates of VAT of no less than 5% for certain goods and services listed in annexe 3 of the EU VAT directive, at the discretion of the member states.

One of those reliefs is the supply of books on all physical means of support, newspapers and periodicals other than material wholly or predominantly devoted to advertising. This may sound like it should include electronic newspapers, but, as I mentioned, the EU VAT directive specifically excludes electronically supplied services from the reduced rates of VAT. This means that, where talking newspapers do not fall under the zero rate of VAT as an aid for a disabled person, the UK charges the standard rate of VAT, at 20%, on electronic newspapers and the zero rate of VAT on physical newspapers.

On the related and very important topic of electronic or e-books, many Members will probably be aware that, since 2011, France and Luxembourg have chosen to levy a reduced rate of VAT of 7% and 3% respectively to bring them in line with their VAT rates on physical books. This is creating competitive distortions to economic operators in other member states, and there has been pressure from the industry for the UK to reduce its VAT rate on e-books alongside them. The EU Commission, however, has begun European Court of Justice infraction proceedings against France and Luxembourg and has formally instructed them to apply their standard VAT rates to supplies of e-books. If the UK were to reduce or zero rate e-newspapers, it is extremely likely that we, too, would be infracted.

Furthermore, reducing the rate of VAT on e-books or e-newspapers would be likely to create borderline issues in the wider electronic services market because problems of definition could lead to a widening of the relief through legal challenge and industry changes. This would put revenue at risk in the UK market, which is currently worth over £2.5 billion a year.

The Government remain firmly committed to our ability to maintain the UK’s existing zero rates as we recognise their importance for social reasons. EU law does not permit member states to extend the scope of existing VAT reliefs or introduce new ones. Zero rating all talking newspapers that might be used by the general public, as well as by blind or disabled people, would be an extension of the relief. The EU Commission’s position is clear that talking newspapers, which do not fall under the existing zero rate of VAT, attract the standard rate, as they are electronically supplied services. The UK’s rates of VAT on talking newspapers are therefore in line with EU law and there is no intention to change that, other than in tandem with the Commission’s own review that I mentioned.

I hope that my hon. Friend the Member for Milton Keynes South will now have more clarity about when the zero rate of VAT can be applied to talking newspapers for blind and disabled people, and that he and other hon. Members will be reassured that we support the sector and that we will continue to do everything we can to support it.

Question put and agreed to.

Financial Ombudsman Service

Andrea Leadsom Excerpts

Thursday 10th July 2014 Written Statements

[The Economic Secretary to the Treasury (Andrea Leadsom)]

The annual report and accounts 2013-14 of the Financial Ombudsman Service has today been laid before Parliament.

The report forms an important part of the accountability mechanisms for the Financial Ombudsman Service under the Financial Services and Markets Act 2000 (FSMA), and assesses the performance of the Financial Ombudsman Service over the past 12 months in discharging its functions.

Financial Conduct Authority

Andrea Leadsom Excerpts

Thursday 10th July 2014 Written Statements

[The Economic Secretary to the Treasury (Andrea Leadsom)]

The annual report and accounts 2013-14 of the Financial Conduct Authority (FCA) has today been laid before Parliament.

Copies are available in the Libraries of both Houses. The report forms an important part of the accountability mechanisms for the Financial Conduct Authority under the Financial Services and Markets Act 2000 (FSMA), and assesses the performance of the Financial Conduct Authority over the past 12 months against its statutory objectives.

Chair of the National Audit Office (Appointment)

Andrea Leadsom Excerpts

Wednesday 9th July 2014 Written Statements

[The Economic Secretary to the Treasury (Andrea Leadsom)]

I am today pleased to announce, on behalf of the Prime Minister, that, following a selection process, the Lord Bichard KCB is the successful nominee for appointment as the next Chair of the National Audit Office, to succeed Professor Sir Andrew Likierman at the end of his term, from 1 January 2015.

In accordance with the Budget Responsibility and National Audit Act 2011, Her Majesty the Queen by Letters Patent appoints the Chair of the National Audit Office. Her Majesty’s power is exercisable on an address of the House of Commons. The Prime Minister will, with the agreement of the Chair of the Committee of Public Accounts, on a date to be arranged, move a motion of this House that an humble Address be presented to Her Majesty, praying that Her Majesty will appoint the Lord Bichard KCB to the Office of Chair of the National Audit Office.