Taxation of Pensions Bill
Andrew Love Excerpts(10 years ago)
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Cathy Jamieson
The point my hon. Friend makes is absolutely crucial for many people, which it is why it is so important that they get guidance, so they can make sensible decisions to provide for the long term. I will say a bit more about social care and other services later, if I have the opportunity to do so.
After the Chancellor announced the overall pensions reforms to the House in the Budget statement, we set out three tests against which we believe they should be measured. The first was the advice test: would there be robust advice for people on providing for their retirement and measures to prevent mis-selling? The second was the fairness test: that the new system would be fair, with those on middle and low incomes still being able to access the products that give them the certainty in retirement that they want. The third was the cost test: that the Government must ensure that these reforms do not result in extra costs to the state, either through social care or pensioners falling back at a later stage on means-tested benefits such as housing benefit. We stand by those tests and would argue that so far, the Government have been unable to give assurances on any of those points.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Is my hon. Friend aware of a study carried out by Ipsos MORI which showed that 12% of those who were eligible to do so would withdraw their pension pot entirely next year? When asked what they would do with it, one in five suggested that they would use at least part of it for a holiday.
Cathy Jamieson
Yes, I am indeed aware of that report. I shall go on to raise similar concerns and seek answers from the Minister to them in due course.
In addition to setting the three tests, we have also commissioned a retirement income taskforce, chaired by Professor David Blake of the pensions institute at the Cass business school. We wanted to look at how we could enhance retirement income and ensure that savers had access to good-value products alongside the support that they needed.
I would argue that our position on pensions has been consistent ever since our time in government. When the Labour Government took office in 1997, there was a crisis of pensioner poverty resulting from a decline in the value of the state pension under the Conservatives. There was also a crisis of trust in private pension provision following the mis-selling scandals that previous reforms had opened the way to. Responding to those challenges, the Labour Government built a robust regulatory framework to police and protect people’s pensions. That framework included the Pension Protection Fund. We also laid the groundwork for the universal state pension with a triple lock guarantee, and established the National Employment Savings Trust to help people to save for their retirement.
The reason that I mention those reforms is that none of them was rushed through. They were all based on sound evidence and consultation, and they had the common aim of helping people to make the right choices while affording them the certainty and security in retirement that they deserved. We now have to consider whether the present Government’s approach to pension reform has been consistent, or whether it seems at times to be erratic and contradictory.
To be fair, things began well for this Government. The single-tier pension and the auto-enrolment legislation represented positive steps to build on the progress made by the previous Government. Those reforms were based on evidence, consultation and consensus. That was acknowledged by, among others, Otto Thoresen, the director-general of the Association of British Insurers, who said that
“good consultation and a good period to execute”
improved the chances of legislation being successful.
However, the Government’s approach to the latest pension reforms, announced in the Budget statement, appears disjointed. Prior to announcing the reforms, they did not consult, either consumers or the industry. This has resulted in some of the issues that have been raised today not being flagged up at that time, and in the Government’s argument losing some of its intellectual rigour.
I would like to draw the House’s attention to the comments of the shadow Minister for Pensions, my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East on Second Reading of the Pension Schemes Bill, in which he highlighted the discord between the Government’s stance on pensions in the accumulation and retirement phases. That has been commented on today as well. In the accumulation phase, the Government’s approach—one that the Labour Government had fostered—is founded on the recognition that the pensions landscape is complex and difficult to navigate. That approach harnesses inertia to encourage pension savings, with individuals employed without pension schemes being placed on them by default. That is a sensible approach and it has proved effective.
However, the Government’s approach to the retirement stage, as outlined in the latest reforms, departs from that model, shifting the emphasis from the importance of accumulation to the ease of access. This Bill places the onus of choice back on the individual, working on the assumption that they will be able successfully to navigate what my hon. Friend the shadow Pensions Minister has called the “jungle of financial products”. He referred to there being a “tension” between the two approaches. He has been a friend of mine for many years, and I think that that is typical of his diplomatic way of expressing himself. The Association of British Insurers has also noted that tension, observing that:
“Automatic enrolment has seen millions more people saving for their retirement and further pension reforms should build on this. We are very concerned that the focus of recent discussion around the Freedom and Choice reforms is on early access to cash at age 55 rather than on building assets for income in retirement.”
The Minister referred to the fact that the Bill introduces the option of taking uncrystallised funds pension lump sums. I have to say that I have not been able to think of a better acronym than the one he came up with, try as I might. As he said, that provision will allow people to withdraw money directly from their pensions without first designating it for drawdown. Individuals will be able to take 75% of each withdrawal tax free, with the rest taxed at the marginal rate. This has been described by some as allowing people to use their pension almost like a bank account. More than any other measure in this Bill, it will expedite people’s access to their pension.
I should like to probe the Government’s thinking on this point a bit further. In searching for greater clarity, I repeat the question that my hon. Friend the shadow Minister put to the Pensions Minister in the earlier debate. He asked:
“If auto-enrolment policy was correct to assume that individuals need to be guided, helped and encouraged into better pension decisions, why do we no longer think that is the case at retirement?”—[Official Report, 2 September 2014; Vol. 585, c. 206.]
Perhaps the Minister will be able to respond to that question when he sums up the debate today.
In the meantime, I think we all agree that the Bill will increase innovation and result in a raft of new pension products entering the market. In many ways, that would be a good thing but, as I have said before, the flipside to freedom and choice is risk and complexity.
Cathy Jamieson
I am surprised by the Minister’s comment. I see it as my duty and responsibility as the shadow Minister to make thoughtful and probing speeches. I also said at the outset that we welcomed the opportunities that increased flexibility would bring, but people need to understand that the flipside to that freedom and choice will be risk and complexity. This is the place in which we should debate that, as we discuss the principles behind the Bill. We will also probe the matter further in Committee. The Financial Conduct Authority has observed that firms might devise
“complex, opaque and overpriced products”
that do not represent good value for customers. It is incumbent on us to understand that risk, and to ask questions about how such products would be regulated. Furthermore, the marketing of those new products might not always clearly articulate the risks involved.
Cathy Jamieson
I agree with my hon. Friend. That fiasco is a recent memory for many of us, and it is our responsibility to ensure that all the risks, as well as all the upsides, are explored.
I should like to quote the ABI, which has stated:
“Giving customers more choice is welcome but it is also imperative to recognise that good guidance and advice is vital to prevent people making decisions which could lead to retirement poverty and/or to them giving up valuable benefits.”
That is a very important point. People in the industry also recognise that we need to have some caution and ensure that we do the right thing.
That brings me neatly to the fraught issue of the guidance guarantee. The Minister talked a bit about that in responding to interventions, and although I recognise that it is not within the specific ambit of the Bill, it has a great bearing on it. That guarantee is integral to the measures in the Bill, because if the Bill is to be a success, the guidance must be fit for purpose. It is not unfair to say that the continuing concerns and confusion over the guidance guarantee do not give confidence to people who are worried about how they are going to access the guidance. It seems as though the guidance was a secondary consideration. As I have said, the pension reforms were announced without the prior consultation with the industry that we might have expected. Some of the confusion was added to when the Chancellor stated that his reforms would be accompanied by advice, given that we know that what he really meant to say, and what was promised in the Budget, was unregulated guidance.
We then had the unedifying and unhelpful intervention by the Pensions Minister, who appeared to make light of the need for guidance by saying:
“If people…get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice.”
That is not helpful at all and has not been during the process. On Second Reading of the Pension Schemes Bill, the hon. Member for Reigate (Crispin Blunt), who is in his place, asked for clarification on how the guidance guarantee would be funded. The Pensions Minister answered by saying that
“the £20 million is not an estimate of the annual recurring cost of providing guidance; it is a one-off seedcorn, getting-the-thing-going fund…if we need to set up websites, produce literature and create infrastructure, the £20 million will enable us to do so.”—[Official Report, 2 September 2014; Vol. 585, c. 198-99.]
That is a bit vague and non-specific. Less than a year from when this Bill comes into force, surely he should know exactly what the guidance will look like.
We now know that the Government propose to deliver the guidance across three platforms, only one of which will be face to-face guidance—that was what was initially promised. We also know that the Money Advice Service will not be involved in the delivery. The three agencies involved will be: the Pensions Advisory Service, which will provide over-the-phone guidance; Citizens Advice, providing face-to-face guidance; and gov.uk, to which this Minister referred. That raises the question of how the Government will ensure that guidance delivered across three different mediums will be of a consistent standard.
The crux of the matter, and what the consumer needs to understand, is: what will the guidance consist of? Will it be an interactive exchange, or will it be a list of questions that must be asked and areas that must be covered? The Financial Conduct Authority appears to think it will be the former, saying it should cover:
“the key facts and consequences of each”—
option—
including financial consequences, e.g. tax implications.”
The Pensions Minister, however, seems to think it will be the latter. He has said that there is a “world of difference” between
“a guidance conversation to get people to base camp”
and a
“sophisticated, individualised, tailored piece of…financial advice recommending products.”
The Pensions Minister has, however, been keen to assure us that the guidance is not being offered on the cheap—his preferred epithet is “budget”. The levy on the pensions industry will not be set at the level required to pay for
“full-blown, regulated, independent, tailored financial advice.”—[Official Report, 2 September 2014; Vol. 585, c. 199.]
Rather, it will be designed to generate only so much as is required to pay for what he terms the “cost-efficient” guidance version. To summarise, the guidance guarantee seems to amount to the following: it will not be regulated, personalised, or product-specific; it will be “cost efficient”, “substantially cheaper” than advice and funded by a “modest” levy on the industry—enough to get people to “base camp.”
That was what was said almost two months ago, but, sadly, judging by the evidence given to the Pension Schemes Bill Committee, things have not progressed much since. So bereft has been the Government’s approach to information gathering and analysis that we still do not know how many people are likely to take advantage of the new flexibilities. In evidence to the Work and Pensions Committee in April, the Pensions Minister was unable to give any firm indication. He said:
“I am not sure there is much point in me guessing. As I say, HMRC assumed that about 30% would take the cash...some of the annuity providers are saying it might be 70%- odd. We do not know.”
We are also reduced to guessing because, despite a freedom of information request from the shadow Pensions Minister, the Government have refused to publish any analysis they have conducted of the behavioural impact of these reforms. We do not know how many people are likely to make use of the new guidance, but a guidance pilot conducted by Legal & General found that only 2.5% of those offered guidance accepted it. The Pensions Advisory Service has estimated that take-up in the first year will be about 25%, so what happens in respect of the 75% who do not take the guidance? What backstop measures, or second line of defence, will be in place for those who do not take up the offer of guidance? In the first year at least, the answer appears that there will be none at all.
Again, the FCA has raised concerns about that, saying,
“we will have the usual supervisory work going on keeping a very close eye on products as they develop. If people choose not to take the guidance, they choose not to take the guidance.”
That means that, potentially, up to 75% of people using the flexibility in the first year will access their pensions and use the money without taking any guidance at all. I do not know whether the Minister finds that concerning, but I do, and I am not the only one. Just Retirement has described the lack of a backstop as
“a massive threat to the pensions freedom reforms.”
The need to install a second line of defence was endorsed by others within the pensions industry, including the ABI, which also expressed doubt about the rigour of the FCA’s consultation on guidance.
The ABI’s head of policy said:
“We have discussed it with our members. We are a little concerned the FCA consultation…was narrowly drawn, which is understandable because it didn’t have much time.”
Why did it not have much time? Is it because the Government are in such a terrific hurry to force these reforms through? We are being left in a situation where the first tranche of people taking advantage of these reforms could be seen to be the guinea pigs in this process, and that is not acceptable.
Let me deal with a point that my colleague raised about the Ipsos MORI research. The extent of the concern has been laid bare by that, because it found that up to 200,000 pension investors could take advantage of the new flexibility in the first year alone. It is estimated that that would generate an additional £1.6 billion of pension income for Treasury coffers, which is why I was asking the Minister what estimate he had made as to what the Treasury would receive. It might be seen as good news for the Treasury, but perhaps not as such great news for savers, because only 38% of these pension investors were able to state accurately how much tax would be deducted from a medium-sized pot and only 6% could accurately predict what rate of tax would be applied to large pension pots.
Cathy Jamieson
I would never suggest that the hon. Gentleman is cynical. He raises an important point, which again shows why I was trying to press the Minister on some of that.
I realise that I have taken up a considerable amount of time, and I want to give opportunities for other hon. Members to speak. However, I wish to raise just one other issue as I draw to a conclusion. I have mentioned the areas of uncertainty about the guidance versus advice debate, but I ask the Minister also to comment on the announcement about the abolition of the 55% tax on pensions at death—the so-called “death tax announcement”—made at the conference recently. I think that, at the time, the Minister said that annuities would not benefit from the tax cut. But it was certainly my understanding—the Minister can correct me if I have misunderstood—that the so-called value protected annuities will certainly so benefit, and that is still on the Treasury website. I have written to the Chancellor to ask for information, but I have not yet had a response. Clearly, uncertainty remains over the added potential for tax avoidance, which has been produced by the Bill.
In order to deter avoidance, the Government have introduced money purchase annual allowance rules, which, as the Minister said, places a £10,000 limit on the annual amount that can be saved tax free through money purchase agreements. The intention is to ensure that individuals do not use the new flexibilities to avoid tax on their current earnings. However, the rules still allow for £2,500 a year of salary to be “washed” tax free through salary sacrifice arrangements. I am interested to hear what the Government have done to address that risk and what further action they plan to take to guard against the new flexibilities being used in such a way.
Mr Love
When it was suggested to the Pension Schemes Bill Committee that there would be ways in which people, especially those over the age of 55, could use the new flexibilities to avoid taxation, the Minister did not seem to be at all concerned. Is the shadow Minister concerned, and will it be an issue for the Bill?
Cathy Jamieson
Yes, the shadow Minister is concerned as, I am sure, are the Ministers on the Front Bench, who will have to say something in response as they wind up the debate this afternoon. It is a matter that we will have to explore further in the Bill.
In conclusion, we are serious about getting pension reform right. We want people to have the freedom to choose the retirement product that works for them, and we want them to have good products from which to choose. It would have been better if the Government had consulted further on the reforms and conducted a full and thorough analysis of all the tax implications before they announced the Bill. None the less, we still have the opportunity to look at the Bill in greater detail and on that basis we will not be opposing it today.
Crispin Blunt (Reigate) (Con)
I am obliged to the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) for her reference to my intervention on Second Reading of the Pensions Schemes Bill. Much of her speech was about the guidance, which is covered in that Bill. Obviously, there is a significant amount of overlap between the two pension Bills.
I represent four of the most significant players in the United Kingdom pensions market: Just Retirement, Legal & General, Partnership, and Fidelity, all of which provide a significant proportion of the jobs in my constituency. As specialist annuity providers, Partnership and Just Retirement have grown like Topsy over the past decade. They are creative and entrepreneurial companies that have found ways of providing different classes of annuitants with significantly enhanced value. The changes that the Bill introduces and that were announced in the Budget caught the whole market by surprise and have led to a particularly challenging six months for these two companies. Understandably, as more options will soon be available, there has been a significant reduction in the number of people buying annuities. Consumers and financial advisers are continuing to assess the best options for individuals as these reforms are developed.
Despite this difficult time, the very reasons that allowed those two companies to succeed so spectacularly over the past decade are the same as those that are enabling them to weather this sudden strategic change in the operating environment. The companies are well-led and fleet-footed and are now in the business of identifying new products to meet the new environment. However, they deserve certainty about the regulatory framework as soon as reasonably practicable so that they can bring new products to the market as soon as possible.
The Budget announcements made earlier this year were the culmination of a drive by both coalition partners towards greater consumer autonomy in the pensions market. For anyone who believes in freedom and responsibility, such a reform can only be right. The paternalistic status quo has long been out of step with a society that is happy with financial self-determination before retirement. Moreover, with annuity rates having dropped significantly over the past two decades, diversification, many hope, may be just what the market needs to invigorate it and produce the most innovative and well-suited options for consumers.
However, the pensions market has long been distorted by a deficit of consumer awareness. The 2012 survey of the Department for Work and Pensions, “Attitudes to Pensions”, found that 49% had no knowledge of the need to annuitise. Financial self-determination is an honourable and desirable goal, but the transition may be very bumpy if people purchasing pension products are unable to approach the open market with the requisite knowledge to plan for their retirement.
The Financial Conduct Authority, in its consultation “CP14/11: Retirement reforms and the guidance guarantee”, has identified that people who make large withdrawals from their defined contribution pension savings are at risk of not understanding the income tax implications of their decisions. Unsurprisingly, most people will be completely unaware that their tax may not be settled until a year after they have accessed their funds through a self-assessment process. There are a number of other equally important decisions that people must make, and if, through inertia or misunderstanding, they make a poor decision, it will be to their and their family’s material and financial detriment.
During the evidence presented to the Pensions Schemes Public Bill Committee last week, a number of experts called on the Financial Conduct Authority to use its existing powers to mandate those firms that hold people’s pensions savings to be required actively to engage with their customers who do not take up the Government’s guidance guarantee and to ask a small number of questions that would prompt them to consider the choices they are making. Hopefully, that will avoid the most common errors that have led to poor consumer outcomes. With current estimates of the guidance uptake veering from 4% to 92%, a range of basic security questions will be a necessity, not a luxury.
The Pensions Schemes Bill will have a major impact on the successful outcome of this legislation and vice versa. These reforms could provide an unhappy example of the costs of liberalisation if consumers are not aware of the freedoms that they now have.
Mr Love
There is a lot of debate in the Committee and on the Floor of the House today about a second line of defence. Would it not be appropriate that when an individual approaches a pension company and asks to take out either some or all of their pension pot, they are asked whether they have received the guidance guarantee? If they have not, they should be referred back to the guarantee before they take an irrevocable decision on their pension.
Crispin Blunt
The hon. Gentleman tempts me down the path of discussing what is in the Pension Schemes Bill, which, although not the subject of today’s debate, is closely linked with the Taxation of Pensions Bill. I presume by his presence that he is on the Committee, as is the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop). I sincerely hope that the Committee will carefully examine this matter. It is subject to a current consultation by the FCA, to which I have submitted my evidence. This is an immensely important issue. To make the reforms in the Bill successful, we have to make a success of the guidance. We will not get it right first time. It will have to be capable of being improved in the light of experience, so that we do not end up with a mis-selling disaster or simply consumers not being informed enough to make appropriate choices.
We are giving people freedom, and with freedom comes responsibility. Sadly, that means that some people will make poor choices. The hon. Member for Edmonton (Mr Love) has spoken about people making poor choices, or taking a holiday; at least, that was the implication behind his remarks. I think taking a holiday is probably a thoroughly good choice, but he and I may differ. His Scottish Presbyterian background may be coming into play there. I will leave that as speculation.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
As has been mentioned, I am a member of the Pension Schemes Bill Committee, as are a number of colleagues who are present today. We are here to find out about the technical elements that will affect that Bill, because some taxation issues have been brought to our attention during the Committee’s evidence sessions. I want to refer to the evidence given by Mr John Greenwood, who is editor of Corporate Adviser magazine—it is given out to pension professionals—author of the “Financial Times Guide to Pensions and Wealth in Retirement” and a freelance journalist for national newspapers.
The issue emerged between May and July this year and concerns how individuals can avoid national insurance contributions by using the Government’s newly announced scheme to divert their income through a pension fund, rather than receiving it in a traditional salary. I will dip in and out of the evidence Mr Greenwood gave during the Committee’s fourth sitting, on Thursday 23 October, because I think that it is pertinent to the Pension Schemes Bill Committee’s considerations and to the debate on the Taxation of Pensions Bill, both here and in Committee. Mr Greenwood, elaborating on his concerns, told the Pension Schemes Bill Committee:
“The new easy access rules create a huge risk of widespread tax avoidance. If everyone over 55 takes full advantage of them, the Treasury could lose £20 billion in 2015-16—obviously, that is a massive number. That will not happen, but if even a tenth of people do, that is still a £2 billion loss. That seems to make quite a hole in the Treasury’s optimistic projection of making £3 billion of profit out of the policy over the five years of the next Parliament.”––[Official Report, Pension Schemes Public Bill Committee, 23 October 2014; c. 117, Q249.]
The Financial Secretary said earlier that the Treasury had not yet given a forecast of how much it expects to make or lose on this policy, but we already know from Mr Greenwood’s inquiries that the Treasury had initially estimated a £3 billion profit. I think that is pertinent to today’s debate, because it is about the tax implications of the legislation and how they will affect the autumn statement, the Budget and what a future Government will be able to plan for with regard to incomings and outgoings.
Mr Greenwood went on to say:
“In layman’s terms, the Government’s position is that you can take your money as cash from 55. If you are an employee, you have two options. You could be paid into your current account through salary, which is taxed at 13.8% employer national insurance on everything over about £8,000 and the employee pays national insurance of 12% on everything above that figure, and then everything is taxed above the nil rate band. Obviously, you have to be paid the minimum wage of £11,500-ish, but above that, why would you be paid through your salary when you can pay into a pension and take it all out the next day? For payments into a pension, there is no employer or employee NI at all, and only three quarters of it is subject to income tax. The Bill effectively gives everyone over 55 a £10,000 NI-free allowance—four times that in the first year, if they draw their money early.
When the penny drops, people will suddenly realise how much loss there is there. If you are on £40,000 and you maximise this—there are currently no rules to say you cannot do this—the loss to the Treasury is 62% of the revenue they would have got from that person’s employment. That is quite a chunky amount. It is clear from the Budget documents that the Treasury had not spotted this, because if you look at the documents published alongside, and the risk assessment, there was no mention of national insurance at all. They have moved with a reduced annual allowance of £10,000 for those who take benefits early, which reduces it but does not stop it altogether.”––[Official Report, Pension Schemes Public Bill Committee, 23 October 2014; c. 117, Q250.]
I raised that point earlier with the Financial Secretary and asked whether he could tell me what percentage of people the £10,000 threshold would affect. He did not give me a response, so I told him that Mr Greenwood valued it at about 2% of the population, so 98% of the population would be exempted. The Financial Secretary responded that that was Mr Greenwood’s suggestion, but Mr Greenwood was actually referring to a response from the Treasury. That is deeply worrying, because we do not know the implications of the policy.
What we do know is that the Treasury’s policy at the moment is not to respond to Mr Greenwood, because he has written to the Treasury six or seven times without receiving a response. I understand that he has written to the Office for Budget Responsibility once to request a forecast but, as of last Thursday, has not yet received a reply—he might have had a phone call by now. I do not know about other colleagues in the Chamber, but I find that profoundly worrying, if we are potentially losing a considerable amount of money from the Treasury’s coffers—potentially £2 billion to £3 billion, if it is just 10%.
Tom Blenkinsop
I thank my hon. Friend, who, as a fellow member of the Committee, attended those evidence sessions. The Pensions Minister confirmed that people can already use this tax scheme—there is no legislation to stop them doing so. The only difference is that the industry is gearing up for next April, and getting the HR processes in place, so that it can give people advice all at once, rather than employer by employer. Mr Greenwood said that he has talked with several people in the industry and that one company had already talked with 192 employers that are looking at that.
The ability to avoid NI in that way already exists, and the Government have a threshold of only £10,000 and nothing planned until after July as a response. That gives them a big headache, because the Prime Minister’s £7 billion tax give-away has been blown out of the water due to borrowing fears. Now another £2 billion or £3 billion is missing. That is £10 billion. The Government like to call the Opposition the debt party, but in fact it is they who have doubled the national debt. Now they will considerably increase borrowing because of the very fact that their own figures are out by a minimum of £10 billion.
Nigel Mills (Amber Valley) (Con)
I speak as a member of the Pension Schemes Bill Committee; for me, this has been a week of complicated pension rules.
I welcome the freedoms that the Taxation of Pensions Bill provides. We want people to save for pensions to provide for their own retirements; it has to be right to give them the freedom to use the money they have saved as they want to, without there being penal tax charges that might force their behaviour into certain directions. It is absolutely right for these choices to be added to the whole landscape.
We should bear the context of the current situation in mind. Basically, we force people with relatively small and medium-sized pension pots to take an annuity. The tragic thing is that in many cases those annuities are not suitable—people are mis-sold them, do not understand them and do not shop around or get the best deal for themselves. People cost themselves large amounts of their retirement money because the market simply does not work in a fair manner.
The Work and Pensions Committee and others have been trying to find various ways in which to reform the annuity market, to make it fairer and make it work better for people—to encourage shopping around, to stop mis-selling and to get people to think about whether their life expectancy might be shorter than the average. We need people to think about what will happen if they predecease their spouse. Will the product that they are buying provide for that person?
Of all the solutions brought forward, the Government’s is by far the most radical. It effectively says, “You don’t need to buy an annuity any more if that is not right for you. You can draw down in a much simpler, cheaper way and try to live off and control the savings that you have produced for yourself.” That sounds a fairer approach. If people have chosen to save money for their retirement, they can now choose how and when they spend that, in a flexible way. We should all want that to be available. That is not to say that that would be right for everyone; it might be entirely wrong for many people. There is absolutely no reason why we should take products away, but we need people to make informed choices about what they want in their retirement—how much income they want, how they want to spend it and over how many years. In that way, they will not be locked into a totally unsuitable situation.
There are various nightmare scenarios. One is when someone has run out of money—they have drawn down and spent too much. They never thought they would live past 75, but live until they are 93. They run out of money in their later years and do not have the standard of living that they wanted. We absolutely do not want that to happen. The flip side, of course, is that if someone buys an annuity at 66 and dies at 67 and has no protection, they have burned their whole pension pot for them and their family.
We need to find a way of taking those two extremes out of the situation. We want new products to smooth the situation out. People should be able to say that they want a product that not only guarantees a certain income for life—so they know they can pay the heating and food bills, have the annual holiday and treat the grandchildren—but allows the flexibility to spend money on a cruise or an active lifestyle when they first retire. They might want funding for care costs in their very late life; during the previous years, their income could dip a bit as they would not be so active or have such big bills. How do we get people to understand that they can make those choices? How do we get the products that fit those choices? Those questions are key.
I entirely agree with the comments made so far: getting people to understand the choices—what they need, want to do and can do—at the point of retirement is the secret, but also probably the hardest bit. That is why we need to get the guidance guarantee to work. I have tabled amendments to the Pension Schemes Bill to try to strengthen how that guidance will work. But we need to be careful: it is not when someone is 65 and a half and about to retire at 66 that they need to understand what is going on. Under the rules as they are today, that might be fine—the person saves into a pension scheme, which will assume that funds will move into an annuity when retirement age comes so plans can be made on the basis that the person will need their pot at 66. Funds can start to de-risk when the person gets to 56 on the central assumption that they will want a safe pot when they retire.
Once the changes come in, however, people might not want to do anything with their pots at age 66; they might stay in work until they are 70. They may want to use other savings or defer their pensions for a while. Do they want their pension scheme by default to start de-risking and reducing investment return 15 years before they want to retire? That would be disastrous for the pension pot.
Choices will have to be made about which pension scheme to join, about risk profile and about when de-risking should start. People will have to understand that when they are 40 or perhaps 35, not 65 and a half. There needs to be clear guidance to which people can be signposted. Pension funds need to say to people, “You have important choices to make all the way along the process. Here is what you need to know, here is how you can find it and here is what you should be doing.” If people do not get the message earlier, the guidance for those aged 65 and a half might well be, “Here is what you could have won, but sadly you have not won it because you did not do the right things earlier on.” When the guidance providers come in, they need to provide clear, web-based guidance that people can access at any age, rather than being locked out until they are 65 and a half.
We also need the regulator to think carefully about what pension schemes will do with people who just do not engage. Some people will be enrolled automatically; they do not really understand the system but they do not opt out. They are saving money and get to 55. They are asked whether they want to de-risk, but there is no reply. They get to 65 and are told that they can draw their pensions, but there is still no reply. What should be done with the pension pot in that situation? An annuity will not be bought, so what should the default be? Should there be some kind of drawdown so that the money is left sitting somewhere for a while under some strange investment profile?
In this landscape, we need to think about a lot of things on behalf of those who have choices to make and a pension pot about which it is worth making choices. I suspect that a sizeable number of people will have relatively small pension pots and that taking the cash, tax-free, will remain their best option. Those who have the pension choices but are not so well off that they can afford expensive advice are the ones who will need to understand the options and try to pick the right ones.
I am left thinking that guidance is the right answer and advice is the wrong one. The risk with advice is that it is incredibly expensive; it would cost several hundred pounds at best to give people advice. The last thing we want someone who has been auto-enrolled into a pension pot to do is spend a large percentage of their pension on advice that they really do not need, because they do not have enough money to take advice on. We have to try to keep the cost of the guidance scheme low and make it a way of getting people to their first understanding and thought process about what they could do, rather than trying to put in place a gold-plated system that everyone has to pay for, even though most people would not be taken that far forward. We have the right idea, although we probably have a long journey before people have anywhere near the knowledge and understanding that they need, and that we need them to have.
Mr Love
We have to keep guaranteed guidance at a reasonable cost, but for that guidance to be effective there has to be personalisation to the individual circumstances of the person involved. All the evidence suggests that. The one balances against the other. The challenge is to find a way to make the guidance both cheap and effective.
Nigel Mills
The hon. Gentleman has to be right. The issue was raised in the Pension Schemes Bill Committee evidence sessions last week, and we will get to it again when we discuss the provisions on guidance. It is hard to work out the line between advice, which might say, “The best thing for you is to do x,” and guidance, which just says, “Here are the options and the various things to think about. Make sure you shop around. Thanks for calling.” Guidance such as that will not help people, who will forget it by the time they put the phone down or walk out of the meeting room.
We need the people getting the guidance to have worked out their financial situation—their pension pots, their debts, their other income, their state pensions and other employer provisions—so that when they go to get their guidance, they can set out their circumstances to the person guiding them, and that guidance can be focused on the sorts of choices they could reasonably make. That is probably about as far as we could get, because once someone says, “You should pay off your debts first”, they are getting into giving advice, and that may not always be right; it risks creating liabilities and people being mis-sold things. This will be an extremely hard balance to strike.
Oral Answers to Questions
Andrew Love Excerpts(10 years, 2 months ago)
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Mr Osborne
My hon. Friend is absolutely right. I remember visiting with him Hainsworth & Sons, a textile company in his constituency, which is now exporting to China. In his constituency, as in others, we have seen a dramatic fall in unemployment. Unemployment is down 31% in the last year; youth unemployment has fallen too. Many of those jobs are in full-time employment, as he says, but of course we are also supporting those in self-employment.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Of all those jobs created, many are part time, and part-time jobs for people who are looking for full-time employment—over a quarter of a million people are involved there. What is the Chancellor doing to increase the opportunities for full-time employment in this country?
Mr Osborne
What the hon. Gentleman says is not a clear statement of the facts, because actually, full-time employment accounts for three quarters of all the new jobs created since 2010. Of course there are those who want part-time employment, but for those in part-time employment who want full-time employment, the answer is to continue to support the economy, to do the difficult things necessary on the public finances to inspire confidence in that economy, and not to have disastrous things like a jobs tax rise, which would make it more difficult for those people to get full-time work.
Data Transparency (Banking)
Andrew Love Excerpts(10 years, 4 months ago)
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Mr Andrew Love (Edmonton) (Lab/Co-op)
The debate is starting a little earlier than expected, but I am pleased to see that all are present and correct.
The debate is about the voluntary agreement for the disclosure of bank lending data for every community in Britain, which came into effect last December and has been, on the whole, well received. Thanks are due to Members of both Houses, the British Bankers Association, Her Majesty’s Treasury and the seven participating banks and building societies—Barclays and Clydesdale and Yorkshire banks, HSBC, Lloyds Banking Group, Nationwide building society, Royal Bank of Scotland and Santander—for agreeing to work together to create a voluntary framework for the disclosure of bank lending data. I echo the words of the Minister and welcome the positive engagement of the UK’s largest lenders to make this agreement happen.
The first tranche of data was released in December 2013, the second in April 2014 and the next is due in a couple of weeks. Among the advantages of disclosure is that it clearly identifies the availability of bank lending in all communities—who the banks are reaching and who they are excluding. At the time of its announcement the Chief Secretary to the Treasury said that the agreement
“is a major step forward in terms of transparency and should encourage competition by helping smaller lenders to identify gaps in the market and allowing businesses to hold their local bank to account where they aren’t lending.”
This is an important first step, but today I will ask the Minister to go further.
For the Community Investment Coalition, the objective of the disclosure is to create clarity about which communities are well or poorly served by mainstream banking institutions and the action that is required to fill the gaps in areas that are poorly served. As a result, it is hoped that every adult household or business will eventually have access to appropriate and affordable financial products.
Bank data disclosure, as I understand it, means providing information about a range of banking activities in defined geographical areas. The data show the ways in which banks invest the money that the public deposit with them. Disclosure of lending data can also provide an opportunity to deepen understanding of market trends and refine products and services better to serve local markets. Moreover, data disclosure highlights whether the main high street lenders are concentrating the provision of credit in certain areas, leaving other areas to become credit deserts, with businesses and consumers in these areas struggling to access affordable credit.
The voluntary framework is a major step forward in terms of transparency, as the new data will allow the public to see clearly how the bank and building society sectors are serving the wider economy. Publishing data in such a detailed way will assist competition, allowing new entrants such as credit unions and community development finance institutions to identify where there is unmet demand and pursue new business in those areas.
Disclosure of lending figures will, it is hoped, clearly identify those who are effectively excluded from the banking system. That type of financial exclusion is often localised, meaning that the framework needs to disclose information on a local area basis, and hopefully in a way that is consistent with local measures of diversity and deprivation. Without that type of local area disclosure, communities are left in the dark on how their savings are being invested.
At the time of the launch in July, the Government indicated that they expected more lenders, including banks, building societies, credit unions and other types of finance providers, to sign up to the voluntary framework. What progress has been made on improving the coverage of the voluntary framework and what new lenders have been, or are being, signed up?
As part of the voluntary agreement, the British Bankers Association and the Council of Mortgage Lenders jointly publish quarterly aggregated data detailing the outstanding stock of lending that has been committed to customers in three different categories: loans and overdrafts to small and medium-sized enterprises; mortgages; and unsecured personal loans to individuals.
Each postcode sector is broken down by category to show the exact lending being made to each. Wherever possible, any figures for an individual lender that either could not be attributed to a specific sector postcode or had to be redacted for data privacy or other reasons have been added to the area totals. In a small number of instances, data privacy reasons prevent the attribution of specific amounts to certain postal areas. That means that aggregate figures might not be exactly comparable across different postal areas. Therefore, sector postcodes do not necessarily map across readily or exactly to alternative geographic classifications.
If we are to make the most of the data released by the voluntary framework, surely they must be truly comprehensive and presented consistently, making them easy to analyse. They must also include all lenders, large and small, other than possibly an exemption for the smallest providers. Only that will give a fully inclusive picture of lending in all communities.
That is borne out by the experience of the wide range of organisations that are beginning to use these data to identify gaps in the supply of lending. They include: universities and academics working on financial exclusion; local authorities and local enterprise partnerships looking to extend access to affordable credit to support economic growth; and decision makers developing effective approaches to support innovation in the supply of affordable credit and the provision of financial services to all communities and businesses. For example, Birmingham city council has already analysed its local data and is now working with partners to fill the gaps in lending, for instance by supporting the development of local credit unions and community development finance institutions.
In response to concerns regarding consistency in the format of the released data, it has been suggested that that could be overcome if the framework scheme were to be managed by an independent organisation such as the Office for National Statistics. What more can the Government do to ensure the consistency of the data disclosed in the voluntary agreement, and what consideration is being given to bringing in an independent body to manage the scheme?
The methodology used for data collection centres on the postal addresses represented by Royal Mail postcodes. The data published reflect borrowing in live postcodes and give an up-to-date picture of its geographic distribution across Great Britain. However, there are no figures provided for Northern Ireland, Jersey, Guernsey or the Isle of Man. What efforts are being made to extend the voluntary framework to include the whole of the United Kingdom, not just Great Britain? For as long as the framework remains voluntary, it is open to many financial services providers to choose not to participate. There is also the possibility that those currently participating will pull out, for whatever reason. What assurances has the Minister received on future involvement in the framework? Is consideration being given—
Mr Love
That rather surprised me, Mr Deputy Speaker. I should have realised that when we got to 5 o’clock that announcement would have to be made.
Is consideration being given to putting the framework on a statutory basis?
It is important to take considerable care in interpreting local-level figures, as they will not necessarily be truly representative of the current picture for lending as a whole. For example, personal loan figures for participating lenders together represent fewer than 30% of the total national unsecured credit market and only an estimated 60% of all personal loans. There are no figures for larger payday lenders or for credit unions. Similarly, SME lending figures relate only to borrowing through loans and overdrafts. Other forms of finance, including business credit cards and asset-based finance, are widely used by SMEs but are not included in the data. SME loans and overdrafts for participating lenders represent about 60% of the total national market for all lending to SMEs, but this does not include community development finance institutions. The picture for the mortgage market, which includes most buy-to-let activity, as well as borrowing by home owners, is slightly better, with participating lenders together reporting on about three quarters of the national market.
Recently, following the Minister’s predecessor’s speech to the Community Development Finance Association conference in Bristol, the Community Development Foundation wrote to him outlining the additional data sets that would help to better explain which communities struggle to access affordable credit. These include the number of applications and loans in each area; the demographics of applications, including age, gender and ethnicity; and, regarding the loan itself, the interest rate and length of the loan. Greater transparency on all these issues will help to inform strategy to promote competition. What steps is the Minister taking to ensure that the data enable an accurate understanding of patterns of lending and highlights communities that struggle to access affordable credit?
Recently, in a comment on the disclosure framework, the Minister, in launching the Business Banking Insight survey said that,
“postcode lending data has highlighted the more deprived areas where larger banks are often not willing to lend and that will enable; challenger banks, smaller building societies, credit unions and community development finance institutions to move into those areas and to offer finance to those customers who are crying out for support to make their business grow”.
With that in mind, what use is the Treasury making of the data on bank lending to promote greater competition and enable smaller lenders to pursue new SME business?
We would like to see further progress and a clear Government plan to increase the amount of data released, and a strategy to fill gaps in the provision of financial services where they exist. It is crucial that the Government and regulators start to use the data to inform policy and market interventions, and we would like to understand plans and time scales for this. Has the Treasury made any request to the Financial Conduct Authority to undertake an analysis of these figures as part of its objective to “have regard” to competition and accessibility to better inform policy and decision making? Is the Treasury developing a clear Government strategy to tackle the “credit deserts” in many of our communities up and down the country?
The release of more consistent and comprehensive bank lending data has the potential to make a significant contribution to tackling financial exclusion, generating more fairness in the provision of financial services, supporting the growth of the SME sector and benefiting consumers by opening the door to a more competitive market. I commend that to the House.
The Economic Secretary to the Treasury (Andrea Leadsom)
First, I congratulate the hon. Member for Edmonton (Mr Love) on securing this debate and presenting his case so eloquently. He was, of course, one of my partners in crime on the Treasury Committee, during which time together we held the Government to account. Therefore, given that this is our second debate together in as many months, I am very glad that he is doing just as good a job of holding the Government to account now that I am not on the Treasury Committee. I am grateful to him for that. The other thing that he and I share is a huge enthusiasm for greater competition, greater transparency and far greater choice and diversity of financial services for businesses and customers. We have worked together on that agenda for a very long time.
Before I get on to the hon. Gentleman’s specific points, I want to highlight the many measures that the Government are taking to try to improve that competition, choice and diversity. As he will know, we are currently consulting on whether to make the large banks provide referrals to challenger banks when they do not wish to lend to a small or medium-sized business. We are already looking at legislating through the small business Bill to require banks to share credit histories with credit reference agencies so that challenger banks with permission can look at other areas for lending. We are supporting peer-to-peer funding and crowdfunding.
Last week, in our bid to support the credit union movement, and quite apart from the funding from the Department for Work and Pensions, we put out a call for evidence to look at the future of the credit union movement and what is wanted from communities and the credit unions themselves. The Government therefore have a big agenda to promote precisely the transparency and competition on which the hon. Gentleman and I have worked very hard over the past few years.
The hon. Gentleman has raised a number of specific issues, but before turning to them I would like to provide a brief reminder of how far along we are with the work on postcode lending data and why we believe it is so important. As the hon. Gentleman has pointed out, the Government secured an agreement with the major banks last July to publish lending data across nearly 10,000 postcodes. It is worth reminding hon. Members that the measure has made the British banking industry into one of the most transparent in the world.
As the hon. Gentleman well knows, improving competition in banking is a No. 1 priority for many jurisdictions, not least the UK. The publication of the data will therefore play a big role in improving competition by enabling challenger banks, smaller building societies, credit unions and CDFIs to identify and move into areas that are not currently served by the larger banks. It will also mean that our economy is better served by their offering finance to customers who are crying out for support to help their business grow. I certainly believe that the project is vital, and that it will play a key role in improving lending in areas where it is currently lacking. I am sure that he agrees with that overarching sentiment.
I turn now to the specific points made by the hon. Gentleman and the hon. Member for Harrow West (Mr Thomas). On the comments of the hon. Member for Edmonton about expanding coverage across institutions, the Government made a clear commitment during the passage of the Financial Services Bill that the data would initially involve the lending of the seven major lenders. That decision was taken because of their dominance in the market. The Government also made it very clear that we intend to discuss with interested peers and the industry exactly how the data could be extended to cover other types of institutions, including banks, building societies, credit unions and other finance providers. It is, however, important to bear in mind that the cost of such a level of disclosure, particularly for smaller institutions, might be prohibitive and might increase the costs they pass on to their customers. We therefore want to consider the matter very carefully before we act.
With regard to expanding coverage across the country, the hon. Member for Edmonton will know that the first dataset did not include lending in Northern Ireland, due to the differing banking markets and reporting requirements for Northern Ireland banks. However, I assure him that the Government will ensure that any future extension includes the main Northern Ireland banks, and I confirm that the Government, with the British Bankers Association, are discussing with the Northern Ireland banks how the agreement might be extended to them.
I am sure that the hon. Gentleman will agree that it is important that due time is given for discussions to ensure that any agreement is proportionate and that data provided will be beneficial. I am also sure that he will welcome the news that, just yesterday, the BBA published composite bank lending data for Northern Ireland businesses and households for the first time. The Northern Ireland data have been sought after for some time, and their publication has been encouraged and helped by the joint ministerial taskforce on banking and access to finance.
The hon. Gentleman suggested that the framework in question should be managed by an independent organisation, such as the Office for National Statistics, but the BBA already collects and publishes a range of comprehensive data on lending to individuals, households and businesses, so it is very well positioned to agree the necessary standards on data release and accessibility. However, as he would expect, the Government will keep the situation under review.
Andrea Leadsom
Yes, the Government are keeping the matter under review, and we will discuss exactly that with the BBA.
The hon. Gentleman expressed concern that postcode lending data do not give a full picture of lending in the UK, and suggested that a wider set of lenders and products might be included. For example, he noted that SME figures represent about 60% of the national market, covering loans and overdrafts only. Other forms of finance, such as business credit cards and asset-based finance, are not included at this stage. He is therefore right that it is important for public data to be as broad as possible, but as I have mentioned, we must bear in mind that, particularly for smaller institutions, the cost of making such disclosure might be prohibitive and might increase the costs passed on to customers and businesses. It is important to see postcode data as part of a wide range of data to which the Government, banks and businesses have access, on top of data from the Bank of England, the BBA and other surveys.
Those other surveys, including the SME Finance Monitor and the new Business Banking Insight, can also be of real importance. The latter, which the Government announced in the Budget and I launched just over a month ago, is a really useful tool for UK businesses, as it lets them see which banks are in a good place to offer them the products and services they need at the right prices and will give them a decent service in their area and their particular market.
Finally, the hon. Gentleman asked what use the Government are making of the data on bank lending and whether we have a clear strategy for tackling any credit deserts in UK communities; the hon. Member for Harrow West also raised that issue. I reassure them both that the Government regularly interrogate these data as part of our wider analysis of bank lending conditions across the UK. However, the full usefulness of the data will only really be known once we have been able to identify longer-term series and trends.
At the current time, the data do not appear to show any regional imbalances, but we will continue to monitor that. As the dataset grows and trends become more readily identifiable, we plan to make increasing use of the data. We will of course take action on the issue if we think it is needed.
Andrea Leadsom
As I have said, at the current time the data do not seem to show any major regional imbalances, but my officials, the Bank of England, the BBA and the banks themselves are looking at the data. If the hon. Gentleman wants to write to me on a specific point where he believes that there may be evidence of a distinct imbalance I would be delighted to look into it and respond to him. We will continue to monitor the data and ensure that as trends become more identifiable we can make more use of the data to assess potential areas where there is a lack of banking facilities.
In conclusion—
Mr Love
I apologise—when the Minister said, “In conclusion,” I thought I had missed my opportunity. The Financial Conduct Authority has an objective of looking at particular areas, specifically for the purpose of researching into credit deserts. Have Treasury Ministers had any discussions with the FCA on that?
Andrea Leadsom
I assure the hon. Gentleman that officials meet the FCA on a regular basis, as do I. If it will make him feel better, I shall make a point of raising that issue with the FCA the next time we meet to ensure that it is looking at it carefully.
I thank the hon. Members for Edmonton and for Harrow West again for raising this important issue. As they know—the hon. Member for Edmonton certainly knows this—transparency and competition are central to the Government’s work on financial services. My interest lies very much in that area, so the hon. Member for Edmonton and I are aligned on that. Although I am sorry that I cannot give him the answers that he wants right now, because the new policy has not been in place for long and we do not have enough material as yet and because of our natural reticence to increase the costs for smaller institutions in the early days, I hope that I have reassured him that we will continue to monitor the data and look for ways to improve the service. Ultimately, I am confident that we will end up with a banking system that better serves people and businesses up and down the country.
Question put and agreed to.
Office for Budget Responsibility (Manifesto Audits)
Andrew Love Excerpts(10 years, 5 months ago)
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The Financial Secretary to the Treasury (Nicky Morgan)
I beg to move an amendment, to leave out from “House” to the end of the Question and add:
“recognises the important role of the Office for Budget Responsibility (OBR) in producing independent forecasts for the economy and the public finances, and the value this has had in restoring trust in official forecasts; notes that the OBR is a newly independent institution and judges that it would not be appropriate to involve it in party political matters at its first election; notes the comments made by the Chairman of the OBR, Robert Chote, in a letter dated 15 January 2014 to the House of Commons Treasury Committee that ‘to embark on this exercise in a rush, or with insufficient resources, could be very disruptive to the parties and very damaging to the OBR’; and supports the view expressed in that letter that it is ‘better to consider these issues at the beginning of the next Parliament’.”
I am sorry that the shadow Chancellor is disappointed that I am opening for the Government in this debate. I must say that I have only been in this House for just over four years, but it is always true in politics that there is a first time for everything. This afternoon, the shadow Chancellor accused the Government of playing political games and called for cross-party consensus, so there is a first time for everything and we heard it here first. The most sensible thing that he said in his speech was to offer the hon. Member for Bolton West (Julie Hilling) a job as his speech writer, so let us hope that his future speeches are dramatically improved.
The shadow Chancellor made his views on this matter very clear to the House, so I will begin by answering him with equal clarity. The Government do not believe that the OBR should cost the Labour party’s, or indeed any Opposition party’s, manifesto commitments for the election next year.
Mr Andrew Love (Edmonton) (Lab/Co-op)
In an effort to keep the tone of consensus so admirably set by the shadow Chancellor, will the right hon. Lady accept that the amendment she is currently moving is selective in the quotes that it gives from the OBR, giving the strong impression that it is opposed to this, when clearly, it is in favour?
Nicky Morgan
As I will come on to say, I do not think that the quotations in the amendment or the amendment itself are in any way selective. The amendment sets out the reasons why the Government are not supporting the Opposition’s motion. It does so very clearly, and the OBR, in its letter, sets out very clearly the reasons why it is not at this stage ready to cost the Opposition parties’ manifestos in the way that is wanted.
Nicky Morgan
Let me assure the hon. Gentleman that I will keep to the consensual tone that the shadow Chancellor, often with great difficulty, tried to strike. The letter from Robert Chote makes it very clear that these issues would be better discussed at the start of the next Parliament. The reality is that, actually, the Opposition are looking for a fig leaf for their lack of an economic plan. That is the reality of the motion.
Nicky Morgan
I certainly did not indicate that. It is to be expected that Treasury Ministers will meet the head of the OBR and that various matters will be discussed, and we received a clear letter from him about the motion and the proposals before us today.
I want about to talk about the practical questions that would require much greater scrutiny in the future. First, as I mentioned, the Opposition do not seem to have assessed how their proposal might compromise the OBR’s ability to avoid being drawn into political debate or the real danger that such a change could undermine its perceived independence and, by extension, the credibility of the UK’s official forecasts.
Nicky Morgan
Thank you, Madam Deputy Speaker.
We are back to old social government: no notes, no transcript, nothing. If the right hon. Gentleman has exchanged correspondence or if he has a transcript of the conversation, he should put it before the House if he wants to bring it into the debate.
Nicky Morgan
I will give way briefly to the hon. Gentleman, but then I want to make some progress.
Mr Love
I thank the right hon. Lady. There is a transcript. After the production of the letter of 15 January, Robert Chote appeared before the Treasury Committee, where we interrogated him on all these issues. He confirmed that if all these issues could be resolved, he would be content to go ahead.
Nicky Morgan
I prefer to take notice of comments that are on the record, such as the following from Robert Chote. On 4 April 2014—[Interruption.] The shadow Chancellor should listen. This is what the head of the OBR said:
“The Chancellor perfectly reasonably has said he doesn’t think this is the right time to do this… The reasons he has cited are it’s the first general election we’ve existed…you don’t want to throw the OBR as a relatively young body into a politically contested territory now.”
Nicky Morgan
As always, my hon. Friend has summed up the position brilliantly and eloquently. I was particularly impressed when he intervened on the shadow Chancellor and forced him to admit that the purpose of the Opposition’s proposal was to stop the shadow Cabinet making spending commitments left, right and centre.
I was referring to other Government priorities. I am thinking of, for example, Budget preparations. The time when those preparations are being made is one of the busiest times of the year for the OBR, during which specialist and other staff resources are already occupied.
As I have already said today, what I will not do is stand here and say that the problems are insurmountable, or that a solution could not be found in future. However, if we want to ensure that the OBR’s independence and influence are preserved, the issue merits much fuller and much more careful consideration than is represented by the Opposition’s proposals. That brings me to one of the most important points. We need to remember that the OBR is a very young organisation. We believe that it is doing an excellent job—as, clearly, does the shadow Chancellor—but it has not, as yet, been subject to any major review.
It was announced in last year’s autumn statement that, as required by legislation, the OBR would launch an external review of its publications during the current year, and that its findings would be published in September. The Government have also announced that following the outcome of that review, and following the general election, they will hold their own review of the OBR. I think—I am sure other Members will agree—that until those reviews of the OBR’s current responsibilities have been completed, we should not throw extra responsibilities at it. I consider it sensible for us to wait until after the OBR’s review, our review, and the OBR’s first general election before considering this issue further.
Unlike the Labour party, I do not want to pre-empt the OBR’s review, but I think it safe to say that, through its creation, the coalition has changed the way in which Budgets are made for ever and has created an independent office that has restored public confidence in the numbers that underpin the Budget. In its first four years, the OBR’s independent forecasts have supported the credibility of our long-term fiscal plans. Between now and the general election, the OBR should remain focused on doing that job. It should remain focused on ensuring that, as we fix the mess left to us by the Labour party, the numbers underlying our long-term economic plan are correct. That plan is making a real difference.
Nicky Morgan
No.
Inflation is at its lowest level in four and a half years. Employment is at its highest level ever. Just as our deficit is shrinking, our economy is growing, with the recovery balanced across all the main sectors, because of a long-term economic plan being taken forward by the Government and being properly scrutinised by an independent, impartial body. That is how it should stay for the next year. That is why I ask hon. Members to support our amendment.
Jacob Rees-Mogg (North East Somerset) (Con)
The Government are absolutely right to be cautious about allowing the Office for Budgetary Responsibility to be caught in the middle of a political trap. The virtue of the OBR is its political impartiality. It was wonderful to hear the shadow Chancellor—it is always wonderful to hear the shadow Chancellor in his marvellous speeches—explaining how cross-party he was. I looked up a quotation in which he said how terrible it was to brief against fellow MPs. He said that it was snake-like politics in which he would never indulge. That created a wonderful image of him as this purer-than-the-driven-snow gentlemanly creature who would never indulge in underhand party politics and who solely has the national interest at heart. How maligned he must feel when he reads newspapers that sometimes suggest otherwise. It is one of the great tragedies of modern politics that that should be allowed.
Unfortunately, underlying the shadow Chancellor’s speech was sheer party politics. The OBR is there to deal with that which is entirely governmental: that is to say with the Budget, which is passed through a Finance Bill that is a matter of fact, and with an autumn statement that also deals with facts. Against that, we have a series of promises, propositions and theories that do not come out at two clear points of the year, but dribble out, sometimes in draughty halls in obscure parts of the country, as shadow Ministers go off and make spending commitments to meet the latest demand of a newspaper article or a difficult question asked by a journalist. Depending on who we ask, the bankers’ bonus tax has been spent 11 times.
Jacob Rees-Mogg
That rather proves my point. Once again, we see the OBR immediately being drawn in to political controversy, and I want to free it from that.
Jacob Rees-Mogg
Thank you, Madam Deputy Speaker. Of course I accept the shadow Chancellor’s word without question, but it is a conditional. If there were cross-party support, then a statutory body would do what a statute required of it. That is the simplest expression of the constitutional position that would apply to any statutory body. The idea that a statutory body would say, “If the whole of Parliament tells us to do something, we will blow a raspberry,” is so absurd as to be a point beneath the dignity of the right hon. Gentleman, who is far too clever to make so childish a point.
So let us come back to the real issue, the real curse of asking the OBR to do this. The spending plans of the Opposition are moveable feasts. They vary as circumstances vary. When I challenged the right hon. Gentleman, I thought the first part of his answer may have had some truth in it—that he wanted to be in absolute charge of where his party was. That may be the case, not only for him but for all shadow Chancellors at all times, and not just shadow Chancellors but whoever is responsible for economic policy among the Liberal Democrats, which is even more debatable than who is in charge in the Labour party. I am not entirely sure whether it is the President of the Board of Trade or the Chief Secretary to the Treasury; I am not sure that the Lib Dems have decided, or, if they have decided, whether this has been accepted by the brethren.
A number of people make spending promises. If we ask the OBR to audit them, we make the OBR a matter of political debate because it would be approving expenditure promises that would not necessarily be part of the Budget if the party making them were elected. Are you to say, Madam Deputy Speaker, that only promises made by a shadow Chancellor count? Are you to exclude the leader of the party, who has recently made certain promises to reform the benefit system? Or should you do it on the basis of GP appointments, which the leader has promised will occur within 48 hours? Has this been approved by the shadow Chancellor? Is it official policy or was it the whim of the Leader of the Opposition when he was caught out in a television studio? How are we to know? Are you so to restrict the shadow Work and Pensions Secretary or Education Secretary when they make statements? The shadow Chancellor is nodding. Perhaps this is not the bipartisan approach that we were led to believe in during his marvellous speech but a power grab by the right hon. Gentleman within his own party.
This House of Commons, this noble House, this honourable House, is debating whether the right hon. Member for Morley and Outwood (Ed Balls) should be in charge of the Labour party. This is really a debate about his leadership ambitions. They may be a good thing. Members of the Labour party ought to decide that, better than I possibly could. [Interruption.] I am grateful for the support. I do not know whether I would get many votes if I stood for leader of the Labour party, but never mind.
Jacob Rees-Mogg
I don’t think they are that desperate yet, although the time may come.
The nature of opposition—and it is as true of Conservatives in opposition as it is of socialists—is that the pressure of events means that spending commitments and taxation commitments change. Oppositions are not in command of events, so the proposals that they make cannot be as solid as those enunciated by a Government. That would fatally undermine the position of the OBR because it would be dealing with day-to-day political controversy, and inherent in forecasting is the inaccuracy of forecasting. The OBR is respected more because it is independent than because it is right. Few economists manage to make forecasts more than one year out with any consistent accuracy, so the idea that the OBR were giving an imprimatur or even for that matter a nihil obstat to Opposition policies would create false certainty. It would politicise the OBR and it would have the sole advantage of making the right hon. Gentleman leader of the Labour party.
Mike Thornton
I do not know those details. I will take the hon. Gentleman’s word for it that they have been rubbished, but I personally support an increase in the tax allowance, so that no one on the minimum wage would pay any income tax. It seems silly to me to have a minimum wage and then charge people tax on it. But that is my opinion, of course.
I also agree with the Chief Secretary, who unfortunately is not here today, that auditing manifestos is well worth further consideration. But as the OBR said, although possible it would be difficult to do in a timely and sensible fashion before the next election. I remember that in 1997 the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) successfully persuaded the electorate of his prudence. Despite this latest attempt to do so, I feel that the right hon. Member for Morley and Outwood (Ed Balls) will not follow in his right hon. Friend’s footsteps, so let us commit ourselves to honestly publishing proper and well worked out costings for the proposals of all parties in the House, doing it ourselves, and spending the money ourselves, but follow that up—
Mr Love
I am sorry; I did not realise the hon. Gentleman was coming to an end, but I thank him for giving way. In the context of the competitive and confrontational elections that we have, where Opposition policies are always rubbished and called into question, does the hon. Gentleman think there is a role for an independent, credible organisation at least to shed some light on those policy proposals?
Mike Thornton
That suggestion certainly has some merit. After the next election, when we have given—
Oral Answers to Questions
Andrew Love Excerpts(10 years, 5 months ago)
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Mr Osborne
I do not think that the Bank is doing that. We have taken a big step forward in this Parliament to give the Bank of England macro-prudential tools to intervene in areas such as housing if it thinks that there is a financial risk. Clearly, these things did not exist before, which is one of the reasons why the economy was in the mess that it was in when we came to office. At the Mansion House, I offered the Bank of England new direct powers to impose limits on loan-to-value and loan-to-income ratios. It is, of course, entirely up to the Financial Policy Committee, acting independently of the Government, to deploy any of its tools if it sees risks developing.
Mr Andrew Love (Edmonton) (Lab/Co-op)
The greatest threat to stability in the housing market is the mismatch between supply and demand. The House knows what the Chancellor has done to stoke up demand, but supply is at its lowest level since records began—fewer than 150,000 units. I heard what the Chancellor said in his initial reply. What more is he going to do to boost supply in the housing market?
Mr Osborne
Housing starts are now at their highest since 2007, and we have seen an increase in housing starts and planning permissions this year. I was with the hon. Gentleman in his constituency just the other day, talking about what we could do to get more housing going in his part of London on a brownfield site that he knows has been left derelict for many years. He was working very co-operatively with me then, but perhaps the Chamber of the House of Commons brings out a more adversarial encounter.
The Economy and Living Standards
Andrew Love Excerpts(10 years, 5 months ago)
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Mr Osborne
Let me make a little progress, as I know many Members want to speak. I want to cover a couple of the key legislative measures in the Queen’s Speech.
I hope that the Bill to support small businesses and enterprise will receive support from across the House, as it will help those small businesses with their exports, reduce tribunal delays and open up even more Government procurement to them. We are, of course, going to help smaller businesses—and indeed all businesses—by taking under-21-year-olds out of the jobs tax altogether. That is in stark contrast to the jobs tax plan that the Labour party is developing.
Then there is the tax-free childcare Bill—a really important measure to help hard-working families. In this Parliament, we have already extended the free nursery care available to parents of three and four-year-olds to 15 hours. From this September, 260,000 two-year-olds from low-income families will be eligible for free hours as well. Now we are taking another big step forward in helping working parents. Once we pass this new Bill, all families with children under 12 will, in effect, be able to get tax relief for their child care costs—up to £2,000 of help every year for every child. That is a huge boost to working families in this country, and this tax-free child care is affordable only because of the difficult decisions we have taken to bring the public finances under control.
Mr Andrew Love (Edmonton) (Lab/Co-op)
The Chancellor mentioned help to small businesses, but surely the help they really need is an increase in net lending to them from the banking sector, yet it is continuing to fall. How does the Chancellor explain that in the light of the funding for lending scheme, which simply does not appear to be working?
Mr Osborne
Funding for lending is now, of course, skewed away from mortgages—a decision taken by the Governor of the Bank of England and me before Christmas—precisely to start to apply some macro-prudential controls to the housing market. It is heavily skewed towards small business lending in order to address the issue of an impaired banking system, still deeply damaged by what went on six or seven years ago. The good news is that a huge amount of progress has been made since this debate last year and since last year’s Mansion House speech; we are undertaking a major restructuring of the Royal Bank of Scotland and, of course, starting to return Lloyds to the private sector. All of that will help make sure that our financial system is functioning properly and supporting businesses that want to grow and expand.
Loan Protection Gap
Andrew Love Excerpts(10 years, 6 months ago)
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Mr Andrew Love (Edmonton) (Lab/Co-op)
I belatedly welcome the hon. Member for South Northamptonshire (Andrea Leadsom) to her new position as Economic Secretary to the Treasury. She served with some distinction for four years on the Treasury Committee. As a continuing member of the Committee, I congratulate her on her appointment and welcome her to what I think is her first Adjournment debate.
More than 80% of borrowers have no form of protection to safeguard their loans, and the number of those in that position is on the increase. The disparity between the number of vulnerable consumers who need loan protection and those with an insurance policy is referred to as the loan protection gap. In this debate, I intend to raise five key issues involving loan protection insurance policies. First, I will draw attention to the significant minority of vulnerable consumers who continue to experience the damaging effects of excessive debt on their work, health and family life. Given that the squeeze on real incomes continues at a time of increasing consumer expenditure, the problem is likely to intensify, especially for those on the bottom half of the income scale.
There are any number of surveys confirming the squeeze on living standards. I will refer to just three. The first, a 2013 study carried out by the university of Birmingham on financial inclusion, showed that the real value of wages in 2012 had fallen back to 2003 levels. In this year’s “Green Budget”, the Institute for Fiscal Studies confirmed that living standards have declined over the past five years, and the Office for Budget Responsibility, the Government’s own independent forecaster, confirmed in its recent budget report that living standards will not recover to 2008 levels until 2018. Incidentally, in relation to loan protection, the OBR also forecast that the level of household debt will increase each year over the forecast period to 2018.
Secondly, I will show that the payment protection insurance mis-selling scandal has led to a collapse in trust and confidence in protection products and that, as a result, such policies have been withdrawn from the market by all but the very small, bespoke, specialist providers. PPI mis-selling is the biggest financial services scandal ever. It has affected every major bank, £13 billion has been paid in compensation and the bill is still rising. I asked the House of Commons Library to survey the market for protection policies. I would never call it a scientific study, but it gives a representative idea of what has happened in the marketplace. Unsurprisingly, the findings are somewhat depressing. PPI is seen as toxic, with little or no prospect of the main players re-entering the market. As a result, provision has declined significantly. Some policies are still provided, but mostly by small specialist providers.
John McDonnell (Hayes and Harlington) (Lab)
One of those specialist providers is CUNA Mutual. CUNA is working with the largest credit union in my area, Plane Saver, which brings together British Airways staff and has been running for a number of years, and has developed what seems to be a way forward that provides at least an element of protection: the debt waiver system, at least for credit union services. Has my hon. Friend come across that? I would welcome discussions with the Minister, maybe involving a visit to my constituency to meet the Plane Saver group to examine this potential way forward.
Mr Love
I have indeed heard of the Plane Saver credit union, and I have been in touch with CUNA Mutual as well. I will talk later about the debt waiver system that they have introduced; it is one of a selection of protection products that should be available more widely in the market but are not. I will discuss some of the reasons why.
Payment protection insurance is currently provided only by small, specialist providers. As a consequence of that and of the lack of competition in the market, it has increased in cost. At a time when incomes are being squeezed, expensive income protection policies are an unwelcome additional cost for consumers.
Thirdly, surveys confirm that financial insecurity is on the rise. At the same time, protection products are totally absent from the market. The result has been the creation of a protection gap. Is the Minister aware of those developments? What steps are being taken to address this clear market failure?
In 2013, CUNA Mutual carried out a survey of financial insecurity in more than 2,000 households. Its findings were stark: two out of three were concerned about losing their job; six out of 10 were anxious about their financial affairs; 20% would find themselves in financial difficulties within a month of losing their job, rising to 30% in some regions of the country; 44% claimed that they were cutting back on heating and 59% on food, simply to make ends meet. Other surveys confirm that the number of borrowers safeguarding new loans or income has collapsed to less than 1%. Taking all those changes into account—I hope that the Minister will be sympathetic to my view—the Treasury, as a matter of urgency, should conduct a review of the state of consumer protection in credit markets to determine a plan of action to close the protection gap.
Fourthly, with traditional income protection policy tarnished, what new models of loan protection can fill the gap? Guidance was provided some time ago by the Financial Services Authority on a suite of transparent, fair and affordable lending policies, but it has had little impact on the market. The Government must show leadership by promoting the introduction of policies that will provide solutions to the protection gap. CUNA Mutual suggests that 95% of mortgages are currently sold to customers without any insurance.
This issue is not just about consumer protection. In a recent survey, 70% of respondents said that they do not trust the banking and financial services sector. Loan protection can act as a form of stimulus to get lending going again. The credit union mentioned by my hon. Friend the Member for Hayes and Harlington (John McDonnell) has experienced a boost in the number of mortgages due to the protection policy that it provides.
On the positive side, there have been some modest developments. In 2011, CUNA Mutual asked the FSA to test the debt waiver before CUNA took it up. It tested successfully and, as I will discuss, it has been introduced in a number of mutual organisations. In its 2013 report on loan protection, ResPublica, the well-known think tank, recommended that the Government should encourage the Royal Bank of Scotland and Lloyds, the two banks with major public involvement, to adopt the debt waiver. I concur with that recommendation, but little has been done to follow up on it.
Fifthly, the mutual sector is leading the way in tackling the protection gap through the use of the debt waiver in its lending. This shifts the emphasis on to the lender to indemnify the loan, rather than placing the emphasis on the customer to insure their ability to pay. What steps are being taken to encourage the financial services industry to follow the guidance of the FSA regarding the debt waiver and other similar products, so as to help to tackle the protection gap?
The debt waiver is relatively new to the UK, where it has been introduced in a number of organisations, but it has a long and successful track record since the 1930s in north America. Incidentally, it was introduced at the height of the great depression, to help try to restore confidence among the public in lending. In its 2013 report, ResPublica recommended that the regulator fast-track the debt waiver and other similar products, but nothing much seems to have happened. Three mutuals, including the one referred to by my hon. Friend, have introduced the debt waiver very successfully, in one case providing coverage for accident and sickness for up to one year, through the debt waiver, at no cost to the borrower. In my view, that is a very good deal for the consumer.
However, all these things are, of course, just the tip of the iceberg when set against the 95% of people who simply do not have any coverage at the moment. That is the argument; that is the need; and that is what I hope to get a response on from the Minister.
In conclusion, the challenge for the Government, the financial services industry and indeed all stakeholders is to recognise the dramatic impact that mis-selling PPI has had on the market for protection policies; to quantify the resulting loan protection gap; and, most importantly, to challenge the industry—all those lenders out there—to take the necessary action to tackle the gap. I hope that the Minister will concur and will take steps to address this problem.
The Economic Secretary to the Treasury (Andrea Leadsom)
Thank you for calling me to speak, Mrs Riordan. It is an honour to serve under your chairmanship, particularly as this is my first outing as a Minister in Westminster Hall.
I am very grateful to the hon. Member for Edmonton (Mr Love), a highly esteemed former colleague of mine on the Treasury Committee, for securing this debate on an incredibly important subject, which, as he well knows, the Treasury Committee has looked at. The Committee has been very concerned not only about the appalling scandal that has been PPI mis-selling, but about the implications for people who can no longer obtain PPI. This is very important not only for the hon. Gentleman’s constituents but for all our constituents right across the United Kingdom. I am very pleased to have the opportunity to set out the Government’s position.
The hon. Gentleman will recall that when we were together on the Treasury Committee one of my absolute pet projects was to try to increase competition in the UK banking system. One of my favourite lines was that people are more likely to divorce not once but twice than to change their bank account. There has been a fundamental lack of competition in the banking system, which has meant that we are in a position now where people are lucky if they are able to get access to certain products and services. He is therefore absolutely right to raise this issue today.
It is very important to me as a Treasury Minister to use my time in the role to ensure that consumers become more empowered and more capable of taking responsibility for their own financial future. I hope that the hon. Gentleman will also be reassured to hear that I wholeheartedly share his central concern that consumers need to build their own financial resilience—if you like, a financial fall-back—into their own financial affairs.
Of course, the hon. Gentleman is absolutely right that one such financial fall-back might be a loan protection product or another kind of income protection product, but it could also be savings, and some people will rely on responsible borrowing to help them to bridge the peaks and troughs in their finances. The key point is that consumers are vulnerable if they do not have any kind of financial fall-back. Financial difficulties can mount up and quickly turn into problem debts, as we have seen all too often. That situation is what the Government are taking comprehensive steps both to prevent and address.
I would like to use my comments this morning to set out, first, what the Government and the regulator are doing to support the development of appropriate protection products; secondly, how the Government are using flexibility and tax relief to promote savings and reward savers; thirdly, how we are reforming the regulation of consumer credit, to ensure that lenders both lend responsibly and treat those consumers who are in financial difficulties fairly and with understanding; and finally, a bit about how we are taking action on debt advice, to ensure that those who have problem debts get the help that they need.
To start with, I shall discuss the protection market. As the hon. Gentleman rightly said, consumer trust in protection products has been severely damaged by the PPI mis-selling scandal, and the market has contracted severely as a result of this lack of consumer trust. With a scandal on such a scale, robust regulatory action is key to restoring faith in the products and in the firms that provide them. I agree that that does not mean that consumers’ need for protection products, as one form of financial fall-back, has gone away. As long as the products are sold appropriately and responsibly, and as long as consumers can trust them, they continue to serve a real purpose. We need to promote them, and on that point the hon. Gentleman and I completely agree.
The Financial Conduct Authority also believes that there is a place in the market for income protection products. It has issued guidance that is designed to encourage a new generation of products that are fit for purpose. Although PPI is no longer allowed to be sold at the point that a loan or credit is given, a number of alternative protection products are available to consumers, some of which the hon. Gentleman has mentioned, such as income protection insurance, and innovations such as debt waivers, as the market adjusts to consumer demands.
The Government have been driving the industry, and will continue to drive it, to design and bring to market simple and transparent income protection products that are fit for purpose and that consumers can more easily understand and trust. In fact, that was one of our aims in commissioning Carol Sergeant to conduct a review of simple financial products. As the hon. Gentleman may know, her report recommended the development of a number of simple products, including savings products and a simple income protection product. The industry is making good progress against her recommendations. It has committed to getting a simple products accreditation model up and running by the end of the year. In parallel, the Association of British Insurers is leading on the development of a simple group income protection product, which can be sold throughout the workplace. We are confident that simplifying products in this way will make it easier for consumers to see the benefits of protection products, and will redevelop the income protection market in a way that works better for consumers.
Mr Love
I hear what the Minister is saying about all the developments and the work that both consultants and the regulator are doing in relation to protection policies, but unfortunately there has been very little impact on the market so far. That may be understandable in the context of the disaster that PPI has been in terms of providing income protection policies. However, the debt waiver is something different and something that everyone can have confidence in: it is truly tried and tested in other countries. Will she give the House a reassurance that firmer, more robust steps will be taken by the Government to influence the regulator to do more to get the industry to take these protection policies seriously?
Andrea Leadsom
Yes, I think I can give the hon. Gentleman some reassurance that the Government are committed to the proper development of alternative income protection products, which would certainly include the debt waiver. Obviously, as he has pointed out, there has been a real crisis in consumer trust in these products, but the Government are certainly committed to ensuring that that lack of provision is addressed, and his raising the issue today will certainly reinforce our endeavours to achieve faster progress.
There are other ways in which the Government are trying to ensure that consumers and customers have proper financial protection. Of course, one of those measures has been to promote saving. Having a savings “buffer” is many people’s financial fall-back, and as the Chancellor made clear in March, this year’s Budget was a Budget for savers. We announced a reduction in taxes for the lowest-income savers, so that from next April the starting rate of savings income tax will be lowered from 10% to zero, and the band to which it applies will be extended to £5,000. That should help the worse off—the smaller savers—and encourage them to save in order to create a financial fall-back for themselves.
We also announced increased flexibility in saving and investment choices through the ISA system and an increase in the overall ISA limit to £15,000. We have introduced new National Savings and Investment products in order to help retired savers to get a better return. The Government have taken action on the promotion of savings products and increased saving as a means to create a financial fall-back, and we are determined to do more to help people to provide for their own financial fall-back needs.
There have been some important changes on the regulation of consumer credit that I am sure the hon. Gentleman would welcome. Regulation of consumer credit is vital to this debate in two ways: first, it is vital that lenders lend responsibly and only to those who can afford to pay it back; and secondly, lenders should treat people in financial difficulty fairly and with the appropriate understanding. The Government are committed to curbing irresponsible lending and strengthening consumer protections, and we have a clear vision for the consumer credit market. We want to see firms meeting the standards expected of them, lending responsibly, and offering competitively designed and priced loans and credit products that will meet consumers’ needs.
The hon. Gentleman will be aware that responsibility for consumer credit regulation has now transferred from the Office of Fair Trading to the new Financial Conduct Authority, which has far stronger powers. In particular, the FCA has turned the OFT’s non-binding guidance into binding rules. We are confident that the FCA is better resourced to take a proactive approach to identifying risk and that it has a broader and more robust suite of enforcement powers to punish breaches of its rules. As such, we are confident that in future lenders will both lend more responsibly and treat customers more fairly.
Mr Love
This is a slight aside to the thrust of the Minister’s comments, but with regard to the mortgage market review, which sets the terms of the discussion between the customer and the lending institution, I am not aware that within the comprehensive discussion that is now required any room is given to insurance products to protect the loan. I would have thought that that was one way in which the regulator could ensure that at least it is brought to the customer’s attention that they should get a protection policy, so that if things go wrong, they can rest assured that their loan will be insured.
Andrea Leadsom
The hon. Gentleman make a very good point. Since I am extremely new in the job, I hope that he will forgive me because that is a point that I cannot answer. Nevertheless, it is an excellent idea and perhaps I can write to him on it. I would certainly take such a good suggestion forward.
Andrea Leadsom
I am grateful to the hon. Gentleman for his invitation. I am keen to become more closely involved in such an important issue and so will discuss with my team whether I can come to meet his constituents. I thank him again for the invitation.
Finally, I want to mention the provision of debt advice. Where people get into financial difficulty, the Government are committed to ensuring that they can access free help and advice on managing debts. That is why the Government have put funding for debt advice on to a sustainable footing.
In conclusion, I thank the hon. Member for Edmonton again for instigating this debate on such an incredibly important issue. We know that times have been extraordinarily tough and continue to be so for many people in the United Kingdom, and we are determined to do more to ensure that consumers get the advice and support, the responsible lending, and the suite of products that they need to enable them to manage their own financial affairs more effectively.
Mr Love
I thank the Minister for being so liberal in taking interventions. One conclusion that I have reached on this issue is that the relationship between the Treasury and the regulators is extremely important. Will the Minister discuss with the regulator what further action it can take to get the industry to live up to its responsibilities to give customers not just a responsibly delivered loan, but protection for that loan should things go wrong?
Andrea Leadsom
I can assure the hon. Gentleman that I will take up that issue with the FCA when I see it next.
I hope that the hon. Gentleman is reassured that the Government fully agree with his concerns and are already taking action to address them, and that I have undertaken to try to take further his specific recommendation that we look more closely at debt waivers. We are determined that financial services serve consumers in the way that they should, and that consumers understand the benefits of all the products, including income protection, that are on offer. I am very glad to have had my first Westminster Hall debate as a Minister with such a sensible and measured colleague, and I shall look forward very much to his holding me to account in the coming years.
Oral Answers to Questions
Andrew Love Excerpts(10 years, 6 months ago)
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Alison McGovern (Wirral South) (Lab)
13. What recent representations he has received on reform of the Office for Budget Responsibility.
Mr Andrew Love (Edmonton) (Lab/Co-op)
16. What recent representations he has received on reform of the Office for Budget Responsibility.
The Economic Secretary to the Treasury (Andrea Leadsom)
The Chancellor regularly receives representations on a wide range of matters, including the role of the independent Office for Budget Responsibility.
Mr Love
The Minister ought to be aware that it is not only the Opposition who are promoting this change in policy. The chair of the OBR himself has been sympathetic to it, and the Conservative Chair of the Treasury Committee has also been supportive. Even the Chief Secretary, who is sitting near the Minister on the Front Bench, gave us warm words during the last session of Treasury questions. It seems that the Government are isolated on this issue, but there is still time for that to change.
Andrea Leadsom
I am grateful to the hon. Gentleman for raising those points. It is true that there are those who favour the change in principle, including Robert Chote himself, but Mr Chote has also made it clear that, for very good reasons, now may not be the time for it to take place. Amending the OBR’s remit would require primary legislation, and would have huge implications for the resources available to it. We need to consider such action after the next general election, when there will be time for it to be reviewed properly in the House.
Finance (No.2) Bill
Andrew Love Excerpts(10 years, 7 months ago)
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Mr Andrew Love (Edmonton) (Lab/Co-op)
Does the right hon. Gentleman accept that the primary cause of that increase in revenue is income shifting from one year to the next? Many individuals held back income in the year when the rate was 50%, and brought it forward when the rate was reduced to 45%.
Mr Redwood
I do not accept that at all, because the revenue in the previous year was very similar to the figure for the year before that, which was before people knew that there might be a cut in the tax rate. I suspect that next year will also see good levels of revenue. I do not expect a sudden reduction of £9 billion in revenue in the financial year we are just starting. As always, the hon. Gentleman is peddling misery for no good reason. Labour Members should rejoice and accept the fact that if we cut a rate, we sometimes get more money. They always want to spend other people’s money, so surely they should listen to how we can maximise the amount we get out of people.
Mr Redwood
We are talking about people who are a serious amount richer than any of us on MPs’ salaries, and if the hon. Lady meets such people occasionally she will discover that they have many more freedoms than other people on when and where they earn income, what they invest in and where they organise their affairs. Some of them were not in this country before and came here when the rate was lowered. Some have some money in one country and some in another, and they can quite legally shift their money around and decide where they are going to earn more income. That is what companies do, as she has discovered and sometimes complained about. Rich people have a lot of flexibility, which means that a country that sets sensible tax rates attracts and keeps more of them and gets them to do more things.
There is also a disincentive effect, because someone who is legally here and keeps all their money here might not do extra work—why should they, when they are going to be taxed at too high a rate? Or they might not take an extra risk with their investments—why should they? If it works they will get taxed, and if it does not work they will take 100% of the loss. We can therefore change the climate by setting a competitive rate to encourage more confidence and action.
Mr Love
I do, because I want to explore the Arthur Laffer effect. The right hon. Gentleman seems to be saying that if we reduce income tax, we increase the amount of money we take. How far would he take that? Would he make income tax 40p in the pound, or 35p? Would he abolish income tax entirely and raise even more money?
Mr Redwood
The hon. Gentleman is now being completely stupid, is he not? There are two rates of tax that will raise no money—0% and 100%—and there is a curve between the two, which, as he rightly said, was first drawn by Mr Laffer, I believe on a napkin. Most people, including the Treasury, accept that there is a Laffer curve, and that it is a question of judgment where the rate is that maximises revenue. It is quite clear from the evidence in this year’s Revenue and Customs figures that 50% was too high a rate to maximise revenue, and that 45% gets us more revenue than 50%. I believe that 40% would get us more revenue than 45%. I am pleased to hear today that a Liberal Democrat, of all people, is writing a book on the subject. I welcome that and look forward to more progress in coalition talks about the maximising rate of income tax. If it were taken down to 20%, we would clearly lose a lot of money, so somewhere between there and where we are now is the maximising rate, and getting it right is partly science and partly trial and error. We can be sure that we are now moving in the right direction, having gone in the wrong one previously.
It is interesting that the previous Prime Minister, during all his time as Chancellor of the Exchequer, never took the top rate above 40%. I do not think that was because he liked rich people or wanted to be unkind to the left wing of the Labour party. I believe it was his judgment that anything over 40% would have cost him revenue. As a modest man, I therefore accept that there was something about which he was absolutely right—he was correct in not raising the top rate of tax above 40%.
Kelvin Hopkins
I am one of those who would like to see a little more insulation between countries on financial matters, rather than a free flow of finances across borders, but I am a traditional leftist and Keynesian. I am not of the same mind as those who believe in breaking barriers and people having complete freedom to do exactly what they like with their money anywhere in the world. I hope that one day we will return to a more sensible approach.
The problem with tax is not the tax rates but the collection. For a long time we have seen vast amounts of tax not just avoided but evaded. The thick end of avoidance is the thin end of evasion. The precise line between avoidance and evasion is ill-defined, and I would like stricter rules so that a lot of what is now called tax avoidance is defined as tax evasion. If we sent one or two of the big tax avoiders and tax evaders to prison, it might concentrate a few minds and bring in more tax. The research on behalf of the TUC by Richard Murphy shows that, in his view, the tax gap is in the order of £120 billion a year. If we collected a fraction of that sum, we could solve all our problems, including the famous deficit. I am very much in favour of reviewing the effect of tax changes.
Kelvin Hopkins
My hon. Friend is absolutely right. I have called many times in this Chamber, including in the past week or two, for more tax officers to be employed. Every tax officer collects many times their own salary. A VAT officer told me that, even for VAT on small businesses, tax officers collect some five times their own salary. When it comes to the big corporates, if we had a good chief tax officer, Vodafone might have paid a few more billions, as it should have done. We could then start to solve our problems. We have to focus on the big corporates, which are getting away with murder.
Priti Patel
My hon. Friend is absolutely right. She gets to the heart of the debate and shows why Labour has no credibility. Labour Members cannot claim to want to help small businesses when, as the Minister pointed out, at the last general election, when they were in government, they proposed to increase the small profits rate of corporation tax from 21% to 22%. We have also heard about the Labour party’s so-called interest in small business, but in government it presided over the closure of 6,000 small post offices. There is fuel duty and energy costs for small businesses, too. On many issues, Labour lacks credibility. We should put things into context and beyond doubt.
Priti Patel
No. We heard from the hon. Gentleman earlier.
The last Labour Government ignored the benefit of expanding trade. Exports came up in the discussion. This Government have gone out of their way to expand overseas trade. The Chancellor is in Brazil this week at the beginning of export week. We are doing everything right to sell Britain overseas, and to encourage overseas companies to come here and benefit from the low rate of corporation tax, which Labour wants to destroy.
Putting up corporation tax does nothing to help small business, contrary to what Labour says in its shallow and feeble amendment. That only goes to demonstrate that the Opposition have no plan to expand our economy or create more jobs, growth and prosperity—creating those things is exactly the right approach that the Government are taking.
Amendment 2, which I obviously do not support, is completely irrelevant to the wider national debate currently, which is about sustaining growth in our economy, and expanding our economy with jobs, growth, prosperity, inward investment and exports. On that point, I heard a terrible diatribe earlier—an hon. Member said we are not exporting enough. In my county of Essex, the Essex chamber of commerce has helped more than 1,000 local firms, including many small and medium-sized businesses, in processing export documents and giving practical assistance. The value of those exports is well over £300 million. That is the message we want to send out to business of all sizes in the UK. I have no intention of supporting the amendment and support what the Government are doing.
Nigel Mills
My hon. Friend is exactly right. I think many Members, not least the Minister, know of my commitment to tax simplification. I was tempted, knowing that we were debating corporation tax, to table my amendment yet again on rewriting the whole corporation tax code to one that is more understandable and less complex.
Mr Love
The hon. Gentleman seems to be arguing that we might need a different policy mix for small businesses and for larger businesses. May I therefore invite him to reject the idea that the amendment somehow splits off small businesses from large businesses? We need a different policy mix.
Nigel Mills
I agree with the hon. Gentleman. There is eminent sense in having a lighter-touch tax regime for small businesses, with perhaps lower taxes in some areas for small business. We clearly do that: there is a separate regime for filing accounts. There is less expectation on small businesses, and, if only in the business rates field, there are exemptions for the very smallest businesses. I think we actually have that graduated system.
Nigel Mills
I might be tempted to agree that there is some merit in looking at the level of business rate cost, but I am not sure there is much merit in the proposal we are debating here this afternoon for yet another review. I welcome the measures the Government have taken to reduce business rates, or least reducing the increase through the 2% cap and discount for high street businesses. I think we are all very keen to see how we can help our high streets grow. That reduction has to be the right way forward.
Returning to the earliest of the series of interventions, on a 20% capital gains tax rate, companies that realise a capital gain will be paying at 20%. It is only individuals who will end up paying the higher rate. There is sense in having symmetry restored to that situation. I wholeheartedly support getting the corporation tax rate down to 20%. We could trumpet it around the world that we have one of the lowest rates in the G8. That long-term direction of travel has to be one of the most powerful ways to encourage investment in this country by the large corporations we want to see operating here. It would perhaps stop them setting up their headquarters in Switzerland, Ireland or elsewhere. This is now a trend we can see: large corporations choosing to bring more jobs to, and paying tax in, the UK.
Mr Gauke
It is a great pleasure to serve under your chairmanship, Ms Clark, and to respond to the first of what will no doubt be many detailed debates over the course of this year’s Finance Bill. It may be helpful if I set out a little context as to what the Government have done in terms of corporation tax.
When we came to office in 2010, the main rate of corporation tax was 28%, and the small profits rate was 21% but was due to rise, under the plans of the previous Government, to 22%. In 2010, we set out the corporate tax road map. We set out our ambition to give the UK the most competitive tax regime in the G20. We wanted a corporation tax system that would support, not hinder, growth and would boost investment to support the economic recovery, so we reversed the previous Government's planned increase in the small profits rate and cut it to 20%, and embarked on the biggest reduction in the main rate of corporation tax since the 1980s. Last week, the rate was cut to 21%. Next year it will fall to 20%— the joint lowest rate in the G20.
Mr Gauke
The cuts in corporation tax were a central plank of the Government's economic strategy, a strategy that is working. Jobs are up and business confidence is increasing.
It may be helpful if I inform the House of the news that we have heard from the IMF this afternoon. The IMF has revised the UK’s growth forecast for 2014 and 2015 to 2.9% and 2.5% respectively, an upward revision of 0.4 percentage points in 2014 and 0.3 percentage points in 2015. Those are the largest increases for both years among major advanced economies and among the BRIC countries—Brazil, Russia, India and China—for both years. The UK is also forecast to be the fastest-growing major advanced economy in 2014. I make the point to the hon. Gentleman that the plan is working. Business investment has grown for four consecutive quarters for the first time since 2007. The OBR has forecast that investment will grow very strongly over the next two years—by 8% in 2014 and 9.2% in 2015.
More and more businesses are moving operations here, a point made by my hon. Friend the Member for Amber Valley (Nigel Mills). Just in the past two weeks, we have seen Hitachi Rail—referred to by my hon. Friend the Member for Redcar (Ian Swales)—and Brit Insurance announcing moves to the UK. Siemens has announced a £160 million investment in the Humber. Business surveys reflect the positive impact of the corporation tax reforms. For the past two years, the UK has ranked highest in the KPMG survey of international tax competitiveness, with business leaders putting us ahead of countries such as the USA, the Netherlands and Switzerland.
Mr Gauke
Indeed I did, and I heard the head of the BCC make the same point in a radio interview this morning. We are moving in the right direction, and this afternoon’s figures from the IMF are extremely significant. I hope that Members in all parts of the House welcome the news that the United Kingdom is the fastest-growing major advanced economy this year.
Mr Love
The Office for Budget Responsibility has forecast that there will be no net increase in net trade, so the export-led recovery simply will not happen. It has also said that the recovery is too dependent on consumer expenditure, and that as long as real wages do not increase—and it predicts that they will not increase very fast—that simply cannot continue.
Mr Gauke
Again, we are seeing movement in the right direction. In the Budget, the Chancellor announced additional support for exports through the expansion of the direct lending scheme. Moreover, in 2012-13 British business received £4.3 billion of support from UK Export Finance, which was a 12-year high.
Finance (No. 2) Bill
Andrew Love Excerpts(10 years, 7 months ago)
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Danny Alexander
I have given way to the hon. Gentleman previously, so I am going to make some progress.
This Finance Bill also tackles avoidance by wealthy individuals by preventing high-earning, non-domiciled individuals from using dual employment contracts artificially to reduce their UK tax liability. We are tackling the avoidance of employment taxes by taking action to prevent offshore and onshore employment intermediaries from avoiding their obligations. We are tackling the avoidance of taxes on residential property through the use of corporate envelopes by creating new bands for the annual tax on enveloped dwellings and extending the related stamp duty land tax and capital gains tax charges. In addition, the Bill also creates a new requirement that users of avoidance schemes which have been defeated in another party’s litigation, or which fall within the scope of the disclosure of tax avoidance scheme rules or the general anti-abuse rule, which this Government have introduced, should pay the disputed tax up front. That will bring forward almost £5 billion of revenue over the next five years and will ensure that those who knowingly enter avoidance schemes cannot hold on to the disputed tax but have to pay up front, like all other taxpayers. Those actions will radically reduce both the incentives and the opportunity for individuals and businesses to engage in abusive behaviour.
Let me now deal with the ways in which this Finance Bill will help people in work. This Government have an incredibly proud record of reducing tax for the lowest paid. Not only are we delivering our coalition commitment to raise the income tax personal allowance to £10,000 this week, but we are going further. This Finance Bill legislates to set the personal allowance at £10,500 in 2015-16. I never tire of telling the House that that policy has travelled from the front page of the Liberal Democrat election manifesto to the pockets of tens of millions of people, in all parts of the UK.
Danny Alexander
That is an important question. The measures to lift the personal allowance, from a little over £6,500 when we came into office to £10,500 as it will be in April next year, will mean that about 3 million people in this country—most of the people to whom he refers—are lifted out of paying income tax altogether. That is a serious benefit to those individuals. It also helps to improve incentives to work and to progress in work in this country and bears some responsibility for the stronger employment performance that we have seen in recent years.