Budget Resolutions and Economic Situation
Debate between Andrea Leadsom and Lord Tyrie(11 years, 9 months ago)
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Mr Tyrie
If anybody wants to produce one, we will certainly take a look at it.
The Chancellor has not fundamentally altered the macro-economic stance in this Budget. The big shift in direction of Britain’s fiscal policy in response to the crisis came not from this Chancellor but from his predecessor. More than two thirds of the fiscal adjustment announced by the Chancellor in the 2010 Budget had already been signalled by the right hon. Member for Edinburgh South West (Mr Darling). In 2010, the OBR estimated that the economy would grow about 4% more than it has and the key question for the Chancellor has been how much policy should be altered to take account of that—what he should announce this afternoon and what adjustments he should make in response.
It is important to be clear that policy has already been altered a great deal, something that seems to be lost in the brouhaha in this place. Both the Government and the Bank of England have implemented massive policy changes to stimulate the economy. Fiscal policy has been loosened a great deal. The so-called automatic stabilisers—the falls in tax receipts and rises in public expenditure that come with lower growth—have been allowed to kick in. No one knows their full value, but I note that the Institute for Fiscal Studies used to think that they were worth about £100 billion and said yesterday that they were worth £140 billion. No one knows the full effects of QE—quantitative easing—either, but we know that since 2010 £175 billion of QE has been pumped in, bringing the total to £375 billion in all.
Both QE and automatic stabilisers are delivering colossal extra sums to the economy—they are massive policy changes—and the Chancellor has exercised great flexibility in response to the downturn. He does not always seem happy to acknowledge the fact that there has been that huge adjustment, so I thought I would put the points myself after his speech.
I want to say a few words about growth and the supply side, but before I do I want to refer to the greatest single blight on the prospects for the economy, which is the eurozone. Eurozone demand has remained very weak, as the Chancellor pointed out. There could not be a more vivid illustration of the eurozone’s capacity for self-harm than its chronic mishandling of the Cypriot financial crisis over the past few days. What on earth possessed policy makers to play with fire by doing the very things most likely to trigger a run on the banks? I just do not know, but it beggars belief. We cannot influence policy in the eurozone directly, but we can—and should—speak truth to incompetence. That is in Britain’s interest, as well as that of the eurozone, and I urge the Government to do that and ignore what will undoubtedly be bleatings from the Foreign Office asking them to desist.
On the supply side we cannot, of course, do much about the eurozone, but we can do something to improve the micro-economy. For nearly three years, the Treasury Committee has been calling for more coherent and tougher supply-side reforms. The Chancellor has had such an agenda for at least 18 months, but implementing it in a consistent way is proving difficult. The Chancellor has done what he can on tax reform and simplification—a big ask given the lack of fiscal room—and I pay tribute to him today because he has managed a substantial cut in corporation tax and its simplification in one go. That is both simplification and reduction, despite the lack of fiscal room.
Andrea Leadsom
Does my hon. Friend agree that that simplification makes it much easier for the Chancellor to generate tax and ensure that people pay it so that we do not get the fiddling about at the margins that we saw in the past under the previous Government’s policies?
Mr Tyrie
I will not add any comments because I do not get any more injury time after a couple of interventions, but I agree with my hon. Friend.
Reforms are going ahead in the labour market, and quite big reforms are being pushed through on the planning side. That is controversial but, I think, necessary. However, I have been arguing for some time that we must concentrate on those areas where policy is pulling in conflicting directions. The agenda might be right, but the execution is not always right:
“There has to be a drive to make the UK competitive in motorcars and engineering...we are saddled by a high cost of energy”
compared with our counterparts in Europe, and certainly in Asia. UK environmental policies are causing “dangerous distortions” to energy prices. Those are not my words but those of Tata Steel’s head of European business operations.
According to Government figures, energy prices for the average business consumer have more than doubled since 2004. Those figures also show that in 2011, almost one fifth of a medium-sized business user’s bills were due to climate change policies. Britain is going it alone with many of those policies, for example by introducing a carbon floor. That unilateralism is rendering parts of our manufacturing industry increasingly uncompetitive, and we are exporting jobs in manufacturing right now.
The Chancellor is well aware of that and has announced an important tax allowance to support the development of indigenous shale deposits. That will certainly help to level the playing field. We really need, however—this is difficult for the Government, not least a coalition Government—to address the contradiction caused by the current high subsidies to renewables. Those subsidies are so high that today the Chancellor has been forced to introduce subsidies for shale gas, just to get it going. As the American experience has shown, shale gas can be highly competitive given a balanced renewables policy. American natural gas prices have dropped by more than two thirds since 2008, which must be a reason—perhaps a major reason—why US manufacturing is doing much better than in recent years.
I also have reservations about aspects of the infrastructure policy. I strongly welcome the extra money being put in, but I wonder whether we are right to put what will amount to at least £34 billion into HS2—which, at best, is carrying a doubtful economic return—but not building much-needed extra capacity for a London airport. We must get to the point where airport capacity in London can be allowed to grow.
I will conclude by discussing briefly the other big obstacle to growth: the dysfunctionality of the banking sector. Again, that is something we can control—unlike the eurozone—although it is difficult for the Government to get to grips with. Britain’s economic recovery will depend to a large extent on a return to growth in the small business sector, and I strongly welcome the crucial measures announced today by the Chancellor to help the small business sector, but the plain fact remains that small and medium-sized businesses in our constituencies cannot get the funding they need from the banks. Banks lack the confidence to lend to them, and businesses lack the confidence to borrow from banks on the terms offered. The SME sector cannot fully recover until the partly state-owned banks return to more normal lending behaviour, and until we introduce greater competition into an over-concentrated market.
The Banking Commission, which I chair, has heard a good deal of evidence in recent months to suggest that until more of the impairments on bank balance sheets are cleaned up—in other words, until those balance sheets are in much better order—banks simply will not return to normal lending. Without that normal lending, SMEs will not recover. How to address that issue during this crisis has been one of the abiding concerns for policy makers, and a matter that the Banking Commission has considered carefully over the past few months. We have given a great deal of thought to the issue, and will be making some proposals in May.
I began by talking about SMEs, and I will end my contribution with that thought. When small businesses have the confidence to borrow and invest, and when banks have the financial strength and competitive need to do so, that is when our economy will recover and that recovery will take root.
Financial Services Bill
Debate between Andrea Leadsom and Lord Tyrie(12 years, 7 months ago)
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Mr Tyrie
My hon. Friend tempts me towards a place I would very much enjoy going, but—in the interests of I cannot think what; let me suggest brevity, or something like that—I will not go there.
There has also been a concession on the minutes, but it goes somewhat short of what is appropriate. The concession is that a record of court meetings will be published—I am citing the phraseology used—but it seems to me that that will not do either. The court should publish full minutes, not doctored minutes. I do not want to sound too pejorative, but the minutes should not be written especially for the purposes of a certain type of scrutiny by Parliament. The full minutes should be published, as is the case with the Monetary Policy Committee, subject to the confidentiality provisions to which I alluded earlier.
New clause 1 addresses only a small part of what is needed to knock this Bill into shape. Much more time should have been devoted to it. The need for all this to be on the statute book by the end of this year is yet to be explained to us. It would be far better to let the timetable slip for a few months and to get the Bill right. The crisis has afforded us a once-in-a-generation opportunity to overhaul the legislation and the Bank and it seems to me that we are not fully taking it up.
It is also regrettable that all this work is being done in the form of amendments to the Financial Services and Markets Act 2000, which is itself an immensely complex piece of legislation. As the Governor of the Bank argued before the Committee and elsewhere, we would have done better to write a new Bill from scratch, but we were told that that would take too long. Again, there is a rather curious interaction between trying to get something right and the arbitrary timetable that is imposed.
I very much hope that the other place will get to grips with some of the other shortcomings of the legislation, many of which are relevant to amendments in this group. Let me list a few. The first is the effect on the accountability and governance of the complex web of interacting committees that are in place or being created—the FPC, the MPC, the Prudential Regulation Authority, and the sub-committee, NedCo, in particular. The second is the need for stronger accountability to Parliament as regards macro-prudential tools, and I note that amendment 23, tabled by the hon. Member for Nottingham East (Chris Leslie), addresses that issue—intelligently, if I may say so. The third is the heavy circumscription of the powers of the Chancellor to intervene in a crisis, which will, I understand, be addressed on day two on Report. More work is certainly needed to get this legislation right. The fourth is the need for Parliament and the Treasury Committee to engage in the process of the appointment of a new Governor, which has been in the papers over the past few days and is dealt with by amendments 46 and 47, tabled by the hon. Member for Hayes and Harlington (John McDonnell). The fifth concerns the FCA, which seems to be the poor relation in all this legislation, and a similar duty to publish minutes and conduct reviews of its work. That is touched on in amendment 27, tabled again by the hon. Member for Nottingham East.
Andrea Leadsom (South Northamptonshire) (Con)
Does my hon. Friend agree that it is also regrettable that the FCA, despite another request from the Treasury Committee, does not have a statutory primary objective to promote competition in the banking sector? The Committee has been calling for that ever since this inquiry started.
Amendment of the Law
Debate between Andrea Leadsom and Lord Tyrie(12 years, 9 months ago)
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Mr Tyrie
I think I will ask the Bank of England that question when it comes to see the Committee, but I agree that the issue needs to be taken into consideration.
One measure that was announced yesterday, about which I might just have time to say a few words now that I have some injury time, was credit easing. Yesterday’s announcement on the loan guarantee scheme responded to many constituents’ complaints that they simply cannot get the money they need to run or start up small businesses. We all have constituents in that position, and the scheme will offer some welcome relief. How much relief? I think it will offer only a little, and there is a risk of the banks pocketing most of the money. The Treasury Committee, the Public Accounts Committee— I do not know whether its Chair is in her place—and the National Audit Office all need to play a role in ensuring that the banks do not run off with the money, and that value for money is secured.
None the less, I still think the scheme may turn out to be valuable, for several reasons. First, by announcing it the Chancellor has raised the salience of an important issue and put pressure on the banks not to dismiss requests for loans without examining them properly. Furthermore, it seems to me that the Treasury’s own pessimistic briefing yesterday that the money will go only to existing borrowers is almost certainly mistaken. There is very likely to be some more lending, because banks will benefit from the stronger financial position of firms to which they have lent. Those loans, in turn, will be less risky for the banks, so they should have some more headroom for new lending without altering their risk profile.
Andrea Leadsom (South Northamptonshire) (Con)
Does my hon. Friend agree that one of the best ways to improve lending to small and medium-sized enterprises is a dramatic improvement in the amount of competition in the British banking system?
Mr Tyrie
I absolutely agree. My hon. Friend serves with me on the Treasury Committee, and we have published quite a detailed report on competition in retail banking that has won the support of Vickers and of the Joint Committee on the Draft Financial Services Bill, chaired by my right hon. Friend the Member for Hitchin and somewhere. [Interruption.] Harpenden, is it? My right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley)? Anyway, wherever it is, it is somewhere in Hertfordshire.
The loan guarantee scheme was at least announced. I have to tell the Chancellor, who is in his place, that several colleagues on both sides of the House have complained to me about the leaks and briefings in the days prior to the Budget. All I will say at this point is that the Treasury Committee will look at the matter.
The Committee will also publish a preliminary report on the Budget in time for the consideration of the Finance Bill. The timetable proposed by the Government is very tight, but we will do our best. In particular, we will scrutinise what the Chancellor has described—correctly, by the look of things—as a tax-reforming Budget. We will examine whether the main tax measures live up to what it is claimed they will achieve. We will assess them against a number of principles that the Committee believes should guide tax reform, which we set out in a report 14 months ago, “Principles of tax policy”.
HM Revenue and Customs
Debate between Andrea Leadsom and Lord Tyrie(13 years, 9 months ago)
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Mr Andrew Tyrie (Chichester) (Con)
I am glad that the request of the Select Committee on the Treasury to hold this debate on HMRC’s estimates has been accepted. I am conscious that I am speaking on behalf of a large number of colleagues from right across the House, many of whom cannot be here today, who have spoken to me about the problems that their constituents are experiencing with HMRC. I am also speaking on behalf of hundreds of thousands of taxpayers who have encountered difficulties and feel that they have nowhere to turn. I am delighted that the Chairman of the Treasury Sub-Committee, the hon. Member for Leeds East (Mr Mudie), will follow me in the debate. He has done an excellent job in focusing the Sub-Committee on these problems and, in so doing, has built on the work done by the Sub-Committee in the previous Parliament under the chairmanship of my hon. Friend the Member for Sevenoaks (Michael Fallon). I should like to take this opportunity to thank my hon. Friend for his hard work.
“Ten years ago the Inland Revenue had the reputation of being one of the best run Departments in Whitehall. Today HMRC’s reputation is in tatters as one disaster has followed another.”
Those are not my words but the considered conclusions of the Chartered Institute of Taxation in written evidence to the Treasury Committee. I have a stack of similar evidence from other qualified bodies and people, and they are all variations on the same theme—HMRC is close to being a failing institution in some areas.
Andrea Leadsom (South Northamptonshire) (Con)
Does my hon. Friend agree that the Treasury Committee has heard much evidence from representatives of businesses who say that dealing with HMRC is now costing enterprises significantly more of their profit and income? Matters that used to take a few hours now seem to take literally months to resolve.
Mr Tyrie
I agree completely, and the next sentence of what I intended to say was to be along the lines of asking what the situation means for small business men. They are not experts in tax, they just want to get on with their job. We must constantly bear in mind the fact that when HMRC gets things wrong, its mistake can be a catastrophe for the taxpayer on the other end of the experience.
I want to tell the story of one such business man who has written to me, who wants to remain anonymous. His business was the subject of an HMRC investigation, and when it found no irregularities, it started an investigation into his personal tax affairs. As he says in his letter to me, “They investigated everything”, even challenging a gift of £15 to a nephew. He had the impression that the local tax office felt it had to find something, having invested so much time in his case. All that went on for five years—it was like being on trial for five years. Finally, a very senior manager at HMRC saw sense and transferred the case to another tax office, and a week later that small business man had an apology.
However, like so many similar cases, it is not a matter of “all’s well that ends well”. The collateral damage has been huge. That business man’s accountant estimates that his business has lost £7 million in the time and effort of handling the case, and on top of that the stress involved in such an experience would have been crippling for many people. It is not just that individual who has lost out but all those who depend on his business for their livelihood and all those who might have had jobs in it had it been able to concentrate on expansion rather than fending off HMRC. One case does not prove anything, but the sheer scale of complaints now pouring into MPs’ postbags suggests something.